Slide 1: Full Year Results to 30 June 2009
For personal use only Challenger g Financial Services Group p Limited Full Year Results to 30 June 2009 Dominic Stevens – Chief Executive Officer 24 August 2009 1
Slide 2: Agenda
Challenger Group Full Year Ended 30 June 09 Agenda For personal use only • Fullll Y F Year 2009 results lt summary • Impact of sales to NAB and Challenger Life • Increased financial flexibility and capital • Life and Funds opportunities • Financial results including earnings/balance sheet impact of
Slide 3: Robust full year financial performance
Challenger Group Full Year Ended 30 June 09 Robust full year financial performance For personal use only • Financial performance p – Normalised EBIT of $320m – up 3% – Normalised NPAT of $219m – up 1% – Strong St operating ti cash h fl flow off $287 $287m – up 33% – FY09 Statutory NPAT of $(91m) imp
Slide 4: 2009 financial performance
Challenger Group Full Year Ended 30 June 09 2009 financial performance For personal use only EBIT • Normalised EBIT up p 3% over the 1H 2H prior year 400 • Driven by a strong focus on 300 expense control – full run-rate of $ mill ion expense savings i will ill continue ti tto 200 flow through in 201
Slide 5: Normalised EBIT continuing to grow
Challenger Group Full Year Ended 30 June 09 5 year long term financial performance For personal use only Normalised EBIT continuing to grow 250 Life Mortgage Management Funds Management 200 150 $m 100 50 0 1H05 2H05 1H06 2H06 1H07 2H07 1H08 2H08 1H09 2H09 -50 5
Slide 6: Normalised EPS continuing to grow
Challenger Group Full Year Ended 30 June 09 5 year long term financial performance For personal use only Normalised EPS continuing to grow Normalised EPS 25 20 15 cps 10 5 0 1H05 2H05 1H06 2H06 1H07 2H07 1H08 2H08 1H09 2H09 6
Slide 7: Our people
Challenger Group Full Year Ended 30 June 09 Our people For personal use only Normalised EBIT • Core executive team in 250 Life Mortgage Management Funds Management place since mid mid-2003 2003 200 • Experienced leadership 150 team, each with ~20 year $m 100 i d t experience industry i $ • Deep risk
Slide 8: Redeploy capital – exit mortgage business
Challenger Group Full Year Ended 30 June 09 Redeploy capital – exit mortgage business For personal use only • Board and Management regularly reviewed strategic alternatives 1. Wait for recovery of securitisation markets 2. Obtain funding partner 3. Redeploy capital • During the year repeated approac
Slide 9: Simplified business model
Challenger Group Full Year Ended 30 June 09 Simplified business model For personal use only Ch ll Challenger Group G • Residual cashflows from term financed mortgages / RMBS trusts sold to CLC for $575m Mortgage Mgmt Funds Life (Distribution Management /Aggregation) • Mortgage distribution and Resid
Slide 10: Simplified business model
Challenger Group Full Year Ended 30 June 09 Simplified business model For personal use only Challenger Group • Residual income from term financed mortgages / RMBS t t sold trusts ld tto CLC ffor $575 $575m Life Funds Management • Mortgage distribution M di ib i and d (Annuity business) (Investment m
Slide 11: Capital and financial flexibility
Challenger Group Full Year Ended 30 June 09 Capital and financial flexibility For personal use only • ~$530m $530m excess capital at balance date • Post balance date cash injection into the CLC to: – Support S t the th $575 $575m assett – Provide for future growth opportunities – Significant excess
Slide 12: Use of capital
Challenger Group Full Year Ended 30 June 09 Use of capital For personal use only Liability growth • Organic Surplus cash, • Platforms • Capture upside from any regulatory capital, changes g organic • M&A earnings and Lif Life available lines Allocated to high ROE and asset opportunities • E.g: g inc
Slide 13: Business opportunities
For personal use only Business opportunities pp 13
Slide 14: Life – the retirement income opportunity
Challenger Group Full Year Ended 30 June 09 Life – the retirement income opportunity For personal use only Investable Assets by Age Group • Global shift in the next ten years. 14% 13% 14% It’ss estimated that two It two-thirds thirds of 18% 17% 75+ 22% investable assets will be in 64-74 Retiree Focu
Slide 15: Raising the profile of annuities
Challenger Group Full Year Ended 30 June 09 Raising the profile of annuities For personal use only Date Government Industry • Initial submission to Henry Review raising longevity and Oct 2008 mandatory annuitisation as a possible response • Main submission to Henry Review on Retirement Incomes Polic
Slide 16: Life – assets opportunities
Challenger Group Full Year Ended 30 June 09 Life – assets opportunities Cash bonds For personal use only following derivatives but Cash bond spreads beginning to contract on a delayed basis 600 • Fixed income continues to 500 CBA Spectrum 5-year Single A to Swap offer the most attractive 400 iTraxx
Slide 17: Life – assets opportunities
Challenger Group Full Year Ended 30 June 09 Life – assets opportunities For personal use only Challenger composite Cap Rate versus Market Long history of low volatility property assets • Significant opportunities in 8 50% 8.50% CLC Composite Avg Cap Rate 8.00% Avg Market Composite Cap Rate the real
Slide 18: Funds Management opportunities
