Slide 1: 1H15 Financial results
For personal use only 1H15 Financial results Capitalising on the retirement income revolution 17 February 2015 Half year 31 December 2014
Slide 2: Outline
Outline For personal use only Operating performance Brian Benari Managing Director & CEO Financial results Andrew Tobin Capital management Chief Financial Officer Strategy update Brian Benari Financial System Inquiry Managing Director & CEO Outlook Half year 31 December 2014 2
Slide 3: Highlights
Highlights Capitalising on the retirement income revolution For personal use only Operating performance Strong operating results … positioned for next growth phase Shareholders Capital strengthened and increased franked dividend Life Sales momentum and longer tenor driving book growth Funds Manageme
Slide 4: Group operating performance
Group operating performance Strong operating results … positioned for next growth phase For personal use only AUM ► Life – 1H15 net book growth 7.2% $57.2bn +17% ► Funds Management – 1H15 organic net flows $2.1bn Normalised EBIT1 ► Net income up from AUM growth with stable Life margin $206m ► Cost t
Slide 5: Group operating performance
Group operating performance Capital strengthened and increased franked dividend For personal use only Shareholder dividends Dividend and payout ratio 15 60% • 1H15 dividend 14.5 cps – up 16% on 1H14 10 45% – 70% franked cps – gross yield ~6%1 p.a. 5 30% • 1H15 dividend payout ratio 50%2 15% – up fro
Slide 6: Strong book growth with stable margin
Life operating performance Strong book growth with stable margin For personal use only Retail sales ► Record half yearly retail annuity sales (with Care Annuity suspended in November) $1.6bn +8% ► Increased tenor – up from 6.4 years to 6.6 years Retail book ► Reinvestment rates continue to remain st
Slide 7: Brand strength in high growth market
Life operating performance Brand strength in high growth market For personal use only Adviser Leadership – ranked 1st Adviser service – ranked 1st Is the company a leader? How do you value adviser service levels? Challenger Challenger Industry average Industry average 0% 25% 50% 75% 100% 0% 25% 50%
Slide 8: Leveraging brand to broaden distribution footprint
Life operating performance Leveraging brand to broaden distribution footprint For personal use only Retail and Industry funds Annuities on platforms Retail platform Industry fund • Technology solution allowing annuities to easily Market leading First Choice & $14bn profit-to-member integrate wit
Slide 9: Funds Management: Strong flows and FUM growth
Funds Management operating performance Strong flows and FUM growth For personal use only Net ► +$2.1bn - organic net flows across both Fidante and CIP1 flows +6.8bn ► +$4.7bn - formation of Whitehelm Capital and transfer of fixed income ABS team FUM ► +$8.8bn Fidante Partners - Whitehelm & strong fl
Slide 10: Largest fixed income manager and 7th largest Aust. manager
Funds Management operating performance Largest fixed income manager and 7th largest Aust. manager For personal use only • FUM doubled over 3 years Funds Management FUM ($bn) • Fixed income – FUM +89% over 3 years 60 Australia’s largest fixed income manager +100% $8bn Highly rated capability - Ka
Slide 11: Highlights
Highlights Capitalising on the retirement income revolution For personal use only Operating performance Strong operating results … positioned for next growth phase Shareholders Capital strengthened and increased franked dividend Life Sales momentum and longer tenor driving book growth Funds Manageme
Slide 12: 1H15 Financial results
For personal use only 1H15 Financial results Andrew Tobin Chief Financial Officer 17 February 2015 Half year 31 December 2014
Slide 13: Group financial performance
Group financial performance Strong operating results … positioned for next growth phase For personal use only Financial performance ($m) 1H15 1H14 Change Movement in normalised NPAT ($m) 200 15 Life 216 201 8% (1) Funds Management 21 21 - 150 (8) (15) Corporate (30) (29) 3% 100 Normalised EBIT 206 1
Slide 14: AUM growth with stable margin driving higher COE
Life financial performance AUM growth with stable margin driving higher COE For personal use only Financial performance ($m) 1H15 1H14 Change Movement in Life EBIT ($m) 250 21 Normalised COE 258 237 9% 200 (6) Expenses (42) (36) 17% 150 Life EBIT 216 201 8% 100 201 216 Investment experience (post ta
Slide 15: COE margin stable
Life margins COE margin stable For personal use only Life product cash margin 1H15 Life COE margin 4.4% - unchanged 3.0% 0.2% from 1H14 and down 10bps from 2H14 (0.3%) (0.1%) • Change in Life COE margin from 2H14 due to 2.0% 3.0% 3.0% 2.8% – Product cash margin (-20 bps) 1.0% – lower return on asset
Slide 16: Continued annuity sales growth with increasing tenor
Life retail annuity sales Continued annuity sales growth with increasing tenor For personal use only Record retail annuity sales Retail annuity sales ($m) • Continuing to grow strongly Rolling 12 month sales 3,000 – 1H15 sales $1.6bn, up 8% – record half yearly retail annuity sales 2,000 – pick up i
