2020
Annual
Report
Providing
Providing
our customers
our customers
with financial
with financial
security for
security for
retirement
retirement
challenger.com.au
Challenger Limited ACN 106 842 371
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
Contents
GGrroouupp ppeerrffoorrmmaannccee hhiigghhlliigghhttss
OOppeerraattiinngg aanndd ffiinnaanncciiaall rreevviieeww
FFiivvee--yyeeaarr hhiissttoorryy
DDiirreeccttoorrss’’ rreeppoorrtt
Directors
Company Secretary
Corporate governance summary
Remuneration report
Indemnification and insurance of Directors and officers
Indemnification of auditor
Environmental regulation and performance
Significant events after the balance date
Rounding
Non-audit services
Authorisation
Auditor’s independence declaration
SSuussttaaiinnaabbiilliittyy
FFiinnaanncciiaall ssttaatteemmeennttss
Statement of comprehensive income
Statement of financial position
Statement of changes in equity
Statement of cash flows
SSiiggnneedd rreeppoorrttss
IInnvveessttoorr iinnffoorrmmaattiioonn
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err 22002200
2020 Annual General Meeting
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Half year financial results
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Interim dividend payment date
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Full year financial results
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Final dividend payment date
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ttoobbeerr 22002211
2021 Annual General Meeting
FFuullll lliissttiinngg ooff kkeeyy ddaatteess aavvaaiillaabbllee aatt
›› cchhaalllleennggeerr..ccoomm..aauu//sshhaarreehhoollddeerr//
sshhaarreehhoollddeerr--iinnffoorrmmaattiioonn//kkeeyy--ddaatteess
Dates may be subject to change. Any change in
dates will be advised to the Australian Securities
Exchange.
AAbboouutt tthhiiss AAnnnnuuaall RReeppoorrtt
The 2020 Annual Report, including the
financial report for the year ended
30 June 2020, can be downloaded from
Challenger’s online Shareholder Centre at:
›› cchhaalllleennggeerr..ccoomm..aauu//sshhaarreehhoollddeerr
22002200 CCoorrppoorraattee
GGoovveerrnnaannccee RReeppoorrtt
The 2020 Corporate Governance Report
can be viewed online at:
›› cchhaalllleennggeerr..ccoomm..aauu//
ccoorrppoorraatteeggoovveerrnnaannccee22002200
22002200 AAnnnnuuaall GGeenneerraall
MMeeeettiinngg
LLooccaattiioonn
To be determined and subject to
COVID-19 pandemic requirements.
22002200 AAnnnnuuaall RReevviieeww
The 2020 Annual Review is intended to
provide you with useful information about
your company in an easy-to-read document.
Included in the Annual Review is an
operational and financial performance
update, reports from the Chair and the
Chief Executive Officer, and information on
the environmental, social and governance
matters that affect your company.
The Annual Review can be viewed online at:
›› cchhaalllleennggeerr..ccoomm..aauu//
aannnnuuaallrreevviieeww22002200
22002200 SSuussttaaiinnaabbiilliittyy
RReeppoorrtt
The 2020 Sustainability Report can be
viewed online at:
›› cchhaalllleennggeerr..ccoomm..aauu//
ssuussttaaiinnaabbiilliittyyrreeppoorrtt22002200
DDaattee
29 October 2020
TTiimmee
9.30am (Sydney time)
Full details of the meeting will be
included in your Notice of Annual
General Meeting, which will be sent to
shareholders in September 2020.
BBooaarrdd nnoommiinnaattiioonnss
The closing date for receipt of
nominations for the Challenger
Limited Board is 9 September 2020.
Group performance highlights
Challenger Limited 2020 Annual Report
Group performance highlights
Statutory net profit
after tax ($m)
Normalised net profit
after tax ($m)
Group AUM ($bn)
323
308
2018
2019
2020
-416
406
396
85
344
81
82
2018
2019
2020
2018
2019
2020
Life sales ($bn)
5.6
5.1
4.6
Challenger Life Company
excess regulatory capital ($bn)
Funds Management
net flows ($bn)
1.6
5.3
1.4
1.4
2.5
2019
2018
2020
2018
2019
2020
2018
2019
2020
-2.4
Responding to COVID-19 pandemic
Our people
Our customers and partners
Balance sheet strength
PROTECT THE
HEALTH AND
WELLBEING
OF OUR PEOPLE
SUPPORT
CUSTOMERS
AND BUSINESS
PARTNERS
STRONGLY
CAPITALISED
WITH
FLEXIBILITY
1
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
OOppeerraattiinngg aanndd ffiinnaanncciiaall rreevviieeww
Operating and financial review
11 AAbboouutt CChhaalllleennggeerr
Challenger Limited (Challenger, CGF, the Group or the
Company) is an investment manager founded in 1985.
Challenger is the largest annuity provider and one of the
largest1 fund managers in Australia.
Challenger is listed on the Australian Securities Exchange
(ASX) and has offices in Australia, London and Tokyo.
Challenger is regulated by the Australian Prudential Regulation
Authority (APRA), the Australian banking, superannuation,
general insurance and life insurance regulator.
Challenger’s activities are also subject to supervision by other
regulatory agencies both in Australia and in the other markets
in which it operates.
Challenger’s assets under management were $85.2 billion, up
4.2% (30 June 2019: $81.8 billion). Normalised net profit
before tax was $506.5 million, down $41.8 million or 7.6%
(30 June 2019: $548.3 million). Earnings were directly
impacted by the investment market volatility caused by
COVID-19 which resulted in lower asset returns in the Life
business following the sale of assets in March 2020 which was
partially offset by higher Funds Management performance
fees. See sections 2 and 8 for a description of Challenger’s
operating segments and its normalised cash operating
earnings framework.
Normalised net profit after tax was down $52.4 million or
13.2% to $343.7 million (30 June 2019: $396.1 million).
Statutory net loss after tax, which includes investment
experience, being the valuation movements on assets and
liabilities supporting the Life business, was $416.0 million (30
June 2019: profit of $307.8 million), down $723.8 million due
to the investment market volatility as a result of the impact of
COVID-19.
Challenger has total equity of $3.2 billion as at 30 June 2020
and employs 735 people on a full-time equivalent (FTE) basis.
22 OOppeerraattiinngg sseeggmmeennttss aanndd
pprriinncciippaall aaccttiivviittiieess
For internal reporting and risk management purposes,
Challenger’s principal activities are divided into two operating
segments, Life and Funds Management. The Life operating
segment is serviced by the Distribution, Product and Marketing
team, which is responsible for ensuring the appropriate
marketing and distribution of Life’s products. Both operating
segments and the Distribution, Product and Marketing team
are supported by centralised operations which are responsible
for appropriate processes and systems and for providing the
necessary resources to meet regulatory, compliance, financial
reporting, legal and risk management requirements.
LLiiffee – the Life segment comprises Challenger Life Company
Limited (CLC), Australia’s leading provider of annuities and
guaranteed retirement income products.
As Australia’s largest annuity provider, Life provides reliable
guaranteed2 incomes to Australian retirees.
Life’s annuity products appeal to retirees because they provide
security and certainty of guaranteed income while protecting
against risks from market downturns and inflation. Lifetime
annuities protect retirees from the risk of outliving their
savings by paying guaranteed income for life.
The retirement incomes Life pays are backed by a high-quality
investment portfolio, predominantly in fixed income and
commercial property investments. These long-term
investments generate regular and predictable investment
income which is used to fund retirement incomes paid to
Life’s customers.
Life’s products are distributed via both independent financial
advisers and financial advisers tied to the administrative
platforms currently serviced by a number of the major
Australian banks and AMP (the ‘major hubs’). Life’s products
are included on all major hub Approved Product Lists (APLs)
and are available on other leading investment and
administration platforms.
Life is the market leader in Australian retirement incomes, with
a 75%3 annuity market share and has won the Association of
Financial Advisers ‘Annuity Provider of the Year’ for twelve
consecutive years.
Life also has an annuity relationship with Mitsui Sumitomo
Primary Life Insurance Company Limited (MS Primary), a
leading provider of both US dollar and Australian dollar
denominated annuities in Japan.
FFuunnddss MMaannaaggeemmeenntt – the Funds Management segment
focuses predominantly on the retirement savings phase of
Australia’s superannuation system by providing products
seeking to deliver superior investment returns. Funds
Management is also expanding into selective international
markets.
As one of Australia’s largest1 asset managers, Funds
Management invests across a broad range of asset classes
including fixed income, commercial property and Australian
and global equities. The Funds Management segment
comprises two business divisions, Fidante Partners and CIP
Asset Management (CIPAM).
Fidante Partners encompasses a number of investments in
boutique investment managers that each operate under their
own brands. Fidante Partners provides administration and
distribution services to the boutique investment managers and
shares in the profits of these businesses through equity
ownership. Fidante Partners also has a presence in Europe with
interests in alternative asset managers.
1 Consolidated FUM for Australian Fund Managers – Rainmaker Roundup,
3 Plan for Life – March 2020 – based on annuities under administration at
March 2020.
30 March 2020.
2 The word ‘guaranteed’ means payments are guaranteed by Challenger Life
Company Limited from the assets of its relevant statutory fund.
22
OOppeerraattiinngg aanndd ffiinnaanncciiaall rreevviieeww
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
22 OOppeerraattiinngg sseeggmmeennttss aanndd pprriinncciippaall
44 RRiisskk mmaannaaggeemmeenntt
aaccttiivviittiieess ((ccoonnttiinnuueedd))
CIPAM develops and manages assets for CLC and on behalf of
third-party institutional investors. The investments managed by
CIPAM
are predominantly in fixed income and commercial property.
The Funds Management business is growing strongly, with
funds under management (FUM) increasing by more than 40%
over the last five years to $81 billion.
PPrriinncciippaall aaccttiivviittiieess – there have been no significant changes in
the nature of these principal activities or the state of affairs of
the Company during the year.
33 CChhaalllleennggeerr’’ss vviissiioonn aanndd ssttrraatteeggyy
Challenger’s vision is to provide its customers with financial
security for retirement. Challenger has four strategic pillars to
ensure that it achieves its vision over the long-term. The four
strategic pillars are:
• increase the use of secure retirement income streams;
• lead the retirement incomes market and be recognised as
the partner of choice;
• provide customers with excellent funds management
solutions; and
• maintain leading operational and people practices.
The management of risk is fundamental to Challenger’s
business and to building shareholder value. At Challenger, risk
is everyone’s business. The Board’s Risk Appetite Statement
outlines the level of risk that is acceptable in striving to achieve
Challenger’s strategic goals and financial objectives. This is
combined with an effective risk management framework
which monitors, mitigates and manages the risks to which
Challenger is exposed.
The Board recognises the broad range of risks that Challenger
faces as a participant in the financial services industry. These
include: funding and liquidity risk; investment and pricing risk;
counterparty risk; strategic, business and reputation risk;
operational risk; licence and regulatory risk; climate change
risk and conduct risk. Increasingly, the risk of climate change is
being considered within the investment process. Challenger
invests in assets with long term cash flows to match the
annuity payments required to be made within its portfolio. This
means that Challenger must consider the risk of climate
change within its risk management framework and work to
ensure that these risks are mitigated where possible.
Challenger is not currently materially exposed to climate risk.
An integral part of risk management for Challenger is the
maintenance of a strong risk culture amongst its employees.
Challenger’s expectations of its employees are encapsulated in
the ‘Challenger IACT’ values of:
• Act with integrity;
• Aim high;
• Collaborate; and
• Think customer.
All employees are assessed against the Challenger IACT values
as part of the annual performance review process, and this
outcome contributes to the overall performance rating and
remuneration outcomes.
33
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
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Progress in 2020 against our strategic priorities is set out below:
IInnccrreeaassee tthhee uussee
ooff sseeccuurree
rreettiirreemmeenntt
iinnccoommee ssttrreeaammss
Industry lifetime annuity sales currently represent less than 2% of the annual transfer from the retirement
savings (accumulation) phase to the retirement spending (retirement) phase. Challenger is focused on
growing the allocation of Australian retirement savings to secure and stable incomes.
22002200 pprrooggrreessss
• Total Life sales up 13%, with annuity sales down 12% and more than offset by a 101% increase in
Other Life sales;
• Annuity sales were driven by the following outcomes in Australia and Japan:
•
Australian annuity sales down 27%:
•
•
Domestic term annuity sales down 19% and impacted by structural changes to the
Australian wealth management market and sales disruption from the COVID-19
pandemic. Refer below for additional information.
Domestic Lifetime annuity sales down 51%, in addition to the structural changes to the
Australian wealth management market, lifetime sales were also impacted by transition
to new means test rules and sales disruption from the COVID-19 pandemic. Refer
below for additional information.
•
Japan annuity sales up 177%, driven by an expansion to the reinsurance agreement with MS Primary,
which included extending reinsurance to include US dollar annuities in addition to Australian dollar
annuities.
• Other Life sales, representing Challenger’s Index Plus Fund, increased by 101% to $2.0 billion and
benefited from a focus on building out the institutional channel and increased client demand.
SSttrruuccttuurraall cchhaannggee ttoo AAuussttrraalliiaann ffiinnaanncciiaall aaddvviiccee mmaarrkkeett
Following the public hearings and completion of the Royal Commission into Misconduct in the Banking,
Superannuation and Financial Services Industry (Royal Commission) in 2019, there has been significant
structural change across the Australian wealth management and financial adviser market.
There have been a range of regulatory changes that have had a significant impact on the economics for
many financial advice practices. Regulatory changes include a shift away from commissions to fee-for-
service, resulting in lower revenue per client, and the best interests duty which is increasing focus on
holistic advice over transaction advice. Advisers are also increasing education and compliance activities,
which is reducing focus on the acquisition of new clients and servicing of their existing book.
There have been significant withdrawals of advisers from the market through the major banks generally
exiting or reducing their exposure to wealth management, which is contributing to a reduction in the
number of financial advisers aligned to the wealth management operations of the major banks.
There has been higher adviser turnover with advisers either migrating from licensees aligned to the major
banks to independent adviser networks, switching licensees in the network, becoming self-licensed, or
leaving the industry altogether.
As a result, the Australian financial advice market continues to undergo significant structural change,
with adviser numbers reducing by 16% year-on-year and advisers moving from the major banks to
Independent Financial Advisers (IFA) networks. At 30 June 2020, IFAs accounted for approximately 72%
of the advice market, up from 60% five years ago1.
Representing the shift away from major hubs to privately owned licensees, in 2020 62% of all advisers
were licensed to a privately owned licensee, up from 32% five years ago. Institutionally owned and
aligned advisers, which has traditionally been the largest segment represented 38% of the total advice
market, down from 63% five years ago1.
These industry changes are impacting Challenger’s annuity sales, especially term annuity sales which were
well supported by advisers aligned to the major banks.
Challenger believes in the need for financial advice, particularly in the retirement phase of
superannuation and is supporting advisers as they move across licensees and ensuring Challenger
products are widely available on investment and administration platforms.
TTrraannssiittiioonn ttoo nneeww mmeeaannss tteesstt rruulleess
Challenger’s 2020 lifetime annuity sales were affected by transition to new age pension means test rules
that commenced on 1 July 2019.
The new rules are designed to support the take-up of lifetime income stream products.
1 ASIC Adviser Register June 2020.
44
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Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
55 CChhaalllleennggeerr’’ss 22002200 ssttrraatteeggiicc pprrooggrreessss ((ccoonnttiinnuueedd))
22002200 ssttrraatteeggiicc pprrooggrreessss ((ccoonnttiinnuueedd))
IInnccrreeaassee tthhee uussee
ooff sseeccuurree
rreettiirreemmeenntt
iinnccoommee ssttrreeaammss
((ccoonnttiinnuueedd))
Australian lifetime annuity sales decreased 51% on 2019, with sales of Liquid Lifetime down 48% in
2020. Sales of CarePlus, a lifetime annuity specifically designed for aged care customers, were down
57% in 2020.
For Liquid Lifetime, under the new means test rules the Flexible and Enhanced product options are more
attractive and the Regular product option is generally less attractive.
Advisers are transitioning from the Regular to the Flexible and Enhanced options and a new cohort of
advisers writing the Flexible and Enhanced options is emerging. In 2020, 56% of advisers recommending
Liquid Lifetime annuities did not recommend any in the previous financial year.
Despite the social disruption from COVID-19 in the fourth quarter of 2020, lifetime annuity sales
remained relatively stable on the proceeding three quarters, reflecting an increase in the number of
advisers recommending the product, offsetting the impact from COVID-19.
There are over 200 specialist aged care advisers that support the CarePlus product. CarePlus was
reviewed and updated in late 1H20 following commencement of new means test rules in order to ensure
it provided the best overall outcome for aged care customers. Following the product refresh, sales
momentum is building with 2H20 CarePlus sales up 12% on 1H20 despite the COVID-19 disruption
during the fourth quarter.
