1H10 Half Year Financial Results

Transcription

1 1H10 Half Year Financial Results Strategy aligned to structural trends Dominic Stevens Chief Executive Officer 22 February 2010

2 Strong financial performance Financial performance Normalised NPAT of $116m up 9% and normalised EBIT of $158m, flat Normalised EPS of 22 cps up 17% Cost to income ratio down 230bps to 41.8% Operating cash flow of $114m Increased statutory NPAT of $177m reflecting positive investment experience of $61m (post-tax) Interim dividend declared of 6.0 cps unfranked up 20% On-market buy-back refreshed in November 2009, 45.5m shares repurchased during the period (total 90.5m, average $2.95) Financial flexibility Capital excess to minimum regulatory requirements ~$850m Group net cash position of $121m Upgraded cash operating earnings guidance for Life FY10 now $325m including impact of CKT privatisation - up 30% on FY09 2

3 Accreting capital and EPS 4 year EPS CAGR of 18% Normalised NPAT increased 9% on pcp - cash proceeds from Mortgage Mgmt sale used to pay down debt / reduce interest expense and continue on-market share buy-back CLC excess capital above regulatory minimums ~$850m $m $m Earnings / Normalised EPS 200 Normalised NPAT Normalised EBIT Basic EPS (RHS) H06 2H06 1H07 2H07 1H08 2H08 1H09 2H09 1H10 Excess capital above regulatory requirements cps H06 2H06 1H07 2H07 1H08 2H08 1H09 2H09 1H10 3

4 4 Strategy aligned to structural trends

5 Core group competencies Origination Origination of guaranteed income products and fiduciary FUM Simple, secure products that deliver value for money Investment Management Managing assets to maximise i returns, benefiting policy holders, fiduciary investors and shareholders People Depth and stability Strong risk management culture 5

6 Targeted focus on growing pool of FUM Challenger Group Deloitte: Superannuation FUM pool ($bn) Retail Personal $275 SMSF $367 Industry $209 6 $40 Other $71 Corporate $182 $99 Public Sector Retail Employer Source: Deloitte March 2009 Dynamics of the Australian Superannuation System The next 20 years:

7 Strategy aligned to structural trends Potential positive tailwinds from regulatory reviews Changing consumer risk appetite creating demand for guaranteed capital and income streams 7 Underlying demographic changes creating a growth market for retirement products Product and distribution initiatives expanding access to superannuation pool

8 Ageing population driving FUM growth Challenger Group Australian population growth

9 Ageing population driving defensive asset growth Challenger Group Australian population growth Inferred allocation to fixed income using a Life-Cycle approach

10 Existing product and distribution Guaranteed Income Plan (GIP) Established annuity product fixed rate and term certain Channel IFAs Investor Base Retail Personal / SMSFs Opportunity Guaranteed Income Fund (GIF) New unitised version of the annuity product designed for investment platforms IFAs / Platforms Retail Personal / SMSFs / Changing demographic, risk appetite and asset allocations Guaranteed Index Returns (GIR) Guaranteed returns over a designated index /benchmark Institutional Investors & Asset Consultants Corporate / Retail Employer 10

11 Superannuation pool GIP coverage Deloitte: Superannuation FUM pool ($bn) GIP accessible to ~20% of $275 Retail Personal SMSF and SMSF $367 Retail Personal Industry $209 Challenger Group 11 $40 Other $71 Corporate $182 $99 Public Sector Retail Employer Source: Deloitte March 2009 Dynamics of the Australian Superannuation System The next 20 years:

12 GIP underlying sales growth Impact of social security changes Impact of GFC/deposit guarantee ~30% growth 200 $m Dec 04 Mar 05 Jun 05 Sep 05 Dec 05 Mar 06 Jun 06 Sep 06 Dec 06 Mar 07 Jun 07 Sep 07 Dec 07 Mar 08 Jun 08 Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 12

13 Expanded product and distribution Guaranteed Income Plan (GIP) Established annuity product fixed rate and term certain Channel IFAs Investor Base Retail Personal / SMSFs Opportunity Guaranteed Income Fund (GIF) New unitised version of the annuity product designed for investment platforms IFAs / Platforms Retail Personal / SMSFs Changing demographic, risk appetite and asset allocations Guaranteed Index Returns (GIR) Guaranteed returns over a designated index /benchmark Institutional Investors & Asset Consultants Corporate / Retail Employer 13

