Slide 1: Financial Results 2023
challenger @ Financial Results 2023 15 August 2023
Slide 2: Acknowledgement of Country
ACKNOWLEDGEMENT OF COUNTRY Challenger acknowledges the Traditional Owners of Country throughout Australia and we pay our respects to Elders past and present. We recognise the continuing connection that Aboriginal and Torres Strait Islander peoples have to this land and acknowledge their unique and r
Slide 3: Overview
Overview Successful execution of growth strategy delivering record annuity sales 1. Business and strategy update Nick Hamilton – Managing Director and Chief Executive Officer 2. Financial results Alex Bell – Chief Financial Officer 3. Outlook Nick Hamilton – Managing Director and Chief Executive Off
Slide 4: Business and strategy update
01 Business and strategy update Nick Hamilton Managing Director & Chief Executive Officer
Slide 5: Key points
Key points Successful execution of growth strategy delivering record annuity sales Strong FY23 financial performance • Record annuity sales and tenor extending • Earnings top half of guidance range Leading Australian franchise • Fully integrated retirement income and asset management capabilities •
Slide 6: Strong financial performance
Strong financial performance Successful execution of growth strategy delivering record annuity sales Earnings top half of guidance range Group AUM Group ROE (pre-tax) Dividend $105bn 12.7% 24.0 cps Normalised NPBT ▲6% ▲80 bps ▲4% $521m ▲ Life AUM 6% ▲ Life +200bps In-line with payout policy ▲ FM FUM
Slide 7: Operational highlights
Operational highlights Delivering for our customers, employees and community Customers Employees Community ~$6bn 89% 5 Payments made to Diversity and inclusion Investment managers with customers1 score4 sustainable offerings5 Top 25 83% Australian Academy of Technological Sciences and Engineering (A
Slide 8: Leading Australian retirement franchise
Leading Australian retirement franchise Fully integrated retirement income and asset management capabilities Uniquely positioned to play a leading role in development of retirement income market World class superannuation system #1 Australian retirement income business1 Growing super system Signific
Slide 9: Annuity growth accelerating
Annuity growth accelerating Record FY23 annuity sales Maturity rate declining from FY24 Very strong annuity sales growth Maturity rate declining • Demand for guaranteed income increasing • Remixing sales to higher margin longer duration business • Best customer proposition in last 10 years1 • 74% ne
Slide 10: New and emerging channels in FY24
New and emerging channels in FY24 Supporting ongoing growth New and emerging channels to broaden customer access and support sales growth Annuity sales ($m) Retail direct – retail Retail advised customers can buy a simple Japanese annuities EXISTING fixed term annuity online in CHANNELS under 10 min
Slide 11: Retirement partnerships: TelstraSuper
Retirement partnerships TelstraSuper retirement partnership Providing lifetime income streams to their members Partnership Retirement Solution First fund to launch a comprehensive 1. Retirement 2. TelstraSuper 3. Challenger retirement income solution – in landscape retirement offer1 solution partner
Slide 12: Retirement partnerships: Aware Super
Retirement partnerships Aware Super defined benefit partnership $0.6bn of lifetime annuities in 1Q24 Growing defined benefit liabilities ($bn)1 Aware Super defined benefit (DB) de-risking partner 500 $619 million life policy de-risking fund’s lifetime pension liabilities c Commenced 31 July 2023 c 4
Slide 13: Retail direct
Retail direct New online direct channel • Responding to customer preference to invest directly • >50% of older Australians perform online banking at least once a week1 New digital access Greater process efficiencies • Replaces existing paper-based process allowing customers • Reducing cost-to-servic
Slide 14: Funds Management
Funds Management Unique mix of brands and strategies supporting better customer outcomes Strategies and asset classes1 New in last 5 years Expanding range of structures Enabling more self- ETFs directed investors Fixed income $48.7bn Access Democratising fund alternative assets UCITS / Equities AIFs
Slide 15: Leveraging strategic partnerships
Leveraging strategic partnerships Working with strategic partners to support growth STRATEGIC INVESTMENT CAPABILITY Japanese Global alternative Investment Real Asian food and Water, energy, and distribution asset management administration estate Agriculture waste management • Expanding • Exclusive l
Slide 16: Financial results
02 Financial results Al e x B e l l Chief Financial Officer
Slide 17: Group snapshot