The new means test rules have been designed to support the take up of longevity protection and lifetime
income streams. Challenger remains confident over the long-term that lifetime sales will increase under
the new means test rules.
SSaalleess ddiissrruuppttiioonn ffrroomm CCOOVVIIDD--1199 ppaannddeemmiicc
From March 2020, the COVID-19 pandemic has impacted financial advisers’ ability to meet new clients,
and their focus has been on servicing their existing client base, rather than on-boarding new clients. New
clients on-boarded at the point of retirement represents an opportunity to recommend annuities.
Lower new client acquisition by financial advisers during the fourth quarter, due to the pandemic,
contributed to domestic annuity sales being 34% lower than the prior corresponding quarter.
CarePlus is a lifetime annuity specifically designed for aged care customers. During the pandemic, there
has been a delay in retirees entering aged care. These delays have impacted CarePlus sales in the fourth
quarter, which were 16% lower than the third quarter.
Throughout 2020, and particularly during the pandemic related market sell-off, Challenger has received
numerous customer testimonials noting their annuity is providing peace of mind in volatile and uncertain
times. Significant market sell-offs highlight the benefits of annuities and guaranteed income relative to
market-linked account-based pension products.
Over the past year, Challenger has paid out approximately $3.8 billion in guaranteed annuity payments to
its customers, with payments to customers not impacted by the COVID-19 pandemic or related market
sell-off.
NNeeww RRBBAA CCaasshh LLiinnkkeedd lliiffeettiimmee aannnnuuiittyy ooppttiioonn
In order to increase the take-up of secure retirement income streams by Australian retirees, Challenger is
focused on ensuring its products remain contemporary and are effective for retirees.
In June 2020 the RBA Cash Linked option was added to Challenger’s Liquid Lifetime product range.
This innovation allows retirees to link future lifetime annuity payments to prevailing interest rates, with
regular payments reset each month based on movements in the RBA cash rate. The RBA Cash Linked
monthly payment comprises a fixed component and a variable RBA cash rate component.
The RBA Cash Linked option has been specifically designed for customers and advisers who may be
concerned with investing in a lifetime annuity in a low interest rate environment. The RBA Cash Linked
option seeks to address these concerns and can be applied to either the immediate or deferred lifetime
annuity.
DDiivveerrssiiffyyiinngg ddiissttrriibbuuttiioonn cchhaannnneellss
Challenger is focused on diversifying its distribution channels and reducing reliance on retail financial
advisers. In 2020, the following initiatives were undertaken:
•
commenced reinsuring US dollar annuities issued by MS Primary in Japan. As a result, MS Primary
2020 sales increased by 177% and represented 24% of total annuity sales, up from 8% in 2019; and
55
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
OOppeerraattiinngg aanndd ffiinnaanncciiaall rreevviieeww
55 CChhaalllleennggeerr’’ss 22002200 ssttrraatteeggiicc pprrooggrreessss ((ccoonnttiinnuueedd))
22002200 ssttrraatteeggiicc pprrooggrreessss ((ccoonnttiinnuueedd))
IInnccrreeaassee tthhee uussee
ooff sseeccuurree
rreettiirreemmeenntt
iinnccoommee ssttrreeaammss
((ccoonnttiinnuueedd))
LLeeaadd tthhee
rreettiirreemmeenntt
iinnccoommeess mmaarrkkeett
aanndd bbee tthhee
ppaarrttnneerr ooff cchhooiiccee
• expanded institutional relationships and product offering. The Challenger Index Plus product was
refreshed, with sales increasing by 101% on 2019. Sales benefited from new annuity and Challenger
Index Plus clients, including a new institutional annuity client investing $300 million across a range of
term annuities.
LLiiffee ssaalleess mmiixx aanndd ffooccuuss oonn lloonngg--tteerrmm pprroodduuccttss
Challenger's annuity sales mix continues to evolve toward long-term products. Long-term annuities
embed more value for shareholders as they lengthen the tenor of the annuity book, improve the maturity
profile and typically enhance return on equity.
•
In 2020, long-term annuity sales, which include Australian lifetime annuities and 20-year fixed term
annuities distributed through MS Primary in Japan, represented 37% of total annuity sales, up from
32% in 2019.
The annuity book continues to shift toward long-term annuities, with the long-term annuity book now
representing 53% of the total annuity book, up from 28% five years ago.
EEnnggaaggiinngg aanndd eedduuccaattiinngg ccuussttoommeerrss
In May 2020, Challenger launched a ‘Retirement Made Simple’ hub on its website, with the goal to
educate retirees on the different sources of income in retirement and benefits of lifetime income and
annuities.
Challenger also launched a ‘Retire with Confidence’ retirement income tool to help retirees and pre-
retirees better understand the financial realities of retirement. The tool is available on Challenger’s
website and is designed to help retirees understand how long their superannuation will last and
demonstrates how an annuity can be part of a comprehensive retirement solution.
AAddvviisseerr ssuuppppoorrtt aanndd ffooccuuss
Challenger believes in the value of financial advice, particularly in retirement. As the financial advice
market transitions to more IFA networks, Challenger is enhancing its focus on IFAs and ensuring its
products are available on leading independent platforms.
Challenger is also supporting customers and potential customers seeking high quality retirement financial
advice and commenced an adviser referral pilot. Customers have reported that this has reduced the effort
of finding an adviser and are feeling well supported by Challenger.
Challenger is also supporting advisers through increased education and thought leadership. In 2020 the
number of advisers attending Challenger retirement planning or aged care webinars doubled.
RReettiirreemmeenntt rreeffoorrmmss eennggaaggeemmeenntt aanndd aaddvvooccaaccyy
The Australian Government is considering a range of superannuation reforms aimed at enhancing the
retirement phase of superannuation. Reforms include the new pension means test rules for lifetime
income stream products that commenced on 1 July 2019, and the Retirement Income Framework.
The Government has also commissioned an independent review of the retirement income system (the
Retirement Income Review) to improve understanding of its operation and the outcomes it is delivering
for Australian retirees.
MMaaiinnttaaiinniinngg tthhoouugghhtt lleeaaddeerrsshhiipp ppoossiittiioonn
As an Australian retirement income thought leader, Challenger works with a broad range of industry,
consumer and Government organisations to assist in developing retirement income policy outcomes that
help provide Australians with financial security for retirement.
Challenger partnered with National Seniors Australia in 2020 to measure retirees’ attitudes and
confidence in managing the financial aspects of retirement. Challenger also partnered with the Council
on the Ageing (COTA) New South Wales to explore consumer-related retirement income issues and
understand how COVID-19 is impacting older workers.
Challenger's strategy includes being the partner of choice for superannuation fund advisers, wealth
managers and investment platforms in providing retirement income solutions. Challenger is the market
leader in annuities with 75%1 market share.
22002200 pprrooggrreessss
LLeeaaddiinngg aaddvviisseerr rraattiinnggss
Despite structural changes in the Australian financial advice market and new competitors entering the
retirement income market, Challenger has remained the dominant retirement income brand.
1 Plan for Life – March 2020 – based on annuities under administration at 30 March 2020.
66
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Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
55 CChhaalllleennggeerr’’ss 22002200 ssttrraatteeggiicc pprrooggrreessss ((ccoonnttiinnuueedd))
22002200 ssttrraatteeggiicc pprrooggrreessss ((ccoonnttiinnuueedd))
LLeeaadd tthhee
rreettiirreemmeenntt
iinnccoommeess mmaarrkkeett
aanndd bbee tthhee
ppaarrttnneerr ooff cchhooiiccee
((ccoonnttiinnuueedd))
PPrroovviiddee
ccuussttoommeerrss wwiitthh
eexxcceelllleenntt ffuunnddss
mmaannaaggeemmeenntt
ssoolluuttiioonnss
Among Australian financial advisers, Challenger continues to be the most recognised retirement income
provider with 93%1 of financial advisers rating Challenger as a leader in retirement income. Challenger’s
retirement income leadership position, which supports new distribution and product relationships, is 41
percentage points above its nearest competitor.
NNeeww iinntteeggrraatteedd bbrraanndd ccaammppaaiiggnn
In June 2019, Challenger launched a new integrated brand campaign, ‘Look forward with confidence’
based on extensive adviser and customer research. The campaign focused on building brand awareness
and familiarity, with a strong emphasis on educating customers and advisers on annuities being an
important component when creating confidence in retirement.
Following the campaign launch, several educational initiatives were undertaken, aimed to get more
retirees to understand the role annuities can play as part of a comprehensive retirement income plan.
Challenger also sponsored the NSW Seniors Expo and developed the ‘Retire with Confidence’ tool to
support customer education and engagement.
Campaign performance indicators show an increase in brand awareness and familiarity, with both
measures above target for retirees aged 65 to 74, Challenger’s target audience.
IInnvveessttiinngg iinn DDiissttrriibbuuttiioonn,, PPrroodduucctt aanndd MMaarrkkeettiinngg ((DDPPMM)) ggrroowwtthh iinniittiiaattiivveess
The Australian wealth management and financial advice market is undergoing significant structural
change.
To help drive additional demand for annuities and guaranteed income products, Challenger is investing in
a range of Distribution, Product and Marketing (DPM) initiatives.
The initiatives focus on increasing direct customer engagement and education, evolving Challenger’s
product range, supporting advisers and building more diversified distribution networks, including
institutional partnerships.
BBuuiillddiinngg iinnssttiittuuttiioonnaall ppaarrttnneerrsshhiippss
Challenger’s institutional guaranteed annuity business is growing strongly, with sales increasing by 101%
to $2.0 billion in 2020. Sales are benefiting from a number of new institutional relationships and a focus
on solutions-led strategies for profit-for-member and superannuation fund clients.
Clients are increasing their focus on providing retirement income solutions for their members and how
Challenger’s capabilities can support them in building comprehensive retirement solutions.
LLiiffee RRiisskk ((wwhhoolleessaallee lloonnggeevviittyy aanndd mmoorrttaalliittyy)) pprrooggrreessss
Life is undertaking wholesale longevity and mortality transactions, principally in the established United
Kingdom market. Life has specialised expertise and commenced this business in 2013.
The present value of future profits arising from the Life Risk portfolio was $829 million at 30 June 2020,
an increase of 67% ($334 million) from $495 million at 30 June 2019. The increase in the present value
of future profits was due to three longevity risk transactions completed in the UK pension market.
Challenger is focused on providing excellent funds management solutions in order to help build
retirement savings.
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MMaaiinnttaaiinniinngg ssuuppeerriioorr iinnvveessttmmeenntt ppeerrffoorrmmaannccee
Funds Management has a long track record of achieving superior investment performance, which has
helped attract strong net flows over many years.
Long-term investment performance for Fidante Partners Australian boutiques remains strong with 85%
of FUM outperforming benchmark over five years. Since fund inception, 84% of Fidante Partners’ funds
have achieved either first or second quartile investment performance2.
CIP Asset Management’s fixed income capability also continues to achieve strong investment
performance. All of CIP Asset Management’s third party fixed income mandates and funds beat their
investment performance benchmark over three and five years.
1 Marketing Pulse Adviser Study December 2019.
2 Mercer as at 30 June 2020.
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PPrroovviiddee
ccuussttoommeerrss wwiitthh
eexxcceelllleenntt ffuunnddss
mmaannaaggeemmeenntt
ssoolluuttiioonnss
((ccoonnttiinnuueedd))
AAwwaarrdd--wwiinnnniinngg iinnvveessttmmeenntt ssttrraatteeggiieess
Fidante Partners’ investment managers continue to be externally recognised. During 2020, the following
funds won investment manager awards:
• Ardea Investment Management – Zenith Fund Awards Australian Fixed Income winner (2019);
• Ardea Investment Management – Kanganews Australian Rates Fund Manager of the Year (2019);
• Kapstream – Kanganews Australian Credit Fund Manager of the Year (2019).
HHiigghhllyy rraatteedd rreettaaiill iinnvveessttmmeenntt pprroodduuccttss
Fidante Partners’ investment managers and funds are highly rated by external asset consultants:
• 37% of ratings are the top rating (e.g. ‘Highly Recommended’ or ‘Gold’) compared to an average of
approximately 12% across the Australian funds management industry; and
• 90% of ratings are a ‘buy’ rating compared to an average of approximately 75% across the
Australian funds management industry.
The quality and performance of Fidante Partners’ investment managers and funds continue to receive
strong independent validation. During 2020, two of Alphinity Investment Management’s Australian share
funds were upgraded from Recommended to Highly Recommended by a primary research house. This
same research house upgraded the Alphinity Global Fund to Recommended. Eiger Capital was also
awarded a ‘Highly Recommended’ rating by Zenith. Greencape Capital continues to be the only
Australian large cap equities manager to hold the top rating across all three major Australian retail
research consultants.
AAddddiinngg nneeww bboouuttiiqquueess aanndd iinnvveessttmmeenntt ssttrraatteeggiieess
Fidante Partners continues to expand its product offering by forming new partnerships and developing
new investment strategies for existing managers.
In September 2019, Fidante Partners and global alternative asset manager Ares Management
Corporation (NYSE: ARES) established a new strategic joint venture, Ares Australia Management. The
joint venture will provide Australian investors with access to alternative investment products managed in
the United States by Ares Management Corporation.
In May 2020, Ares Management Australia launched its first product, the Ares Global Credit Income Fund,
which offers Australian investors access to a higher income strategy with a focus on capital preservation.
The Ares Global Credit Income Fund targets a return of between 3% and 4% per annum, with
distributions paid monthly.
During 2020, Fidante Partners expanded its boutique product offering:
•
launching Ardea Pure Alpha, which is a higher returning version of the flagship Ardea Real Outcome
Fund;
•
•
•
launching a retail share class for the Kapstream Absolute Return Income Plus strategy, which targets
an absolute return of 3–4% above the cash rate;
launching the Whitehelm Global Listed Infrastructure Fund for Australian investors which has
previously only been available in Europe; and
launching the Nikko AM Developed Countries Government Bond Relative Value Strategy managed by
Ardea. The strategy targets the Japanese institutional market and is an institutional Toshin Fund
marketed by Nikko to their large institutional client base.
EExxppaannddiinngg ddiissttrriibbuuttiioonn cchhaannnneellss tthhrroouugghh aaccttiivvee EETTFF mmaarrkkeett
There continues to be strong demand from investors for simple and easy-to-access liquid investment
products. Exchange Traded Funds (ETFs) continue to experience strong growth in a number of markets as
they provide the ability to deliver diversified investment strategies in a liquid and easy-to-execute format.
While ETFs have historically focused on passive or factor-based investments, the demand for more actively
managed products continues to grow. In 2019, active ETFs accounted for approximately half of all new
Australian ETF market listings1.
In December 2018, Fidante Partners launched one of Australia’s first active fixed income ETFs, the ActiveX
Ardea Real Outcome Bond Fund (ASX: XARO), managed by Ardea Investment Management. In October
2019, Fidante Partners launched its second active ETF in the ActiveX Series, the ActiveX Kapstream
Absolute Return Income Fund. The fund aims to provide a steady stream of income and capital stability
over the medium term while outperforming its benchmark through different market cycles.
1 BetaShares Australian ETF Review – 2019.
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PPrroovviiddee
ccuussttoommeerrss wwiitthh
eexxcceelllleenntt ffuunnddss
mmaannaaggeemmeenntt
ssoolluuttiioonnss
((ccoonnttiinnuueedd))
Fidante Partners is committed to growing the ActiveX Series and expects to launch more active ETFs.
Total Fidante Partners FUM invested in ETF strategies at 30 June 2020 was $202m and increased by
$186m for the year.
CCIIPP AAsssseett MMaannaaggeemmeenntt rreebbrraanndd
Challenger Investment Partners has been rebranded CIP Asset Management as it starts to target more
retail FUM. Challenger Investment Partners was formed over 20 years ago, with the business evolving
from servicing just Challenger Life to providing solutions to a broad range of third party clients. At 30
June 2020, third party clients represented 25% of CIP Asset Management FUM.
The rebrand demonstrates Challenger’s commitment to growing the business and building on the
breadth of investment expertise.
CCIIPP AAsssseett MMaannaaggeemmeenntt ffiixxeedd iinnccoommee aanndd CCrreeddiitt IInnccoommee FFuunndd
The CIP Asset Management Fixed Income team manage funds and investment mandates across multiple
strategies, comprising both public and private credit investments.
The CIP Asset Management Credit Income Fund, launched in October 2017, is a floating rate, multi-
sector credit income strategy that invests across high quality, predominantly investment grade public and
private debt investments. With an investment-grade average portfolio credit rating1, the fund provides
investors with a higher income, defensive and diversified portfolio without taking excessive levels of credit
or interest rate risk.