Challenger Group Full Year Ended 30 June 09 Funds Management opportunities For personal use only Superannuation Funds Cash Holdings 20 % of total 20 • Australian market an attractive assets long term opportunity 15 15 • 4th largest asset management market in the world 10 10 • Compulsory superannuati
Slide 19: Core platform for growth
Challenger Group Full Year Ended 30 June 09 Core platform for growth For personal use only FUM by asset class – June 2009 • 75% % of our funds have outperformed their 12 month 7% benchmarks 17% 12% • Continued focus on developing core products (~70% of FUM) 3% that are: 7% – Capital secure 22% – Inc
Slide 20: Full Year Results to 30 June 2009 – Brian Benari
For personal use only Challenger g Financial Services Group p Limited Full Year Results to 30 June 2009 Brian Benari – Group Chief Financial Officer & Group Chief Operating Officer 24 August 2009 20
Slide 21: Financial highlights
Challenger Group Full Year Ended 30 June 09 Financial highlights For personal use only % Mvt 700 60% Financial 2009 2008 2008 - Trend Performance 2009 600 50% 500 Assets Under Ð $ million $35.3bn $43.5bn (19)% 400 Management 40% 300 Assets Under Administration $75.0bn $26.2bn large Ï 200 30% 100 Net
Slide 22: Delivering on cost control across the Group
Challenger Group Full Year Ended 30 June 09 Delivering on cost control across the Group For personal use only Strong focus on operating costs Approx $22m of one-off personnel / Choice cost base restructure costs assumed from taken across the 280 Sep 07; PLAN Group during FY09 from Sep 08 Underlying
Slide 23: Delivering on cost control across the Group
Challenger Group Full Year Ended 30 June 09 Delivering on cost control across the Group For personal use only Strong focus on operating costs Group cost to income ratio • Expense base centralised 55% One-Off Expenses under single CFO/COO Cost to income ratio role 50% – Strong focus on expense contro
Slide 24: Life financial highlights
Mortgage Funds Life Mgmt Mgmt Full Year Ended 30 June 09 Life financial highlights For personal use only Financial Performance % Mvt 300 30% Financial 2009 2008 2008 - Trend Performance 2009 250 25% $ million 200 20% AUM – Life $5.8bn $5.4bn 7% Ï 150 15% 100 10% Normalised Cash 50 5% Operating Earni
Slide 25: Investment Experience – 2H09
Mortgage Funds Life Mgmt Mgmt Full Year Ended 30 June 09 Investment Experience – 2H09 For personal use only Aggregate hedging impact – 2H09 movement currency/interest y rates & actuarial 500 driven by assumptions decrements in Listed Recovery in Infrastructure (CIF) 400 bond prices as and direct/unl
Slide 26: Funds Management financial highlights
Funds Mortgage Life Mgmt Mgmt Full Year Ended 30 June 09 Funds Management financial highlights For personal use only Financial Performance % Mvt Financial 200 100% 2009 2008 2008 - Trend Performance 2009 150 80% $ million Funds Under 60% Management $16.0bn $21.9bn (27%) Ð 100 40% Net Income $114m $1
Slide 27: Mortgage Management financial highlights
Funds Mortgage Life Mgmt Mgmt Full Year Ended 30 June 09 Mortgage Management financial highlights For personal use only Financial Performance % Mvt 250 50% Financial 2009 2008 2008 - Trend Performance 2009 200 40% $ million 150 30% Mortgages Under Management $17.9bn $21.8bn (18%) Ð 100 20% Mortgages
Slide 28: Capital Management
Challenger Group Full Year Ended 30 June 09 Capital p Management g For personal use only Dividends – cents per share (cps) • 2009 final dividend declared 15.0 50% • 7.5 cents per share, unfranked 12.5 40% 10.0 30% • Sustainable payout ratio and 7.5 20% dividend path maintained 5.0 2.5 10% • Active c
Slide 29: Impact of recent transactions
Challenger Group Full Year Ended 30 June 09 Impact of recent transactions For personal use only • Sale of distribution business to NAB – $385m proceeds realising book value – Achieved 20x post tax multiple – Warehouse loans transferred had minimal earnings contribution • Sale of residual cashflows f
Slide 30: Cash - Impact of recent transactions
Challenger Group Full Year Ended 30 June 09 Cash - Impact of recent transactions For personal use only 1,200 1,000 800 600 $m m 400 200 0 30 June 09 Sale to Sale to Cash Repay Repay Repay NIM Buffer Pro-forma Cash CLC NAB Injection Corp. MTN Cash Balance Life Facility 30
Slide 31: Outlook
For personal use only Outlook Dominic Stevens – Chief Executive Officer 24 August 2009 31
Slide 32: Strategic positioning
Challenger Group Full Year Ended 30 June 09 Strategic positioning For personal use only • Streamlined simplified business model – Focus on investment management – Clear synergies between Life and Funds operations • Growth opportunities – Life • Organic growth – change in investor risk preference and
Slide 33: Outlook
Challenger Group Full Year Ended 30 June 09 Outlook For personal use only • Challenger g has come through g the toughest g p phase of the g global financial crisis • Financial system healing however elevated risk premium on assets will continue for some time • Challenger well-positioned to take adva
Slide 34: Disclaimer
For personal use only Disclaimer: The material in this presentation is general background information about Challenger Financial Services 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 t