Slide 1: FY13 Financial results: 2013 – a pivotal year
For personal use only FY13 Financial results 2013 – a pivotal year 19 August 2013 Full year 30 June 2013
Slide 2: Outline
Outline For personal use only Operating performance Brian Benari Performance scorecards Managing Director & CEO Financial results Andrew Tobin Capital flexibility Chief Financial Officer Strategy update Brian Benari Outlook Managing Director & CEO Full year 30 June 2013 2
Slide 3: Highlights: 2013 – a pivotal year
Highlights 2013 – a pivotal year For personal use only 1. Operating performance Strong business metrics delivered 2. Life Benefiting from long term sales 3. Funds Management Scale driving earnings growth 4. Customer and shareholder Leader in retirement incomes delivering on shareholder promises 5. F
Slide 4: Operating performance: strong business metrics delivered
Operating performance Strong business metrics delivered For personal use only Challenger Group • Normalised EBIT up 8% to $365m • FY dividend up 11% to 20.0 cps • Normalised NPAT1 up 4% to $309m • Completed $50m (9.5 cps) buy back • Operating cash flow of $322m • Normalised EPS up 2% to 58.6 cps • S
Slide 5: Life scorecard: benefiting from long term sales
Life scorecard Benefiting from long term sales For personal use only • Capitalising on demographic trends / risk preferences Operating • Growing acceptance that ‘retirement is different’ environment • Increasing demand for longevity protection . Lifetime annuity sales ($m) 200 • New product sales ac
Slide 6: Funds Management scorecard: scale driving earnings growth
Funds Management scorecard Scale driving earnings growth For personal use only 2 Superannuation assets forecast ($bn) 8,000 • Leveraging retirement ‘saving’ phase 6,000 Operating 4,000 • 9th largest Aust. manager1 up from 19th 2 years ago environment 2,000 • Scalable – FY13 FUM up 33% and profit up
Slide 7: Customer scorecard: recognised as the leader in retirement incomes
Customer scorecard Recognised as the leader in retirement incomes For personal use only • #1 rated distribution team1 Distribution • Delivered record Life sales and FM net flows • New channels – QSuper, Bendigo and Adelaide Bank . • Innovating to improve retirement outcomes for clients Product • Lau
Slide 8: Shareholder scorecard: delivering on our promises
Shareholder scorecard Delivering on our promises For personal use only EPS growth 1.500 • Since FY09 - NPAT1 up 41% and EPS1 up 50% 1.250 Performance • History of exceeding 18% pre tax RoE hurdle 1.000 metrics • Track record of delivering on guidance 0.750 FY09 FY10 FY11 FY12 FY13 CGF Major Banks We
Slide 9: FY Financial results
For personal use only FY 13 Financial results Andrew Tobin Chief Financial Officer 19 August 2013 Full year 30 June 2013 > Financial results
Slide 10: Group financial performance
Group financial performance AUM growth and scale benefits driving earnings For personal use only Financial Assets Under Management FY13 FY12 Change Trend performance 50 Assets Under 40 $44.8bn $33.4bn 34% Management 30 $bn Net income $557m $528m 5% 20 10 Expenses $192m $189m 2% 1 FY11 FY12 FY13 Norm
Slide 11: Life financial performance
Life financial performance COE target exceeded – strong AUM growth at lower margin For personal use only Financial Assets Under Management FY13 FY12 Change Trend performance 12 10 AUM (average) $10.2bn $9.0bn 13% 8 $bn 6 Retail annuity net $598m $583m 3% 4 book growth Normalised Cash 2 Operating $45
Slide 12: Life margins: reflects lower asset and capital returns
Life margins Reflects lower asset and capital returns – FY14 stable outlook For personal use only FY13 Life COE margin of 4.5% FY13 change in product margin 4.00% • Change in FY13 (-40 bps) due to 0.6% 3.00% – product margin (-30 bps) (0.7%) (0.1%) (0.1%) – lower return on assets backing annuities,
Slide 13: Retail annuity sales: tenor creating long term business value
Life retail annuity sales Tenor creating long term business value For personal use only Retail annuity sales Lifetime annuity sales 100 • Sales mix changing to longer tenor 80 business • $257m of lifetime annuity sales $m 60 – Liquid Lifetime ($158m) - up 250% 40 – Care Annuity ($99m) - launched Jul
Slide 14: Net book growth
Life net book growth Product innovation and distribution driving net book growth For personal use only Retail Life retail net book growth2 • FY13 retail net book growth 9% ($598m) 2,500 1,000 2,000 800 • FY14 Life retail net book targeted 1,500 600 583 to grow by 8% (~$570m), excluding 1,000 598 400