In 2020, the CIP Asset Management Credit Income Fund continued to attract interest from third party
institutions and expanded distribution to target Australian high-net-worth individual investors.
The fund continues to perform strongly and, since inception, has outperformed the bank bill rate by
2.3% p.a.
The CIP Asset Management Credit Income Fund FUM at 30 June 2020 was $282 million and increased by
73% for the year.
CCIIPP AAsssseett MMaannaaggeemmeenntt MMuullttii--SSeeccttoorr PPrriivvaattee LLeennddiinngg CCrreeddiitt IInnccoommee FFuunndd
The CIP Asset Management Multi Sector Private Lending Fund, which is an open-ended fund targeting a
net return of the bank bill swap rate (BBSW) plus a margin of 5% was launched in February 2020. The
Fund is a multi-sector credit strategy which invests across Australian and New Zealand private securitised,
corporate and real estate lending.
The fund had ~$190 million of FUM at 30 June 2020 and despite significant market turmoil since launch,
the fund has provided positive returns over its first five months.
CCIIPP AAsssseett MMaannaaggeemmeenntt aappppooiinntteedd iinnvveessttmmeenntt mmaannaaggeerr bbyy AAOOFFMM
In December 2019, the Australian Office of Financial Management (AOFM) appointed CIP Asset
Management as the investment adviser to assist with the evaluation of investment proposals and provide
ongoing portfolio management for the Federal Government’s Australian Business Securitisation Fund
(ABSF). The ABSF was established to improve access to credit for Australian small businesses. CIP Asset
Management will provide advisory services and generate transaction and investment management fees
from the ABSF. During 2H20, the first ABSF transaction was approved.
CCIIPP AAsssseett MMaannaaggeemmeenntt RReeaall EEssttaattee
The CIP Asset Management Real Estate team manage real estate mandates across Australia and Japan on
behalf of Australian and international investors. Through 2020 CIP Asset Management expanded its
Japanese real estate portfolio, targeting non-discretionary retail and retail related logistics assets. CIP
Asset Management continues to explore domestic opportunities in Japan including partnering with
Japanese investors to invest in Australian real estate investment strategies.
During the COVID-19 pandemic CIP Asset Management has been actively managing both its fixed
income and property portfolios. For Real Estate, this has included working closely with approximately
60% of its tenants who have been directly impacted by the COVID-19 disruption.
MMaaiinnttaaiinn lleeaaddiinngg
ooppeerraattiioonnaall aanndd
ppeeooppllee pprraaccttiicceess
Challenger believes maintaining a highly engaged, diverse and agile workforce committed to sustainable
business practices with a strong risk and compliance culture is essential for providing customers and
shareholders with superior outcomes.
1 Based on Moody’s Investors Service inc. weighted average rating factors.
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MMaaiinnttaaiinn lleeaaddiinngg
ooppeerraattiioonnaall aanndd
ppeeooppllee pprraaccttiicceess
((ccoonnttiinnuueedd))
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RReeddeeffiinniinngg CChhaalllleennggeerr’’ss vvaalluueess aanndd nneeww eemmppllooyyeeee CCooddee ooff CCoonndduucctt
Challenger’s values are integral to its culture and linked to everything employees do.
They set out the behaviours needed to meet community expectations and ensure Challenger can deliver
on its vision and strategy, now and into the future.
In 2020 Challenger redefined and launched new values. Challenger’s values are:
• Act with integrity;
• Aim high;
• Collaborate; and
• Think customer.
The new Challenger values are clear, meaningful and memorable and define what is expected of all
employees.
In 2020, Challenger also launched a new employee Code of Conduct. The Code of Conduct sets out
expectations for employees on how to act, solve problems and make fair and balanced decisions. It brings
together Challenger’s values and links them to Group policies and statements.
HHeeaalltthh aanndd wweellllbbeeiinngg ooff oouurr ppeeooppllee dduurriinngg tthhee CCOOVVIIDD--1199 ppaannddeemmiicc
Looking after the health of our employees during the COVID-19 pandemic is a key business priority.
Almost all of Challenger’s employees have worked from home since mid-March 2020 and have adapted
well with business continuity maintained throughout the period.
Internal employee surveys show high employee engagement, with the majority feeling positive towards
Challenger, notwithstanding the difficult working environment. An employee survey in May 2020
showed 94% of our staff felt Challenger cared, and 98% were confident in the Leadership Team's ability
to navigate through the disruption. Importantly it showed 97% of employees felt positive about their
ability to adjust to work-from-home arrangements, and 94% felt well connected to their teams during
this time.
EEmmppllooyyeeee eennggaaggeemmeenntt
Employee engagement measures the nature of the relationship between an organisation and its
employees. Challenger believes having a highly engaged team with a positive attitude towards the
organisation and its values will lead to superior shareholder and customer outcomes.
Challenger measures employee engagement through a biennial survey, which was last conducted by
Willis Towers Watson in March 2019. The survey recorded a sustainable employee engagement score of
84%. The result is above both the Australian company and global financial services average.
DDiivveerrssiittyy aanndd iinncclluussiioonn
Challenger believes that diversity and inclusion deliver better outcomes for its people, its business and the
community.
In July 2019, Challenger updated its diversity and inclusion strategy to focus on three key areas:
1.
Providing a diverse and inclusive workplace;
2. Gender equality; and
3.
Supporting employment outcomes for people aged over 50.
New employee-led diversity and inclusion working groups have been established to develop and support
age, culture, LGBTQI+ and gender inclusion in the company.
To encourage greater representation of women at senior levels of the organisation, Challenger continues
to develop initiatives targeted at improving gender equality, including setting gender diversity targets. As
at 30 June 2020, 38% of leadership roles were held by women, compared to Challenger’s 2020 target
for women in management roles of 40%, representing an 11 percentage point increase since targets
were first introduced in 2016.
Challenger is committed to pay equity. Management and the Board review gender pay equity annually as
part of the remuneration process. This focus has ensured that for the past five years gender pay equity
for similar roles has been maintained.
In 2020, Challenger was recognised as an Employer of Choice for Gender Equality (Workplace Gender
Equality Agency) for the third year running. Reflecting continued commitment and progress towards
achieving gender equality, Challenger was recognised for the first time as a global top 100 employer for
gender equality in the 2019 Equileap Global Gender Equality rankings, and was also included on the
Bloomberg Global Gender Equality Index, positioning Challenger among the leading organisations
globally making progress towards gender equality in the workplace.
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22002200 ssttrraatteeggiicc pprrooggrreessss ((ccoonnttiinnuueedd))
MMaaiinnttaaiinn lleeaaddiinngg
ooppeerraattiioonnaall aanndd
ppeeooppllee pprraaccttiicceess
((ccoonnttiinnuueedd))
FFlleexxiibbllee wwoorrkk pprraaccttiicceess
Challenger has a focus on providing employees with flexible work arrangements.
At 30 June 2020, 92 employees, representing approximately 12% of Challenger employees, have formal
flexible working arrangements. Thirty percent are men.
The number of employees with flexible working arrangements is expected to increase significantly
following the COVID-19 pandemic. Challenger is well positioned to support this shift in work practices.
EEnnhhaanncciinngg ssuussttaaiinnaabbiilliittyy ccaappaabbiilliittyy
Considering environmental, social and governance (ESG) risks and opportunities supports Challenger in
delivering on its vision to provide financial security for retirement. Throughout 2020, Challenger made
significant progress on implementing its sustainability strategy.
Challenger’s long-term sustainable returns are achieved through the integration of ESG practices across
the business.
Challenger continued to develop its ESG practices and supported Fidante Partners to develop ESG
practices within their boutique fund managers. Most boutiques are now signatories to the United Nations
Principles for Responsible Investment (PRI) and many boutique managers have developed standalone ESG
policies.
During the year, Challenger held internal presentations to provide opportunities for employees and
boutiques to further understand ESG risks and opportunities. External experts also provided insights on
climate risk and considerations under the modern slavery legislation.
Challenger is well progressed in its assessment of supply chain and investment processes against new
modern slavery regulatory reporting requirements
Challenger continues to be a constituent of the FTSE4Good Index and a signatory to the United Nations
PRI.
SSuuppppoorrttiinngg tthhee ccoommmmuunniittyy
In September 2019, Challenger announced a strategic three-year partnership with the Council on the
Ageing (COTA) New South Wales. Through this partnership, Challenger will deliver a community program
aimed at addressing the underemployment of people aged over 50. Challenger understands that
continuing to work as you age is a key driver for financial security in retirement. The program will
celebrate the value older Australians bring to the workplace and improve workplace practices to attract
and retain older employees.
Challenger also aims to contribute to the communities in which it operates. Through its workplace giving
program, company matching, fundraising events and other initiatives, Challenger donated over $250,000
to charitable and not-for-profit organisations throughout the year. This included raising $45,000 for the
2020 bushfire appeal.
66 MMaarrkkeett oovveerrvviieeww aanndd oouuttllooookk
Australia’s superannuation system commenced in 1992 and is
now the third largest pension system globally and the fastest
growing, with assets increasing by 11% per annum over the
past 20 years1.
Critical features that have contributed to Australia having the
fastest growing pension system globally, include Government-
mandated contributions, a competitive institutional model and
a system based on defined contributions.
Australia’s superannuation system growth is underpinned by
contributions, which are mandated by the Government and
scheduled to increase from the current rate of 9.5% of gross
salaries to 12.0% by 2025. Growth in the superannuation
system is also supported by changing demographics and the
Government’s focus on enhancing the retirement phase of
superannuation.
The superannuation system is forecast to grow from
$2.7 trillion today2 to almost $7 trillion3 over the next 15
years.
Challenger’s Life and Funds Management businesses are both
expected to benefit from long-term growth in Australia's
superannuation system.
LLiiffee oouuttllooookk
Life focuses on the retirement spending phase of
superannuation by providing products that convert retirement
savings into safe and secure income. Challenger Life is
Australia’s leading provider of annuities4 and focuses on
retirees and the retirement phase of superannuation, which is
expected to grow strongly, driven by demographic changes
and a maturing of the retirement system.
1 Willis Towers Watson Global Pension Study 2020.
2 APRA, as at March 2020.
3 Rice Warner 2019 superannuation projections.
4 Plan for Life – March 2020 – based on annuities under administration at
30 March 2020.
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The number of Australians over the age of 65, which is Life's
target market, is expected to increase by over 50% over the
next 20 years1.
Life relies on third party financial advisers, both independent
and part of the major advice hubs5, to distribute its products
to retail customers in Australia.
Reflecting these demographic changes, and growth in the
superannuation system, the annual transfer from the
retirement savings phase of superannuation to the retirement
spending phase was estimated to be approximately $70bn2 in
2019.
Annuities represent only a small part of the retirement phase,
with lifetime annuities representing less than 2% of the annual
transfer.
The purpose of the superannuation system is to provide
income in retirement to substitute or supplement the
Government-funded age pension. With the transition from
Government-funded age pensions to private pensions, retirees
are demanding safe, secure retirement income products that
convert savings into income and provide financial security.
Australians now have very meaningful superannuation
balances when they retire, with an estimated average total
financial wealth at retirement of $680,0003, despite the
system being in place for only half the working life of today’s
retirees.
The Australian Government is progressing a range of
retirement income regulatory reforms that are designed to
enhance the retirement phase and better align it with the
overall objective of the superannuation system to provide
income in retirement to substitute or supplement the
Government-funded age pension. These reforms provide a
significant opportunity to increase the proportion of retirement
savings invested in products that deliver stable income, which
lasts a lifetime.
As Australia's leading provider of annuities, Challenger Life is
expected to continue to benefit from the long-term growth in
Australia’s superannuation system and regulatory reforms
designed to enhance the retirement phase and increase the
allocation of retirement savings made to annuities.
Life is also diversifying its range of products and expanding its
distribution relationships in both Australia and Japan and
building institutional partnerships.
In Australia, Life is broadening access by making annuities
available via leading investment and administration platforms.
Challenger’s range of annuities are accessible by more than
70% of Australia’s financial advisers via their primary
investment and administration platform.
Challenger has been recognised as a retirement income
product innovator and has won the Association of Financial
Advisers ‘Annuity Provider of the Year’ for the last 12 years.
Challenger remains the dominant retirement income brand in
Australia and is recognised by 93%4 of financial advisers as a
leader in retirement incomes.
Following the public hearings and completion of the Royal
Commission into Misconduct in the Banking, Superannuation
and Financial Services Industry (Royal Commission) in 2019,
there has been significant structural change across the
Australian wealth management and financial adviser market.
Domestic annuity sales have been impacted by the structural
change to the wealth management and adviser markets, with
2020 domestic annuity sales down 27% from 2019.
To help drive additional demand for annuities and guaranteed
income products, Challenger is investing in a range of
Distribution, Product and Marketing (DPM) initiatives. Initiatives
are focused on increasing direct customer engagement and
education, evolving Challenger’s product range and supporting
advisers.
The profit-for-member sector of the superannuation system is
growing strongly and currently represents ~37% of total
superannuation assets6. As members transition to retirement,
focus by profit-for-member funds to provide comprehensive
retirement income solutions to their members will continue to
increase. The profit-for-member sector provides a significant
growth opportunity for Life.
In Japan, Life commenced an annuity relationship with Mitsui
Sumitomo Primary Life Insurance Company Limited
(MS Primary) to provide Australian-dollar annuities in
November 2016. MS Primary is a leading provider of annuity
products in Japan and part of MS&AD Insurance Group
Holdings Inc. (MS&AD).
As part of the reinsurance arrangements with MS Primary,
Challenger Life reinsures both an Australian-dollar and US-
dollar 20-year term product and an Australian-dollar lifetime
annuity product.
Under an expanded reinsurance arrangement, which
commenced on 1 July 2019, MS Primary will provide Life an
annual amount of reinsurance, across both Australian and US-
dollar annuities, of at least ¥50 billion (~A$670 million) per
year for a minimum of five years7,8 This is subject to review in
the event of a material adverse change for either MS Primary
or Challenger Life.
At 30 June 2020, MS&AD held ~15% of Challenger’s issued
capital. A representative from MS&AD, Mr Masahiko
Kobayashi, was appointed as a Non-Executive Director of
Challenger Limited in August 2019 and an Alternate Director,
Mr Hiroyuki Iioka, was appointed on 13 December 2019.
1 2020 – 2040 comparison based on Australian Bureau of Statistics Population
5 Major advice hubs include AMP and the wealth management operations of the
Projections Series B, cat no. 3222.0.
major Australian banks.
2 Australian Taxation Office.
3 Australian Bureau of Statistics Household Income and Wealth 2017-18 cat no.
6523.0. Average household wealth includes superannuation and non-
superannuation assets and excludes the family home.
4 Market Pulse Adviser Study December 2019.
6 APRA Quarterly Superannuation Performance Statistics, March 2020.
7 Challenger Life entered into a new agreement with MS Primary to commence
reinsuring the US dollar version of the 20-year term product from July 2019.
Challenger will provide a guaranteed interest rate and assume the investment
risk in relation to those policies issued by MS Primary and reinsured by
Challenger.
8 Based on the exchange rate as at 30 June 2020.
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FFuunnddss MMaannaaggeemmeenntt oouuttllooookk
Funds Management focuses on building savings for retirement
by providing investment strategies that seek to deliver superior
investment returns. Funds Management has operations in
Australia, the United Kingdom and Japan and is one of
Australia’s largest active fund managers1.
Growth in funds under management can be attributed to the
strength of Challenger's retail and institutional distribution
teams, a market-leading business model focused on investor
alignment and strong long-term investment performance.
Funds Management comprises Fidante Partners and CIP Asset
Management.
The Fidante Partners business model involves taking minority
equity interests in separately branded boutique fund
management firms, with Challenger providing distribution,
administration and business support, leaving investment
managers to focus on managing investment portfolios.
Challenger's Fidante Partners business model has allowed it to
attract and build successful active equity, active fixed income
and alternative investment managers.
Fidante Partners continues to expand its product offering by
adding new boutiques and accessing new distribution
channels. Recent examples include launching the ActiveX
Series of actively managed Exchange Traded Funds (ETFs)
targeting the growing popularity of actively traded exchange
products and forming a new strategic joint venture with global
alternative asset manager, Ares Management Corporation
(NYSE: ARES). The joint venture will provide Australian
investors with access to alternative investment products
managed by Ares.
Challenger Investment Partners has been rebranded CIP Asset
Management as it transitions from an internally focused to an
externally focused asset manager. The rebrand demonstrates
Challenger’s commitment to growing the business and
building on the breadth of investment expertise.