Group snapshot Top half of earnings guidance range FY23 Change Normalised NPBT Normalised ROE Net income $842m 8% $521m +10% 12.7% +80bps Expenses ($318m) 6% Life $541m +14% ROE tailwind from Life EBIT $525m 10% FM $62m -26% ROE headwind from FM and Bank Interest & borrowing ($4m) 2% Bank ($9m) +21%
Slide 18: Earnings drivers
Earnings drivers Margin expansion driving income growth Disciplined approach to expense management Income $842m (+8.4%) Expenses $318m (+5.7%) Cost to income 37.7% (-100bps) Benefitting from margin expansion Within guidance range of 5% to 6% Revenue growth outpacing expense growth $842m 39.3% 38.7%
Slide 19: ROE
ROE Life ROE benefitting from margin expansion and AUM growth Group ROE impacted by Funds Management and Bank Group ROE Life ROE Funds Management ROE 12.7% +80bps 15.1% +200bps 21.7% -950bps 14.9% Through the 15.5% 15.1% 31.2% cycle target1 14.8% 28.4% 12.2% 13.1% 27.7% 13.1% 13.1% 12.2% 12.7% 12.4%
Slide 20: Life performance
Life performance Earnings benefitting from margin expansion and AUM growth Average AUM +3% Life EBIT +14% FY23 Change COE margin +22bps ROE +200bps COE1 $653m 12% Average investment assets ($bn) EBIT ($m) Cash Operating Earnings margin (%) Normalised ROE (pre-tax) (%) 15.1% Expenses ($113m) 2% 2.88%
Slide 21: Life COE margin
Life COE margin Longer duration sales and investment conditions continuing to support margin expansion FY23 COE1 margin (%) up 22bps COE1 margin (%) Higher asset returns including 2.88% interest rates Product cash margin +7bps 2.76% 1.26% Higher average interest rates 2.65% 2.63% c 0.01% 0.01% 0.25%
Slide 22: Life sales
Life sales Record annuity sales with tenor continuing to extend Life sales ($m) ANNUITY NEW BUSINESS1 REINVESTMENTS • Record annuity sales benefitting from strong domestic retail • Lower reinvestment rates due to increased competition in 2H23, new business (+82% on FY22), particularly 2+ years term
Slide 23: Maturities declining
Maturities declining Higher quality book growth from longer duration retail sales Lower maturity rate Maturities and repayments1 ($m) will support future book growth 6,000 FY24 maturity rate 4,000 ~26% (down from 33% in FY23) 2,000 FY24 maturities - ~$0.8bn lower (2,000) (4,000) FY24 maturities to i
Slide 24: Life book growth
Life book growth Higher quality book growth from longer duration retail annuity sales Net flows by channel ($m) 3,500 Total Life net flows of 3,000 $0.9bn 2,500 2,000 Retail and Japanese 1,500 net flows of $1.4b 1,000 Annuity book growth 500 of 2.8% - (500) Retail annuity book (1,000) growth of 8.6%
Slide 25: Life investment portfolio
Life investment portfolio Continuing to diversify balance sheet through asset allocation Life AUM1 ($bn) $23.5bn $22.2bn 1% $21.6bn 3% 4% 10% 5% 6% Equity & Alternatives Property Fixed Income 13% 16% 15% Infrastructure 1%, -3pp 10%, +4pp 13%, -2pp 76%, +1pp 18% 16% 17% • Reduction in • Increase in •
Slide 26: Investment experience
Investment experience Performing in line with expectations Asset experience (-$132m); Liability experience (+$33m) Investment experience Valuation gain $209m; normalised growth +$61m -$99m (pre-tax) Narrowing credit spread particularly in 2H231 (positive impact) Fixed income $232m Allowance for cred
Slide 27: Funds Management performance
Funds Management performance Earnings reflect investment market conditions Income decline less than reduction in average FUM FY23 Change Average FUM FM EBIT $95bn -9% $62m -26% FUM-based income $168m (6%) Fidante $74bn -11% Net income -7% 18.8 CIM $21bn +1% Expenses +8% Performance & transaction fee
Slide 28: Funds Management: flows momentum
Funds Management Strong flows momentum into FY24 Funds Under Management ($bn) Net flows – Quarterly ($bn) 2.3 FM net outflows $0.5bn 98.4 7.3 2.9 93.4 (2.2) (1.2) (1.8) c Institutional net inflows $0.9bn Retail net outflows $1.4bn (0.2) (0.9) (1.7) 1Q23 2Q23 3Q23 4Q23 FY22 Equities Fixed Alternative
Slide 29: Funds Management: relative outperformance
Funds Management Relative outperformance in both flows and investment performance 2 Quarterly net flows vs peers1 ($bn) Fidante performance relative to benchmark 8 Outperformed 10 out of last 12 quarters 6 Since 90% inception 4 c2 5 Years 99% 0 (2) 3 Years 75% (4) Fidante Peer average (6) 0% 20% 40%
Slide 30: Capital management
Capital management Strongly capitalised Challenger Life Company (CLC) PCA ratio1 Additional financial flexibility • PCA ratio benefiting from diversified 1.60 1.59 1.59 investment portfolio Target range 2 1.30x to 1.70x • Unchanged over 2H23 despite property revaluations • Financial flexibility with
Slide 31: Dividend
Dividend Higher dividend and within payout guidance range Dividend (cps) Dividend payout ratio (%)1 60% 54.2% 35.5 48.2% 48.3% 50% 45.0% 23.0 24.0 18.0 20.0 40% 17.5 10.5 11.5 12.0 c 30% 31.0% 17.5 17.5 9.5 11.5 12.0 20% FY19 FY20 FY21 FY22 FY23 FY19 FY20 FY21 FY22 FY23 Normalised dividend payout ra
Slide 32: Outlook