Slide 17: Strong book growth driven by sales momentum and tenor
Life net book growth Strong book growth driven by sales momentum and tenor For personal use only Life retail net flows ($m) Retail 2,000 540 561 600 • 1H15 retail net flows $561m 1 1,500 450 213 1,000 300 • 1H15 net book growth 7.2%1 500 150 – Care Annuity contribution 0.9% - - (500) (150) (1,000) (
Slide 18: Investment portfolio continues to meet 18% RoE target
Life investment portfolio Investment portfolio continues to meet 18% RoE target For personal use only Fixed Credit quality Fixed income credit quality income • 75% investment grade Cash and AAA AA • Reweighting to capture relative value 69% A of portfolio • Investment grade to remain around these le
Slide 19: Investment portfolio continues to meet 18% RoE target
Life investment portfolio Investment portfolio continues to meet 18% RoE target For personal use only Property Property portfolio – sector diversification • $0.5bn of property acquired in 1H15 ‒ 58% office; 42% retail 50% 22% 40% of portfolio • Property portfolio remix underway 30% • Property alloca
Slide 20: Positive asset experience offset by actuarial adjustments
Life investment experience Positive asset experience offset by actuarial adjustments For personal use only Investment experience (pre tax) - $m • Asset investment experience (+$11m) 120 – Property (+$52m) exceeded normalised growth Asset investment experience +$11m assumption 80 – strong direct prop
Slide 21: Higher net income with lower performance fee contribution
Funds Management financial performance Higher net income with lower performance fee contribution For personal use only Financial performance ($m) 1H15 1H14 Change Movement in Funds Management EBIT ($m) 30 Fidante Partners net income 32 31 3% 1 1 CIP1 net income 24 23 4% 20 (2) Total net income 56 54
Slide 22: Strong flows and FUM growth … lower performance fees
Funds Management Strong flows and FUM growth … lower performance fees For personal use only FUM Fidante Partners – FUM movement ($bn) • Fidante Partners FUM up 18% in 1H15 50 1.1 42.5 3.9 1.9 – +$3.9bn formation of Whitehelm Capital 40 35.9 10% (0.3) – +$1.6bn organic net flows 30 51% 54% 20 • Chall
Slide 23: Capital strengthened to capture growth opportunities
Capital management Capital strengthened to capture growth opportunities For personal use only Strongly capitalised CLC PCA multiples and target surplus • CLC excess capital and PCA ratio 2.0 1.8x 1.6x – $1,301m including LAGIC transition ($215m) 1 1.5 CLC target ratio – half of LAGIC transition amor
Slide 24: Strong dividend growth with increased franking
Capital management Strong dividend growth with increased franking For personal use only Dividends • 1H15 dividend up 16% to 14.5 cps Dividend and normalised payout ratio – 70% franked 15 60% – payout ratio up from 39% to 50% – gross yield ~6%1 10 45% cps • 2H15 dividend expectations 5 30% – 100% fra
Slide 25: Strategy and outlook
For personal use only Strategy and outlook Brian Benari Chief Executive Officer 17 February 2015 Half year 31 December 2014
Slide 26: The retirement income revolution
Life growth The retirement income revolution For personal use only Retirees - Superannuation – Superannuation – 1 2 3 total number of Australian retirees (m) average balance at retirement ($’000) moving to retirement phase p.a. ($bn) 5.0 450 200 150 4.0 300 100 3.0 150 50 2.0 2004 2014 2024 2004 201
Slide 27: Propelling the retirement income revolution
Financial System Inquiry (FSI) Propelling the retirement income revolution For personal use only David Murray – Chairman of Financial System Inquiry ‘super assets are not being efficiently converted into retirement incomes’ Recommendation 11 i. Trustees pre-select for members a CIPR (comprehensive i
Slide 28: FSI to drive significant longevity market growth
Life growth FSI to drive significant longevity market growth For personal use only Australian longevity market (illustrative only) 1 2 3 2014 retirement assets ($bn) CIPR allocation to longevity products Australian longevity market ($bn) 2024 - 250 2014 - market 30% market ~$220bn 200 ~$90bn (70 tim
Slide 29: Scalable and diversified platform with significant capacity
Funds Management growth Scalable and diversified platform with significant capacity For personal use only Alternatives 3 managers & $8bn FUM Institutions seeking stable Alternatives longer dated cash flows capacity Fidante’s first infrastructure $14bn boutique established Alternatives FUM Fixed
Slide 30: Outlook: Leader in high growth markets
Outlook Leader in high growth markets For personal use only ► Colonial & VicSuper annuities on platform & form new partnerships ► Accurium and SMSF development opportunities ► Replacement Care Annuity product in development Life ► Guidance ► FY15 retail net book growth target of between 11% to 13% ►
Slide 31: Highlights
Highlights Capitalising on the retirement income revolution For personal use only Operating performance Strong operating results … positioned for next growth phase Shareholders Capital strengthened and increased franked dividend Life Sales momentum and longer tenor driving book growth Funds Manageme
