FY13 Financial results 2013 – a pivotal year 19 August 2013 Full year 30 June 2013
Outline Operating performance Brian Benari Managing Director & CEO Performance scorecards Financial results Andrew Tobin Chief Financial Officer Capital flexibility Strategy update Brian Benari Managing Director & CEO Outlook Full year 30 June 2013 2
Highlights 2013 – a pivotal year 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. Focused strategy Executing our plan in attractive markets Full year 30 June 2013 > Highlights 3
Operating performance Strong business metrics delivered Challenger Group • • Normalised EBIT up 8% to $365m FY dividend up 11% to 20.0 cps • • Normalised NPAT 1 up 4% to $309m Completed $50m (9.5 cps) buy back • • Operating cash flow of $322m Normalised EPS up 2% to 58.6 cps • • Statutory NPAT up strongly to $417m Normalised RoE (pre tax) of 20% Life Funds Management • • COE up 4% to $452m (margin 4.5%) Normalised EBIT up 62% to $34m • • Retail net book growth of 9% Total FUM up 33% to $41.1bn • • Life retail sales up 12% to $2.2bn Fidante Partners net flows up 69% to $7.5bn • • Life AUM up 10% to $10.8bn Cost ratio reduced from 75% to 66% • • PCA ratio of 1.8 times RoE up 9 percentage points to 26% Full year 30 June 2013 > Operating performance 1. Normalised profit framework and a reconciliation to statutory net profit after tax is disclosed on page 20 of the Directors’ Report and Note 2 (segment information) in the Challenger Limited 30 June 2013 full year financial report. 4
Life scorecard Benefiting from long term sales • Capitalising on demographic trends / risk preferences Operating • Growing acceptance that ‘retirement is different’ environment • Increasing demand for longevity protection Lifetime annuity sales ($m) . 200 • New product sales accelerating - lifetime Sales mix 160 • New business tenor 6.2 years, up from 5.4 years 120 and asset 80 allocation • Supported by high quality investment portfolio 40 1H12 2H12 1H13 2H13 Life COE margin (%) 5.0% • FY13 Life COE margin of 4.5% Life • Illiquidity premiums higher on longer dated assets 4.5% margins • FY14 Life COE guidance – margin stable at 4.5% 1 4.0% FY12 FY13 FY14 guidance Full year 30 June 2013 > Scorecard 1. Implied margin based on the mid-point of the guidance range ($465m to $475m), which includes retail net book growth and institutional outflows guidance. 5
Funds Management scorecard Scale driving earnings growth 2 ($bn) Superannuation assets forecast 8,000 • Leveraging retirement ‘saving’ phase 6,000 Operating 4,000 • 9 th largest Aust. manager 1 up from 19 th 2 years ago environment 2,000 • Scalable – FY13 FUM up 33% and profit up 62% 2013 2015 2017 2019 2021 2023 2025 2027 2029 Post-retirement assets Pre-retirement assets . • Leading Australian boutique group – $30bn of FUM Fidante • Organic growth opportunities – FY13 FUM up $11bn Partners • Two new boutiques added Aligned Investments FUM composition • Unique offering providing alignment with clients Aligned • Increased breadth across property and infrastructure Investments • Attracting large domestic and international clients 3rd party clients Challenger Life Full year 30 June 2013 > Scorecard 1. Consolidated FUM for Australian fund managers - Rainmaker Roundup March 2013. 2. Deloitte – Dynamics of the Australian superannuation system: the next 20 years 2011 – 2030 – November 2011. 6
Customer scorecard Recognised as the leader in retirement incomes • #1 rated distribution team 1 • Delivered record Life sales and FM net flows Distribution • New channels – QSuper, Bendigo and Adelaide Bank . • Innovating to improve retirement outcomes for clients • Launched award winning products Product • New advice tools – calculators, online pricing, models Brand recognition - 2 top 5 in retirement incomes 100% • Thought leading research differentiates brand 80% 60% • New advertising campaign repositions annuities Marketing 40% 20% • Challenger brand rated #1 in retirement incomes 2 Challenger Peers Full year 30 June 2013 > Scorecard 1. Wealth Insights 2013 Service Level Report - Fund Managers. 2. Marketing Pulse Adviser Study. 7
