Challenger Limited · ASX:CGF
Challenger — Challenger Financial Services Group — Investor Day (September 2005)
98 slides from Challenger's investor day presentation, Sep 16, 2005
Slide 1: Slide 1
Slide 2: Challenger Financial Services Group Educational briefing
Z & challenger Financial Services Group Challenger Financial Services Group Educational briefing 16 September 2005
Slide 3: Agenda
' Age Welcome Financial overview Capital Risk & Strategy Challenger Life Challenger Wholesale Finance Challenger Wealth Management & challenger Financial Services Group Mike Tilley Tim Foster 4 Dominic Stevens 16 Robert Woods 30 Brian Benari 53 Chris Cuffe 69
Slide 4: Analysis of Challenger Group results
& challenger Financial Services Group F Analysis of Challenger Group results Year ended 30 June 2005 Tim Foster Chief Financial Officer 16 September 2005
Slide 5: Contents
Con » RONA » Revenue and Expenses « Headcount Savings » EBIT Margin improvement €2 challeng er Financial Services ns}
Slide 6: ( '5 (01 (01 % '5 (01 " # + '> : >< -
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Slide 7: (01 $ (01 & , + ';> > ! % - ; ! %
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2 / / / ' 7 8 8 ; - > ; 2 - : < 0 ' ' 9 ; > 0 9 9 5 0 ;- $ '- ' 4 '7
Slide 13: Sale of Corporate Super, integration and efficiencies
. / 300 250 - 200 150 100 50 0 Sale of Corporate Integration of AP and Completion of Efficiencies extracted Integration of Super Garrisons systems development HSBC(AM)
Slide 14: EBIT margin %
% ,4 $" =7 : =< 7 ;=7 =7 =7 : =< 7 EBIT margin % . ( 0 0 9 2 & . / ' 0 ' / 2 '
Slide 15: Discussion / Questions
Discussion / Questions
Slide 16: Capital Risk and Strategy (CRS)
& challenger Financial Services Group F Capital Risk and Strategy (CRS) An overview and update Dominic Stevens Executive General Manager, Capital Risk and Strategy __ eet \ 16 September 2005
Slide 17: @( # % & 9? % + & & + +A % + +
@( # % & 9? % + 9 & & + 9 +A % + 9 + % 9! % ;
Slide 18: @( # % & ( , " B ( # B " # #
@( # % 0 & 4 ( , " B ( # B " # # )$ % ") ( ) % " %) )" ( B B +A % B B %5" >
Slide 19: Quality of Life portfolio
_ Quality of Lif olio Overview Current Life Net Assets by Category Cash / Other Infrastructure 18% Fixed Income 25% Property 45% 19 eV! & challenger Financial Services Group
Slide 20: ? % + % + % % + %. + $ ? % ;
? % + 6 % + 1 % % 4 5 6 + 6 2 %. 7 + $ ? % 7 ; 74 >'7 4 - 74 % 8< @ @ 4 : ' @ @ 7 ( 4 $ @ @ , @ @ 1 4 7 > @ @ 6 @ @ 7 ' @ @ @ @ 7 ; - ; - > ' >
Slide 21: Fixed Income Holdings by Credit Rating
? % + 6 2 4 + 1 % % • 4 5 • - 7 & '# % ( Fixed Income Holdings by Credit Rating $ 700 m $ 600 m $ 500 m - 7 $ 400 m $ 300 m $ 200 m $ 100 m $0m AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ CCC CCC- D
Slide 22: Infrastructure holdings
? % + 6 4 + 1 % % # $% $ • 4 5 • - 7 • ; 9->7 5 & Arqiva1 (Formerly ntl Broadcast) North DN2 Wales and the West DN3 Long term contracted revenue Regulated Revenue Regulated Revenue 75% 98% 96% ) ( *$ ) ( - % ) ( - % + % , + % , + % ,
Slide 23: ? % + ( C : * & # : < < B !