Slide 32: Appendix
For personal use only Appendix additional background information Half year 31 December 2014
Slide 33: Our vision and strategy
Our vision and strategy Providing financial security in retirement For personal use only Vision Provide Australians with financial security in retirement Strategies Increase the Australian Be recognised as the Be an active investment retirement savings pool leader in retirement manager providing all
Slide 34: Business overview
Business overview Two core businesses supported by centralised functions For personal use only Challenger Limited (ASX:CGF) Life Funds Management Leading provider of annuities and guaranteed Fidante Partners – co-owned separately retirement income solutions in Australia branded active fixed income,
Slide 35: Market opportunity
Market opportunity Competitive advantage with favourable policy settings For personal use only Life Funds Management Supportive demographics Mandated superannuation system Over 65’s to increase by 75% in next 20 years 1 Growth underpinned by mandatory contributions Market Consumer risk preferences C
Slide 36: Strong operating performance
Strong operating performance Track record of earnings growth with tight cost control For personal use only Strong profit and EPS growth Normalised NPAT and EPS • Normalised NPAT 200 40 – used to determine dividends 150 30 • Over 5 years $m 100 20 cps – normalised NPAT up 34% to $155m 50 10 – normali
Slide 37: Favourable operating environment
Favourable operating environment Attractive markets leveraged by distribution footprint For personal use only Favourable macro trends Projected superannuation assets 2015 to 20253 • Australia has the largest pension market in 5,000 Asia-Pacific and world’s 4th largest1 4,000 – superannuation forecas
Slide 38: Australian superannuation system
Favourable operating environment Australian superannuation system For personal use only Worlds 4th largest pension market1 • Superannuation guarantee system Australian superannuation system - $1.9 trillion2 implemented in 1992 – initial contribution rate 3% of gross salary Corporate 4% – current con
Slide 39: Comprehensive Income Product for Retirement (CIPR)
Financial System Inquiry (FSI) Comprehensive Income Product for Retirement (CIPR) For personal use only David Murray - Chairman of Financial System Inquiry ‘super assets are not being efficiently converted into retirement incomes’ Recommendation 11 i. Trustees pre-select for members a CIPR (Comprehe
Slide 40: Leveraged by product innovation and distribution footprint
Life – favourable operating environment Leveraged by product innovation and distribution footprint For personal use only Changes in risk preferences Australia has a low allocation to fixed income equivalants1 • Australian allocation to bonds and fixed income Australia United States – lowest in OECD
Slide 41: Broad based distribution and innovative products
Life - distribution and products Broad based distribution and innovative products For personal use only Distribution Product categories • Challenger products on approved product Fixed term Guaranteed Annuity On/off platform products with annuities Guaranteed Income Plan guaranteed rate and flexible
Slide 42: Provides regular and dependable income in retirement
Life - annuity value proposition Provides regular and dependable income in retirement For personal use only Annuities and portfolio construction – income layering Benefits of annuities • Provides guaranteed regular income and supports layering which improves retirement outcomes Account based pension
Slide 43: Leveraging favourable operating environment
Life - retail annuity sales Leveraging favourable operating environment For personal use only Sales growth Life – retail annuity sales and retail net flows ($m) • Since 1H10 retail annuity sales have 2,000 800 grown by 28% CAGR 1,600 600 • Annuity sales growth underpinned by 1,200 400 – favourable m
Slide 44: Retirees focused on risks in retirement
Life - retail annuity sales Retirees focused on risks in retirement For personal use only 1 Seniors priorities1 Senior Sentiment Index High Medium Low • Shows, outside of health, retirees focused on Priority Priority Priority 80% – longevity risk 60% – peace of mind from regular and dependable % of
Slide 45: Lifetime annuities address retiree needs
Life - what retirees want Lifetime annuities address retiree needs For personal use only Top retiree preferences Lifetime annuity product features 1 Entitlement to age pension/health card Compatible with social security regulations 2 Easy to understand Product is simple and does what it says C
Slide 46: Products aimed at investors seeking guaranteed cash flows
Life - customer demographics Products aimed at investors seeking guaranteed cash flows For personal use only FY14 annuitant key statistics • Average policy amount $195,000 Retail annuity sales by customer age • Average new customer age 68 years • Average tenor of new business 6.6 years • ~50% of cus