14 Superannuation pool GIP/GIF coverage Deloitte: Superannuation FUM pool ($bn) SMSF $367 Retail Personal $275 Industry $209 GIF provides full access to Retail Personal and SMSFs via investment platforms 14 $40 Other $71 Corporate $182 $99 Public Sector Retail Employer Source: Deloitte March 2009 Dynamics of the Australian Superannuation System The next 20 years:

15 GIF distribution progress Three phase organic annuity growth Develop unitised annuity product for platforms GIF Engage with asset consultants Seek product ratings Phase 2 Expand distribution platforms GIF team Phase 1 Product available on major investment platforms Dealer groups - approved product lists Engage with Financial i Planners / provide education tools on using annuities in portfolio construction alongside bond funds Phase 3 15

16 Expanded product and distribution Guaranteed Income Plan (GIP) Established annuity product fixed rate and term certain Channel IFAs Investor Base Retail Personal / SMSFs Long Term Growth Guaranteed Income Fund (GIF) New unitised version of the annuity product designed for investment platforms IFAs / Platforms Retail Personal / SMSFs Changing demographic, risk appetite and asset allocations Guaranteed Index Returns (GIR) Guaranteed returns over a designated index /benchmark Institutional Investors & Asset Consultants Corporate / Retail Employer 16

17 Superannuation pool GIP/GIF/GIR coverage Challenger Group Deloitte: Superannuation FUM pool ($bn) Retail Personal $275 GIR offers solutions for Retail Employers and Corporate SMSF $367 Other $40 Industry $ $71 Corporate $182 $99 Public Sector Retail Employer Source: Deloitte March 2009 Dynamics of the Australian Superannuation System The next 20 years:

18 GIR new guaranteed income products Challenger Group $m Dec 07 Mar 08 Jun 08 Sep 08 Dec 08 Mar 09 Jun 09 Sep 09 Dec 09 Dec 09 Issued via trusts with guaranteed returns over indices, provided by the Life Company Targeted at asset consultants looking to better manage their defensive asset allocations Typically 3 year duration Flow expected to be repeatable but less frequent 18 GIP/GIF Sales GIR Sales

19 Potential regulatory tailwinds This will be the first comprehensive review into Australia s compulsory $1.1 trillion superannuation system, focussed on removing unnecessary costs, fees, commissions and complexity and boosting returns and retirement incomes. Our products Jeremy Cooper, Deputy Chairman of ASIC low or no product fees no complexity strong returns/value for money secure income 19

20 Strong fiduciary performance and flows Challenger Group Fund performance returning over the period with greater than 80% of Internal Investment Mgmt - 6 months performance 50.0% 40.0% 30.0% Alpha Benchmark 20 funds outperforming 20.0% 0% Market dislocation has provided opportunities to expand our boutique stable and diversify across investment classes FUM flows for our boutique partnerships has increased nearly $2bn since June % 0.0% -10.0% Aus. Share Smaller Co's Micro Cap Aus. Share Income Boutique Partnerships - 6 months performance 70% 60% 50% 40% 30% 20% 10% 0% -10% Alpha Benchmark AREIT Hybrid Property High Yield Mortgages Kapstream Greencape Gee Kinetic ec Five eoceans Wavestone aesoe Ardea Premier Wholesale Wholesale Wholesale Australian Mandates Absolute Broadcap Fund Emerging World Fund Equity Long Return Income Companies Short Fund - Fund Fund Wholesale

21 Specialised funds Remain a committed participant in the Specialised Funds sector (real estate and infrastructure) Focus has been on successfully managing assets through GFC CDI CIF Recapitalised mid year at minimal discount Reduced debt and gearing Clean, simple REIT positioned for growth Remaining stake in Southern Water sold at NAV All fund debt repaid / surplus cash deployed on capital management Inexus refinanced CWT Positioned to see through a difficult cycle Mandates - renewed support from institutional investors EMIF additional US$60m of flows 21

22 Putting capital to work Capital deployment in the last six months Life Liability growth Organic Platforms Capture upside from any regulatory changes M&A Allocated to high ROE and asset opportunities E.g: increased holding in CDI from recent entitlement offer / CKT privatisation Fixed income investments Increased FTE to leverage platform footprint; capital to support new flow Increased exposure to higher yielding property asset class FM R i t t i F d ti Clear strategy t for FM - building out boutique relationships Re-investment t in Funds operations Expansion of boutique partnership strategy Accretive bolt on opportunities Group Capital Management On-market share buy-back underway 90.5m shares bought back to date 22

23 1H10 Interim Financial Results Brian Benari Group Chief Operating Officer & Chief Financial Officer 22 February 2010