CIP Asset Management is an institutional manager that
principally originates and manages fixed income and
commercial real estate for leading global and Australian
institutions, including Challenger Life.
Funds Management is also expanding its presence in Japan
and directly manages real estate investments on behalf of Life
and is developing funds management distribution and product
opportunities in the region.
CCOOVVIIDD--1199 ppaannddeemmiicc
The COVID-19 pandemic has presented significant challenges
to global economies and investment markets.
Looking after the health of our people during this time has
been a key business priority for Challenger, which has
transitioned almost all its employees to working from home
arrangements from mid-March 2020.
Challenger has also been supporting its customers and
business partners through the pandemic, which has included
supporting advisers, superannuation fund clients and
commercial property tenants.
Investment market conditions have been significantly disrupted
by the COVID-19 pandemic, resulting in a market sell-off and
increased market volatility. This has impacted both Challenger
Life’s statutory earnings and excess capital position, which
both include $750.3 million (post-tax) of realised and
unrealised investment experience losses.
Following the pandemic related market sell-off, Challenger Life
has actively managed its investment portfolio and repositioned
it to be more defensive, which reduced its capital intensity and
subsequently increased its excess capital position.
In order to further strengthen Life’s capital position and
provide flexibility to enhance returns, a $270 million
institutional equity placement was undertaken in June 2020
and a retail Share Purchase Plan was completed in July 2020
raising $35 million. Challenger is prioritising maintaining a
strong capital position and has not declared a final 2020
dividend.
Challenger Life is maintaining a strong capital position, which
is well above internal capital targets, and there is flexibility to
redeploy up to $3 billion of Life’s cash and liquids into higher
yielding investments. Once fully deployed, these investments
are expected to enhance both Life’s earnings and RoE.
Given the uncertain economic outlook, Life expects to
continue to maintain a more defensive portfolio setting and
Challenger will maintain a disciplined focus on expense
management.
RRiisskkss
The above outlook for the Life and Funds Management
businesses is subject to the following key business risks:
• Investment market volatility;
• ongoing impact of the COVID-19 pandemic on the global
economy and the ability of individuals, businesses, and
governments to operate;
• general uncertainty around the global economy and its
impact on markets in which Challenger operates and invests;
• regulatory and political changes impacting financial services
participants;
• demand for and competition with Challenger products,
including annuities and managed funds; and
• operational risk.
Other risks to which Challenger’s businesses are exposed are
summarised in section 4 Risk Management and in the
Corporate Governance summary on page 26.
1 Consolidated FUM for Australian Fund Managers – Rainmaker Roundup March
2020.
1133
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
OOppeerraattiinngg aanndd ffiinnaanncciiaall rreevviieeww
77 KKeeyy ppeerrffoorrmmaannccee iinnddiiccaattoorrss ((KKPPIIss))
77..11 PPrrooffiittaabbiilliittyy aanndd ggrroowwtthh
KPIs for the year ended 30 June 2020 (with the year to 30
June 2019 being the prior comparative period (PCP), unless
otherwise stated) include:
22002200
22001199
CChhaannggee
%%
PPrrooffiittaabbiilliittyy
Statutory (loss)/profit
attributable to equity holders
307.8
($m)
548.3
Normalised NPBT ($m)
396.1
Normalised NPAT ($m)
50.9
Statutory EPS (cents)
65.5
Normalised EPS (cents)
35.5
Total dividend (cents)
100%
Total dividend franking
Normalised cost: Income ratio 35.7% 32.6%
(12.1%)
Statutory RoE after tax
8.9%
14.8% 15.8%
Normalised RoE pre-tax
10.0% 11.4%
Normalised RoE after tax
(416.0)
506.5
343.7
(68.4)
56.5
17.5
100%
(large)
(7.6)
(13.2)
(large)
(13.9)
(50.7)
-
3.1
(large)
(1.0)
(1.4)
GGrroowwtthh
Total Life sales ($m)
Total Life net flows ($m)
Total Life net book
growth (%)
Total FM net flows ($bn)
Total AUM ($bn)
5,151.4 4,550.0
474.8
315.8
13.2
(33.5)
2.1%
2.5
85.2
3.4%
(2.4)
81.8
(1.3)
(large)
4.2
During March 2020, COVID-19 was declared a global
pandemic. COVID-19, and the resulting impact on economic
activity, had a significant impact on world debt and equity
markets. The deterioration of market conditions in March
2020 resulted in Challenger lowering exposure to certain asset
classes to protect its capital position. This action resulted in a
reduction in Life’s assets and losses on investments being
incurred. This was coupled with nationwide lockdowns for
much of the fourth quarter which also impacted Life annuity
sales in that time. The KPIs for the period have been materially
impacted by these circumstances and conditions.
As a result, Challenger’s statutory profit attributable to equity
holders was substantially lower for the year ended 30 June
2020. Statutory profit decreased as a result of lower pre-tax
normalised earnings together with the impact of the large fair
value changes on Challenger Life Company Limited’s (CLC’s)
assets and liabilities as a result of the investment market
volatility associated with COVID-19.
Normalised net profit after tax decreased by 13.2%, and
normalised EPS decreased by 13.9% compared to 2019,
reflecting lower earnings in Life and lower earnings in the
Funds Management business, offset by a higher effective tax
rate in the period and a higher share count as a result of
additional capital being issued to satisfy the DRP and the
reduction in Treasury shares.
As a result of the uncertain economic conditions caused by
COVID-19, and to continue to protect the capital position of
the Life business, no final dividend was declared resulting in
the total dividend for 2020 being 17.5 cents franked at 100%,
which is 18.0 cents lower than the prior year (100% franked).
Challenger’s normalised cost to income ratio of 35.7% is
higher than the ratio in 2019 (32.6%). This was due to
increased costs associated with the growth initiatives in
Distribution, Product and Marketing together with the reduced
income as a result of the investment market volatility caused
by COVID-19.
The normalised pre-tax RoE was 14.8% in 2020 compared to
15.8% in the prior year due to the reduced income combined
with higher average capital levels. The RoE outcome was
above the target of the Reserve Bank of Australia (RBA) cash
rate plus a margin of 14%.
Statutory RoE after tax of negative 12.1% has decreased
substantially compared to the prior year (2019: 8.9%) as a
result of the materially lower after-tax statutory profit primarily
as a result of the fair value movements on Challenger’s assets
and liabilities experienced as a result of the investment market
volatility caused by COVID-19. Normalised RoE after tax
decreased from 11.4% in the prior period to 10.0%, primarily
reflecting the higher effective tax rate, increased share count
and the reduced normalised net profit after tax.
77..22 CCaappiittaall mmaannaaggeemmeenntt
Challenger’s capital position is managed at both the Group
and the prudentially-regulated CLC level, with the objective of
maintaining the financial stability of the Group and CLC while
ensuring that shareholders earn an appropriate risk-adjusted
return. Refer to Note 12 Contributed equity for further
information on the Group’s Internal Capital Adequacy
Assessment Process.
On 22 June 2020, Challenger announced an underwritten
institutional placement of equity in the amount of $270 million
together with a non-underwritten share purchase plan
(SPP) for retail shareholders which was targeting to raise up to
$30 million. The institutional placement of $270 million was
completed on 23 June 2020, while the SPP was completed on
24 July 2020, raising $35 million.
1144
OOppeerraattiinngg aanndd ffiinnaanncciiaall rreevviieeww
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
77 KKeeyy ppeerrffoorrmmaannccee iinnddiiccaattoorrss ((KKPPIIss)) ((ccoonnttiinnuueedd))
77..22 CCaappiittaall mmaannaaggeemmeenntt ((ccoonnttiinnuueedd))
AAPPRRAA’’ss LLeevveell 33 ((ccoonngglloommeerraattee)) pprrooppoossaallss
The decision to raise additional capital was taken to further
protect CLC’s capital position in the wake of COVID-19 while
at the same time being used to further enhance returns once
deployed.
The $270 million proceeds of the institutional placement were
injected directly into CLC on 26 June 2020 and form part of
the capital base for CLC for the period. The majority of the SPP
proceeds ($30 million) were also subsequently injected into
CLC on 31 July 2020.
The following table highlights the key capital metrics for CLC
and the Group:
CCaappiittaall
Net assets attributable to
equity holders ($m)
CLC excess capital over
PCA ($m)
Group cash ($m)1
CLC excess capital over PCA +
Group cash ($m)
CLC PCA ratio (times)
CLC CET1 ratio (times)
22002200
22001199 CChhaannggee
3,249.6 3,600.3
(350.7)
1,584.7 1,377.1
91.5
146.1
207.6
54.6
1,730.8 1,468.6
1.53
1.06
1.81
1.20
262.2
0.28
0.14
1 Includes $50 million of the Group corporate debt facility drawn.
CCLLCC rreegguullaattoorryy ccaappiittaall bbaassee
CLC holds capital in order to ensure that, under a range of
adverse scenarios, it can continue to meet its regulatory and
contractual obligations to its customers. CLC is regulated by
APRA and is required to hold a minimum level of regulatory
capital. CLC has ongoing and open engagement with APRA.
CLC maintains a level of capital representing the Prescribed
Capital Amount (PCA) plus a target surplus. The target surplus
is a level of excess capital that CLC seeks to carry over and
above APRA’s minimum requirement in order to provide a
buffer against adverse market conditions, having regard to
CLC’s credit rating.
CLC uses internal capital models to determine its target
surplus, which are risk-based and are responsive to changes in
CLC’s asset allocation and market conditions. While CLC does
not target a specific PCA ratio, CLC’s internal capital models
result in a PCA ratio under current circumstances in the range
of 1.3 to 1.6 times. This range may change over time and is
dependent on a number of factors.
In addition to CLC’s excess regulatory capital, Challenger
maintains cash at a Group level which can be used to meet
regulatory capital requirements. Challenger further maintains a
Group corporate debt facility of $400 million in order to
provide additional financial flexibility. The facility was drawn in
full in March 2020 in response to the investment market
volatility caused by COVID-19. $350 million was subsequently
repaid in June 2020 leaving $50 million drawn at the end of
the period. These drawn proceeds remain at the Group level
and will be used to provide financial flexibility throughout
2021.
The Group is a Level 3 Head (as defined in Prudential Standard
3PS 001) under the APRA conglomerates framework. Level 3
groups are groups of companies that perform material activities
across more than one APRA-regulated industry and/or in one or
more non-APRA regulated industries. APRA’s non-capital
conglomerate prudential standards relating to measurement,
management, monitoring and reporting aggregate risk
exposures and intragroup transactions and exposures came into
effect 1 July 2017.
In March 2016, APRA announced that it would defer the
implementation of conglomerate capital requirements until a
number of other domestic and international policy initiatives
were further progressed. There has been no further update
from APRA in relation to this position.
DDiivviiddeennddss aanndd ddiivviiddeenndd rreeiinnvveessttmmeenntt ppllaann
DDiivviiddeennddss
Interim dividend (cents)1
Final dividend (cents)
Total dividend (cents)
Interim dividend franking
Final dividend franking
22002200
17.5
-
17.5
22001199 CChhaannggee
-
17.5
(18.0)
18.0
(18.0)
35.5
-
100% 100%
-
- 100%
1 Interim dividend declared on 11 February 2020 and paid on 24 March 2020 in
respect of the half year ended 31 December 2019.
In April 2020 following the immediate impact of COVID-19,
APRA wrote to all authorised deposit taking institutions (ADIs)
and insurers noting APRA’s expectation that ADIs and insurers
limit dividends given the uncertain outlook.
The dividend payout ratio for the year ended 30 June 2020
was 31.0% (30 June 2019: 54.2%).
The payout ratio is currently below the target range of 45% to
50% reflecting the Board’s decision not to pay a final dividend
as a result of the uncertain economic conditions caused by
COVID-19 and the decision to continue to protect Life’s capital
position. Notwithstanding this, the target dividend payout
ratio range will continue to be maintained at 45% to 50% of
normalised net profit after tax going forward.
The Company also seeks to frank its dividend to the maximum
extent possible and expects future dividends over the medium
term to be fully franked. However, the actual dividend payout
ratio and franking will depend on prevailing market conditions
and capital allocation priorities at the time.
The Company continued to operate its DRP during the period.
The DRP participation rate for the 2019 final dividend was
2.3% of all issued shares, and 364,482 ordinary shares were
issued to satisfy the DRP requirements on 25 September 2019.
The participation rate for the 2020 interim dividend was 2.6%,
and 338,871 ordinary shares were issued to satisfy DRP
requirements on 24 March 2020.
With no final dividend being paid, the DRP is not in operation.
It is expected that the DRP will continue for any dividends paid
in 2021.
No shares were bought back during the year.
1155
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
OOppeerraattiinngg aanndd ffiinnaanncciiaall rreevviieeww
77 KKeeyy ppeerrffoorrmmaannccee iinnddiiccaattoorrss ((KKPPIIss)) ((ccoonnttiinnuueedd))
77..33 CCrreeddiitt rraattiinnggss
MMaannaaggeemmeenntt aannaallyyssiiss –– nnoorrmmaalliisseedd rreessuullttss
Challenger Limited and CLC are rated by Standard & Poor’s
(S&P). In March 2020, S&P reaffirmed both CLC and
Challenger Limited’s credit ratings but revised the outlook
from positive to stable as a result of the uncertainty caused by
COVID-19.
Ratings were confirmed as:
• CLC: ‘A’ with a stable outlook; and
• Challenger Limited: ‘BBB+’ with a stable outlook.
The S&P ratings reflect the financial strength of Challenger
Limited and CLC. In particular, S&P noted that CLC has a
robust capital position which was protected through active
management of its investment asset portfolio following the
investment market impact of COVID-19. S&P also noted that
while earnings will likely be impacted by the investment losses,
it considers CLC’s strong capital position, liquidity profile and
position in Australia’s annuities market to be supportive of the
published ratings.
88 NNoorrmmaalliisseedd pprrooffiitt aanndd iinnvveessttmmeenntt
eexxppeerriieennccee
NNoorrmmaalliisseedd ffrraammeewwoorrkk ((NNoonn--IIFFRRSS))
CLC and its consolidated entities are required by AASB 1038
Life Insurance Contracts to value all assets and liabilities at fair
value where permitted by other accounting standards.
This gives rise to fluctuating valuation movements on assets
and liabilities being recognised in the profit and loss in CLC
and on consolidation in Challenger Limited. CLC is generally a
long-term holder of assets, due to holding assets to match the
term of life contract liabilities. As a result, Challenger takes a
long-term view of the expected capital growth of the portfolio
rather than focusing on short-term movements. Investment
experience represents the difference between actual
investment gains/losses (both realised and unrealised) and
expected gains/losses based on CLC’s medium to long-term
expected returns together with the new business strain1 that
results from writing new annuities. Investment experience also
includes any impact from changes in economic and other
actuarial assumptions.
A reconciliation between statutory revenue and the
management view of revenue and net income is included in
the financial report as part of Note 3 Segment information.
This note also includes a reconciliation of statutory profit
after tax and normalised net profit after tax (the management
view of post-tax profit). The application of the normalised
profit framework has been reviewed by Challenger’s
independent auditor to ensure that the reported results are
consistently applied in accordance with the methodology
described in Note 3 Segment information in the financial
report.
22002200
$$mm
22001199
$$mm
797.4 821.0
CChhaannggee
$$mm
(23.6)
CChhaannggee
%%
(2.9)
638.9 670.1
158.1 149.9
(31.2)
8.2
(4.7)
5.5
0.4
1.0
(284.4) (267.4)
551133..00 555533..66
(0.6)
(17.0)
((4400..66))
(60.0)
6.4
((77..33))
524.7 563.6
50.9
57.7
(38.9)
6.8
(6.9)
13.3
Net income1
Comprising:
– Life normalised COE
– FM net income
– Corporate and other
income
Operating expenses1
NNoorrmmaalliisseedd EEBBIITT
Comprising:
– Life normalised EBIT
– FM normalised EBIT
– Corporate and other
normalised EBIT
(69.4)
(60.9)
(8.5)
14.0
Interest and borrowing
costs
Tax on normalised
profit
NNoorrmmaalliisseedd NNPPAATT
Investment experience
after tax
Significant items
after tax
SSttaattuuttoorryy nneett pprrooffiitt
aafftteerr ttaaxx aattttrriibbuuttaabbllee
ttoo eeqquuiittyy hhoollddeerrss
(6.5)
(5.3)
(1.2)
(22.6)
(162.8) (152.2)
334433..77 339966..11
(10.6)
((5522..44))
(6.9)
((1133..22))
(750.3)
(88.3)
(662.0)
(large)
(9.4)
-
(9.4)
(large)
((441166..00)) 330077..88
((772233..88))
((llaarrggee))
1 ‘Net income’ and ‘Operating expenses’ are internal classifications and are
defined in Note 3 Segment information in the financial report. These differ
from the statutory revenue and expenses classifications, as certain costs
(including distribution expenses, property expenses, management fees, special
purpose vehicle expenses and finance costs) are netted off against gross
revenues. These classifications have been made in the Directors’ report and in
Note 3 Segment information to reflect how management measures business
performance. While the allocation of amounts to the above items and
investment experience differ to the statutory view, both approaches result in
the same total net profit after tax attributable to equity holders.