Slide 15: Investment portfolio: sustainable cash flows from high quality portfolio
Life investment portfolio Sustainable cash flows from high quality portfolio For personal use only • High quality fixed income portfolio Life investment portfolio - $10.8bn – 84% investment grade 80% – 79% externally rated • Diversified fixed income portfolio managed 60% within sector, geographies a
Slide 16: Investment experience: gains driven by tightening of credit spreads
Life investment experience Gains driven by tightening of credit spreads For personal use only • Capital growth of $174m exceeds expected Investment Experience (pre tax) normalised growth of $36m, resulting in 200 Investment Experience of $138m 150 • Fixed income benefited from tightening $m 100 of c
Slide 17: Funds Management financial performance
Funds Management financial performance FUM growth and performance driving earnings and ROE For personal use only Financial performance FY13 FY12 Change Trend FUM 50 FUM (average) $35.9bn $27.7bn 30% 40 30 Net flows $7.0bn $4.2bn 67% $bn 20 Fidante Partners net $48m $32m 50% 10 income Aligned Investm
Slide 18: Funds Management margins
Funds Management margins Margins stable and revenue up from FUM growth For personal use only Fidante Partners Fidante partners – net income and margin • Income margin (20 bps) unchanged 60 60 from FY12 40 40 • Income margin reflects bps $m – benefit from higher performance fees 20 20 – offset by cha
Slide 19: Capital flexibility: strong organic capital generation
Capital flexibility Strong organic capital generation providing flexibility For personal use only Strongly capitalised CLC excess regulatory capital and Group cash 1,200 • CLC excess capital and Group cash of $1,074m1, up from $813m 800 • CLC PCA ratio of 1.8 times2 $m • Excess capital includes $323
Slide 20: Capital flexibility: dividend and buy back
Capital flexibility Strong organic capital generation providing flexibility For personal use only Dividend Dividend and normalised payout ratio • FY13 dividends up 11% to 20.0 cps 24 40% 20 (unfranked) 16 30% • Dividend payout ratio of 34.1% cps 12 • Expect to commence partial franking 8 20% (40% to
Slide 21: Strategy update and outlook
For personal use only Strategy update and outlook Brian Benari Chief Executive Officer 19 August 2013 Full year 30 June 2013 > Strategy and outlook
Slide 22: Life growth: opportunities to grow and enhance return on capital
Life growth Opportunities to grow and enhance return on capital For personal use only • Brand campaign Distribution • White label and partnerships • Scaled advice . • Lifetime – including Care Annuity Innovation • Deferred Lifetime Annuities (DLAs) • Retirement income models • Longevity risk via lif
Slide 23: Funds Management growth
Funds Management growth Fastest growing manager with expanded boutique offering For personal use only Normalised RoE % 30 • Contemporary model 20 Funds • Alignment of interests Management • High RoE and scalable 10 FY 09 FY10 FY 11 FY 12 FY 13 Fidante Partners – investment 1 performance 1 year 92% •
Slide 24: Outlook: executing our plan in attractive markets
Outlook Executing our plan in attractive markets For personal use only Challenger Group • Combined dividend and buy back payout • Cost to income ratio target range reduced ratio of ~50%1 over the medium term to 32% to 36% • FY14 dividend payout ratio increasing • Committed to 18% RoE (pre tax) hurdl
Slide 25: Highlights: 2013 – a pivotal year
Highlights 2013 – a pivotal year For personal use only 1. Operating performance Strong business metrics delivered 2. Life Benefiting from long term sales 3. Funds Management Scale driving earnings growth 4. Customer and shareholder Leader in retirement incomes delivering on shareholder promises 5. F
Slide 26: Appendix
For personal use only Appendix additional background information Full year 30 June 2013 > Appendix
Slide 27: 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 28: 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% to 12% • Increasing need for l
Slide 29: Strong operating performance
Strong operating performance Consistent 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 350 300 70 60 • Since FY09 250 50 – normalised NPAT up 41% to $309m $m 200 40 cps – normalised EP
Slide 30: Favourable operating environment