03 Outlook Nick Hamilton Managing Director & Chief Executive Officer
Slide 33: FY24 guidance and targets
FY24 guidance and targets Earnings to benefit from a higher rate environment Continue to remain disciplined on costs Guidance considerations FY24 midpoint 11% higher than FY23 • Artega ~$5m investment in operating platform to support growth1 Normalised net $555m $605m • Additional costs ~$5m includi
Slide 34: Key points
Key points Successful execution of growth strategy delivering record annuity sales Strong FY23 financial performance • Record annuity sales and tenor extending • Earnings top half of guidance range Leading Australian franchise • Fully integrated retirement income and asset management capabilities •
Slide 35: Appendix
Appendix ADDITIONAL BACKGROUND INFORMATION
Slide 36: Appendix contents
Appendix Providing our customers with financial security for a better retirement Challenger business overview 37-39 Life sales and AUM 56 Life asset allocation & portfolio overview 57-61 Superannuation system 40-44 Life normalised profit framework 62 Retirement phase overview 45-48 Life asset and li
Slide 37: Challenger purpose and strategy
Challenger business overview Challenger purpose and strategy Building a more diversified business to meet more customer needs Our purpose Broaden Leverage the Expand range Strengthen is to provide customer combined of financial resilience and customers with access across capabilities of products and
Slide 38: Challenger overview
Challenger business overview Challenger overview Providing customers with financial security for a better retirement Challenger Limited (ASX:CGF)1 Funds Life Management #1 Australian • Guaranteed3 retirement income Affiliate Originates and One of retirement products investment manages assets • APRA4
Slide 39: Annuities market
Challenger business overview Annuities market Challenger Life is Australia’s leading provider of annuities Total annuity market FUM1 Key 18,000 100% observations 16,000 90% 14,000 80% • Domestic annuity market size ~$16bn 70% Challenger Market Share 12,000 60% • Growth accelerating 10,000 $million 5
Slide 40: Australian superannuation system
Superannuation system Australian superannuation system Attractive market with long-term structural drivers Australian superannuation growth3,4 ($bn) Market growth supported by 10,000 • Mandatory and increasing contributions 9,000 • Earnings and contributions compounding 8,000 • Population growth and
Slide 41: Australian superannuation system
Superannuation system Australian superannuation system Attractive market with long-term structural drivers Pre-retirement (superannuation savings) phase Projected superannuation assets2 ($bn) • Funds Management target market • Supported by mandated and increasing 10,000 contributions Post-retirement
Slide 42: Australian superannuation system
Superannuation system Australian superannuation system Attractive market with long-term structural drivers 1 Mandatory and increasing contributions – increasing from 10.5% to 12.0% Superannuation Guarantee contribution rate1 1992 1997 2002 2015 2021 2022 2023 2024 2025 3.0% 6.0% 9.0% 9.5% 10.0% 10.5
Slide 43: Australian superannuation system
Superannuation system Australian superannuation system High allocation to equities and low allocation to fixed income 1 Australia has low fixed income and high equity allocations Fixed income allocation • Australia 30% • OECD average 43% 26% 31% 26% Equities allocation 24% 6% 42% 27% 43% 25% 10% 34%
Slide 44: Australian superannuation system
Superannuation system Australian superannuation system World class accumulation system with significant retirement savings World class Significant accumulation system Increasing longevity retirement savings Contribution rate increasing to 12%1 1 in 4 super dollars supporting retirement5 24 Average t
Slide 45: Retirement phase of superannuation
Retirement phase overview Retirement phase of superannuation Combining products provides better outcomes for retirees Discretionary (wants) Account Funds Management Based Equities, fixed income and alternative Pension asset products (ABP) Life Essential Guaranteed Annuity and guaranteed income (need
Slide 46: Retirement phase of superannuation
Retirement phase overview Retirement phase of superannuation Superannuation starting to reduce reliance on age pension Portion of retirees reliant on age pension2 1 • Average household wealth at retirement $686,000 (excluding family home) • Age pension subject to assets and income tests • 2.6m Austr
Slide 47: Overview of age pension system
Retirement phase overview Overview of age pension system Social safety net for those unable to support themselves Maximum age Per fortnight Per annum Single $1,064 $27,664 pension rates 2 • Qualification age 67 1 Couple $1,604 $41,704 • Age pension based on lower Assets test 4 Income test outcome un
