Slide 1: FY16 financial results
FY16 financial results Multiple forces driving market opportunities 16 August 2016
Slide 2: Overview
Overview Multiple forces driving market opportunities FY16 operating performance Brian Benari – Managing Director and Chief Executive Officer FY16 financial results Andrew Tobin – Chief Financial Officer Strategy and outlook Brian Benari – Managing Director and Chief Executive Officer FY16 – Full ye
Slide 3: Highlights
Highlights Multiple forces driving market opportunities Challenger Group Continuing track record of growth Life Growing franchise with stable margin Funds Management Net flows consistently outperforming peers Outlook Multiple forces driving market opportunities Market leader with competitive advanta
Slide 4: Group financial performance
Group financial performance Continuing track record of growth AUM ► Group AUM up 10% excluding Kapstream sale – $5.4bn of FUM derecognised1 $60.1bn – ► Life AUM up 10%; Funds Management FUM up 8% (exc. Kapstream sale) Normalised ► Normalised NPAT benefiting from EBIT growth (+8%) NPAT2 $362m +8% ► E
Slide 5: Life financial performance
Life financial performance Growing franchise with stable margin Average AUM ► Average AUM benefiting from both annuity and GIR net book growth $13.2bn +8% ► Strong final quarter with Life AUM up $1.0bn in Q416 Life COE ► Life COE growth driven by higher average AUM (+8%) with stable margin at 4.5% $
Slide 6: Life scorecard
Life scorecard Entrenching leadership position using competitive advantage Partnerships Brand Colonial Brand leadership further entrenched platform launched 2016 lifestyle expectancy campaign Income layering thought leadership Link Group technology build FY16 Distribution completed net boo
Slide 7: Life operating performance
Life operating performance Strategic partnerships driving scale FY16 Launched August 2015 – FirstWrap and FirstChoice platforms CFS Platforms – Challenger annuity sales 4 1 Australia’s ~90% increase in annual volume largest retail 2 platform ~50% of platform sales via new advisers Sales mix
Slide 8: Life operating performance
Life operating performance Strategic partnerships driving scale FY16 Technology build completed May 2016 Launched Q117 Provides NEW Launched Q117 services to 10m super Three industry funds launching Challenger branded annuities Scheduled to fund members launch Q217 New industry funds can be ro
Slide 9: Funds Management financial performance
Funds Management financial performance Double digit FUM growth in challenging markets Average FUM ► Average FUM up 11% excluding impact of Kapstream sale in July 20151 $55.1bn – ► Benefiting from strong organic flows – $2.4bn Net income ► Fidante net income up $16m – includes $12m from Dexion acquis
Slide 10: Funds Management operating performance
Funds Management operating performance Replicating Fidante model in Europe S STRATEGIC Extend global distribution and product footprint PRIORITY ‒ acquisition of alternatives investment group Dexion Capital in July 2015 (price subject to profitability over 6 years) ‒ expands Fidante Partners’ Europe
Slide 11: Funds Management operating performance
Funds Management operating performance Net flows consistently outperforming peers Fidante Partners Australia Quarterly net flows vs peers1 ($bn) 1.6 • Expanding existing managers offerings 1.2 – Alphinity – global equities – Merlon – long only 0.8 – Ardea – nominal bonds – Tempo – global currency 0.