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Slide 24: Cashflow
€2 challeng er Financial Services ns} Cashflow g « As previously shown, Asset cashflows are mainly investment grade, diversified and highly stable « Challenger seeks to match asset and liability cashflows in the short, medium and long term = All cashflows are modeled through time » Challenger manage
Slide 25: +A % + % % E ( E ! % % E & C
+A % + % % E ( E ! % % E 4 & C % A % A % @ & % % A % & $ & % 2 % % ! % &
Slide 26: " %B F$& # G
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Slide 27: ! $ # H B , & ,,( B + (, # H B
! $ # H B , & ,,( B + (, # H B ,,( B + # % # B 3 # % & B + # B ! & & & ;
Slide 28: Summary
€2 challeng er Financial Services ns} Su = CRS is an independent group that regularly reports to the Board « Key areas of focus are: — Risk — Capital and Liquidity Management — Financing — Strategy » Key change we are creating is bringing rigorous methodology and discipline to all of these issues «
Slide 29: Discussion / Questions
Discussion / Questions
Slide 30: Challenger Life: An update
& challenger Financial Services Group F Challenger Life An update Robert Woods, Chief Executive, Challenger Life 16 September 2005 j __ et \
Slide 31: + , = ;7 (01 >7 % # % & % 8= % %
3 + , = ;7 (01 2 >7 % 9 # % & 9 % 8= % % + %J B %@ @ 2 8; 8' 2 % A %@ 8' 4 :4 < % 8 / B & & ' 8 %
Slide 32: Invested in quality assets
%9 Invested Creates profits Equity and in and seeds Quasi Equity quality assets new businesses . $ / 0 3 $ % 1 % 2 + @ + 6 % =7 2 4 @ & ) ( 4 0 4 2 ' $ ' , # " + $ 6 6 & & 1 # % & & # + "
Slide 33: Contents
€2 challeng er Financial Services ns} Con » Structure r » Annuity Market » Investment Strategy «" Specialist Funds 33
Slide 34: / ) ) % % @ @ % % . $ . - /(
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Slide 35: + , / ' / 0( ' ( + % + 1=+ + %
+ , / 0 4 ' / 0( ' ( + % + 1=+ + 6 % " 4 " 6% + + + =
Slide 36: Annuity market
Annuity market challenger
Slide 37: % # & . $ +6-, $ & ( D : 8"< $ $
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Slide 40: + L % # & : $ $ ; $ ' - % -
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Slide 41: Short Term, Long Term, Market Share
+ % / 0 $ &9 ' &9 Short Term Long Term Market Share 100 m 30% 141 296 90 m m m 25% 80 m 70 m 20% 60 m 50 m 15% 40 m 10% 30 m 20 m 5% 10 m 0m 0% Jul 03 Oct 03 Jan 04 Apr 04 Jul 04 Oct 04 Jan 05 Apr 05 Q8 % '
Slide 42: Investment strategy
F Investment strategy challenger
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Slide 46: Disciplined approach
Disciplined a 46 challenger Financial Services Group oS All opportunities must meet RONA hurdle Origination team looks for assets: — Which are undervalued on a risk adjusted basis — Where we have expertise — Where we can add value — Which provide specialist fund management opportunities Asset manage
Slide 47: " R 4 CI A
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Slide 48: Specialist funds
Specialist funds challenger
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Slide 52: Discussion / Questions
Discussion / Questions
Slide 53: Challenger Wholesale Finance
F Challenger Wholesale Finance An update Brian Benari Chief Executive, Wholesale Finance 16 September 2005 & challenger Financial Services Group
Slide 54: Contents
Contents 54 Key messages Market position Business model Strategy Comparative advantages Residential growth Margin improvement Commercial growth considerations Summary €2 challeng er Financial Services ns}
Slide 55: Key Message
& challenger Financial Services Group Key Message « Sustained residential growth — 38% above market « Significant margin improvements since June 2004 « Business model has comparative advantages which continue to drive growth and profitability « Commercial loan book — managed in line with growth in H