Slide 48: Government enhancing post-retirement phase
Retirement income regulatory reforms Government enhancing post-retirement phase Means test rules for lifetime income products commenced 1 July 2019 Pension assets test Pension income test Example - $100,000 lifetime income stream purchase price at age 67 (male) Example - $100,000 lifetime income str
Slide 49: Retirement income strategies – combined products
Retirement income strategies Retirement income strategies – combined products Enhances income and provides longevity and inflation protection Case study Jenny and John • Homeowning couple • $600,000 of super (in addition to family home) • 67 years old • Approaching retirement • Target income $70,482
Slide 50: Retirement income strategies – combined products
Retirement income strategies Retirement income strategies – combined products Enhances income and provides longevity and inflation protection Case study – Jenny and John Combined product 100% Account Based Pension (ABP) (70% Account Based Pension; 30% Lifetime Annuity) • Provides $70,482 p.a. until
Slide 51: Retirement income strategies – combined products
Retirement income strategies Retirement income strategies – combined products Enhances income and provides longevity and inflation protection Combined product (70% Account Based Pension; 30% Lifetime Annuity) Income from combined product enhanced through • Provides $70,482 p.a. until age 98 then $51
Slide 52: MS&AD strategic relationship
MS&AD MS Primary MS&AD strategic relationship Diversifying and increasing access to Japanese market Strategic relationship with MS&AD Group • Increases access to Japanese market through MS&AD 1 Japanese general insurer #1 market share • Opportunities for both Challenger and MS&AD • Broadens Challeng
Slide 53: MS Primary annuity relationship
MS&AD MS Primary MS Primary annuity relationship Diversifying and increasing access to Japanese market MS Primary • MS&AD subsidiary Product overview • leading provider of foreign currency life products in Japan Term annuities – A$ and US$ • extensive distribution footprint via bancassurance channel
Slide 54: Clear leader in retirement incomes
Challenger brand and Adviser ratings Clear leader in retirement incomes Strong Challenger reputation within the market Brand strength Market Leader in Australian retirement incomes Leader in Retirement Income¹ 92% 92% 93% 95% 93% ‘Annuity Provider of the Year’2 90% 63% 60% Winner of the Plan for Lif
Slide 55: Life product overview
Life product overview Life product overview Providing customers with guaranteed income Fixed term Long term (incl. Lifetime) Other 35% of total book1 38% of total book1 27% of total book1 Provides regular guaranteed payments Provides income for life Institutional product providing for a fixed rate,
Slide 56: Life sales and AUM
Life sales and AUM Life Diversified distribution driving sales and AUM growth Total Life sales ($m) Life AUM ($m) 12% 5-year CAGR 5% 5-year CAGR 23,538 21,563 22,224 9,706 9,747 19,010 18,085 18,303 6,928 5,556 5,151 4,550 FY18 FY19 FY20 FY21 FY22 FY23 FY18 FY19 FY20 FY21 FY22 FY23 Annuity sales Oth
Slide 57: Asset allocation framework
Life asset allocation and portfolio overview Asset allocation framework Consistently applied with strong risk management Risk management • Fundamental principle – assets and liabilities • Strong governance framework cash flow matched Asset and liability matching • Risk management entrenched in • Man
Slide 58: Life investment portfolio
Life asset allocation and portfolio overview Life investment portfolio High quality portfolio providing reliable income Life investment portfolio1 Life investment portfolio – asset allocation General Insurance 100% Absolute Return Life Insurance 80% Infrastructure Low beta 60% Equity beta 10% Offsho
Slide 59: Fixed income portfolio
Life asset allocation and portfolio overview Fixed income portfolio Represents 76% of portfolio1 with 77% investment grade Fixed income portfolio Fixed income portfolio Fixed income portfolio by asset class1 by sector1 by geography1 Infrastructure Non-IG and utilities Other Corporate Liquids Commerc
Slide 60: Property portfolio
Life asset allocation and portfolio overview Property portfolio Represents 13% of portfolio Defensive property portfolio with a focus on long-term income streams Property portfolio1 Australian office 54%; Australian industrial 8% • 10 office assets; 3 industrial assets Japanese retail • Average cap
Slide 61: Life investment portfolio
Life asset allocation and portfolio overview Life investment portfolio Equity and infrastructure 1% of portfolio; Alternatives 10% of portfolio Equity and Infrastructure portfolio1 Alternatives portfolio1 United Kingdom Europe 7% 4% United Kingdom Australia 14% 1% 4% Europe 21% 41% Australia 12% $0.