Life normalised cash operating earnings (COE) and earnings
before interest and tax (EBIT) decreased as a result of lower
Life investment assets and capital base following the
investment experience losses and asset sales undertaken in
March 2020 in response to the impact of COVID-19. Life’s
closing investment assets decreased by 3.7% as a result of the
asset sales in March 2020 combined with valuation
movements on those assets offset by increased total Life net
book growth.
Funds Management net income increased (up $8.2 million)
due to increased Fidante Partners fee income (primarily
performance fees) offset by reduced CIP Asset Management
income. Funds Management average FUM increased by 4.0%.
1 New business strain is a non-cash accounting adjustment recognised when
annuity rates on new business are higher than the risk-free rate used to fair
value annuities. The new business strain unwinds over the annuity contract.
1166
OOppeerraattiinngg aanndd ffiinnaanncciiaall rreevviieeww
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
88 NNoorrmmaalliisseedd pprrooffiitt aanndd iinnvveessttmmeenntt eexxppeerriieennccee ((ccoonnttiinnuueedd))
MMaannaaggeemmeenntt aannaallyyssiiss –– nnoorrmmaalliisseedd rreessuullttss ((ccoonnttiinnuueedd))
Operating expenses increased (up $17.0 million), following
increased costs primarily associated with the growth initiatives
undertaken in Distribution, Product and Marketing during the
period.
In 2020, Challenger’s full-time equivalent employee numbers
increased by 48 (or 7.0%) to 735.
Normalised tax for the year was $162.8 million, up
$10.6 million (or 6.9%) from 2019 mainly due to a higher
normalised effective tax rate. The normalised effective tax rate
for the period increased to 32.1% (27.8% at 30 June 2019).
MMaannaaggeemmeenntt aannaallyyssiiss –– iinnvveessttmmeenntt eexxppeerriieennccee
AAccttuuaall ccaappiittaall ggrroowwtthh11
– Cash and fixed income
– Infrastructure
– Property (net of debt)
– Equity and other investments
TToottaall aaccttuuaall ccaappiittaall ggrroowwtthh
NNoorrmmaalliisseedd ccaappiittaall ggrroowwtthh22
– Cash and fixed income
– Infrastructure
– Property (net of debt)
– Equity and other investments
TToottaall nnoorrmmaalliisseedd ccaappiittaall ggrroowwtthh
IInnvveessttmmeenntt eexxppeerriieennccee
– Cash and fixed income
– Infrastructure
– Property (net of debt)
– Equity and other investments
– Policy liability experience3
Asset and policy liability experience
New business strain4
Investment experience before tax
Tax benefit/(expense)
IInnvveessttmmeenntt eexxppeerriieennccee aafftteerr ttaaxx
22002200
$$mm
22001199
$$mm
9.4
(528.8)
(114.9) 116.9
43.5
(155.3)
(90.7)
(269.3)
7799..11
((11,,006688..33))
(46.4)
28.0
66.6
72.0
(42.0)
30.2
72.1
94.8
112200..22 115555..11
(482.4)
(142.9)
(221.9)
(341.3)
86.1
(1,102.4)
31.9
(1,070.5)
320.2
((775500..33))
51.4
86.7
(28.6)
(185.5)
5.8
(70.2)
(33.3)
(103.5)
15.2
((8888..33))
1 Actual capital growth represents net realised and unrealised capital gains or
losses and includes the attribution of interest rate, inflation and foreign
exchange derivatives that are used to hedge exposures.
2 Normalised capital growth is determined by multiplying the normalised capital
growth rate for each asset class by the average investment assets for the
period. The normalised capital growth rates represent Challenger’s expectations
for each asset class over the investment cycle. The normalised growth rate is
+3.5% for equity and other investments, +4.0% for infrastructure, +2.0% for
property and -0.35% for cash and fixed income in order to allow for credit
defaults. The rates have been set with reference to medium to long-term
market growth rates and are reviewed to ensure consistency with prevailing
market experience.
3 Policy liability experience represents the impact of changes in macroeconomic
variables, including bond yields and inflation factors, expense assumptions and
other factors applied in the valuation of life contract liabilities.
4 New business strain is a non-cash accounting adjustment recognised when
annuity rates on new business are higher than the risk-free rate used to fair
value annuities. The new business strain unwinds over the annuity contract.
Investment experience after tax relates to changes in the fair
value of Life’s assets and liabilities. Investment experience is a
mechanism employed to remove the volatility arising from
asset and liability valuation movements and new business
strain from Life business earnings so as to more accurately
reflect the underlying performance of the Life business.
Pre-tax investment experience in 2020 comprised an asset and
policyholder liability experience loss of $1,102.4 million and a
gain of $31.9 million from Life’s new business strain. Life’s
asset portfolio experienced losses and significant negative fair
value movements as a result of the impact of COVID-19 and
this was experienced across all asset classes.
99 LLiiffee sseeggmmeenntt rreessuullttss
The Life segment includes CLC, Australia’s leading provider of
annuities and guaranteed retirement income products. CLC
has won the Association of Financial Advisers/Plan for Life
annuity provider of the year for the past twelve consecutive
years.
CLC is regulated by APRA, and its financial strength is rated by
Standard & Poor’s, with an ‘A’ credit rating and a stable
outlook. CLC is strongly capitalised, with significant excess
capital above APRA’s minimum regulatory requirements.
LLiiffee nnoorrmmaalliisseedd
rreessuullttss
Normalised COE
– Cash earnings
– Normalised capital
growth
Operating expenses
NNoorrmmaalliisseedd EEBBIITT
22002200
$$mm
22001199
$$mm
638.9 670.1
518.7 515.0
CChhaannggee
$$mm
(31.2)
3.7
CChhaannggee
%%
(4.7)
0.7
120.2 155.1
(114.2) (106.5)
552244..77 556633..66
(34.9)
(7.7)
((3388..99))
(22.5)
7.2
((66..99))
Life normalised EBIT decreased by $38.9 million (down 6.9%)
due to lower normalised COE (down $31.2 million or 4.7%),
which was combined with higher operating expenses
increasing by $7.7 million (or 7.2%). The lower normalised
COE was mainly a result of lower investment assets and capital
base following the investment experience losses and asset
sales undertaken in March 2020 in response to the impact of
COVID-19. Cash operating earnings were lower across all
major asset classes in the June quarter as a result.
Life generated a normalised RoE (pre-tax) of 15.5%, down by
2.2 percentage points from the prior year as a result of lower
earnings together with the lower average net assets caused by
the impact of COVID-19.
Life annuity sales declined from the prior period (down
11.7%), with reduced lifetime sales (down 51.4%) offset by
increased fixed term sales (up 0.9%) and increased other Life
sales (up 101.0%).
1177
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
OOppeerraattiinngg aanndd ffiinnaanncciiaall rreevviieeww
CIP Asset Management develops and manages assets for CLC
and third party institutional investors.
FFMM nnoorrmmaalliisseedd
rreessuullttss
Net income
– Fidante Partners
– CIP Asset
Management
Operating expenses
NNoorrmmaalliisseedd EEBBIITT
22002200
$$mm
158.1
96.3
22001199
$$mm
149.9
86.7
CChhaannggee
$$mm
8.2
9.6
CChhaannggee
%%
5.5
11.1
61.8
(100.4)
5577..77
63.2
(99.0)
5500..99
(1.4)
(1.4)
66..88
(2.2)
1.4
1133..33
Funds Management normalised EBIT increased by 13.3% in
the period, with increased net income primarily as a result of
increased performance fees offset with higher expenses during
the period.
Fidante Partners’ net income includes distribution fees,
transaction fees, administration fees and a share in the equity
accounted profits for the boutique fund managers in which it
has an equity interest.
Fidante Partners’ net income improved for the period primarily
as a result of performance fees (up $11.3 million).
CIP’s net income decreased due to lower transaction fees
(down $3.9 million) offset by higher net management fees (up
$2.4 million).
Funds Management’s normalised RoE (pre-tax) for the year
was 24.3%, up by 0.8 percentage points from the prior year.
This increase comes largely as a result of increased
performance fees earned during the year. RoE in Funds
Management continues to see the benefits of scale and
increased earnings flexibility.
FFMM FFUUMM aanndd fflloowwss
Total FUM
– Fidante Partners
– CIP
Net flows
– Fidante Partners
– CIP
22002200
$$bbnn
81.4
62.4
19.0
2.5
3.8
(1.3)
22001199
$$bbnn
79.0
58.9
20.1
(2.4)
(3.6)
1.2
CChhaannggee
$$bbnn
2.4
3.5
(1.1)
4.9
7.4
(2.5)
CChhaannggee
%%
3.0
5.9
(5.3)
large
large
large
Fidante Partners’ FUM increase ($3.5 billion) was driven by net
inflows ($3.8 billion) and negative impact from investment
markets (down $0.3 billion).
CIP FUM growth (down $1.1 billion) is primarily a result of the
asset sales undertaken by CLC in response to the impact of
COVID-19 in March 2020 (down $1.3 billion) and positive
impact from investment markets (up $0.2 billion).
99 LLiiffee sseeggmmeenntt rreessuullttss ((ccoonnttiinnuueedd))
In November 2016, Life began issuing Australian dollar fixed
rate annuities with a 20-year term in support of Challenger’s
reinsurance agreement with MS Primary. It was announced in
March 2019 that Challenger would commence a quota share
reinsurance of US dollar denominated annuities issued in the
Japanese market by MS Primary from 1 July 2019. It was
agreed with MS Primary that the arrangement would provide
CLC with an annual amount of reinsurance across both
Australian and US dollar annuities of at least ¥50 billion
(approximately A$670.0 million as at 30 June 2020)1 each year
for a minimum of five years. The MS Primary reinsured sales
comprised 23.8% of Life’s total annuity sales in the period,
which is a substantial increase on the prior year (7.6%).
CChhaannggee
$$mm
23.0
(438.7)
CChhaannggee
%%
0.9
(51.4)
414.6
22002200
$$mm
22001199
LLiiffee ssaalleess
$$mm
Fixed-term annuities 2,712.8 2,689.8
853.3
Lifetime annuities
Total Life annuity
sales
Other Life sales
TToottaall LLiiffee ssaalleess
Annuity net flows
Other Life net flows
3,127.4 3,543.1
(415.7)
2,024.0 1,006.9 1,017.1
660011..44
55,,115511..44 44,,555500..00
(936.9)
685.8
777.9
(211.0)
(251.1)
566.9
(11.7)
101.0
1133..22
(large)
(large)
Annuity net flows (new annuity sales less capital repayments)
decreased by 136.6% to a net outflow of $251.1 million.
Based on the opening Life annuity book for the 2020 financial
year ($12,870.2 million), annuity net book growth for the
period was (2.0%), down from 5.8% in the prior period.
Other Life sales represents Challenger’s Guaranteed Index
Return (GIR) and Challenger Index Plus products (disclosed in
Note 9 External unit holders’ liabilities). Other Life sales
increased by $1,017.1 million (up 101.0%) as a result of
increased new client sales and reinvestments of maturities.
Other Life net flows for the period were $566.9 million,
increasing by $777.9 million compared to negative $211.0
million in the prior period. Total Life net flows were
$315.8 million, representing, total Life net book growth of
2.1% (30 June 2019: $474.8 million or 3.4% book growth).
1100 FFuunnddss MMaannaaggeemmeenntt sseeggmmeenntt rreessuullttss
Challenger’s Funds Management segment is one of Australia’s
largest2 active investment managers.
Fidante Partners’ multi-boutique platform comprises a number
of separately branded funds management businesses. The
model seeks to align the interests of investors, boutique
investment managers and Fidante Partners.
The Funds Management model is delivering superior
investment performance, with approximately 84% of Fidante
Partners’ funds achieving first or second quartile performance
since inception3.
1 This is subject to review in the event of a material adverse change for either MS
Primary or Challenger.
2 Consolidated FUM for Australian Fund Managers – Rainmaker Roundup, March
2020.
3 Marketing Pulse Adviser Study December 2019.
1188
OOppeerraattiinngg aanndd ffiinnaanncciiaall rreevviieeww
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
1111 CCoorrppoorraattee aanndd ootthheerr sseeggmmeenntt rreessuullttss
1122 GGuuiiddaannccee ffoorr tthhee 22002211 ffiinnaanncciiaall yyeeaarr
The Corporate and other segment comprises central functions
such as the Group executive, finance, treasury, legal, human
resources, risk management and strategy.
The financial results also include interest received on Group
cash balances and any interest and borrowing costs associated
with Group debt facilities.
CCoorrppoorraattee aanndd ootthheerr
nnoorrmmaalliisseedd rreessuullttss
Net income
Operating expenses
NNoorrmmaalliisseedd EEBBIITT
Interest and
borrowing costs
NNoorrmmaalliisseedd lloossss
bbeeffoorree ttaaxx
22002200
$$mm
0.4
(69.8)
((6699..44))
22001199
$$mm
1.0
(61.9)
((6600..99))
CChhaannggee
$$mm
(0.6)
(7.9)
((88..55))
CChhaannggee
%%
(60.0)
12.8
1144..00
(6.5)
(5.3)
(1.2)
22.6
((7755..99))
((6666..22))
((99..77))
1144..77
Normalised EBIT for the Corporate and other segment was
lower (down $8.5 million) as a result of higher operating
expenses. The higher corporate expense base included one-off
restructuring costs and accelerated depreciation of capitalised
software in response to the COVID-19 environment.
While Challenger continues to be well-positioned with strong
product offerings, positive retirement market demographics
and highly efficient operations, the losses suffered in 2020 and
the uncertain economic conditions caused by COVID-19 will
pose some challenges for the business into 2021.
As a result, for 2021, Challenger is targeting normalised net
profit before tax of between $390 million and $440 million.
This profit range reflects the impact of a lower capital base
following losses incurred in 2020, together with the prudent
and progressive deployment of the capital raised in June 2020.
It also reflects a changed asset allocation plan relative to 2020
with a higher weighting towards investment grade fixed
income and away from higher yielding equity investments.
COVID-19 and the response to it by governments creates an
inherently uncertain environment. This could, among other
things, impact the speed of deployment of the capital raised in
June 2020 and therefore impact guidance.
Challenger will maintain a disciplined focus on expense
management as a result of the reduced income expected to be
earned in 2021 while continuing to maintain an appropriate
amount of investment to support growth initiatives in
Distribution, Product and Marketing.
Challenger continues to target a normalised RoE of RBA cash
rate plus 14% (pre-tax) over the medium term.
Notwithstanding no final dividend for 2020 being paid, the
Board expects to maintain the same target normalised
dividend payout ratio of 45 – 50% of normalised profit for
2021 (subject to prevailing market conditions and capital
allocation priorities at the time).