Slide 47: Assets and liabilities cash flow matched and risks managed
Life - portfolio management Assets and liabilities cash flow matched and risks managed For personal use only Assets and liabilities are cash flow matched Assets and liabilities are matched • Assets deliver contracted cash flows to Assets match liabilities • Locking in COE over term as business Liabi
Slide 48: Liabilities matched with high quality assets
Life - portfolio management Liabilities matched with high quality assets For personal use only 31 December 2014 investment portfolio Investment portfolio - $12.4bn • Highly diversified portfolio managed within Equites and Infrastructure 4% other 5% comprehensive limit structure – asset allocation ev
Slide 49: High quality fixed income portfolio - $8.6bn
Life - portfolio management High quality fixed income portfolio - $8.6bn For personal use only Fixed income portfolio - by asset type Diversified fixed income portfolio • Portfolio diversified across a broad range of Offshore asset backed securities, Cash & equivalents, 18% 15% sectors, geographies
Slide 50: Asset Backed Securities portfolio - $4.1bn
Life - portfolio management Asset Backed Securities portfolio - $4.1bn For personal use only Asset Backed Securities Asset Backed Securities (ABS) • 48% of fixed income portfolio Senior secured loan NIM Notes, 4% securitisation, – 70% investment grade 17% – 68% externally rated • Domestic and offsho
Slide 51: Corporate credit portfolio - $3.0bn
Life - portfolio management Corporate credit portfolio - $3.0bn For personal use only Corporate credit Corporate credit • 35% of fixed income portfolio – 69% investment grade Commercial Real Estate Lending, – 73% externally rated 14% • Domestic and offshore assets Infrastructure Debt, 32% • Infrastr
Slide 52: Conservative property portfolio - $2.7bn
Life - portfolio management Conservative property portfolio - $2.7bn For personal use only Property portfolio Property portfolio • ~85% of portfolio invested in Australian assets 11% 8% • Conservative Australian property portfolio Australian office (direct) Australian retail (direct) – 61% of tenant
Slide 53: Diversified infrastructure portfolio - $0.5bn
Life - portfolio management Diversified infrastructure portfolio - $0.5bn For personal use only Infrastructure portfolio Attractive asset class • Generates reliable and consistent cash flows Renewable Logistics 25% 23% • Cash flows inflation linked • Giving rise to sustainable income growth Power •
Slide 54: Accurium: SMSF retirement specialist
Accurium SMSF retirement specialist For personal use only Bendzulla Actuarial rebranded Accurium • Vision - Australia’s SMSF Retirement Specialist • Service offering expanded to raise awareness of retirement risks 1 SMSF Retirement Insights launched • SMSF analysis of preparation for retirement − on
Slide 55: Superior net flows and FUM growth continues
Funds Management (FM) Superior net flows and FUM growth continues For personal use only Funds Management – net flows ($m) Strong net flows 8,000 • History of providing strong net flows 6,000 • Net flows driven by 4,000 – alignment with investor interests – institutional operating platform 2,000 – bo
Slide 56: Scalable and diversified - ~$55bn of FUM
FM - multiple brands and strategies Scalable and diversified - ~$55bn of FUM For personal use only Equities A$16.6bn Multiple brands & strategies Challenger Investment Partners Alternatives A$8.8bn Fixed Income A$29.8bn Half year 31 December 2014 56
Slide 57: Contemporary model with strong alignment of interests
FM - Fidante Partners Contemporary model with strong alignment of interests For personal use only Administration services Distribution services • Investment operations • Asset consultant & researcher • Client operations relationships • Compliance Administration Distribution • Strategic positioning (
Slide 58: $58bn of existing manager capacity underwrites future growth
FM - significant manager capacity $58bn of existing manager capacity underwrites future growth For personal use only 10+ 8 Remaining manager capacity 6 FUM $bn 4 2 Equity Fixed Alternative Total Managers income managers1 Managers1 Maximum capacity $41bn $50bn $22bn $113bn Remaining manager capacity
Slide 59: Diversification of managers and strategies
FM - Fidante Partners boutiques Diversification of managers and strategies For personal use only Investment Investment Boutique Asset class Boutique Asset class date date Aug 2010 Australian equities (value and growth) May 2010 Australian equities (income focus) Nov 2008 Australian inflation linked
Slide 60: Proven long term investment track record and capability
FM – Challenger Investment Partners (CIP) Proven long term investment track record and capability For personal use only Institutional clients seeking absolute return strategies Focus Expertise in asset classes • Investment professionals look • Real estate for relative value • Fixed income − risk adj
Slide 61: Important note
Important note For personal use only 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 u