Slide 1: 1H14 Financial results
For personal use only 1H14 Financial results Leading brand, focus and execution - delivering growth 18 February 2014
Slide 2: Outline
Outline For personal use only Operating performance Brian Benari Performance scorecards Managing Director & CEO Financial results Andrew Tobin Capital management Chief Financial Officer Strategy update Brian Benari Outlook Managing Director & CEO 22
Slide 3: Highlights
Highlights Leading brand, focus and execution - delivering growth For personal use only 1. Operating performance Leading business metrics and earnings growth 2. Life Long term sales accelerating … driving asset allocation 3. Funds Management Highly scalable fast growing business 4. Customer Brand re
Slide 4: Operating performance
Operating performance Leading business metrics and earnings growth For personal use only Challenger Group • Normalised EBIT up 8% to $193m • Normalised EPS up 14% to 31.8 cps • Normalised NPAT1 up 10% to $164m • Interim dividend up 32% to 12.5 cps • Operating cash flow of $143m • Dividend payout rat
Slide 5: Life scorecard
Life scorecard Long term sales accelerating ... driving asset allocation For personal use only Forecast Australian population growth1 Target market • Retirement rate accelerating 100% 80% Operating • Retirees seeking income certainty 60% environment 40% • Government focused on retirement incomes cha
Slide 6: Funds Management scorecard
Funds Management scorecard Highly scalable fast growing business For personal use only Aust. investment manager net flows2 • Mandated super system - contributions increasing 30 20 Operating • Positive industry flows - improved investor sentiment 10 environment 1 - • Now 7th largest Australian invest
Slide 7: Customer scorecard
Customer scorecard Brand recognised as leader in retirement incomes For personal use only 1 Challenger - leader in retirement incomes 100% 1 • Retirement incomes leader – rated by 89% of advisers Distribution • Bendzulla acquisition – SMSF retirement opportunity 75% • mFund and offshore funds manage
Slide 8: Shareholder scorecard
Shareholder scorecard Unique market position delivering long term growth For personal use only EPS growth 1.6 • EPS up 46%1 since 1H10 1.4 Performance • NPAT up 41%1 and expenses up only 14% since 1H10 1.2 1.0 metrics 0.8 • Total AUM up 113% since 1H10 1H10 1H11 1H12 1H13 1H14 Challenger Major banks
Slide 9: 1H14 Financial results
For personal use only 1H14 Financial results Andrew Tobin Chief Financial Officer 18 February 2014
Slide 10: Group financial performance
Group financial performance AUM growth and scale benefits driving earnings For personal use only Financial Assets Under Management 1H14 1H13 Change Trend performance 50 Assets Under 40 $48.8bn $38.3bn 27% Management 30 $bn Net income $292m $274m 7% 20 10 Expenses $99m $96m 3% 1 1H13 2H13 1H14 Normal
Slide 11: Life financial performance
Life financial performance AUM growth with stable margin driving higher COE For personal use only Financial Assets Under Management 1H14 1H13 Change Trend performance 11 AUM (average) $10.7bn $9.9bn 8% Retail annuity net $bn 10 $540m $213m 154% book growth Normalised Cash Operating $237m $225m 5% 9
Slide 12: Life margins
Life margins COE margin stable and FY14 COE guidance upgraded For personal use only 1H14 COE margin of 4.4% - unchanged 1H14 change in Life COE margin from 2H13 5.0% 4.4% 4.4% 4.4% 0.1% 0.1% – product margin (-20 bps) 4.0% 0.8% 0.9% (0.2%) – lower return on assets backing annuities, 3.0% 0.4% 0.5% i
Slide 13: Retail annuity sales
Life retail annuity sales Sales growing strongly and creating long term business value For personal use only Retail annuity sales Retail annuity sales • Continuing to grow strongly 1,500 – 1H14 sales of $1.5bn up 38% – record sales for any 6 month period $m 1,000 • Sales mix continuing to shift to l
Slide 14: Net book growth
Life net book growth Benefiting from strong sales … FY14 target upgraded For personal use only Retail Life retail net book growth • 1H14 retail net book growth of 8% ($540m) 1,500 750 • Net book growth benefiting from 540 1,000 500 – unseasonally strong Q114 sales 385 – longer tenor sales in prior p
Slide 15: Investment portfolio
Life investment portfolio High quality matched portfolio For personal use only • Asset allocation evolves to reflect longer Life investment portfolio - $10.9bn tenor sales and relative value 100% – property increasing 80% – fixed income reducing 60% • High quality fixed income portfolio 40% – 28% ca
Slide 16: Investment experience
Life investment experience Stability in debt markets offset by property valuations For personal use only • Capital growth of $30m exceeded normalised Investment Experience (pre tax) growth of $26m, resulting in investment 50 experience of +$4m 25 • Fixed income (+$32m) benefited from $m - tightening
Slide 17: Funds Management financial performance
