Challenger Limited · ASX:CGF
Challenger — Challenger Financial Services Group — FY2004 Earnings Presentation
26 slides from Challenger's earnings presentation, Aug 30, 2004
Slide 1: aye
aye & i = ie 7 OI pe oo
Slide 2: Full-year results to 30 June 2004
€2 challenger Financial Services Group Challenger Financial Services Group Limited Full-year results to 30 June 2004 Michael Tilley, Chief Executive Officer Tim Foster, Chief Financial Officer 30 August 2004
Slide 3: Statutory net profit after tax and before goodwill $97 million
€2 challenger Financial Services Group 2 Statutory ‘MoS’ net profit after tax and before goodwill $97 million »> Write down of goodwill $280 million » Underlying business performance sound in a year of change and restructuring > Challenger is a high growth low capital intensity business > Revenue gr
Slide 4: Summary financials
€2 challenger Financial Services Group Summary fi nanc Profit before interest, tax and goodwill amortisation: e Statutory “MoS” basis 69 91 160 e Modified “Historic cost” basis 26 65 91 Profit after tax before goodwill: e Statutory “MoS” basis 42 55 97 e Modified “Historic cost” basis ii 36 47 Goodw
Slide 5: Business overview
€2 challenger Financial Services Group Business overview 6 - Financial results 10 Challenger Life 14 Challenger Wholesale Finance 17 Challenger Wealth Management 18 Group financials/non-core business 19 The year ahead 25
Slide 6: Challenger Life and Wholesale Finance business descriptions
€2 challenger Financial Services Group Challenger Life, Chief Executive, Rob Woods Challenger Life invests in a wide range of investment products including property, fixed income, mezzanine debt, mortgages and infrastructure. Challenger finances these investments using a combination of debt, annuita
Slide 7: Challenger Financial Services Group structure
€2 challenger Financial Services Group Challenger Financial Services Group | Mike Tilley Chief Executive Officer Challenger Life Challenger | Challenger Robert Woods | Wealth Management | | Wholesale Finance Chief Executive a Brian Benari oo Chief Executive Funds Management Financial Planning Chris
Slide 8: Wholesale
€2 challenger Financial Services Group Wholesale | ability management common technology Challenger Life Challenger Wholesale Finance Challenger Wealth Management underwriting, investing, lending, advice Risk, Credit, Distribution, Compliance Marketing & Comms, Human Resources Administration, Finance
Slide 9: Key events over the year
€2 challenger Financial Services Group May May April Mar Jan Jan Dec 03 Challenger offers foreign properties for sale and merges Challenger Life companies Challenger outsources endowment warrants to Westpac Challenger exits Biotech Capital Challenger divests 11 non-core property assets Challenger co
Slide 10: Profit pre-tax & corporate charges
10 €2 challenger Financial Services Group Profit pre-tax & corporate charges 160 91 Corporate charges: ¢ Goodwill ~ amortisation (20) (20) - write-off at 30 June 2004 (280) (280) ° Other (23) (23) Income tax expense (40) (21)
Slide 11: Board determined to write down goodwill
€2 challenger Financial Services Group . The Board of Challenger has determined to write down the '- carrying value of goodwill as at 30 June 2004 by $280m (after goodwill amortisation in 2003/04 of $20m) given: -— the high standard of corroborative evidence associated with the impairment test under
Slide 12: Profit by business before tax and corporate charges
12 €2 challenger Financial Services Group Challenger Life Challenger Wholesale Finance Challenger Wealth Management (9) Non-core businesses / assets pefore tax & corporate charges | Corporate charges Goodwill write-off (43)
Slide 13: Financial results
13 Financial results. van. agement & administration & challenger Financial Services AS Net Life assets backing annuity 2,651 obligations! Wholesale Finance? 2,061 14,738 16,229 Investment FUM? 4,027 5,496 6,144 Funds under administration 1,467 1,603 1,668 Group assets under 7 847 21,985 24,285 manag
Slide 14: Challenger Life
Challenger Life tatute oS challenger Financial Services Group Margins emerging: e Planned profit margins released e Net experience items e Return from rent less interest used to repay annuitant principal e Earnings on excess assets merging Profit on sale of properties movement in policy liabilities
Slide 15: Modified Accounting
& challenger ied Accou nting | Modified accounting introduced to help the market better understand the underlying profit in the Life company Refined at 30 June 2004 to fully eliminate marked to market impacts on the modified results - Half year methodology applied a combination of: — Accruals accoun
Slide 16: Modified earnings
| €2 challenger Financial Services Group : Mod fi ad earnings Net rental income 108 107 215 Investment income 39 45 84 Profit on disposal of assets 5 24 29 Annuitant interest 47 48 95 Debt interest 66 65 131 Expenses 24 23 47 16
Slide 17: Commercial Lending
€2 challenger Financial Services Group Commercial Lending! 7 7 14 Interstar 6 15 21 The Mortgage Alternative - (2) (2) 1 Lending activities of the Howard Mortgage Trust 17
Slide 18: Wealth Management
€2 challenger Financial Services Group anagement Funds Management and Administration! (3) (1) (4) Financial Planning (3) (2) (5) 1 Includes investing activities of the Howard Mortgage Trust 18
Slide 19: Non-core businesses
Non-core busine: 19 oS challenger Financial Services Group Equity accounted profits from private equity investments 3 1 4 Net profit on disposal of non-core investments 4 it 15 Losses on non-core businesses! (3) (4) (7) 1 Howard Finance ~ sold Dec 2003 Biotech Capital Limited — sold April 2004 Endow
Slide 20: Corporate charges
Corporate chargé 20 €2 challenger Financial Services Group Non-recurring (including CPHIC management fee) (7) (1) (8) Net corporate interest payable (3) (8) (11) Long term incentive plan - (4) (4) (11) Goodwill amortisation (9) write-off Goodwill write-off at 30 June 2004 - All other costs are fully
Slide 21: Cash
21 €2 challenger Financial Services Group Cash Property investments Other Life investments Goodwill / EMVONA Other assets Total < ee Debt Policy liabilities Other liabilities
Slide 22: Debt within property trusts and corporate facilities
€2 challenger Financial Services Group Within property trusts 1,725 1,689 Margin lending loans 159 139 Group corporate debt facilities 85 235 Other product related debt 54 101 22
Slide 23: Cash flow
€2 challenger Financial Services Group Opening cash balance 660 351 660 Operating 73 90 163 Investing activities (400) 129 (271) Financing activities (2) 54 52 Prior period reclassification / 20 2 22 FX changes 23
Slide 24: No dividend from 2004 results
€2 challenger Financial Services Group No dividend from 2004 resuits e Management desire to commence dividend payment from 2005 profits 24
Slide 25: The year ahead
€2 challenger Financial Services Group The year ahead > Management team in place and highly incentivised |=» Corporate strategy clear and implementation is on target » Expanding asset management footprint and focus -- Introduction of new investment funds — Garrisons/Associated Planners FUA now $7.5
Slide 26: Challenger's result proves the strength of the new business model
€2 challenger Financial Services Group a Challenger’s result proves the strength of the new business model » Challenger has largely completed the clean-up phase and is focussed on growth across its three core businesses » Underlying business performance sound in a year of change and restructuring »
Challenger Financial Services Group — FY2004 Earnings Presentation on 6ix