1199
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
FFiivvee--yyeeaarr hhiissttoorryy
22002200
22001199
22001188
22001177
22001166
638.9
158.1
0.4
779977..44
(174.0)
(110.4)
((228844..44))
551133..00
(6.5)
550066..55
(162.8)
334433..77
(750.3)
(9.4)
((441166..00))
35.7%
32.1%
28.9%
56.5
(68.4)
46.9
(68.4)
670.1
149.9
1.0
882211..00
(185.3)
(82.1)
((226677..44))
555533..66
(5.3)
554488..33
(152.2)
339966..11
(88.3)
-
330077..88
32.6%
27.8%
29.2%
65.5
50.9
56.0
44.8
669.6
151.2
1.0
882211..88
(187.8)
(80.6)
((226688..44))
555533..44
(6.1)
554477..33
(141.2)
440066..11
(76.0)
(7.6)
332222..55
32.7%
25.8%
22.7%
68.1
54.0
64.2
52.2
631.4
134.0
0.8
776666..22
(179.3)
(76.6)
((225555..99))
551100..33
(5.3)
550055..00
(120.1)
338844..99
12.7
-
339977..66
33.4%
23.8%
23.3%
68.5
70.7
65.8
67.8
592.4
127.7
1.0
772211..11
(172.8)
(76.8)
((224499..66))
447711..55
(4.1)
446677..44
(105.7)
336611..77
(56.1)
22.1
332277..77
34.6%
22.6%
20.0%
64.6
58.5
60.9
55.4
14.8%
10.0%
(12.1%)
15.8%
11.4%
8.9%
16.5%
12.2%
9.7%
18.3%
14.0%
14.4%
17.8%
13.7%
12.5%
28,461.6
25,212.0
3,249.6
3,249.6
3,424.4
2,619.2
4.90
3.95
27,457.5
23,834.7
3,622.8
3,600.3
3,462.1
3,019.1
5.94
4.98
25,300.5
21,814.7
3,485.8
3,485.4
3,323.3
2,892.5
5.79
4.81
23,026.7
20,125.4
2,901.3
2,888.1
2,753.8
2,299.7
5.14
4.09
21,256.6
18,572.6
2,684.0
2,680.9
2,630.7
2,097.0
4.80
3.75
Five-year history
EEaarrnniinnggss (($$mm))
Normalised cash operating earnings
Net fee income
Other income
TToottaall nneett iinnccoommee
Personnel expenses
Other expenses
TToottaall eexxppeennsseess
NNoorrmmaalliisseedd EEBBIITT
Interest and borrowing costs
NNoorrmmaalliisseedd pprrooffiitt bbeeffoorree ttaaxx
Normalised tax
NNoorrmmaalliisseedd pprrooffiitt aafftteerr ttaaxx
Investment experience after tax
Significant items after tax
PPrrooffiitt aattttrriibbuuttaabbllee ttoo eeqquuiittyy hhoollddeerrss
Normalised cost to income ratio (%)
Normalised effective tax rate (%)
Statutory effective tax rate (%)
EEaarrnniinnggss ppeerr sshhaarree ((EEPPSS)) ((cceennttss))
Basic EPS – normalised profit
Basic EPS – statutory profit
Diluted EPS – normalised profit
Diluted EPS – statutory profit
CCaappiittaall mmaannaaggeemmeenntt ((%%))
Normalised return on equity – pre-tax
Normalised return on equity – post-tax
Statutory return on equity – post-tax
SSttaatteemmeenntt ooff ffiinnaanncciiaall ppoossiittiioonn (($$mm))
Total assets
Total liabilities
Net assets1
Net assets2
Net assets2 – average3
Net tangible assets4
Net assets per basic share ($)
Net tangible assets per basic share ($)
1 Including minority interests.
2 Excluding minority interests.
3 Calculated on a monthly basis.
4 Excludes right-of-use lease asset.
2200
FFiivvee--yyeeaarr hhiissttoorryy
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
Five-year history (continued)
UUnnddeerrllyyiinngg ooppeerraattiinngg ccaasshh ffllooww (($$mm))
DDiivviiddeennddss ppeerr sshhaarree ((cceennttss))
Dividend – interim
Dividend – final
TToottaall ddiivviiddeenndd
Dividend payout ratio – normalised profit (%)
Dividend payout ratio – statutory profit (%)
SSaalleess aanndd aannnnuuiittyy bbooookk nneett fflloowwss (($$mm))
Annuity sales
Other Life sales
TToottaall LLiiffee ssaalleess
Life annuity net flows
Life annuity book
Life annuity net book growth (%)
Total Life flows
Total Life book
Total Life net book growth (%)
Funds Management – net flows
AAsssseettss uunnddeerr mmaannaaggeemmeenntt (($$mm))
Life
Funds Management
Elimination of cross-holdings1
TToottaall aasssseettss uunnddeerr mmaannaaggeemmeenntt
OOtthheerr
Headcount – closing full-time employees
Weighted average number of ASX-listed basic shares on
issue (m)
Number of shares on issue – closing (m)
Share price – closing ($)
Market capitalisation at 30 June ($m)2
1 Life assets managed by Funds Management.
2 Calculated as share price multiplied by ordinary share capital.
22002200
119944..77
22001199
223366..99
22001188
119977..44
22001177
229999..99
22001166
229977..11
17.5
-
1177..55
31.0%
n/a
17.5
18.0
3355..55
54.2%
69.7%
3,127.4
2,024.0
55,,115511..44
(251.1)
12,581.2
(2.0%)
315.8
14,997.0
2.1%
2,540.9
3,543.1
1,006.9
44,,555500..00
685.8
12,870.2
5.8%
474.8
14,836.4
3.4%
(2,438.4)
17.5
18.0
3355..55
52.1%
65.7%
4,000.7
1,554.9
55,,555555..66
1,392.7
11,728.3
13.5%
1,796.3
13,863.3
15.0%
5,301.2
17.0
17.5
3344..55
50.4%
48.8%
4,011.2
941.2
44,,995522..44
900.4
10,322.2
9.4%
1,312.9
12,010.0
12.1%
6,220.6
16.0
16.5
3322..55
50.3%
55.6%
3,351.2
998.5
44,,334499..77
740.4
9,558.5
8.5%
1,068.3
10,874.0
11.1%
(2,517.2)
18,303
81,435
(14,501)
8855,,223377
19,010
79,029
(16,269)
8811,,777700
18,085
77,984
(14,926)
8811,,114433
15,677
66,906
(12,595)
6699,,998888
14,112
56,662
(10,723)
6600,,005511
735
687
676
655
635
608.3
667.5
4.41
2,943.7
605.0
611.6
6.64
4,061.0
596.7
610.9
11.83
7,226.9
562.2
572.0
13.34
7,630.5
560.2
571.2
8.63
4,929.5
2211
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
DDiirreeccttoorrss’’ rreeppoorrtt
Directors’ report
The Directors of Challenger Limited (the Company) submit their report, together with the financial report of the Company and its
controlled entities (the Group or Challenger), for the year ended 30 June 2020.
The information appearing on pages 1 to 21 forms part of the Directors’ report for the financial year ended 30 June 2020 and is
to be read in conjunction with the following information.
11 DDiirreeccttoorrss
The names and details of the Directors of the Company holding office during the financial year ended 30 June 2020 and as at the
date of this report are listed below. Directors were in office for the entire period, unless otherwise stated.
PPeetteerr LL PPoollssoonn
((aappppooiinntteedd 66 NNoovveemmbbeerr 22000033))
Independent Chair.
Chair of Nomination Committee.
Member of Group Audit Committee, Group Risk Committee,
and Remuneration Committee.
Experience and qualifications:
Bachelor of Commerce (Witwatersrand University, South
Africa), Master of Business Leadership (University of South
Africa), Management Development Program (Harvard
Graduate School of Education).
Mr Polson’s experience spans international and domestic
markets in banking, insurance and funds management.
Mr Polson previously held the positions of Group Executive,
Investment and Insurance Services at Commonwealth Bank
and Chief Executive of Colonial First State Limited.
Directorships of other listed companies:
Chair of IDP Education Limited (appointed 21 March 2007).
RRiicchhaarrdd JJ HHoowweess
((aappppooiinntteedd 22 JJaannuuaarryy 22001199))
Managing Director and Chief Executive Officer.
Experience and qualifications:
Bachelor of Commerce (Hons) and Bachelor of Economics
(University of Queensland).
Mr Howes has previously held a number of senior executive roles
at Challenger since joining in 2003, including Chief Executive of
Distribution, Product and Marketing, Chief Executive of
Challenger’s Life business and Chief Investment Officer.
Mr Howes has over 25 years' financial services experience. Prior
to joining Challenger, he held senior roles at Zurich Capital
Markets, Macquarie Bank and Bankers Trust where his primary
responsibility was providing risk management solutions to major
companies and institutions globally.
JJoohhnn MM GGrreeeenn
((aappppooiinntteedd 66 DDeecceemmbbeerr 22001177))
Independent Non-Executive Director.
Member of the Group Audit Committee, Group Risk
Committee, Remuneration Committee and Nomination
Committee.
Experience and qualifications:
Bachelor of Law and Bachelor of Jurisprudence (University of
New South Wales), Fellow of the Australian Institute of
Company Directors and Life Member and Senior Fellow of
FINSIA.
Mr Green was previously an executive director at Macquarie
Group and has also been a partner at two major law firms.
He is Deputy Chair of QBE Insurance Group Limited, director of
Cyber Security Cooperative Research Centre and also a novelist
and co-founder of book publisher Pantera Press..
Directorships of other listed companies:
Non-executive director of QBE Insurance Group Limited
(appointed 1 March 2010, appointed Deputy Chair on 1
January 2015).
SStteevveenn GGrreegggg
((aappppooiinntteedd 88 OOccttoobbeerr 22001122))
Independent Non-Executive Director.
Chair of Group Audit Committee.
Member of Group Risk Committee, Remuneration Committee
and Nomination Committee.
Experience and qualifications:
Bachelor of Commerce (University of New South Wales).
Mr Gregg has held a number of executive roles in
management consulting and investment banking. His more
recent senior executive roles included Partner and Senior
Adviser at McKinsey & Company and Global Head of
Investment Banking at ABN AMRO. His experience has
spanned both domestic and international arenas, because of
his work in both the USA and the UK.
Directorships of other listed companies:
Non-executive director of Tabcorp Holdings Limited (appointed
18 July 2012) and Ampol Limited (formerly Caltex Australia
Limited) (appointed 9 October 2015; appointed Chair on 18
August 2017).
MMaassaahhiikkoo KKoobbaayyaasshhii
((aappppooiinntteedd 2266 AAuugguusstt 22001199))
Non-Executive Director.
Experience and qualifications:
Master of Business Administration (Questrom School of
Business, Boston University), Bachelor of Law (Kyoto University)
and is a Certified Internal Auditor.
Mr Kobayashi has over 30 years’ expertise in general and life
insurance and is currently Director and Managing Executive
Officer (Corporate Planning, Risk Management and Finance) of
MS Primary, a subsidiary of MS&AD Insurance Group Holdings
Inc. Prior to joining MS Primary, he held a number of executive
and director roles within the MS&AD Group including in
Singapore and the United Kingdom.
Directorships of other listed companies:
Nil.
2222
DDiirreeccttoorrss’’ rreeppoorrtt
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
11 DDiirreeccttoorrss ((ccoonnttiinnuueedd))
JJooAAnnnnee MM SStteepphheennssoonn
((aappppooiinntteedd 88 OOccttoobbeerr 22001122))
Independent Non-Executive Director.
Chair of Remuneration Committee.
Member of Group Audit Committee, Group Risk Committee
and Nomination Committee.
Experience and qualifications:
Bachelor of Commerce and Bachelor of Laws (Honours)
(University of Queensland), member of Chartered Accountants
Australia and New Zealand and member of the Australian
Institute of Company Directors.
Ms Stephenson has extensive experience in financial services
both in Australia and in the United Kingdom. Ms Stephenson
was previously a partner with KPMG and has significant
experience in internal audit, risk management and consulting.
Directorships of other listed companies:
Non-executive director of Asaleo Care Limited (appointed
30 May 2014) and Japara Healthcare Ltd (appointed
1 September 2015) and Myer Holdings Limited (appointed
28 November 2016).
DDuunnccaann GG WWeesstt
((aappppooiinntteedd 1100 SSeepptteemmbbeerr 22001188))
Independent Non-Executive Director.
Member of Group Audit Committee, Group Risk Committee
and Nomination Committee.
Experience and qualifications:
Bachelor of Science in Economics (University of Hull, UK),
Fellow of the Chartered Insurance Institute, member of the
Australian Institute of Company Directors and a Senior
Associate of the Australia and New Zealand Institute of
Insurance and Finance.
Mr West has over 30 years’ experience in financial services in
the UK and Australia. He has held a series of senior executive
positions including as CEO of Vero Insurance and CGU
Insurance, and as EGM of Insurance at MLC.
Directorships of other listed companies:
Non-executive Director of Genworth Mortgage Insurance
Australia Limited (appointed on 1 September 2018).
MMeellaanniiee VV RR WWiilllliiss
((aappppooiinntteedd 66 DDeecceemmbbeerr 22001177))
Independent Non-Executive Director.
Chair of Group Risk Committee.
Member of Group Audit Committee and Nomination
Committee.
Experience and qualifications:
Bachelor of Economics (University of Western Australia),
Master of Law, Tax (University of Melbourne) and a Fellow of
the Australian Institute of Company Directors.
Ms Willis has significant senior executive experience in
corporate finance, strategy and innovation and funds
management. Ms Willis previously held the position of Chief
Executive Officer of NRMA Investments and senior executive
roles at Deutsche Bank and Bankers Trust. She is also a
non-executive director of Chief Executive Women.
Directorships of other listed companies:
Non-executive director of Southern Cross Media Group Limited
(appointed 26 May 2016), Mantra Group Limited (appointed
29 September 2014 until its delisting in May 2018), Pepper
Group Limited (appointed 19 September 2014 until its
delisting in December 2017), Ardent Leisure Limited and
Ardent Leisure Management Limited (from 17 July 2015 to
8 September 2017).
HHiirrooyyuukkii IIiiookkaa
((aappppooiinntteedd 1133 DDeecceemmbbeerr 22001199))
Non-Executive Director (alternate for Masahiko Kobayashi).
Experience and qualifications:
Master of Business Administration (Duke University) and
Bachelor of Economics (Kobe University).
Mr Iioka is currently Senior General Manager (Business
Development Department) at MS&AD Insurance Group
Holdings, Inc. (MS&AD) in Japan.
Directorships of other listed companies:
Nil
22 CCoommppaannyy SSeeccrreettaarryy
Michael Vardanega (Bachelor of Commerce and Bachelor of
Laws) is the General Counsel and Chief Executive, Group
Strategy. He is a qualified solicitor and was appointed as
Company Secretary on 1 March 2011. Mr Vardanega’s
responsibilities at Challenger encompass the Group’s strategy,
legal, regulatory, corporate governance and company
secretarial functions. Mr Vardanega joined Challenger in 2006
from commercial law firm Ashurst, where he was a member of
the corporate advisory practice. He is admitted to practise as a
solicitor in New South Wales, and is a member of the Law
Council of Australia, the Association of Corporate Counsel and
a member of the Australian Institute of Company Directors.
Andrew Brown (Diploma in Law), a Fellow of the Governance
Institute of Australia and a member of the Australian Institute
of Company Directors. Mr Brown has over 22 years’
experience in the financial services industry and was appointed
to the position of Company Secretary on 25 October 2012.
Prior to joining the Company in 2003, Mr Brown held senior
compliance management positions at MLC.
2233
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
DDiirreeccttoorrss’’ rreeppoorrtt
33 CCoorrppoorraattee ggoovveerrnnaannccee ssuummmmaarryy
33..11 RRoolleess aanndd rreessppoonnssiibbiilliittiieess ooff BBooaarrdd aanndd
mmaannaaggeemmeenntt
TThhee rroollee ooff tthhee BBooaarrdd aanndd ddeelleeggaattiioonnss
• determining and adopting Challenger’s dividend policy;
The Board is accountable to shareholders for the activities and
performance of Challenger by overseeing the creation of
sustainable shareholder value within an appropriate risk
framework and having regard for stakeholder interests and
community expectations.
• reviewing Board composition and performance;
• appointing, evaluating and remunerating the Chief Executive
Officer (CEO) and approving the appointment of the Chief
Financial Officer (CFO), Chief Risk Officer (CRO), General
Counsel and Company Secretary; and
The Board is responsible for setting Challenger’s vision and
strategy. Challenger’s vision is to provide our customers with
financial security for retirement. This is a long-term vision and
the Board sets strategic priorities each year to work towards
fulfilling this vision.
Directors are actively involved in setting, approving and
regularly monitoring Challenger’s strategic priorities and
holding management accountable for progress.
This process includes one annual Board strategy offsite, regular
Board reporting and meetings, and discussion and review with
management. Similarly, the Board ensures that rigorous
governance processes operate effectively to guide decision-
making across the business.
The Board’s responsibilities are set out in the Board Charter,
which is available at:
›› cchhaalllleennggeerr..ccoomm..aauu//aabboouutt--uuss
The Board’s role and responsibilities include:
• establishing, promoting and maintaining the strategic
direction of Challenger;
• approving business plans, budgets and financial policies;
• considering management recommendations on strategic
business matters;
• establishing, promoting and maintaining proper processes
and controls to maintain the integrity of accounting and
financial records and reporting;
• fairly and responsibly rewarding executives, having regard to
the performance of the executives, Challenger’s risk
management framework and culture, the interests of
shareholders, market conditions and Challenger’s overall
performance;
• adopting and overseeing of implementation of corporate
governance practices;
• overseeing the establishment, promotion and maintenance
of effective risk management policies and processes;
• determining the CEO’s delegated authority.
The Board has established committees to assist in carrying out
its responsibilities and to consider certain issues and functions
in detail. The Board committees are discussed on page 25.
MMaannaaggeemmeenntt rreessppoonnssiibbiilliittyy
The Board has delegated to the CEO the authority and powers
necessary to implement the strategies approved by the Board
and to manage the business affairs of Challenger within the
policies and delegation limits specified by the Board from time
to time. The CEO may delegate authority to management, but
remains accountable for all authorities delegated to
management.
