Challenger Limited · ASX:CGF
Challenger — FY2012 Earnings Presentation
32 slides from Challenger's earnings presentation, Aug 20, 2012
Slide 1: FY12 Financial Results
FY12 Financial Results Continuing to deliver
Slide 2: Outline
Outline Full Year 30 June 2012 Outline Business performance Vision and strategy Outlook Brian Benari Managing Director & Chief Executive Officer Financial results Capital management Andrew Tobin Chief Financial Officer 2
Slide 3: Highlights
Highlights
Slide 4: Highlights
Highlights Full Year 30 June 2012 Highlights 1 Strong operating performance all guidance metrics met or exceeded 2 Clarity on LAGIC transition impact and timing of transition now known 3 High quality investment portfolio generating sustainable cash flows 4 Focused vision and strategy competitive adv
Slide 5: Strong operating performance
Highlights Full Year 30 June 2012 Strong operating performance FY12 exceeds guidance • Performance − Normalised NPAT1 up 20% to $297m − Statutory NPAT of $149m − Normalised EPS up 11% to 57.5 cps − FY dividend up 9% to 18.0 cps • Growth - Life − Retail net book growth of $583m (10%) and life sales u
Slide 6: Strong operating performance: accreting earnings with flat expense base
Highlights Full Year 30 June 2012 Strong operating performance History of accreting earnings with flat expense base • Since 2008: Normalised NPAT and EPS 350 70 − normalised NPAT up 36% 300 60 50 to $297m 40 $m cps − normalised EPS up 55% 250 30 to 57.5cps 200 20 10 • Expense base flat over 5 150 20
Slide 7: Life retail annuity sales continue to build
Highlights Full Year 30 June 2012 Strong operating performance Life retail annuity sales continue to build • Since 2008: Annual sales of guaranteed products 1 (bars represent sum of two previous half years) − retail annuity sales have 2,000 grown by 26% CAGR 1,500 − Life AUM has grown by $m 1,000 17
Slide 8: Stellar FM net flows and FUM growth
Highlights Full Year 30 June 2012 Strong operating performance Stellar FM net flows and FUM growth • Significant positive net flows Funds Management – net flows 3,000 for 6 consecutive halves in 2,000 a difficult market 1,000 • Strong growth in FUM from $m - Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10
Slide 9: Clarity on LAGIC transition
Highlights Full Year 30 June 2012 Clarity on LAGIC transition APRA proposed transition arrangements • LAGIC to be implemented 1 January 2013 • Results in increased regulatory capital of $110m - $125m per annum for 3 years, with the first increase effective 1 January 2014 – organic net capital genera
Slide 10: Challenger's response to LAGIC
Highlights Full Year 30 June 2012 Clarity on LAGIC transition Challenger‟s response to LAGIC • Pro-forma regulatory capital will increase by circa 10% Life normalised RoE (pre tax) per annum for 3 years from 30% 1 January 2014 25% 18% • Portfolio optimisation target 20% opportunities to reduce impac
Slide 11: High quality investment portfolio
Highlights Full Year 30 June 2012 High quality investment portfolio Generating sustainable cash flows Assets backing the portfolio - $9.8bn • High quality asset portfolio weighted to Equity and fixed income and generating Infrastructure 6% other 2% sustainable cash flows Property 16% • Allocation to
Slide 12: Risk management critical to the investment process
Highlights Full Year 30 June 2012 High quality investment portfolio Risk management critical to the investment process • Assets and liabilities cash flow Asset and liability matching matched and marked to market Assets • Fixed income and cash, property and infrastructure are used to match annuity ca
Slide 13: Market opportunity
Vision and strategy Full Year 30 June 2012 Market opportunity Competitive advantage in attractive markets Life Funds Management • Supportive • Growth underpinned by demographics mandated super system Market opportunity • Changing consumer risk • Contributions increasing preferences to 12% • Market l
Slide 14: Vision and Strategy
Vision and strategy Full Year 30 June 2012 Vision and Strategy Our Vision To provide Australians with financial security in retirement Our Strategy Our Strategy Our Strategy Increase the Australian Be recognised as the Be an active investment retirement savings pool leader in retirement manager prov
Slide 15: Recognised as the leader in retirement incomes
Vision and strategy Full Year 30 June 2012 Recognised as the leader in retirement incomes Strategy executed by …. Thought leadership Award winning product innovation • Adviser education via • Guaranteed Pension retirement workshops Fund • Dedicated research • Care Annuity capability • Deferred annui
Slide 16: Increase retirement savings in secure products
Vision and strategy Full Year 30 June 2012 Increase retirement savings in secure products Strategy executed by …. Increasing regular annuity writers Increasing long term annuity sales 7 6 5 Index: 2009 = 1 4 3 2 1 0 Feb 11 Apr 11 Jun 11 Aug 11 Oct 11 Dec 11 Feb 12 Apr 12 Jun 12 2009 2010 2011 2012 E