Slide 56: " # % & # 8% / < $ - 8% / $ (
" # 4 % & # 2 8% / < $ - 7 2 2 8% / $ ( 2 A .// / &$ ' / - $ %$ / 1 7 / %7 ' 2 8% / < C 1 7 - // - // .// / 1 7 2 %$ ? 0 - // &$ ' - / 1 ' '= 1 70 '
Slide 57: , / ? & % 8' %( ' / '$% ' '' $ ;
, / ? & % 8' %( 8 ' / '$% ' '' $ 8 ; $ ' / " " 4 " + & @ # 5 # 5 ;
Slide 58: Strategy
WO Setaters er » Leverage our comparative advantages Strategy «" Invest future margin improvements into competitive activities to grow the business = Achieve growth via new product, new mortgage managers, other branded distributors, product and channel diversification » Enhance efficiency through te
Slide 59: * E E % & E " & E , # , * %(
* E E 1 % & E " & E , # , * %( : ,*(< E , # 2 & 2 B 2 % E & E 6 2 % & -
Slide 60: Comparative advantages
€2 challeng er Financial Services ns} Comparativ ges » Conversion rates — Higher quality deal flow as mortgage managers do not ‘shop’ loans — Supported by application to settlement conversion rate amongst the highest in the industry " Service levels — Rapid turnaround times — Quality post settlement
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Slide 62: 7+ 6(, @ @ @ @ '@ '@ @ @ @ @ & &
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Slide 63: Significant margin improvement
" @challeng er Significant — Period on period co Improvement parison 40 @ Commercial EBIT 354 @ Residential EBIT @ Total EBIT ®EBIT margin as a % of average loan book 2H-04 1H-05 2H-05 | 63
Slide 64: I% " & E % ,,( (, E ! % J % E %@
I% 6 29 " & E 3 % ,,( (, E ! 2 % J % E 2 %@ & A # ,*( U # J E " # '
Slide 65: 7+6(, @ @ @ @ @ & / ' B /9 ' ' '
7+6(, 1 @ @ @ @ @ & / 9 ' B /9 ' 9 ' 9 ' 0 9 ' & $ 1 9 ' * 9 ' / 9 9 " 9 9 " %9 / 9
Slide 66: & & B C % # E A % 3& " $ E "
& 1 & B C % # E 1 A % 3& " $ E " +D( & 7 E @ 0 # E 4 & A % E 6 E 2 & & 3 9 E 4 % #
Slide 67: Summary
, eee er Summary # Challenger Wholesale Finance is positioned in the growth segment of the mortgage market « Future margin improvements to be invested into competitive activities to grow the business « Plan to continue to leverage comparative advantages of the business model to drive growth and prof
Slide 68: Discussion / Questions
Discussion / Questions
Slide 69: Challenger Wealth Management: An update
& challenger Financial Services Group F enatienger Wealth Management An update Chris Cuffe Chief Executive, Challenger Wealth Management 16 September 2005 j __ eee \
Slide 70: Contents
€2 challeng er Financial Services ns} Con = Overall strategy » Structure = Funds management (Challenger Managed Investments) » Financial planning (Genesys) » Financials att \
Slide 71: I% ! & % # + % B % ) % & & :
I% ! & % 5 # + % B % ) % 4 & & 6 : % ! < T % & 6 % * 5 2 2 & & % ;
Slide 72: Wealth management strategy
€2 challeng er Financial Services ns} nagement strategy " Operate in most parts of the value chain (asset manager, fund packager, administrator, dealer, financial planner, investor in other businesses) = Scaleable operations = Low cost operator through systems/processing excellence «= Minimise relia
Slide 73: / ? - /( A A % % @ @ A A % %
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Slide 74: Funds management
74 & challenger Financial Services Group Funds management (Challenger Managed Investments Limited) 2 challenger __ eet \
Slide 75: Management strategy
75 €2 challeng er Financial Services ns} nt strategy Broad-based funds manager deriving revenue from multiple sources: » Offer products across multiple asset sectors « Utilise internal and external asset management teams = Distribute to both institutional and retail/platform markets Partial ownershi