Funds Management financial performance FUM growth and scale benefits driving earnings and RoE For personal use only Financial performance 1H14 1H13 Change Trend FUM 50 FUM (average) $43.0bn $32.9bn 31% 40 Net flows $1.1bn $2.2bn 50% $bn 30 20 Fidante Partners net $31m $19m 63% income 10 Challenger I
Slide 18: Funds Management net income
Funds Management net income Benefiting from strong FUM growth For personal use only Fidante Partners Fidante Partners – net income and margin • Net income up 63% from strong FUM 40 40 growth 30 30 • Income margin (20 bps) down 1 bp $m 20 20 bps from 2H13 reflecting – lower margin earned by boutiques
Slide 19: Capital management
Capital management Strong capital position with financial flexibility For personal use only Strongly capitalised CLC excess regulatory capital and Group cash • 31 December 2013 excess capital 1,200 – CLC excess capital and Group cash of $1,131m1 800 (including LAGIC transition of $323m) $m – CLC PCA
Slide 20: Capital management: increasing dividend payout ratio
Capital management Increasing dividend payout ratio For personal use only Interim dividend and normalised payout ratio Dividends 15 40% • 1H14 dividend – 12.5 cps (unfranked) up 32% 10 35% cps – payout ratio up from 34% to 39% 5 30% • 2H14 dividend expectations – payout ratio increasing to range of
Slide 21: Strategy update and outlook
For personal use only Strategy update and outlook Brian Benari Chief Executive Officer 18 February 2014 Half year 31 December 2013
Slide 22: Growth
Life growth Progress on … opportunities to grow and enhance returns For personal use only Brand campaign – launched & exceeding expectations Distribution White label and partnerships – SMSF opportunities Scaled advice – pilot completed & ongoing evaluation Lifetime – product enhancements Innovation
Slide 23: Bendzulla Actuarial acquisition
Bendzulla Actuarial acquisition Opportunity to access high growth SMSF market For personal use only Business model • SMSFs require an actuarial certificate when one member is in retirement and one in accumulation 1 • Leading provider of SMSF actuarial certificates with ~60% market share • Relationsh
Slide 24: Funds Management growth
Funds Management growth Progress on … expanding our offering For personal use only Normalised RoE and cost to income ratio 40% 80% Contemporary model – new products 30% 70% Funds Alignment of interests – demonstrated by FUM up 27% 20% 60% Management RoE and scalability – RoE increasing, cost ratio f
Slide 25: Outlook
Outlook Competitive advantage in attractive markets For personal use only Life Funds Management • FY14 retail net book growth target • Ongoing development of existing and increased to a range of 10% - 12%1 new boutiques • FY14 COE guidance upgraded • RoE and cost to income ratio will - range of $470
Slide 26: Highlights
Highlights Leading brand, focus and execution – delivering growth For personal use only 1. Operating performance Leading business metrics and earnings growth 2. Life Long term sales accelerating … driving asset allocation 3. Funds Management Highly scalable fast growing business 4. Customer Brand re
Slide 27: Appendix
For personal use only Appendix additional background information Half year 31 December 2013
Slide 28: Our vision and strategy
Our vision and strategy Providing financial security in retirement For personal use only Provide Australians with financial security in retirement Increase the Australian Be recognised as the Be an active investment retirement savings pool leader in retirement manager providing allocation to secure
Slide 29: 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 a
Slide 30: Market opportunity
Market opportunity Competitive advantage in attractive markets For personal use only Life Funds Management • Supportive demographics • Growth underpinned by mandated super system • Changing consumer risk Market preferences • Contributions increasing from opportunity 9.25% to 12% • Increasing need fo
Slide 31: Strong operating performance
Strong operating performance Continued earnings growth with tight cost control For personal use only Normalised NPAT, underlying operating cash flow Track record of strong profit and and EPS EPS growth 200 35 • Since 1H10 150 30 – normalised NPAT up 41% to $164m $m 100 25 cps – normalised EPS up 46%
Slide 32: Favourable operating environment
Favourable operating environment Attractive markets leveraged by distribution footprint For personal use only Favourable macro trends Projected superannuation assets 2013 to 20333 8 • Australia has the largest pension market in 7 Asia-Pacific and world’s 5th largest1 6 5 • Pension assets of $1.7 tri
Slide 33: Overview of Australian superannuation system
Favourable operating environment Overview of Australian superannuation system For personal use only Worlds 5th largest pension market Australian superannuation system1- $1.7 trillion • Government supported system which encourages workers to save and fund their Corporate 4% Industry 25% retirement Ch
Slide 34: Favourable operating environment: product innovation and distribution
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 at