Slide 17: Fund Manager with superior returns
Vision and strategy Full Year 30 June 2012 Fund Manager with superior returns Strategy executed by …. Ongoing boutique performance Strong growth in difficult markets Investment performance since inception 6 20% Alpha Benchmark 4 15% 10% 2 5% $bn - (2) (5%) (4) (10%) Market net flows Total FM net flo
Slide 18: Highlights
Highlights Full Year 30 June 2012 Highlights 1 Strong operating performance all guidance metrics met or exceeded 2 Clarity on LAGIC transition impact and timing of transition now known 3 High quality investment portfolio generating sustainable cash flows 4 Focused vision and strategy competitive adv
Slide 19: FY12 Financial Results
FY12 Financial Results Andrew Tobin Chief Financial Officer 20 August 2012
Slide 20: Group financial performance
Financial results Full Year 30 June 2012 Group financial performance Strong normalised NPAT and EPS growth Total Assets and Funds Under Management Financial 40 FY12 FY11 Change Trend performance 30 Assets Under $33.4bn $27.9bn 20% Management $bn 20 Net income $528m $494m 7% 10 Expenses $189m $180m 5
Slide 21: Life financial performance
Financial results Full Year 30 June 2012 Life financial performance Upgraded guidance exceeded with significant AUM growth Average AUM and normalised COE Financial 10 500 FY12 FY11 Change Trend performance 8 400 6 300 AUM (average) $9.0bn $7.9bn 14% $bn $m 4 200 Normalised Cash 2 100 Operating $436m
Slide 22: Life financial performance: COE margin
Financial results Full Year 30 June 2012 Life financial performance COE margin reflects lower asset and capital returns 5.5% 5.0% 5.1% 0.1% (0.1%) 4.9% (0.3%) 0.1% 4.5% 4.0% FY11 COE Lower returns Lower annuity Lower fees Lower FY12 COE margin on assets costs & commissions normalised margin and capi
Slide 23: NIM run-off slowing and earnings impact mitigated
Financial results Full Year 30 June 2012 Life financial performance NIM run-off slowing and earnings impact mitigated by capital reinvestment • CLC purchased the net interest margin (“NIM”) on $11bn of term funded residential mortgages from Group for Underlying mortgage run-off profile 12 $558m in 2
Slide 24: Net book growth increasing following investment in DPM
Financial results Full Year 30 June 2012 Life financial performance Net book growth increasing following investment in DPM • Strong organic sales Retail annuity net book growth 2,500 800 with 26% CAGR 468 583 675 2,000 600 since 2008 1,500 400 1,000 • 200 Closed book 500 $m - $m acquisitions have -
Slide 25: Investment experience driven by fixed income and property
Financial results Full Year 30 June 2012 Life financial performance Investment experience driven by fixed income and property Investment experience (pre tax) Australian iTraxx index 75 300 FY12 actual Normalised growth expectations 50 25 200 - $m Fixed income Equity Infrastructure Property Actuarial
Slide 26: Funds Management financial performance
Financial results Full Year 30 June 2012 Funds Management financial performance Strong AUM growth and increased EBIT Financial FUM – average and spot FY12 FY11 Change Trend Performance 40 30 FUM (average) $27.7bn $21.9bn 27% $bn 20 Fidante Partners $32m $30m 10% 10 net income 2010 2011 2012 FUM - av
Slide 27: Margins driven by FUM composition
Financial results Full Year 30 June 2012 Funds Management financial performance Margins driven by FUM composition • Challenger‟s share of Fidante Net income margin 80 Partners earnings (bps) has been 70 60 relatively stable with net income 50 bps 40 reflecting: 30 20 – improved economics from boutiq
Slide 28: Capital management
Capital management Full Year 30 June 2012 Capital management Strong Life surplus and organic capital generation Illustrative purposes only – assumes no positive or negative investment experience1 Pro forma 18 months to 31 December 2013 Pro forma 12 months to 31 December 2014 1,300 1,200 1,100 1,000
Slide 29: Strong capital position for LAGIC and accreting dividends
Capital management Full Year 30 June 2012 Capital management Strong capital position for LAGIC and accreting dividends • Strongly capitalised and well positioned Excess capital to regulatory requirements plus Group cash for implementation of LAGIC with 1,000 $813m1 of CLC excess regulatory 800 capit
Slide 30: Outlook
Outlook Brian Benari Chief Executive Officer 20 August 2012
Slide 31: Outlook
Outlook Full Year 30 June 2012 Outlook Demographics and business model support ongoing growth • Overall demographic trends coupled with a growing awareness of the financial risks in retirement will continue to propel our retirement incomes business • Fidante Partners business model provides opportun
Slide 32: Disclaimer
Disclaimer: The material in this presentation is general background information about Challenger Limited activities and is current at the date of this presentation. It is information given in summary form and does not purport to be complete. It is not intended to be relied upon as advice to investor