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$ 9 # # < < $ $ -$ -$ ( ( / / % % F G F G / : & < ;
Slide 77: # # < < $ $ -$ -$ ( ( / / % %
# # < < $ $ -$ -$ ( ( / / % % . $ & '# B 2 %$ 9 93 . 96 % .$ D$ 9+ 9 2 4 9 9 6 % 9 : 3% < 9 9 - // 4 # $% $ 93& 9 9 " : < 4 $ :< 9" 9 %( 4 96 + 4 2 :< 2 . ;;
Slide 78: # # < < $ $ -$ -$ ( ( / / % %
# # < < $ $ -$ -$ ( ( / / % % E$ E$ ' ' # #88 ( ( + +E# E# , , 2 / % -$ % 9, A 6 9 6 9 6 9" % 6 9 6 :< 9, 6 94 6 9 & 6 9* 2 4 6 93 & 6 :< 2 . ;>
Slide 79: # # < < $ $ -$ -$ ( ( / / % %
# # < < $ $ -$ -$ ( ( / / % % " F % 9 9 421 &8 "% 9 94 :< 9 :< 2 ;-
Slide 80: Funds under management
& 12,000 $10.6b 10,000 8,000 $6.9b $6.1b 6,000 $m $5.3b $3.9b 4,000 $3.2b 2,000 0 Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 : < Institutional Retail : <4 %3 , A " & 8 C" > H
Slide 81: " C" . ( $ @; -' @ ; A & , @ >
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Slide 82: ? % & ( : < " % ' * " / * "
? % & ( 8 : < " % ' * " / * " / * " / 9 9 9 9 9 9 9 9 9 9 9 9 ' ' ' ' $ & 1 & 2 3"$ & A 3 , " : < C" ) 2 = >
Slide 83: # & C" %% / / ' " = = A % = >
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Slide 84: " C" #% B @ "$"5 3"$ 3"$& C" % & C % 1,H4
" C" 2 #% B @ "$"5 3"$ 3"$& 1 5 C" % & C % 1,H4 % % : 5 5 < >'
Slide 85: I % I VV
I% 2 , # : & & % < 3 , % $# & * % # 2 4 5 5 I 0 & 2 % % @ @ VV A % >
Slide 86: Financial planning: Genesys
challenger Financial planning GENesys WEALTH ADVISERS _ eet \
Slide 87: % ! % % % & & ( & & & % H E
% ! % % 5 % 2 & & 2 ( & & & 2 6 % H E B %A % % E A % B % %@ % # & E % B % %@ 2 >;
Slide 88: 1& B % ! & % & & % : @ A %@ &
65 1& B % ! 0 2 2 & % & & % : @ A %@ & < 1& : / ; ' < ( & 7 & : '- <R " @ % 8 & >>
Slide 89: Revenue to grow at twice costs
We 89 challenger Financial Services Group oS e to grow at twice costs Costs will increase in 2006 due to: « Effect of owning AP for 12 months rather than 10 months « Advertising spend - commencement of brand awareness «= New member firm incentive plan « Additional staff as part of increased professi
Slide 90: % I% R %: @ < J : # @ @& # &< %
4 % I% R 4 %: @ < 4 J : # @ @& # &< 4 % %: % 4 $@ & < ( 4 $ : ) T % 4 $ % A < * % % -
Slide 91: Key milestones
Key 91 €2 challeng er Financial Services ns} months Grow member firm numbers Increase revenue per planner Commencement of Genesys mainstream brand advertising Sell out of non core businesses/investments Launch key adviser deliverable of Integrated Business System project Launch of new Member Firm In
Slide 92: Overall Wealth Management financials
92 & challenger Financial Services Group Overall Wealth Management financials
Slide 93: Pre-tax profit $m
! " 6 $5m 5 4 Pre-tax profit $m 3 2 $1m 1 0 -1 -2 -$1m -3 -4 -5 -$4m 6 mths to 6 mths to 6 mths to 6 mths to Dec-03 Jun-04 Dec-04 Jun-05 -
Slide 94: Cost to income ratio
Cos 94 €2 challeng er Financial Services ns} lO Currently running at 95% across the Wealth Management business (based on “normalised” earnings of July/August 2005) Revenue growing significantly faster than expenses Expectation is for cost to income ratio to continue to fall materially for the forese
Slide 95: (01 >7 (01 ; & @& & ; > & %& & & >7
(01 >7 (01 ; & @& & ; > 9 & %& & & >7 ; 2 4 @& >7 (01 @ 8; : 8 ,4$< @ > -
Slide 96: Summary
€2 challeng er Financial Services ns} « Favourable industry backdrop « Scaleable; expected that revenue will increase at a significantly faster rate than expenses « Diversity provides robustness, in terms of both revenue and risk « Model delivers through different economic/market conditions « Busine
Slide 97: Discussion / Questions
Discussion / Questions
Slide 98: Thank you!
Thank you! challenger
Challenger Financial Services Group — Investor Day (September 2005) on 6ix