Slide 35: 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 represented on the Fixed term Guaranteed Annuity On/off platform products with approved product lists of all major hubs annuities Guaranteed I
Slide 36: Liquid Lifetime and Care Annuity driving long term sales
Life – innovative products Liquid Lifetime and Care Annuity driving long term sales For personal use only Liquid Lifetime example1 Liquid Lifetime Annuity Male aged 65, $100,000 invested $120,000 $13,000 Provides a solution for retirees’ longevity, market and $100,000 $11,500 inflation risks $80,000
Slide 37: Annuity value proposition
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 38: Retail annuity sales
Life - retail annuity sales Leveraging favourable operating environment For personal use only Sales growth Life – retail annuity sales and net book growth • Since 1H10 retail annuity sales have 1,600 800 grown by 34% CAGR 1,200 400 • Annuity sales growth underpinned by – favourable macro trends $m 8
Slide 39: Retirees focused on risks in retirement
Life - retail annuity sales Retirees focused on risks in retirement For personal use only • Senior Sentiment Index1 shows, outside of Seniors priorities1 High Medium Low health, retirees focused on Priority Priority Priority 80% – longevity risk – peace of mind from regular and dependable % of 60% i
Slide 40: Customer demographics
Life - customer demographics Products aimed at investors seeking guaranteed cash flows For personal use only New business and reinvestment Annuitant key statistics • Average policy amount $225,000 Customer age – new business Customer age – reinvestment • Average new customer age 67 years • Average t
Slide 41: Strong risk management framework
Life - portfolio management Strong risk management framework For personal use only Assets and liabilities are cash flow matched Assets and liabilities matched • Assets deliver contracted cash flows to Assets match liabilities • Locking in COE over term as business Liabilities is written Fixed income
Slide 42: Liabilities matched with high quality assets
Life - portfolio management Liabilities matched with high quality assets For personal use only 31 December 2013 investment portfolio Investment portfolio - $10.9bn Equities • Highly diversified portfolio managed within Infrastructure 5% and other 4% comprehensive limit structure – asset allocation e
Slide 43: High quality fixed income portfolio
Life - portfolio management High quality fixed income portfolio - $8.0bn 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 sectors, geographies and rating
Slide 44: Asset backed securities portfolio
Life - portfolio management Asset backed securities portfolio - $3.4bn For personal use only Asset Backed Securities - $3.4bn Asset Backed Securities (ABS) Senior secured NIM notes • 43% of fixed income portfolio bank loan securitisation – 82% investment grade 6% – 75% externally rated 16% • Domesti
Slide 45: Corporate credit portfolio
Life - portfolio management Corporate credit portfolio - $3.1bn For personal use only Corporate credit - $3.1bn Corporate credit Banks and Senior secured financials • 38% of fixed income portfolio bank loans – 78% investment grade 17% 26% – 75% externally rated Sovereigns and Commercial real Superna
Slide 46: Conservative property portfolio
Life - portfolio management Conservative property portfolio - $2.0bn For personal use only Property portfolio • >70% of portfolio is invested in Australian 40% 1 properties 30% • Conservative Australian direct property 20% portfolio 10% – 66% of tenants investment grade – 87% of leases have fixed or
Slide 47: Diversified infrastructure portfolio
Life - portfolio management Diversified infrastructure portfolio - $0.5bn For personal use only Attractive asset class Infrastructure portfolio – 31 December 2013 • Generates reliable and consistent cash flows Renewable Logistics • Cash flows inflation linked 20% 23% • Giving rise to sustainable inc
Slide 48: Funds Management
Funds Management Success of multi boutique model driving superior FUM growth For personal use only Strong net flows Funds Management – net flows 3,000 • History of providing strong positive flows 2,000 • Net flows driven by $m 1,000 – alignment with investor interests – institutional operating platf
Slide 49: Fidante Partners
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 50: Fidante Partners boutiques
FM - Fidante Partners boutiques Diversification of managers and strategies For personal use only Investment Investment Boutique Asset class Boutique Asset class date date Active investor in Australian equities, Australian equity income manager, delivering Aug 2010 focused on undervalued companies wi
Slide 51: Challenger Investment Partners
FM – Challenger Investment Partners 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 • Fixed income for relative value • Real estate − risk adjusted
Slide 52: Important note
For personal use only Important note 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