Slide 1: FY10 Financial Results
For personal use only FY10 Financial Results Structural and strategic changes building momentum Dominic Stevens Chief Executive Officer 23 A Augustt 2010
Slide 2: Strong financial metrics
Challenger Group Year Ended 30 June 2010 Strong financial metrics For personal use only • Performance – Normalised NPAT of $233m up 6% – Statutory NPAT of $283m – Normalised EPS of 45.5 cps up strongly, increase of 16% – Cost to income ratio fell materially, down to 41% – Final dividend declared of
Slide 3: Track record of consistent growth
Challenger Group Year Ended 30 June 2010 Track record of consistent growth For personal use only Earnings / Normalised EPS • Steadily growing normalised Normalised NPAT Basic EPS (RHS) 250 50 earnings 200 40 • 5 year EPS growth of 20% 150 30 cps $m • Cash earnings now a higher 100 20 percentage of C
Slide 4: Track record of consistent growth
Challenger Group Year Ended 30 June 2010 Track record of consistent growth For personal use only Life AUM • Financial performance 8,000 underpinned by growth 6,000 across our core businesses $m 4,000 • Sales of retail guaranteed 2,000 product up 166% over 5 years and Life AUM has 0 2006 2007 2008 20
Slide 5: Simplified and transparent business
For personal use only Simplified p and transparent p business 5
Slide 6: Business position - 2008/09
Challenger Group Year Ended 30 June 2010 Business position - 2008/09 For personal use only Funds Mortgage Life g Mgmt Mgmt Demographic Constrained Structural changes to our 9% Compulsory funding post GFC superannuation Drivers customer base supporting ti growth th infers slower growth profile Increa
Slide 7: Business position - 2009/10
Challenger Group Year Ended 30 June 2010 Business position - 2009/10 For personal use only Life Funds Mgmt Demographic changes better Compulsory Structural understood superannuation Drivers GFC puts spotlight on risk expected to be lifted from 9% to 12% Asset spreads to remain wide Gaining traction
Slide 8: Strategies leveraged to structural market changes
For personal use only Strategies g leveraged g to structural market changes 8
Slide 9: Structural driver: ageing population
Challenger Group Year Ended 30 June 2010 Structural driver: ageing population For personal use only A Australian li population l i growth h 2008 - 2028 9
Slide 10: Structural driver: regulatory reform
Challenger Group Year Ended 30 June 2010 Structural driver: regulatory g y reform For personal use only R i Review F Focus G Government t Response R Ch ll Challenger Impact I t No direct impact given Challenger does Ripoll Appropriateness pp p Introduction of fiduciaryy not own or operate p ap plann
Slide 11: Structural driver: reduced risk appetite
Challenger Group Year Ended 30 June 2010 Structural driver: reduced risk appetite For personal use only Balanced Fund 40% 30% 20% 10% 0% Pain P -10% -20% -30% -40% Jun-1993 Jun-1995 Jun-1997 Jun-1999 Jun-2001 Jun-2003 Jun-2005 Jun-2007 Jun-2009 Excess Return over Government Bonds 1 year rolling afte
Slide 12: Australia consistent with global trends
Challenger Group Year Ended 30 June 2010 Australia consistent with global trends For personal use only “What will drive the next wave of growth th in i your company’s ’ % of respondents business over the next 3 years?” 0 10 20 30 40 50 60 MARKET DRIVERS Global economic prospects Recovery in equity m
Slide 13: Expanded product and distribution
Challenger Group Year Ended 30 June 2010 Expanded product and distribution For personal use only Channel Investor Base Guaranteed Income Plan (GIP) • Established annuity product – fixed rate and term certain IFAs Retail Guaranteed Income Fund (GIF) • New unitised version of the IFAs / annuity it pro
Slide 14: Increasing awareness and reach
Challenger Group Year Ended 30 June 2010 Increasing awareness and reach For personal use only Increased c eased advertising, roadshows, expanded distribution team and more planning tools 14
Slide 15: Key annuity metrics
Challenger Group Year Ended 30 June 2010 Key annuity metrics For personal use only • T Term off immediate i di t annuities iti ffor new customers t extending – Average A t term off policies li i ffor new customers t 4.5 4 5 years up from 3.5 years (12 months ago), average balance $160k • Strong cust
Slide 16: Continued growth in sales
Challenger Group Year Ended 30 June 2010 Continued growth in sales For personal use only Annual Sales of Guaranteed Products • Continued strength in (bars represent sum of the four previous quarters) retail sales 1,400 – FY10 $933m 1,200 – Expect E pect greater traction on platform sales in 1,000 1H
Slide 17: Targeting growth in our market share
Challenger Group Year Ended 30 June 2010 Targeting growth in our market share For personal use only Rainmaker (Roundup Dec 09) – trend away from lump sums • Superannuation p retirement 100% income market is dominated 90% 80% Pensions Lumps sums by account-based pensions 70% and investment linked 60%
Slide 18: Funds Management - alignment with our customers
For personal use only Funds Management g – alignment g with our customers 18
Slide 19: Characteristics of successful models
Challenger Group Year Ended 30 June 2010 Characteristics of successful models For personal use only M t provide Must id iinvestment t t professional, f i l iinvestor t and d shareholder alignment Allows investment professionals to focus on managing money Post-GFC key services must be “institutional