33..22 DDiirreeccttoorrss’’ sskkiillllss mmaattrriixx
The Board has determined that its current members have an
appropriate collective mix of skills, experience and expertise to:
• exercise independent judgement;
• have a proper understanding of, and competence to deal
with, current and emerging issues of the business;
• encourage enhanced Challenger performance; and
• effectively review and challenge the performance of
management.
The Board’s competencies are assessed annually and the
results of the most recent assessment are shown in the table
on page 25.
The Board skills matrix shows that Board members have a high
level of competency across the areas of expertise relevant to
Challenger’s business.
2244
Directors’ report
Challenger Limited 2020 Annual Report
3 Corporate governance summary (continued)
3.2 Directors’ skills matrix (continued)
competency 100%
Strategic thinking capability and
Leadership & Strategy
Leadership, effective communication
and influencing skills.
Corporate Governance
Public company corporate governance
literacy.
transactional expertise. 100 Advanced
100 Advanced
exposure to Accounting Standards. 100 Advanced
100 Advanced
Risk & Compliance
Financial services and fiduciary
regulatory awareness.
Relevant compliance and risk
experience including legal and tax
risk management.
Financial Acumen
Financial reporting literacy including
competency 100%
competency 100%
competency 100%
Sectoral Exposure
Exposure to funds management and
life insurance sectors, and market
experience in jurisdictions in which
Challenger operates. 87+
Advanced
competency 87.5%
Average
competency 12.5%
3.3 Board committees
To assist it in undertaking its duties, the Board has
established the following standing committees:
• Group Risk Committee;
• Group Audit Committee;
• Remuneration Committee; and
• Nomination Committee.
Each committee has its own charter, copies of which are
available at:
› challenger.com.au
Directors’ meetings
Investment & Credit Expertise
Credit risk management and investment
expertise including asset class literacy
and exposure (eg: property, fixed
Customer
Experience in distribution, marketing
and fostering key institutional customer
relationships.
Public Policy
Experience in relevant public policy areas
and key Government and regulator
relationships.
income, equities etc). 87+
75+
62+
organisations, and innovation. 75+
87+
Experience in building capable
and highly engaged teams and
understanding of current remuneration
regulation, structuring and sectoral
conditions.
IT and Digital
Understanding of IT strategy, the
application of technology in large
People & Remuneration
Advanced
competency 87.5%
Average
competency 12.5%
Advanced
competency 75%
Average
competency 25%
Advanced
competency 62.5%
Average
competency 37.5%
Advanced
competency 75%
Average
competency 25%
Advanced
competency 87.5%
Average
competency 12.5%
The charters specify the composition, responsibilities, duties,
reporting obligations, meeting arrangements, authority and
resources available to the committees and the provisions for
review of the charter.
Details of Directors’ membership of each committee and
those eligible members’ attendance at meetings throughout
the period from 1 July 2019 to 30 June 2020 are set out below.
Board
Group Risk
Committee
Group Audit
Committee
Remuneration
Committee
Nomination
Committee
Eligible to
attend
Attended
Eligible to
attend
Attended
Eligible to
attend
Attended
Eligible to
attend
Attended
Eligible to
attend
Attended
14
14
14
14
13
14
14
14
1
14
14
14
14
12
14
14
13
1
4
-
4
4
-
4
4
4
-
4
-
4
4
-
4
4
4
-
4
-
4
4
-
4
4
4
-
4
-
4
4
-
4
4
4
-
6
-
6
6
-
6
-
-
-
6
-
6
6
-
6
-
-
-
2
-
2
2
1
2
2
2
1
2
-
2
2
1
2
2
2
0
Director
P Polson
R Howes1
J M Green
S Gregg
M Kobayashi2
J Stephenson
D West
M Willis
L Zwier3
1 The Managing Director and CEO attends the Group Risk Committee, Group Audit Committee, Remuneration Committee and Nomination Committee meetings at the
invitation of these committees.
2 Mr Kobayashi was appointed a Director, and joined the Nomination Committee, on 26 August 2019.
3 Mr Zwier ceased to be a Director on 31 October 2019.
There are no management representatives appointed as members of any Board Committee.
25
13
13
25
38
25
13
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
DDiirreeccttoorrss’’ rreeppoorrtt
33 CCoorrppoorraattee ggoovveerrnnaannccee ssuummmmaarryy ((ccoonnttiinnuueedd))
33..44 RRiisskk mmaannaaggeemmeenntt ffrraammeewwoorrkk
Challenger’s Board is responsible, in conjunction with senior
management, for the management of risks associated with the
business and implementing structures and policies to
adequately monitor and manage these risks.
The Board has established the Group Risk Committee (GRC)
and the Group Audit Committee (GAC) to assist in discharging
its risk management responsibilities. In particular, these
committees assist the Board in setting the appropriate risk
appetite and for ensuring that there is an effective risk
management framework that is able to manage, monitor and
control the various risks to which the business is exposed.
The Executive Risk Management Committee (ERMC) is an
executive committee chaired by the Chief Risk Officer which
assists the GRC, GAC and Board in discharging their risk
management obligations by implementing the Board-approved
risk management framework. On a day-to-day basis, the Risk
division, which is separate from the operating segments of the
business, has the responsibility for monitoring the
implementation of the risk framework, including the
monitoring, reporting and analysis of the various risks faced by
the business, and providing effective challenge to activities and
decisions that may materially affect Challenger’s risk profile.
Challenger has a robust risk management framework which
supports its operating segments, and its risk appetite
distinguishes risks from which Challenger will seek to make an
economic return from those which it seeks to minimise and
which it does not consider will provide a return. The
management of these risks is fundamental to Challenger’s
business, customers and to building long-term shareholder
value. Challenger is also prudentially supervised by APRA,
which prescribes certain prudential standards that must be met
by Challenger and its life insurance subsidiary, CLC.
In addition to having a separate risk management function,
Challenger recognises that a requirement for an effective risk
management framework is for there to be a strong risk culture
throughout the organisation, where risk is everybody’s
business. The foundation of this risk culture is a set of values,
the Challenger IACT values. All employees are assessed against
the Challenger IACT values as part of the annual performance
review process, and this outcome contributes to the overall
performance rating and remuneration outcomes. In addition to
this, Challenger regularly assesses its risk culture with a
combination of external audits and internal staff surveys to
ensure that the management of risk and day-to-day
compliance remains entrenched within the way in which
Challenger operates. Challenger’s risk appetite statement
provides that, subject to earning acceptable economic returns,
it can retain exposure to credit risk, property risk, equity risk
and life insurance risk.
• Credit default risk – is the risk of loss in the value of an asset
due to a counterparty failing to discharge its contractual
obligations when they fall due;
• Property risk – is the potential impact of movements in the
market value of property investments on Challenger’s
income and includes leasing risk which may impact the cash
flows from these investments;
• Equity risk – is the potential impact of movements in the
market value of listed equity investments, unlisted equity
investments and investments in absolute return strategies.
Returns for unlisted equity and absolute return strategies are
generally uncorrelated to listed equity market returns.
Challenger holds equities as part of its investment portfolio
in order to provide diversification across the investment
portfolio; and
• Life insurance risk – represents both longevity risk and
mortality risk. Through selling lifetime annuities and
assuming wholesale reinsurance agreements, CLC takes
longevity risk, which is the risk that customers who have
bought a lifetime annuity live longer, in aggregate, than
expected. This is in contrast to mortality risk, which is the
risk that people die earlier than expected. CLC is exposed to
mortality risk on its wholesale mortality reinsurance business.
Challenger seeks to minimise or hedge the risks for which it
does not consider an appropriate return can be generated.
These risks include:
• Foreign exchange risk – is the risk of a change in asset values
as a result of movements in foreign exchange rates;
• Interest rate risk – is the risk of fluctuations in Challenger’s
earnings arising from movements in interest rates;
• Inflation risk – is the risk of a change in asset values and
Challenger’s earnings as a result of movements in inflation
both in Australia and jurisdictions in which Challenger owns
assets;
• Operational risk – is the risk of loss resulting from
inadequate or failed internal processes, people and systems
or from external events; and
• Regulatory and compliance risk – is the risk of legal or
regulatory sanctions or loss as a result of Challenger’s failure
to comply with laws, regulations or regulatory policy
applying to its business.
Further details on Challenger’s approach to risk management
are included in both the 2020 Sustainability Report and
Section 5 of the financial report.
2266
DDiirreeccttoorrss’’ rreeppoorrtt
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
44 RReemmuunneerraattiioonn rreeppoorrtt
LLeetttteerr ffrroomm tthhee CChhaaiirr
Dear Shareholders
Financial year 2020 has been a period of unprecedented events. While we were making good progress addressing systemic
changes in our market during the first half, our performance has been impacted by an exceptionally challenging operating
environment, with the second half dominated by the global health and economic crisis created by the COVID-19 pandemic.
As shareholders would expect, our performance and the broader economic outlook is reflected in the remuneration outcomes for
employees this year, particularly Key Management Personnel (KMP).
IImmppaacctt ooff CCOOVVIIDD--1199 ppaannddeemmiicc oonn ppeerrffoorrmmaannccee
The events of 2020 have underscored the importance of our vision to provide financial security for our customers, with our
annuity-holders benefiting from reliable and stable income during this period of uncertainty. To enable us to continue to fulfil this
vision, in 2020 we made good progress implementing our strategy for long-term growth, building deeper customer connections,
expanding our distribution channels, launching new products and building on our brand leadership.
Reflecting our progress, in February 2020 we lifted our normalised net profit before tax (NNPBT) guidance to the top of the
$500 to $550 million range. However, the COVID-19 pandemic severely impacted Challenger’s performance, resulting in NNPBT
towards the lower end of the range, with significant negative investment experience and a large statutory loss. Our defensively
positioned portfolio and active investment approach enabled us to maintain a strong capital position throughout the market rout.
We also undertook a successful equity raise in June to further bolster our capital position and to provide flexibility to enhance
future earnings through accretive investment opportunities.
While we have ensured Challenger remains strongly capitalised and well positioned for the longer term, there is no question the
events of the year have had a significant impact on our business and our shareholders.
22002200 rreewwaarrdd oouuttccoommeess
The Board has responded by exercising its discretion to materially reduce reward outcomes this year, including:
• total short term incentives (STIs) for KMP are down 56% on 2019 with the CEO’s STI down 60%;
• on average, STIs for all KMP are 33% of maximum with the CEO at 20% of maximum; and
• there are no cash STIs for KMP for 2020 (100% is deferred into equity vesting over four years).
No long term incentives (LTIs) vested in September 2019 and LTIs will not vest in September 2020. This demonstrates strong
alignment of executives’ realised reward with shareholder outcomes.
In addition, there are no fixed pay increases for KMP in line with a Group-wide salary freeze, deferral of STIs is increased across
the Group, and the Board has reduced its base fees by 20% for at least six months.
The Board considers these outcomes strike the right balance - reflecting the impacts of this challenging environment on
shareholders and our business, while recognising the criticality of having a talented team to manage Challenger through the
cycle.
AApppprrooaacchh ffoorr 22002211
We made significant changes to our reward framework in 2019 following a comprehensive review and in response to stakeholder
feedback. These changes were designed to drive long-term performance and support retention, while providing alignment and
transparency for shareholders.
No major changes are proposed for 2021 as we allow time for the 2019 reward framework to become embedded in the
organisation and await further regulatory developments. We continue to engage with shareholders, proxy advisers and other
stakeholders on this important matter.
In the meantime, building on the changes made last year, in this report we have sought to provide greater transparency on
reward opportunities and outcomes, clearly demonstrating the link between performance and reward.
Yours sincerely
PPeetteerr PPoollssoonn
IInnddeeppeennddeenntt CChhaaiirr
2277
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
DDiirreeccttoorrss’’ rreeppoorrtt
44 RReemmuunneerraattiioonn rreeppoorrtt ((ccoonnttiinnuueedd))
44..11 CCoonntteennttss
SSeeccttiioonn
4.2
4.3
4.4
4.5
4.6
4.7
4.8
4.9
4.10
Key Management Personnel (KMP)
2020 at a glance
Performance and remuneration outcomes for 2020
Remuneration strategy and structure
Remuneration governance
Risk and reward
Key Management Personnel remuneration arrangements
Non-Executive Director disclosures
Summary of key terms and abbreviations used in the remuneration report
44..22 KKeeyy MMaannaaggeemmeenntt PPeerrssoonnnneell ((KKMMPP))
Challenger’s executive KMP for 2020 are detailed in the table below:
PPaaggee
28
29
29
33
36
38
39
44
47
NNaammee
RRiicchhaarrdd HHoowweess
NNiicckk HHaammiillttoonn11
AAnnggeellaa MMuurrpphhyy
CChhrriiss PPllaatteerr
IIaann SSaaiinneess22
AAnnddrreeww TToobbiinn
RRoollee
Managing Director & Chief Executive Officer
Chief Executive, Funds Management
Chief Executive, Distribution, Product & Marketing
Chief Executive & Chief Investment Officer, Life
Chief Executive, Funds Management
Chief Financial Officer
TTeerrmm aass KKMMPP iinn 22002200
Full year
From 23 September 2019
Full year
Full year
Until 22 September 2019
Full year
1 Mr Hamilton was appointed to the role of Chief Executive, Funds Management on 23 September 2019 and was designated as KMP from the date of appointment.
2 Mr Saines retired and ceased employment on 20 November 2019. Mr Saines was designated as KMP until 22 September 2019.
Challenger’s Non-Executive Directors for 2020 are detailed in the table below:
NNaammee
PPeetteerr PPoollssoonn ((CChhaaiirr))
JJoohhnn MM GGrreeeenn
SStteevveenn GGrreegggg
MMaassaahhiikkoo KKoobbaayyaasshhii11
JJooAAnnnnee SStteepphheennssoonn
DDuunnccaann WWeesstt
MMeellaanniiee WWiilllliiss
LLeeoonn ZZwwiieerr
TTeerrmm aass NNoonn--EExxeeccuuttiivvee DDiirreeccttoorr iinn 22002200
Full year
Full year
Full year
Appointed 26 August 2019
Full year
Full year
Full year
Until 31 October 2019
1 Hiroyuki Iioka was appointed as an alternate director to Masahiko Kobayashi on 13 December 2019.
The term KMP is used throughout the Remuneration Report to refer to executive KMP only.
2288
DDiirreeccttoorrss’’ rreeppoorrtt
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
44 RReemmuunneerraattiioonn rreeppoorrtt ((ccoonnttiinnuueedd))
44..33 22002200 aatt aa ggllaannccee
IImmppaacctt ooff CCOOVVIIDD--1199 ppaannddeemmiicc oonn ppeerrffoorrmmaannccee aanndd rreewwaarrdd
In 2020, we continued to make good progress implementing our strategy for long-term growth, expanding our distribution
channels, launching new products and building on our brand leadership.
While significant changes in financial advice and superannuation continued to present challenges for our business, in February
2020 we lifted our NNPBT guidance to the top of the $500 to $550 million range. Our financial performance and strategic
progress are summarised on page 31, including our performance against our balanced scorecard.
However, the COVID-19 pandemic impacted Challenger’s performance, resulting in NNPBT at the lower end of the range, a
significant negative investment experience and a large statutory loss. In response, we have taken a range of actions in relation to
reward, including materially reducing our variable reward pool and remuneration outcomes for KMP, freezing salaries across the
whole Group and reducing Non-Executive Directors’ fees.
RReewwaarrdd oouuttccoommeess
NNoo ffiixxeedd rreemmuunneerraattiioonn iinnccrreeaasseess
ffoorr KKMMPP
• A salary freeze was put in place for all employees from April 2020.
• The rebasing of remuneration arrangements for new appointments has continued
• No increases were applied for KMP for financial year 2020 and no increases are
planned for financial year 2021.
MMaatteerriiaall rreedduuccttiioonn ttoo vvaarriiaabbllee
rreewwaarrdd ppooooll
with the appointment of Mr Hamilton as Chief Executive, Funds Management (fixed
remuneration is 30% lower than his predecessor).
• Pool is materially reduced to the lowest level in the past five years – 8% of normalised
net profit before variable reward and tax (NNPBVRT). This is well below our target
range of 10% to 15%.
• The number of employees has increased by more than 10%.
• Total KMP STIs are down 56% on 2019 (where outcomes were down by 36% on
2018).
MMaatteerriiaallllyy rreedduucceedd SSTTII oouuttccoommeess
ffoorr KKMMPP
• The CEO’s STI is down 60% on 2019 (annualised) and is 20% of the maximum STI
opportunity.