Slide 12: Highlights
Highlights Multiple forces driving market opportunities Challenger Group Continuing track record of growth Life Growing franchise with stable margin Funds Management Net flows consistently outperforming peers FY16 – Full year 30 June 2016 12
Slide 13: FY16 Financial results
FY16 Financial results Andrew Tobin Chief Financial Officer 16 August 2016 FY16 – Full year 30 June 2016
Slide 14: Group financial performance
Group financial performance Continuing track record of growth Movement in normalised NPAT Financial performance ($m) FY16 FY15 Change EBIT +34m (+8%) Life 500 457 9% $400m 43 Funds Management 37 44 (15%) (7) (2) (6) Corporate (65) (63) (3%) $300m Normalised EBIT 472 438 8% $200m 334 362 Interest exp
Slide 15: Life financial performance
Life financial performance Book growth driving earnings Movement in Life EBIT Financial performance ($m) FY16 FY15 Change $600m 49 Normalised COE 592 544 9% (6) $400m Expenses (93) (87) (7%) 457 500 $200m Life EBIT 500 457 9% Investment experience (post-tax) (56) (35) large FY15 Higher Higher FY16 L
Slide 16: Life margins
Life margins COE margin stable at 4.4% – 4.5% since 1H13 FY16 Life COE margin stable Life COE margin – FY15 to FY16 5.0% 4.5% 4.5% 4.5% 4.5% • Product cash margin (-20 bps) 0.1% 0.1% 4.0% 0.9% (0.2%) 1.0% 1.0% 1.0% – lower fixed income yields, partially offset by 0.7% 0.8% 0.8% 0.8% 3.0% higher prop
Slide 17: Life sales
Life sales Strong sales growth in both annuities and GIR FY16 annuity sales $3.4bn – up 22% Term annuity sales FY16 $3,000m • Term sales $2.8bn – up 22% +22% – sales increased in all quarters (relative to pcp) $2,000m • Lifetime sales $0.6bn – up 21% $1,000m – 17% of FY16 sales (1H16 14%; 2H16 21%)
Slide 18: Life net book growth
Life net book growth 11% total book growth Annuity net book growth Annuity net book growth +8.5% $2,000m $600m • FY16 $740m $1,000m $300m – 1H16 $270m – 2H16 $470m ($1,000m) ($300m) • Annuity net book growth benefiting from ($2,000m) ($600m) 1H15 2H15 1H16 2H16 – increase in lifetime and term annuit
Slide 19: Life investment portfolio
Life investment portfolio Fixed income 66% High quality fixed income portfolio meeting 18% ROE target Fixed • FY16 investment grade – 81% Fixed income credit quality income ‒ up from 76% with ‘B and below’ down $0.3bn 100% 10% 11% 6% 10% 13% $9.3bn • FY16 expansion of fixed income credit spreads 75%
Slide 20: Life investment portfolio
Life investment portfolio Property 22% Property portfolio continues to meet 18% ROE target Property • Property portfolio overview Life property portfolio overview2 $3.2bn ‒ Australian direct portfolio average (FY15 $2.9bn) cap rate 7.0% 4% ‒ occupancy rate 95% 8% Australian office 6% Australian reta
Slide 21: Life investment experience
Life investment experience Positive liability experience offset by asset mark-to-market Investment experience (pre-tax) -$68m Asset investment experience (-$139m) Asset -$139m Liability +$71m • Fixed income -$110m – refer page 19 $150m $100m • Property +$51m – refer page 20 $50m • Equities and other
Slide 22: Regulatory capital
Regulatory capital Strongly capitalised to support future growth CLC excess capital and PCA ratio1 • $1.0bn excess regulatory capital CLC PCA ratio and target surplus range • Additional $0.1bn of Group cash 2.0 2 LAGIC transition period Full LAGIC basis • PCA ratio 1.57x – upper end of target range
Slide 23: Funds Management financial performance
Funds Management financial performance Australia delivering … Europe lagging Movement in Funds Management EBIT Financial performance ($m) FY16 FY15 Change 16 $60m Fidante Partners net income 78 62 26% (6) 1 CIP net income 50 55 (10%) $40m (17) Total net income 128 118 9% 44 $20m 37 Expenses (90) (73
Slide 24: Funds Management – Fidante Partners
Funds Management – Fidante Partners Strong net flows and margin expansion Movement in Fidante Partners FUM ($bn) Movement in Fidante Partners net income margin (bps) Acquisitions/disposals -$4.9bn 50 2.2 25 44.7 43.0 0.5 1.0 2 19 9% 3 40 15% 20 (5.4) 15 (1) 30 52% 15 43% 20 10 10% 10 39% 42% 5 13% F
Slide 25: Funds Management – CIP
Funds Management – CIP Growing 3rd party property net flows Movement in CIP FUM ($bn) Movement in CIP net income margin (bps) Change in FUM mix +4bps 15 13.2 0.4 13.7 50 0.4 43 8 (0.3) 40 37 30% 34% 10 (4) 30 (10) 20 5 70% 66% 10% 10 13% FY15 Life organic 3rd party Market FY16 FY15 CIP Lower Increas
Slide 26: Shareholder dividends
Shareholder dividends Dividend up 8% and fully franked • 2H16 dividend 16.5 cps and 100% franked Dividend and normalised payout ratio 35.0 – up 6% on 2H15 30.0 50% – payable 28 September 2016 25.0 • FY16 dividend 32.5 cps and 100% franked 20.0 40% cps – up 8% on FY15 15.0 1 – 50% payout ratio – with