Slide 62: Normalised profit framework
Life normalised profit framework Normalised profit framework Reflects underlying performance of Life business Cumulative Investment Experience (pre-tax) ($m) Investment Experience Asset and policy liability valuation movements plus net Cumulative Investment Experience (pre-tax) ($m) new business str
Slide 63: Asset liability matching
Life asset and liability matching Asset liability matching Unwanted risks mitigated with assets and liabilities cash flow matched Asset and liability cash flow matching ($m)¹ • Assets deliver contracted cash flows to match liability flows 10,000 • Risk appetite seeks to minimise duration mismatch 8,
Slide 64: Funds Management sales and FUM
Funds Management sales and FUM Funds Management Strong FUM growth track record Funds Under Management (FUM) ($bn) Fidante 5% 5-year CAGR • growing multiple affiliate platform 105.8 • located in Australia, the United Kingdom, 93.4 98.4 Europe and Asia 20.9 79.0 81.4 20.4 78.0 21.0 • asset class diver
Slide 65: Funds Management sales and FUM
Funds Management sales and FUM Funds Management $98.4bn FUM Laying foundations to support future growth $5.7bn Alternatives & Real Estate FUM CAGR growth rates $44.0bn Equities Fixed Income1: +16% Markets contribution Equities +19% Alternatives 2 (incl. Property) 0% Fixed $48.7bn Income Net flows co
Slide 66: Funds Management – multiple brands and strategies
Funds Management managers Funds Management – multiple brands and strategies Unique multi-asset platform supporting better customer outcomes Affiliate brands, strategies and asset classes Strong market position #3 Fixed Income 1 Largest active $49bn manager2 Australian equities Equities Global, regio
Slide 67: Fidante affiliate managers and partnerships
Funds Management managers Fidante affiliate managers and partnerships Diversified managers and investment strategies Partnership Partnership Affiliate Asset class Affiliate Asset class commenced commenced Aug 2010 Affiliate – Australian and global equities Oct 2005 Affiliate – Australian small cap e
Slide 68: Fidante model and performance
Fidante model and performance Fidante Contemporary model with strong alignment of interests Funds Under Management Administration services Distribution services • Investment operations • Asset consultant & research • Client operations • Strategic positioning 41% 2% • Risk and compliance • Product de
Slide 69: Fidante investment performance
Fidante model and performance Fidante investment performance Strong performance underpinning FUM growth 2 Fidante percentage of funds 1st or 2nd quartile1 Fidante performance relative to benchmark Since 90% 35% inception 27% 21% 5 Years 99% 16% 14% 4% 3 Years 75% 60% 53% 50% 43% 47% 35% 1 Year 52% 1
Slide 70: Fidante manager capacity
Fidante manager capacity Funds Management Growth supported by available capacity 2 Manager capacity ($bn) Quarterly net flows vs peers ($bn) 40 35 8 30 Available capacity 6 FUM 25 4 20 2 15 0 10 (2) 5 0 (4) Fidante Peer average Equity Fixed Income Alternatives Managers Managers Managers (6) • ~$150b
Slide 71: Challenger Investment Management
Challenger Investment Management Challenger Investment Management Proven long-term investment track record and capability 1 • $20 billion of FUM • Investment manager for Challenger Life and third party institutions • Clients benefit from experience and market insights through breadth and scale of ma
Slide 72: Important note
IMPORTANT NOTE The material in this presentation is general background information about Challenger Limited group’s activities and is This document may contain certain ‘forward-looking statements’. The words ‘forecast’, ‘expect’, ‘guidance’, ‘intend’, ‘will’ current at the date of this presentation.