Favourable operating environment Attractive markets leveraged by distribution footprint For personal use only Favourable macro trends Projected superannuation assets 2010 to 20303 7,000 • Australia has the largest pension market in 6,000 Asia-Pacific and world’s 4th largest1 5,000 • Pension assets o
Slide 31: Favourable operating environment: risk preferences and longevity
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 32: Distribution and 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 33: Innovative products
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 34: 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 35: Retail annuity sales: leveraging favourable operating environment
Life - retail annuity sales Leveraging favourable operating environment For personal use only Sales growth Life – retail annuity sales and net book growth • Since FY09 retail annuity sales have 2,500 800 grown by 43% CAGR 2,000 400 • Annuity sales growth underpinned by 1,500 – favourable macro trend
Slide 36: Retail annuity sales: retirees focused on risks
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 – longevity risk 80% – peace of mind from regular and dependable % of 60% i
Slide 37: 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 $200,000 Customer age – new business Customer age – reinvestment • Average new customer age 66 years • Average t
Slide 38: Portfolio management: 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 earnings over term as Liabilities business is written Fix
Slide 39: Portfolio management: liabilities matched with high quality assets
Life - portfolio management Liabilities matched with high quality assets For personal use only 30 June 2013 investment portfolio Investment portfolio - $10.8bn Equities • Highly diversified portfolio managed within Infrastructure 5% and other 3% comprehensive limit structure Property – asset allocat
Slide 40: High quality fixed income portfolio
Life - portfolio management High quality fixed income portfolio - $8.2bn For personal use only Fixed income portfolio - by asset type Diversified fixed income portfolio • Portfolio diversified across a broad range of Offshore Asset Backed Cash & equivalents sectors, geographies and rating limits Sec
Slide 41: Corporate credit
Life - portfolio management High quality fixed income portfolio - $8.2bn For personal use only Corporate credit - $3.4bn Corporate credit Banks and • 41% of fixed income portfolio Senior secured bank loans financials 29% – 81% investment grade 18% – 72% externally rated Commercial real • Domestic an
Slide 42: Asset Backed Securities
Life - portfolio management High quality fixed income portfolio - $8.2bn For personal use only Asset Backed Securities - $3.4bn Asset Backed Securities (ABS) Senior Secured NIM notes • 41% of fixed income portfolio Bank Loan 7% Securitisation – 92% investment grade 19% – 70% externally rated • Domes
Slide 43: Conservative property portfolio
Life - portfolio management Conservative property portfolio - $1.8bn For personal use only • Australian property portfolio at more 40% Property portfolio conservative end of the spectrum 30% – Properties directly held or jointly held with Challenger Diversified Property Group (ASX:CDI) 20% – 71% of
Slide 44: Diversified infrastructure portfolio
Life - portfolio management Diversified infrastructure portfolio - $0.5bn For personal use only Attractive asset class Infrastructure portfolio – 30 June 2013 • Generates reliable and consistent cash flows • Cash flows inflation linked Renewable 22% Logistics 22% • Giving rise to sustainable income
Slide 45: Funds Management: multi boutique model driving FUM growth
Funds Management Success of multi boutique model driving superior FUM growth For personal use only Strong net flows Funds Management – net flows 8,000 • History of providing strong positive flows 6,000 • Net flows driven by 4,000 $m 2,000 – alignment with investor interests - – institutional operati
Slide 46: Fidante Partners: contemporary model with strong alignment
FM - Fidante Partners – FUM $30bn 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 p
Slide 47: 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 48: Aligned Investments: proven long term investment track record
FM - Aligned Investments – FUM $11bn 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 49: 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