Slide 27: Strategy and outlook
Strategy and outlook Brian Benari Chief Executive Officer 16 August 2016 FY16 – Full year 30 June 2016
Slide 28: Retirement income market progress
Retirement income market progress Multiple forces driving market opportunities Customers › 700 new retirees a day › Greater awareness of retirement risks › Shifting mindset - wealth Challenger creation to retirement income › Focused Strategy › Annuity usage increasing › Recognised Capability › Talen
Slide 29: Investor proposition
Investor proposition Market leader with competitive advantage TO PROVIDE OUR CUSTOMERS WITH FINANCIAL SECURITY FOR RETIREMENT FOCUSED TALENTED RECOGNISED MARKET STRATEGY PEOPLE CAPABILITY LEADER FM – boutique and Highly engaged staff with Recognised consumer FM growing twice speed 1 co-inves
Slide 30: Outlook
Outlook Market leader with competitive advantage Life Funds Management FY17 strategic FY17 strategic priorities priorities Increase access to products via digital platforms Add new boutique managers Form new distribution partnerships Promote new strategies for existing managers Develop pro
Slide 31: Appendix
Appendix additional background information FY16 – year ended 30 June 2016
Slide 32: Vision and strategy
Vision and strategy To provide our customers with financial security for retirement Vision To provide our customers with financial security for retirement Strategy Increase the Australian Be recognised as the Provide clients with retirement savings pool leader and partner of relevant investment allo
Slide 33: Business overview
Business overview Two core businesses benefiting from super system growth Challenger Limited (ASX:CGF) Life Funds Management 1 2 #1 market share in annuities Australia’s 7th largest fund manager Life - Leading provider of annuities and guaranteed Fidante Partners - co-owned separately branded retire
Slide 34: Australia’s superannuation system
Australia’s superannuation system Attractive market with long term structural growth drivers System growth 3 Australian super system – forecast 2015 to 2035 ($bn) 10,000 • Transitioning from public to private pensions 8,000 1 • 5th largest global pension market 6,000 • Australian super system growin
Slide 35: Australia’s superannuation system
Australia’s superannuation system Attractive market with long term structural growth drivers Two distinctive super phases 1 Projected superannuation assets 2016 – 2035 ($bn) • Accumulation (pre-retirement) phase 10,000 – super ‘savings’ phase Annual transfer to retirement phase growing at +13% CAGR
Slide 36: Australia’s superannuation system
Australia’s superannuation system Focus shifting to the retirement phase 1 Pension system allocation to fixed income equivalants Australia has low fixed income allocation United States UK Spain • Australia fixed income and bonds allocation ~9% OECD average Netherlands • OECD average ~52% Japan Germa
Slide 37: Retirement phase market drivers
Retirement phase market drivers Market leader well positioned in high growth market Super funds partnering with Life companies Over 700 Australians turning 65 every day Industry moving ahead of regulation Older and 20-year cycle of retiring ‘Baby-Boomers’ Market healthier retirees Natural market gro
Slide 38: Regulatory tailwinds - CIPRs
Regulatory tailwinds - CIPRs To enhance superannuation retirement phase David Murray - Chairman of Financial System Inquiry ‘super assets are not being efficiently converted into retirement incomes’ Financial System Inquiry - Recommendation 11 i. Trustees pre-select for members a CIPR (Comprehensive
Slide 39: Regulatory tailwinds - DLAs
Regulatory tailwinds - DLAs New retirement income rules to drive product innovation • New retirement income product category announced following Retirement Incomes Streams Review – permit new range of lifetime income products – includes Deferred Lifetime Annuities (DLAs) • Products meeting existing
Slide 40: Regulatory tailwinds
Regulatory tailwinds To enhance superannuation retirement phase FSI CIPRs 1. Superannuation objective to 1. Government supports be enshrined in law CIPRs - to help guide 2. Remove impediments to members at retirement longevity product development 2. Trustees pre-select 3. Implement Comprehensive CIP
Slide 41: Life – product overview
Life – product overview Provide guaranteed income and peace of mind % of total Product Product Life Key features category name book Available on leading platforms Guaranteed Annuity Guaranteed rate for a fixed term Fixed term Guaranteed Income Plan Payment frequency options 64% annuities Guara
Slide 42: Life – customer needs