Slide 20: Our Funds Management business model
Challenger Group Year Ended 30 June 2010 Our Funds Management business model For personal use only Funds Mgmt Aligned Multi-Boutique Multi Boutique Investment • Challenger owned and branded • Co-owned, separately - may co-invest co invest with third party branded and licensed institutional investors
Slide 21: Boutique stable
Challenger Group Year Ended 30 June 2010 Boutique stable For personal use only Investment Business Asset Class Investment Thesis Date International Concentrated, non-index approach to building portfolios of listed global Sep 2005 equities companies Aus equities Style neutral manager that seek to inv
Slide 22: Boutique performance since inception
Challenger Group Year Ended 30 June 2010 Boutique performance since inception For personal use only To 30 June 2010 15% 10% 5% 0% -5% -10% Kinetic Greencape Wavestone Merlon Five Oceans Kapstream Bentham Ardea High Conviction Benchmark Alpha 22
Slide 23: Growth in boutique FUM
Challenger Group Year Ended 30 June 2010 Growth in boutique FUM For personal use only Boutique Partnerships – FUM • Strong growth in FUM during 7,500 2009/10 • Boutique partnerships expanded to ten 6 000 6,000 • Post balance date additions – Alphinity Investment 4,500 Management commenced August 201
Slide 24: Aligned investment teams
Challenger Group Year Ended 30 June 2010 Aligned investment teams For personal use only • Ability to invest alongside a proven long term investor with robust prudentially governed investment processes • Success in FY10 – Mandate from a large g industryy super p fund to manage g commercial property d
Slide 25: Leading and differentiated strategy
Challenger Group Year Ended 30 June 2010 Leading and differentiated strategy For personal use only Life Funds Mgmt Challenger g Life Aligned g M lti Bo tiq e Multi-Boutique Company Investment • Core Challenger branded • Challenger owned and • Co-owned, separately retirement income products branded -
Slide 26: FY10 Financial Results
For personal use only FY10 Financial Results Brian Benari Group Chief Operating Officer & Chief Financial Officer 23 A Augustt 2010
Slide 27: Group financial performance
Challenger Group Year Ended 30 June 2010 Group financial performance For personal use only % Mvt Financial Fi i l 500 60% FY10 FY09 FY09 to Trend Performance FY10 400 50% Assets Under Ï $ million $23.9bn $19.6bn 22% 300 Management1 40% % 200 Normalised Net Income $448m $370m 21% Ï 100 30% Expenses $
Slide 28: Cost control across the Group
Challenger Group Year Ended 30 June 2010 Cost control across the Group For personal use only 160 70% 140 60% 120 50% 100 40% $m 80 30% 60 20% 40 20 10% 0 0% 1H08 2H08 1H09 2H09 1H10 2H10 Underlying Non cash LTIP One-off personnel restructure costs Mortgage Mgmt Cost to income ratio 28
Slide 29: Life financial performance
Life Funds Mgmt Year Ended 30 Jun 2010 Life financial performance For personal use only % Mvt 400 40% Financial FY10 FY09 FY09 to Trend Performance FY10 300 30% $ million Average AUM – Life $6.4bn $5.7bn 12% Ï 200 20% 100 10% Normalised Cash Operating Earnings $338m $251m 35% Ï 0 0% 2008 2009 2010 E
Slide 30: Funds Management financial performance
Life Funds Mgmt Year Ended 30 Jun 2010 Funds Management financial performance For personal use only 200 100% % Mvt Financial Fi i l 150 80% FY10 FY09 FY09 to Trend $ million Performance FY10 60% 100 40% Average Funds 50 20% Under Management $18 3bn $18.3bn $17 9bn $17.9bn 2% Ï 0 0% 2008 2009 2010 Ne
Slide 31: Boutique Earnings
Life Funds Mgmt Year Ended 30 Jun 2010 Boutique Earnings For personal use only • FM business b i model d lb built ilt REVENUE NEW OLD around a Multi boutique and Aligned investment structure Management & performance fees NO YES • M lti b ti Multi-boutique profitability fit bilit similar to internal
Slide 32: Cash movements during the year
Challenger Group Year Ended 30 June 2010 Cash movements during the year For personal use only 350 300 250 200 $m 150 100 50 0 Available Cash 31 CLC Distribution MTN repaid Interim Dividend Buybacks Group costs Available Cash 30 Dec 09 & Other Jun 10 Intercompany Mvmts 32
Slide 33: Future dilution capped via recycling
Challenger Group Year Ended 30 June 2010 Future dilution capped via recycling For personal use only Shares bought back on market and recycled during the period 600 Shares held to hedge future grants 550 53 4 53.4 26.7 7.5 500 82.2 25.9 35.5 37.2 450 569.3 542.6 400 499.6 471.7 350 300 Opening: Treas
Slide 34: Capital Management
Challenger Group Year Ended 30 June 2010 Capital Management For personal use only Dividends – cents per share (cps) 15.0 40% • Final dividend declared 12.0 35% • 8.5 cents per share, unfranked 9.0 30% • Sustainable payout ratio and 6.0 di id d path dividend th maintained i t i d 3.0 25% • Active cap
Slide 35: Outlook
For personal use only Outlook Dominic Stevens Chief Executive Officer 23 A Augustt 2010
Slide 36: Outlook
Challenger Group Year Ended 30 June 2010 Outlook For personal use only • Long term structural change change, together with strategic change in our business mix, strongly positions Challenger for sustainable growth • Continued focus on organic origination and product development – Annuity sales targe
Slide 37: 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