24 Group financial performance Financial i Performance 1H10 1H09 % Mvt 1H09-1H10 Trend Assets Under Management 1 $22.9bn $20.5bn 12% 200 Normalised Net Income $272m $284m (4%) illion $ m % 50% 40% 30% Expenses $114m $125m (9%) 0 Normalised EBIT 2 $158m $159m flat 1H09 2H09 1H10 Net Income Expenses Normalised NPAT Cost to income ratio (RHS) 20% Normalised 30 $116m $106m 9% NPAT 2 Statutory NPAT $177m ($108m) large EPS (Normalised Basic) -cps % 15 $ billion EPS (Statutory Basic) - cps 33.3 (18.9) large 10 1H09 2H09 1H10 Assets under management 24 1 AUM adjusted to reflect the sale of the Mortgage operations 2 Excluding investment experience and significant items

25 Cost control across the Group % % 100 m $80 40% % % 1H08 2H08 1H09 2H09 1H10 Underlying Amortisation of LT remuneration (non-cash) Mortgage Mgmt One-off restructure costs Cost to income ratio 25

26 Life Funds Mgmt Life financial performance Half Year Ended 31 Dec 2009 Financial Performance % Mvt 1H10 1H09 1H09-1H10 Trend AUM Life $6.7bn $6.1bn 10% Normalised Cash Operating Earnings $154m $122m 28% Expenses $14m $12m 16% $ million % % % % 0 0% 1H09 2H09 1H10 Normalised COE Cost to income ratio (RHS) Expenses RONA (RHS) Normalised EBIT 1 $140m $110m 28% Investment Experience Post Tax $61m $(214m) Large 4.5 Normalised RONA 2 31% 24% Opening Net Assets $906m $909m - - $ billion H09 2H09 1H $ million 1 Excludes the impact of investment experience 2 - Calculated on opening Net Assets. AUM Normalised COE 26

27 Life Funds Mgmt Investment Experience Half Year Ended 31 Dec Aggregate hedging impact Contraction currency/interest rates 250 in debt spreads 200 Increase in listed infrastructure 150 values Gain on CIF hedge (pre-sale of Southern holding) Policy Holder Liabilities mvmt lower due to CPI impact Debt Equity & Infrastructure Property FX Hedges Interest Rate Hedges Policy Holder Liabilities Total 1H10Mvmt Normalised Growth Expectations 27 Source: Fair valuation movements as per 1H10 Interim Financial Accounts Note 3 Revenue

28 Life Funds Mgmt Half Year Ended 31 Dec 2009 Funds Management financial performance Financial i Performance Funds Under Management 1H10 1H09 % Mvt 1H09-1H10 Trend $19.2bn $16.8bn 15% Net Income $48m $62m (21)% $ million % 60 80% 60% 40 40% 20 20% 0 0% 1H09 2H09 1H10 Net Income Expenses Cost to income ratio (RHS) RONA (RHS) Expenses $40m $49m (18)% EBIT $8m $13m (36)% RONA 1 18% 22% - $ billion nebit$8m $13m (36)% $ million Opening Net Assets $93m $117m H09 2H09 1H10 Funds under management Net Income (RHS) 1 Calculated on opening Net Assets. 28

29 Cash movements $m Pro-f orma MM CLC Buybacks Final Dividend Group Costs Available cash 30 June outstanding Distribution Cash 31 Dec 2009 proceeds* 2009 MTN outstanding^ Net Cash 31 Dec * - Includes HOM share purchase / finalisation of completion balance sheet ^ - $30m outstanding post tender maturing April 2010

30 Capital Management Challenger Group Interim dividend declared 6.0 cents per share, unfranked Sustainable payout ratio and dividend id d path maintained i Active capital management delivering accretion for shareholders h 90.5m shares bought back so far average price bought back $2.95 Key dates for shareholders Ex-dividend date: 18 March 2010 Record date: 24 March 2010 Payment date: 16 April 2010 cp ps Dividends cents per share (cps) % % % % % 1H08 1H09 1H10 1H Normalised Payout ratio (RHS) Normalised EPS H08 2H08 1H09 2H09 1H10 30

31 Outlook

32 Outlook 32 Expect 2010 financial markets to be variable as markets repair Challenger strategy aligned to major structural trends occurring in the retirement income sector, supported by: a simplified business broader distribution base expanded product range Capital strength to support organic growth and disciplined expansion of AUM Strong financial performance - upgraded COE guidance for Life FY10 $325m

33 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 to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor. These should be considered with or without professional advice when deciding if an investment is appropriate.