Challenger Limited · ASX:CGF
Challenger — Challenger Financial Services Group — H1 2009 Earnings Presentation
30 slides from Challenger's earnings presentation, Feb 16, 2009
Slide 1: Half Year results to 31 December 2008
For personal use only Challenger Financial Services Group Limited Half Year results to 31 December 2008 Dominic Stevens – Chief Executive Officer 16 February 2009 1
Slide 2: Robust performance in challenging markets
Challenger Group Half Year Ended 31 Dec 08 Robust performance in challenging markets For personal use only • Financial performance – Normalised NPAT of $106m – up 4% – Normalised EBIT of $159m – up 3% – Strong operating cash flow of $89m – up 5% – Statutory NPAT of $(108m) impacted by negative inves
Slide 3: 1H09 – financial performance
Challenger Group Half Year Ended 31 Dec 08 1H09 – financial performance For personal use only EBIT • Normalised EBIT up 3% 175 on pcp driven by 150 – Life EBIT up 34% $ million 125 – 21% increase in 100 Mortgage Management 75 EBIT 50 – Lower contribution from 1H07 2H07 1H08 2H08 1H09 Funds Managemen
Slide 4: Quality of revenue
Challenger Group Half Year Ended 31 Dec 08 Quality of revenue For personal use only 350 300 Norm. Growth 250 Normalised Cash Spread COE Earnings 200 $m 150 Trans + Perf. 100 Total Fee Base + Income* Mgmt 50 0 1H09 1H09 Rev enue Predictable / FUM P r edi ct abl e FUM r el at ed Long Term Long t er m
Slide 5: Capital strength
Challenger Group Half Year Ended 31 Dec 08 Capital strength For personal use only • CL2 prudentially regulated by APRA • Capital adequacy remains strong and above target surplus albeit down on significant excess at June 08 • Excess capital greater than $400m in CL2 after absorbing significant mark t
Slide 6: Opportunities and Challenges
For personal use only Opportunities and Challenges 6
Slide 7: Life – commitment to retirement security
Challenger Group Half Year Ended 31 Dec 08 Life – commitment to retirement security For personal use only Historical Comparison of S&P 500 Cycles • Largest annuity provider in 2.5 Australia; transition of AXA portfolio in Nov 08 re- affirmed our commitment to 2.0 the market • We believe annuities ha
Slide 8: Life - business opportunities and challenges: fixed income portfolio
Challenger Group Half Year Ended 31 Dec 08 Life - business opportunities and challenges For personal use only CL2 fixed income portfolio by S&P equivalent rating • ~85% of fixed income 100% 90% is investment grade 80% 70% BBB A AA % of portfolio 60% • Continuing to re-invest 50% 40% assets received
Slide 9: Life - BBB corporate default rate history
Challenger Group Half Year Ended 31 Dec 08 Life - business opportunities and challenges For personal use only Historic 1 and 5 Yr Rolling Average BBB Corporate Default Rate 16% 14% BBB Default Rate BBB Default Rate (5yr rolling avg) 12% 10% 8% 6% 4% 2% 0% 1922 1927 1932 1937 1942 1947 1952 1957 1962
Slide 10: Life - break even default rates versus current pricing
Challenger Group Half Year Ended 31 Dec 08 Life - business opportunities and challenges For personal use only Historic and Projected Break Even 1 and 5 Yr Rolling Average BBB Corporate Default Current pricing Rate vs. Current BBB Break Even Default Rates at 31 Dec 08 levels imply 16% default rates m
Slide 11: Life - Challenger composite cap rate versus market
Challenger Group Half Year Ended 31 Dec 08 Life - business opportunities and challenges For personal use only Challenger composite Cap Rate versus Market • Valuations are Financial Year conservative – reflecting quality and low risk nature 8.50% CL2 Composite Cap Rate Average Mkt Cap Rates of the po
Slide 12: Life - Challenger Infrastructure Fund exposure
Challenger Group Half Year Ended 31 Dec 08 Life - business opportunities and challenges For personal use only Stake in 60% Wales and Southern Water is • Primary exposure via West Sold for £56.4m, 36% premium to sold for £100m, at NAV Challenger 40% NAV Infrastructure Fund CIF trading premium / (disc
Slide 13: Funds - business opportunities and challenges
Challenger Group Half Year Ended 31 Dec 08 Funds - business opportunities and challenges For personal use only Global superannuation assets growth rates • Australian market an attractive long 25% 1 year (Dec 06 - Dec 07) 5 year (Dec 02 - Dec 07) CAGR term opportunity 10 year (Dec 97 - Dec 07) CAGR –
Slide 14: Mortgages – business opportunities & challenges
Mortgages – business opportunities & challenges For personal use only Challenger broker network versus Bank points of presence Points of Presences (Banks) versus Broker Network • Broker platforms - key 6000 strategic distribution business 5000 4000 operating across Australia in (CGF) 3000 mortgage s
