CHALLENGER INFRASTRUCTURE FUND 
By Market Release
CHALLENGER LIMITED FY12 RESULTS Record total Life product sales of $2.66 billion, up 35% Record retail annuity product sales of $1.95 billion, up 34% Net retail book growth of 10%, or $583 million Normalised NPAT of $297 million, up 20% Statutory NPAT of $149 million due to volatile markets (FY11 $261 million) Normalised EPS of 57.5 cents per share, up 11% Final dividend of 10.5 cents; full year dividend of 18.0 cents, up 9%20 August 2012, Sydney - Challenger Limited (ASX: CGF) today announced another year of strong sales and normalised profit growth in difficult investment markets, with normalised net profit after tax* (NPAT) reaching $297 million for the year ended 30 June 2012, a 20% increase on the prior corresponding period (pcp). Statutory NPAT was $149 million.
Normalised earnings per share (EPS) increased by 11% to 57.5
cents but rose proportionately less than normalised NPAT due
to an increase in shares on issue, with the number of shares
issued pursuant to the exercise of CPH options being greater
than those repurchased under Challenger's buyback.
Chief Executive Officer Brian Benari said: "We're very happy
with top and bottom line performance and continue to reap the
benefit of the organic sales engine we created in both our
annuities business and our Fidante Partners boutique funds
management operation.
"While conditions for all wealth managers have been trying
over the last four years, during this period Challenger has
grown normalised profit by 36% from $218 million to $297
million, and normalised earnings per share by 55% from 37.1
cents to 57.5 cents.
"And like everyone else in the sector, we've been mindful to
watch our cost base - but are fortunate that our assets under
management, sales and profits have been growing. Our
operating leverage is excellent", said Mr Benari.
Challenger Life's record total product sales of $2.66 billion
were comprised of a very large increase in institutional
sales to $704 million, together with record retail sales of
annuity products of $1.95 billion. Retail sales grew by 34%
over the prior year, outstripping both the original and
upgraded targets of 25% and 30%, respectively.
Challenger Funds Management's funds under management (FUM)
rose to $31 billion, up 31% or $7.4 billion, with net flows
of $4.2 billion including $1.1 billion from the acquisition
of Asian emerging markets specialist MIR Investment
Management by Fidante Partners, Challenger's boutique funds
management umbrella
brand.
In 2012, nine of Fidante's eleven boutique fund managers
recorded positive net flows for the year. According to
Rainmaker's most recent data, Challenger is now a top 10
Australian fund manager.
Further enquiry: Stuart Kingham, Head of Investor Relations, Challenger Limited, 02 9994 7125
Chantal Travers, Senior Manager, Investor Relations, Challenger Limited 02 9994 7560
Stuart Barton, General Manager, Corporate Marketing and Communications, Challenger Limited, 02 9994 7008
Disclaimer: The forward looking statements, estimates and projections contained in this release are not representations as to future
performance and nothing in this release should be relied upon as guarantees or representations of future performance.
Challenger Limited A.B.N 85 106 842 371
During the year, Challenger's cost-to-income ratio was driven
to a record low of 35.9%, with the company's cost base of
$189 million equivalent to 2008 levels.
"Our business is highly scalable, and due to our strong
growth outlook, we have lowered our target cost-to- income
ratio range to 34% to 38% from 35% to 40%", he said.
Statutory NPAT for the year of $149 million was lower than
normalised profit and in contrast to the 2011 and
2010 years in which Challenger's statutory profit exceeded
its normalised profit.
Ongoing volatility has affected Challenger's statutory
profitability because life insurance accounting
standards require that statutory NPAT include realised and
unrealised movements in the value of assets and liabilities.
This includes changes in the trading prices of fixed income
assets which are being held to maturity by Challenger, like
Australian government and investment-grade corporate
bonds.
"In volatile periods like we've experienced over the last
five years, statutory profit may be significantly more than
or less than normalised profit", said Mr Benari.
During the year Challenger's assets under management rose 20%
to $33.4 billion.
Life's assets under management increased by 17% to $9.8
billion while its normalised cash earnings were
$436 million, an increase of 9% over the pcp. Life's excess
capital above regulatory requirements plus group cash stood
at $813 million at 30 June 2012, comprising excess Life
capital of $719 million plus Group cash of $94 million.
The Group generated an increased underlying operating
cashflow of $282 million and has nil recourse debt. The
declared final dividend is 10.5 cents unfranked, bringing the
full year dividend to 18.0 cents unfranked,
an increase of 9% on the pcp.
As recently advised to the market, the Australian Prudential
Regulation Authority (APRA) will be introducing new capital
standards for all life and general insurers which are
designed to ensure they have sufficient capital to absorb
1:200 year adverse shocks.
APRA has proposed to Challenger Life a three year
transitional period in relation to these requirements and
will permit its subordinated debt to continue as regulatory
capital until each tranche's first call date after 1
January 2013, after which each tranche's eligibility will be
phased out over a minimum five year period. The largest
tranche of sub-debt commences amortisation in 2017.
Challenger will also have three years to transition to the
minimum requirement that Tier 1 capital represents
80% of regulatory capital.
Final arrangements are subject to continued discussions and
confirmation from APRA which is expected to be received in
the fourth quarter of calendar 2012.
Mr Benari said he expects both of Challenger's business
divisions to keep growing in 2013.
"We're uniquely placed to benefit from the structural changes
occurring in the retirement savings market, while at the same
time retaining a large exposure to any sustained recovery in
equity and credit markets.
Further enquiry: Stuart Kingham, Head of Investor Relations, Challenger Limited, 02 9994 7125
Chantal Travers, Senior Manager, Investor Relations, Challenger Limited 02 9994 7560
Stuart Barton, General Manager, Corporate Marketing and Communications, Challenger Limited, 02 9994 7008
Disclaimer: The forward looking statements, estimates and projections contained in this release are not representations as to future
performance and nothing in this release should be relied upon as guarantees or representations of future performance.
Challenger Limited A.B.N 85 106 842 371
"Investors will always want exposure to growth assets, but as
we've witnessed first-hand in our recent advertising focus
groups, people around retirement age are focussed very
heavily on capital protection. We are serving both market
needs with a dual-brand strategy whereby Challenger stands
for security and reliability and Fidante Partners stands for
consistent alpha-generation throughout the cycle.
"The outlook continues to be positive. For 2013 we're
targeting 15% retail annuity sales growth, 10% net retail
book growth of $675 million and $440 to $450 million in cash
earnings for the life company", said Mr Benari.
*The Normalised Profit figures are non-statutory amounts and in Challenger's view better reflect the underlying operating performance of the business. The Normalised Profit figures exclude investment experience, being the difference between actual investment gains and losses (both realised and unrealised) and the normalised gains and losses (being based on Challenger's long term assumed returns). The Normalised Profit framework and a reconciliation to statutory profit have been disclosed on page 18 in the Director's Report and Note 2 - segment information, in the Challenger Limited 30 June 2012 financial report. The Normalised Profit is not audited but has
been subject to a review performed by Ernst & Young.
Further enquiry: Stuart Kingham, Head of Investor Relations, Challenger Limited, 02 9994 7125
Chantal Travers, Senior Manager, Investor Relations, Challenger Limited 02 9994 7560
Stuart Barton, General Manager, Corporate Marketing and Communications, Challenger Limited, 02 9994 7008
Disclaimer: The forward looking statements, estimates and projections contained in this release are not representations as to future
performance and nothing in this release should be relied upon as guarantees or representations of future performance.
Challenger Limited A.B.N 85 106 842 371
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