Life – customer needs Provide guaranteed income and peace of mind Annuities and portfolio construction – income layering Retirees face challenges including ‒ maintaining required annual income ‒ managing market and inflation impacts Account-based pension to support peak spending years Desired ‒ mana
Slide 43: Life – customer demographics
Life – customer demographics Provide guaranteed income and peace of mind FY16 annuitant key statistics Annuity sales by customer age • Average policy amount $186,000 • Average new customer age 70 years • Average tenor of new business 6.5 years • 99% of sales via financial advisers 100 50 55 60 65 70
Slide 44: Life – distribution
Life – distribution Distribution enhanced through new platform opportunities New platform opportunities provide access to • Challenger products on Approved Product Lists 1/3 of super industry 1 of all major hubs (i.e. major Banks and AMP) Launched • Challenger annuities being added to leading Techno
Slide 45: Life – distribution
Life – distribution Distribution competitive advantages driving growth Australia’s leading retirement income brand Brand Meeting the goals and Innovative Applying world’s best managing the risks of practice to the retirement via partial product Research Australian market annuitisation offering Leade
Slide 46: Life – distribution
Life – distribution Challenger No.1 in overall adviser satisfaction Wealth Insights Fund Manager Service Wealth Insights Fund Manager Service Level Report 2016 1 Level Report 2016 8.5 8.0 • High profile industry survey 7.5 – over 850 financial advisers 7.0 6.5 – how clients regard Challenger vs. pee
Slide 47: Challenger’s retirement brand journey
Challenger’s retirement brand journey Brand strengthening with consumers1, leading with advisers2 Brand strength 2011 100% ‘Real Stories’ 80% 60% 40% 2013 20% ‘On Paper’ 2010 2011 2013 2016 2016 Consumers Advisers ‘Lifestyle ‘Prompted ‘Leaders in Expectancy’ brand retirement awareness’ income’ FY16
Slide 48: Accurium
Accurium SMSF retirement specialist Repositioning ahead of accountant licensing reforms1 • Repositioned as SMSF Retirement Specialist 1. SMSF Retirement Insights: – ‘Retirement adequacy’ – ‘SMSF Trustees – healthier, wealthier and living longer’ – ‘Bridging the prosperity gap’ 2. SMSF Retirement Hea
Slide 49: Normalised profit framework
Normalised profit framework Reflects underlying performance of Life business Investment experience • All assets and liabilities fair valued Investment experience – cumulative since FY10 ($m) 300 • Gains/losses largely unrealised and non-cash 200 • Reported separately as ‘Investment Experience’ 100 N
Slide 50: Funds Management
Funds Management Track record of growing FUM and adding boutiques FUM ($bn) 70 • Funds Management FUM 60 Challenger Investment Partners of $57bn, up from $24bn Fidante Partners 5 years ago 50 ‒ annual growth 19% p.a. ‒ market growth 8% p.a.1 40 • Fidante Partners 30 ‒ 15 boutique brands ‒ geographic
Slide 51: Funds Management
Funds Management Growth supported by available capacity and superior flows Manager capacity ($bn) Rolling 12 month organic net flows vs peers1 ($bn) 35 Available capacity 7 Challenger Funds Management 30 FUM 6 Peer average 25 5 20 4 15 3 10 2 5 1 Equity Fixed Alternatives managers income managers ma
Slide 52: FM - multiple brands and strategies
FM - multiple brands and strategies 1 Scalable and diversified ~$57bn of FUM Equities A$18.3bn Multiple brands & strategies Challenger Investment Partners Alternatives A$11.1bn Fixed Income A$27.4bn FY16 – year ended 30 June 2016 1. Funds Under Management (FUM) as at 30 June 2016. 52
Slide 53: FM - Fidante Partners
FM - Fidante Partners Contemporary model with strong alignment of interests Administration services Distribution services • Investment operations • Asset consultant & researcher • Client operations relationships Administration Distribution • Strategic positioning • Compliance (Fidante Partners (Fida
Slide 54: FM - Fidante Partners boutique managers
FM - Fidante Partners boutique managers Diversified managers and investment strategies Fidante Partners Australia Fidante Partners Europe Investment Investment Boutique Asset class Boutique Asset class date date Aug 2010 Australian equities Jul 2015 Agricultural land investment & management Nov 2008
Slide 55: FM - Challenger Investment Partners (CIP)
FM - Challenger Investment Partners (CIP) Proven long-term investment track record and capability 1 • $14 billion of FUM • Investment manager for Challenger Life and 3rd party institutions • Clients benefit from experience and market insights CIP gains through breadth and scale of mandates • Key rel
Slide 56: Important note
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 upon as advice to inves