Slide 15: Half Year results to 31 December 2008 – Group CFO
For personal use only Challenger Financial Services Group Limited Half Year results to 31 December 2008 Brian Benari – Group Chief Financial Officer & Group Chief Operating Officer 16 February 2009 15
Slide 16: Financial highlights
Challenger Group Half Year Ended 31 Dec 08 Financial highlights For personal use only % Mvt 350 60% Financial 1H09 1H08 1H08- Trend Performance 1H09 300 50% 250 Assets Under Ð $ million $37.7bn $47.3bn (21)% 200 Management 40% 150 Assets Under Administration $70.9bn $23.2bn large Ï 100 30% 50 Net In
Slide 17: Expense control
Challenger Group Half Year Ended 31 Dec 08 Expense control For personal use only • Expense base centralised 150 under single CFO/COO 140 role 130 • Expenses down 8% on 120 pcp despite impact of one- 110 $ million off personnel costs and 100 90 PLAN / Choice impact 80 • Mortgage Management 70 expense
Slide 18: Divisional performance
For personal use only Divisional performance 18
Slide 19: Life financial highlights
Funds Mortgage Life Mgmt Mgmt Half Year Ended 31 Dec 2008 Life financial highlights For personal use only % Mvt 125 30% Financial 1H09 1H08 1H08 - Trend 25% Performance 1H09 100 $ million 20% 75 15% AUM – Life $6.1bn $5.5bn 11% Ï 50 10% 25 5% Normalised Cash Operating Earnings $122m $95m 28% Ï 0 0%
Slide 20: Key value drivers of the result – Life
Funds Mortgage Life Mgmt Mgmt Half Year Ended 31 Dec 2008 Key value drivers of the result For personal use only • Normalised cash spread Normalised COE expansion tracking AUM earnings expanding as 150.0 6.5 MetLife cash fully invested, Average AUM margins continue to widen Normalised COE 6 • Earning
Slide 21: Investment Experience
Funds Mortgage Life Mgmt Mgmt Half Year Ended 31 Dec 2008 Investment Experience For personal use only Aggregate hedging impact – currency/interest rates Equity & Alternate - Impact reduced 500 driven by fall in due to benefit CDI consolidation capital markets, from CPI & reducing impact combined wit
Slide 22: Funds Management financial highlights
Funds Mortgage Life Mgmt Mgmt Half Year Ended 31 Dec 2008 Funds Management financial highlights For personal use only % Mvt 100% Financial 100 1H09 1H08 1H08- Trend 80% Performance 1H09 80 $ million 60% 60 Funds Under Management $16.8bn $24.3bn (31)% Ð 40 40% 20 20% Net Income $62m $103m (40)% Ð 0 0
Slide 23: Key value drivers of the result – Funds Management
Funds Mortgage Life Mgmt Mgmt Half Year Ended 31 Dec 2008 Key value drivers of the result For personal use only FUM Movements 25.0 • Revenue lower due to: 22.5 – fall in unlisted funds/mandates 20.0 FUM during the period 17.5 $m – outflows in retail FUM 15.0 (primarily index funds) 12.5 – reduced co
Slide 24: Mortgage Management financial highlights
Funds Mortgage Life Mgmt Mgmt Half Year Ended 31 Dec 2008 Mortgage Management financial highlights For personal use only % Mvt 150 50% Financial 1H09 1H08 1H08- Trend 125 Performance 40% 1H09 $ million 100 30% Mortgages Under 75 Management $19.8bn $23.3bn (15)% Ð 20% 50 Mortgages Under 25 10% Admini
Slide 25: Key value drivers of the result – Mortgage Management
Funds Mortgage Life Mgmt Mgmt Half Year Ended 31 Dec 2008 Key value drivers of the result For personal use only Platform Settlements vs Market Commitments • Mortgage lending book Broker Platforms Flow Market Commitments qrtly incl refi (RHS) 10 90 smaller as growth was 8 80 moderated to ensure longe
Slide 26: Dividends
Challenger Group Half Year Ended 31 Dec 08 Dividends For personal use only Interim dividend – cents per share (cps) • 2009 interim dividend declared 10.0 50% • 5.0 cents per share, unfranked 9.0 • Sustainable payout ratio 8.0 40% • Active capital management 7.0 delivering accretion for shareholders
Slide 27: Outlook
For personal use only Outlook Dominic Stevens – Chief Executive Officer 16 February 2009 27
Slide 28: Outlook
Challenger Group Half Year Ended 31 Dec 08 Outlook For personal use only • 2008 has changed the financial services landscape – Higher risk premiums on assets – Value of long term funding or capital has increased – Survivors will emerge stronger – Policy focus will inevitably move from stability to c
Slide 29: Outlook
Challenger Group Half Year Ended 31 Dec 08 Outlook For personal use only • Growth through capturing demand for capital guaranteed investments to counter market volatility • 5,500 strong mortgage distribution network providing scale benefits and strategic partnership opportunities • Continuing focus
Slide 30: 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
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