Challenger Limited · ASX:CGF
Challenger — Challenger Financial Services Group — UBS Australian Financial Services Conference (June 2006)
25 slides from Challenger's conference presentation, Jun 21, 2006
Slide 1: Challenger Financial Services Group
Slide 2: UBS Australian Financial Services Conference
<2 challenger Financial Services Group Challenger Financial Services Group Limited UBS Australian Financial Services Conference Michael Tilley Chief Executive Officer 21 June 2006
Slide 3: Challenger Overview
& challenger Challenger OV PBT in from AUM, FUM and MUM CHALLENGER ASSET MANAGEMENT CONTRIBUTES 11 % CHALLENGER WHOLESALE FINANCE CONTRIBUTES 34% Asset management fees Mortgage management CHALLENGER ANNUITIES CONTRIBUTES 44 % Investment & Rental income Residential lending Profit on disposal of asset
Slide 4: Overview
<2 challenger Financial Services Group Overview 3 Challenger Life 9 Challenger Wholesale Finance i4 Challenger Wealth Management 17 Update since 31 Dec 2005 22 Outlook 23
Slide 5: Business objectives
ae @» challenger Business objex * Grow funds under management, assets under management and mortgages under management, above relevant market rate - > 12% per annum « Capture productivity dividend from scaleable processes and systems e 18% return on net assets ¢ Total shareholder return > 15% * Grow
Slide 6: Key success factors
ae @» challenger Key SUCCeSS ( e« Above system growth in each market « Performance of our funds « Cost and efficiency of our back-office processes and systems e« Maintain top decile service capability ° Attracting and employing the best quality people
Slide 7: > challenger
> challenger 36.7% 28.6% 10.2% 6.2% FYO2 FYO3 Fy04 FYOS FY06 YTD + As of 1 July 01 - 19 June 06 *Holding Period Return as a % per annum reflecting simple price appreciation * Holding Period Return for as of 1 July 05 - 19 June 06
Slide 8: PE Multiple
> challenger PE Multiple Challe y rated as a growth stock 17.3 16.7 13.8 14 FY04 FYOS FYO6E FYO7E ® Challenger P/E @ Market Weighted PE Data: IRESS Consensus estimates & Bloomberg
Slide 9: Challenger Life
<2 challenger Financial Services Group Challenger Life Asset Management & Annuities
Slide 10: Challenger Life: Balance Sheet PBT and Asset Allocation
| Challenger At Balance Sheet ~ PBT 16 1H05 2H05 1H06 GPBT & realised gains Realised gains ae @» challenger Asset Allocation 100% 80% | 60% 4 40% 1 20% 4 0% 2004 2005 Dec-05 Mar-06 @ Property B Fixed interest @ Infrastructure Cash & other assets Infrastructure allocation includes commitments for fut
Slide 11: Challenger Asset Management
Challenger Ass Off balance sheet FUM &2 challenger a a a g e m e Nn C EOS Hhencial senices Group Asset management revenue 30 700 + 257 600 4 500 5 20 4 400 5 E & 300 4 w15 4 200 + 104 100 4 0 T 54 Jun 04 Jun 05 Dec 05 @ Property Syndicates @ Challenger Infrastructure Fund oO 1 @ Challenger Wine Trus
Slide 12: People and Partners
&2 challenger : Financial Services Group People Pariners Key partners where needed d from industry @ Veadivonal Fund
Slide 13: Challenger Asset Management Opportunities
| se €2 challenger anagement chavens' Challenger A Opp: Credit Relative Value Seeded and operating Business Plan develaped Global Infrastructure Fund (unlisted) Asset origination process commenced Fund of Funds — MEIF, USPF acquired — Deutsche Annington and Terra Firma Capital Partners Il acquired —
Slide 14: Challenger Wholesale Finance
<2 challenger Financial Services Group ~~ Challenger Wholesale Finance
Slide 15: Challenger Wholesale Finance
18 ae @» challenger hallenger Wholesale Finance Loan'Book Size ($bn) Margin (as % of average portfolio) 80 75 FA oF 60 61 ° eg 8 20 0+ T : + 1 dun-04 Dec-04 dun-05 Dec-05 Residential © Commercial jun 04 Dec04 = un 05 Dec 05) Mar 06 ~~ Residential e~ Commercial 50 CWF CAGR ($m) Jun 04 Bee 04 Jun 65 B
Slide 16: Challenger Wholesale Finance
ae @» challenger Challenger W ale Finance 16
Slide 17: Challenger Wealth Management
<2 challenger Financial Services Group ~~ Challenger Wealth Management Funds Management
Slide 18: Funds Under Management
aT £2 challenger ana g emen Cc ar cnaliens' Funds Under Management 11.9 11.9 10.6 10.6 Organic "03-'06 CAGR 39% FYO3 FYO4 FYOS HYOS Fy03 FYO4 FYOS HYO6 Retail Binsto SHMT @ Other @ HSBC acquisition : PBT and Cost to Income Ratio $ 8 6 4 2 4. oO -2 -4 -6 FYO4 FYO5 HYO6 Cost to Income 18
Slide 19: @» challenger
ae @» challenger PPT AuW| NAB PMN IOOF -0.50% -0.40% -0.30% -0.20% -0.10% 0.00% 0.10% 0.20% 0.30% 0.40% Source: Plan for Life, Credit Suisse estimates 2005 19
Slide 20: Challenger Funds Management Model
€&2 challenger Challenger F. Nagement =e Model 20
Slide 21: Revenue streams and risk
Risk Ry : Base Fees Performance Fees Alpha Generation Revenue Streams Business Risk Capital Requirement Examples Target percent of funds Target percent of profit 21 Challenger Ft agement <> challenger High Medium Low-Medium None Low (5 -15%) High (20%+) 0-2% 2-5% 5% + Stable Slightly Volatile Volati
Slide 22: Dec 2005 results
22 | &@ challenger CANS Francia Senices Braap ec 2005 results Businesses performing well Neutral impact from proposed changes announced with Federal Budget: — Expect to announce alternative funding arrangements by 30 June/early July - avg historic cost of annuitant funding at 6.3% ~ Alternative fund
Slide 23: On track for 2006
23 <2 challenger Financial Services Group On track for 2006 Target asset allocation of approximately 30 property/ 30 infrastructure/ 30 fixed income/ 10 other by December Expect natural market growth > than 12% in funds under management (FUM) assets under management (AUM) and mortgages under managem
Slide 24: Income streams
24 ome strea Ms ome vs asset management based income €@ challeng ser Financial Services Group 140 120 100 80 60 Strong Income Growth - Driven by Repeatable Low Capital Intensity Earnings - "Fee Based" earnings now 56% of total - from 38% in December 2003 Realised gains now 16% of earnings - from 45%
Slide 25: Disclaimer
ae @e challenger Disclaimer The material in this presentation is general background information about Challenger group activities and is current at the date of the presentation. It is information given in summary form and does not purport to be complete. It is not intended to be relied upon as advic