Shareholder scorecard Delivering on our promises EPS growth 1.500 • Since FY09 - NPAT 1 up 41% and EPS 1 up 50% 1.250 Performance • History of exceeding 18% pre tax RoE hurdle 1.000 metrics • Track record of delivering on guidance 0.750 FY09 FY10 FY11 FY12 FY13 CGF Major Banks Wealth Managers Other Banks Excess capital and Group cash ($m) . 1,200 • Transitioned to LAGIC with significant capital flexibility 800 • CLC excess capital 2 and Group cash of $1.1bn Capital 400 • CLC ‘A’ rating reaffirmed by S&P FY09 FY10 FY11 FY12 FY13 LAGIC transition balance CLC excess capital and Group cash 3 Dividend and share buy back 80 200% • Dividends up 60% over 5 years 60 150% Shareholder 40 100% • Buy back returned $500m (97 cps) over 5 years returns 20 50% • Combined payout ratio of >50% for last 5 years FY09 FY10 FY11 FY12 FY13 Cents per share Combined payout ratio (RHS) Full year 30 June 2013 > Scorecard 1. Normalised net profit after tax and normalised earnings per share. 2. Challenger Life Company (CLC) excess capital above Prescribed Capital Amount, including LAGIC transition balance of $323m. 3. FY10 combined payout ratio includes capital returned to shareholders following the sale of the Mortgage Management business in 2009. 8
FY 13 Financial results Andrew Tobin Chief Financial Officer 19 August 2013 Full year 30 June 2013 > Financial results
Group financial performance AUM growth and scale benefits driving earnings 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% FY11 FY12 FY13 1 Normalised EBIT $365m $338m 8% AUM - average AUM - spot Normalised $309m $297m 4% 1 NPAT Financial performance Normalised cost 600 38% 34.4% 35.9% 150 bps to income ratio 2 Normalised RoE 16.8% 18.8% 200 bps 400 36% $m EPS (normalised 58.6 57.5 2% 200 34% basic) - cps Statutory NPAT $417m $149m large 32% FY11 FY12 FY13 EPS (statutory Total net income Expenses 79.2 28.8 large basic) – cps Normalised NPAT Cost to income ratio (RHS) Full year 30 June 2013 > Financial results 1. Excludes Investment Experience and significant items. 2. Normalised RoE calculated as normalised NPAT divided by average net assets. 10
Life financial performance COE target exceeded – strong AUM growth at lower margin 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 2 Normalised Cash Operating $452m $436m 4% FY11 FY12 FY13 Earnings (COE) AUM - average AUM - spot Expenses $70m $68m 3% Financial performance Normalised EBIT 1 $382m $368m 4% 500 400 30% Normalised RoE 21.7% 23.9% 220 bps (pre tax) 2 300 $m Investment 200 20% Experience $100m ($148m) large (post tax) 100 10% FY11 FY12 FY13 Normalised COE Expenses Normalised RoE (pre tax) (RHS) Full year 30 June 2013 > Financial results 1. Excludes Investment Experience. 2. Normalised RoE calculated as normalised EBIT divided by average net assets. 11
Life margins Reflects lower asset and capital returns – FY14 stable outlook 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, 2.00% 3.6% 3.3% including lower infrastructure distributions 1.00% (CIF) and NIM run-off, offset by lower annuity funding costs FY12 Lower NIM Lower Lower product FY13 – return on shareholder capital (unchanged) product fixed run-off infrastructure funding product margin income distributions costs margin – higher shareholder capital, offset by & property yields lower interest rates – normalised capital growth (-10 bps) due to FY13 change in Life COE margin increased fixed income allocation 0.2% 5.00% (0.2%) (0.1%) FY14 Life COE guidance 4.00% (0.3%) 3.00% • implies a margin of 4.5% 1 - unchanged 4.5% 4.5% 4.9% 2.00% from FY13 1.00% FY12 Change in Shareholder Shareholder Lower FY13 FY14e COE product return return normalised COE COE margin margin (higher (lower growth margin margin capital) interest rates) Product margin Investment yield - shareholders' funds Normalised capital growth Full year 30 June 2013 > Financial results 1. Implied margin based on the mid-point of the guidance range ($465m to $475m), which includes retail net book growth and institutional outflows guidance. 12
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