NNoo ccaasshh SSTTII ffoorr KKMMPP aanndd iinnccrreeaasseedd
uussee ooff eeqquuiittyy
• STIs for other employees across the Group are materially down on 2019 with a
greater impact on more senior employees.
• In addition to reduced quantum, 100% of STIs for KMP will be deferred into equity
which will vest over four years.
• The use of equity across the whole Group has been increased through greater
deferral of STIs.
• No LTIs vested in September 2019.
NNoo vveessttiinngg ooff LLTTIIss iinn 22001199 aanndd 22002200
aanndd ssiiggnniiffiiccaannttllyy rreedduucceedd lliikkeelliihhoooodd
ooff ffuuttuurree vveessttiinngg
• LTIs awarded in September 2015, September 2016 and September 2017 will not
meet the performance hurdle and so will not vest in September 2020.
• All LTIs which remain ‘on foot’ face a significantly reduced likelihood of vesting in
future periods.
2200%% rreedduuccttiioonn iinn NNoonn--EExxeeccuuttiivvee
DDiirreeccttoorrss’’ ffeeeess
• The Board decided to reduce its base fees for an initial period of six months, starting
1 June 2020. After six months, the position will be reviewed.
44..44 PPeerrffoorrmmaannccee aanndd rreemmuunneerraattiioonn oouuttccoommeess ffoorr 22002200
This section provides performance information including five-year trends and key financial and operational outcomes for the year.
FFoorr tthhee yyeeaarr eennddeedd
Normalised NPAT1 ($m)
Normalised EPS (cents)
Closing share price ($)
Dividends per share (cents)
3300 JJuunnee
22001166
361.7
64.6
8.63
32.5
3300 JJuunnee
22001177
384.9
68.5
13.34
34.5
3300 JJuunnee
22001188
406.1
68.1
11.83
35.5
3300 JJuunnee
22001199
396.1
65.5
6.64
35.5
3300 JJuunnee
22002200
343.7
56.5
4.41
17.5
1 Normalised NPAT excludes asset or liability valuation movements that are above or below expected long-term trends and significant items that may positively or
negatively impact financial results. Refer to the Operating and financial review section for further information.
2299
Challenger Limited 2020 Annual Report
Directors’ report
4 Remuneration report (continued)
4.4 Performance and remuneration outcomes for 2020 (continued)
Challenger Total Shareholder Return (TSR) performance and LTI vesting outcomes
No LTIs vested in 2019 and LTIs will not vest in September 2020 demonstrating the strong alignment between executives’ realised
reward and shareholder outcomes. The chart below illustrates Challenger’s compound annual TSR performance over time versus the
ASX 200 Accumulation Index five year compound annual growth rate (CAGR).
100% of LTIs vested
No LTIs vested
2016
2017
2018
2019
20201
40%
30%
20%
10%
0%
-10%
-20%
-30%
Challenger 3 yr
compound annual TSR
Challenger 4 yr
compound annual TSR
Challenger 5 yr
compound annual TSR
ASX 200 Accum.
5 yr CAGR
Hurdle (threshold)
Hurdle (max)
1 Indicative outcomes based on Challenger’s share price as at 30 June 2020.
Normalised profit and Variable Reward pool
The 2020 variable reward pool is down materially on 2019 and represents 8% of NNPBVRT, below the target range of 10-15% of
NNPBVRT. This reflects the impact of the COVID-19 pandemic on Challenger’s performance and outcomes for shareholders.
Normalised NPAT
Group Variable Reward pool
385
406
396
362
344
)
m
$
(
450
400
350
300
250
200
150
100
50
0
60
50
40
30
20
10
0
15%
10%
5%
0%
2016
2017
2018
2019
2020
2016
2017
2018
2019
2020
Total variable reward ($m)
Target maximum funding
Total VR as % of
Target minimum funding
Short term incentive outcomes
STI outcomes for 2020 are significantly down again on 2019 (where KMP outcomes were reduced by 36%) and there is no cash STI.
On average, STIs for all KMP are 33% of the maximum opportunity which was introduced in 2019 (200% of fixed pay), with the
CEO at 20% of maximum. Historical STI outcomes for prior incumbents are included in the chart below for reference.
Maximum STI
Deferred STI
Cash STI
2018
2019
2020
2018
2019
2020
2018
2019
2020
2018
2019
2020
2018
2019
2020
Chief Executive Officer
Chief Financial Officer
Chief Executive, Distribution,
Product & Marketing
Chief Executive & Chief
Investment Officer, Life
Chief Executive, Funds
Management
2.5
2.0
1.5
1.0
0.5
0.0
)
m
$
(
e
m
o
c
t
u
o
I
T
S
30
DDiirreeccttoorrss’’ rreeppoorrtt
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
44 RReemmuunneerraattiioonn rreeppoorrtt ((ccoonnttiinnuueedd))
44..44 PPeerrffoorrmmaannccee aanndd rreemmuunneerraattiioonn oouuttccoommeess ffoorr 22002200 ((ccoonnttiinnuueedd))
22002200 bbaallaanncceedd ssccoorreeccaarrdd oouuttccoommeess
Key performance indicators (KPIs) for Challenger are aligned to our vision and strategy to provide our customers with financial
security for retirement. The KPIs are underpinned by strong risk management practices that inform how we deliver on our
commitments to customers and shareholders. Behaviour in line with Challenger’s values is assessed as a gate-opener and modifier
for individual participation in Challenger’s variable remuneration plans.
MMeeaassuurree
FFiinnaanncciiaall
Profitability
Capital
AUM
WWeeiigghhtt PPeerrffoorrmmaannccee
5500%% • Group normalised NPBT of $507 million (30 June 2019: $548 million). This was
within the guidance range of $500 million to $550 million, although below
expectations set in February 2020 (to be at the top end of the range), due to the
COVID-19 market impacts.
• Statutory loss after tax of $416 million, including negative investment experience
OOuuttccoommee
Partially
met
of $750 million.
• Pre-tax normalised ROE 14.8%, 20bps above target of RBA cash rate plus 14%.
• Strong capital position with 1.81 times APRA’s prescribed capital amount (PCA)
and well above target range of 1.3 to 1.6 times.
• AUM $85.2 billion (2019: $81.8 billion) up 4%, however below target due to
COVID-19 market impact.
• Total Life sales of $5.2 billion up 13%, with Japan and institutional sales well
above target and domestic annuity sales below target due to structural change in
Australian wealth management industry and disruption from COVID-19.
• Significant progress diversifying Life’s revenue, with 67% increase in Life risk
(wholsesale longevity and mortality business) present value of future earnings to
$829 million and contributed 8% of normalised NPBT (up from 5%).
• Funds Management net inflows of $2.5 billion with industry-leading Fidante
Partners net flows of +$3.8 billion and CIP AM -$1.3 billion. CIP AM outflows
reflect changes in Life’s asset allocation following the COVID-19 market sell-off.
• Normalised cost to income ratio of 35.7%, above target range of 30% to 34%,
due to investment in growth initiatives and lower earnings. Excluding the
distribution growth initiatives, expenses increased by 1%.
PPeeooppllee aanndd
ccuullttuurree
Risk culture
Employee
engagement
CCuussttoommeerr
Customer
satisfaction
Customer support
2200%% • Regular risk pulse checks show strong risk culture.
• Launched new values and code of conduct.
• Maintained high employee engagement and productivity through disrupted
COVID-19 period, consistently scoring above 90% on regular employee surveys.
• Recognised as global top 100 employer for gender equality in 2019 Equileap
Met
Global Gender Equality rankings.
1155%% • High customer satisfaction – 95% of surveyed annuity customers satisfied or very
Met
satisfied.
• New resources provided to support better retirement outcomes for customers –
‘Retirement Made Simple’ website hub and ‘Retire with Confidence’ retirement
income tool.
• Supported advisers and their customers through the pandemic with educational
webinars, with adviser participation more than doubling.
• Maintained strong investment performance with 84% of Fidante Partners Australia
funds either first or second quartile since inception.
• Rated leader in retirement income by financial advisers and number one for overall
adviser satisfaction.
SSttrraatteeggiicc
1155%% • Made significant progress on a range of initiatives designed to drive longer term
Diversify
distribution by
channel and
geography
Expand product
offering
growth, noting major disruption caused by COVID-19 which impacted progress of
some strategic initiatives.
• Continued to diversify distribution through new institutional relationships, with
both insititutional and Japan sales increasing by more than 100%.
• In response to the low interest rate environment, launched an innovative and
Australia’s first floating rate lifetime annuity.
• Funds Management expanded its product offering with four new strategies for
existing managers, a new joint venture with global alternatives manager Ares, a
new ETF, and CIP fixed income offerings.
• Significant progress on Funds Management Japanese growth strategy with new
partnership with Nikko Asset Management.
TToottaall
110000%%
Partially
met
PPaarrttiiaallllyy
mmeett
3311
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
DDiirreeccttoorrss’’ rreeppoorrtt
44 RReemmuunneerraattiioonn rreeppoorrtt ((ccoonnttiinnuueedd))
44..44 PPeerrffoorrmmaannccee aanndd rreemmuunneerraattiioonn oouuttccoommeess ffoorr 22002200 ((ccoonnttiinnuueedd))
22002200 aawwaarrddeedd KKMMPP rreemmuunneerraattiioonn
Awarded remuneration represents the value of remuneration that has been awarded for the financial year as determined by the
Board and includes fixed remuneration, STIs (cash and deferred), and LTIs. The actual value realised will depend on future
performance outcomes, and LTIs will only deliver value to executives in the future if shareholder return hurdles are achieved. This
ensures strong alignment with shareholder interests.
Challenger’s remuneration strategy is focused on the alignment between performance, prudent risk management and reward
outcomes. As a result of Challenger’s performance, as reflected in the balanced scorecard outcomes, and to reflect the significant
community-wide impact of the COVID-19 pandemic, STI awards have decreased significantly for the 2020 financial year.
•
•
The CEO’s STI for 2020 is 60% lower than 2019 and 20% of the maximum.
Total KMP STIs for 2020 are 56% lower than in 2019 (where outcomes were 36% lower than in 2018).
Awarded remuneration for KMP has been decreasing over time. This is driven by reductions to STI outcomes, reflecting the
impact of challenging conditions on performance in 2019 and 2020, and the rebasing of remuneration arrangements as
incumbents have been replaced, in line with broader market trends.
SShhoorrtt tteerrmm iinncceennttiivvee
LLoonngg tteerrmm iinncceennttiivvee
KKMMPP
RR HHoowweess44
BB BBeennaarrii55
NN HHaammiillttoonn66
AA MMuurrpphhyy77
CC PPllaatteerr
II SSaaiinneess88
AA TToobbiinn
TToottaall
--
TToottaall SSTTII
FFiixxeedd11
$$
$$
YYeeaarr
550000,,000000
22002200 11,,227755,,000000
993,551 1,250,000
2019
--
22002200
679,891 1,020,000
2019
336677,,556600
446644,,228866
22002200
--
--
2019
440000,,000000
558833,,229988
22002200
291,666
333,333
2019
552255,,000000
775500,,000000
22002200
988,000
741,667
2019
--
119922,,226622
22002200
745,000
815,439
2019
447700,,000000
770000,,000000
22002200
2019
850,000
700,000
22002200 33,,996644,,884466 22,,226622,,556600
2019 4,263,882 5,144,666
DDeeffeerrrreedd
SSTTII22
$$
%% ooff mmaaxx CCaasshh SSTTII
$$
--
625,000
--
510,000
--
--
--
145,833
--
494,000
--
372,500
--
425,000
OOtthheerr33
$$
550000,,000000 2255,,770099
71,450
625,000
--
--
56,930
510,000
33,,669966
336677,,556600
-
--
440000,,000000
55,,995599
7,797
145,833
552255,,000000 2200,,551199
58,369
494,000
--
--
43,677
372,500
447700,,000000 1177,,007799
46,707
425,000
-- 22,,226622,,556600 7722,,996622
2,572,333 2,572,333 284,930
2200%%
49%
--
75%
4400%%
-
3344%%
44%
3355%%
67%
--
46%
3344%%
61%
FFaaccee vvaalluuee22
$$
22,,886688,,775500
2,868,750
--
--
11,,004444,,664433
-
11,,335500,,000000
750,000
11,,668877,,550000
1,687,500
--
1,361,000
11,,557755,,000000
1,575,000
88,,552255,,889933
8,242,250
FFaaiirr vvaalluuee22
$$
11,,119999,,113388
1,176,188
-
--
443366,,666611
-
556644,,330000
307,500
770055,,337755
691,875
--
558,010
665588,,335500
645,750
33,,556633,,882233
3,379,323
11 Includes base salary and superannuation.
22 To be formally granted in September 2020 and allocated based on the five-day volume weighted average price (VWAP) prior to the grant date. Mr Howes' LTI will be
granted following shareholder approval which will be sought at Challenger’s 2020 Annual General Meeting and allocated based on the same five-day VWAP as other
KMP. The fair value of 2020 LTIs has been estimated at 41.8% of face value based on the average fair value relative to the face value of awards over the past three
years. The fair value of 2019 LTIs was estimated at 41.0% of face value.
33 Values represent estimated distributions from the CPP Trust.
44 Mr Howes was appointed Managing Director & Chief Executive Officer on 2 January 2019. The percentage of maximum STI opportunity for 2019 is based on Mr
Howes’ fixed remuneration as CEO.
55 Mr Benari transferred to a non-KMP role on 2 January 2019 as transition to retirement. The 2019 disclosure is pro rata for the period in which he was a KMP.
66 Mr Hamilton transferred to a KMP role on 23 September 2019. The 2020 disclosure is pro-rata for the period in which he was KMP.
77 Ms Murphy transferred to a KMP role on 12 December 2018. The 2019 disclosure is pro-rata for the period in which she was KMP.
88 Mr Saines ceased to be KMP on 22 September 2019. The 2020 disclosure is pro-rata for the period in which he was KMP.
3322
Directors’ report
Challenger Limited 2020 Annual Report
4 Remuneration report (continued)
4.5 Remuneration strategy and structure
Our vision and strategy
To provide our customers with financial security for retirement
Increase the use of
secure retirement
income streams
Lead the retirement
incomes market and be
the partner of choice
Provide our customers
with excellent funds
management solutions
Maintain leading
operational and
people practices
Challenger values: Act with Integrity, Aim High, Collaborate, Think Customer
Remuneration strategy – guiding principles
Market-competitive
Performance-based
and equitable
Aligned with
shareholders
Underpinned by sound
risk management
Remuneration structure for KMP
Fixed remuneration
Base salary, salary-sacrificed benefits
and applicable fringe benefits
tax. Employer superannuation
contributions.
Positioned around the market
median using appropriate
benchmarks, reflecting size and
complexity of role, responsibilities,
experience and skills.
Delivery of remuneration for 2020
Variable remuneration
Short term incentives
Long term incentives
Up to 200% of fixed remuneration.
225% of fixed remuneration at face value.
Annual ‘at risk’ remuneration, rewarding
Challenger performance and individual
performance and behaviours.
Longer-term ‘at risk’ remuneration.
Awarded as hurdled share rights vesting
up to five years.
Ordinarily, 50% is deferred into share rights
vesting over four years, subject to forfeiture
provisions. For 2020, 100% is deferred.
Awards are subject to a cumulative
absolute TSR hurdle tested after four or five
years and subject to forfeiture provisions.
Reward is realised over an extended period supporting a focus on strong risk management and long-term performance.
Financial year 2020
September 2020
September 2021
September 2022
September 2023
September 2024
Salary package
No Cash STI
STI performance
assessment period
Deferred STI
(100%)
30%
30%
20%
20%
LTI
LTI performance assessment period (absolute TSR hurdle)
33
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
DDiirreeccttoorrss’’ rreeppoorrtt
44 RReemmuunneerraattiioonn rreeppoorrtt ((ccoonnttiinnuueedd))
44..55 RReemmuunneerraattiioonn ssttrraatteeggyy aanndd ssttrruuccttuurree ((ccoonnttiinnuueedd))
FFiixxeedd rreemmuunneerraattiioonn
When determining fixed remuneration for KMP, the Board
considers market pay benchmarks for roles with:
• similar responsibilities and complexity; and
• roles requiring similar experience and skills.
VVaarriiaabbllee rreemmuunneerraattiioonn
This framework provides transparency on the maximum
possible total reward, which is positioned appropriately to
market benchmarks and is strongly weighted to variable
performance-based pay. A large proportion of executive
reward is at risk and issued in equity with long deferral,
ensuring strong alignment with shareholders.
Variable remuneration comprises short term incentives,
delivered as cash and equity, and long-term incentives in the
form of hurdled share awards.
In 2019, as part of a comprehensive review and in response to
stakeholder feedback, a range of changes were made,
including:
• significantly extending vesting periods for short- and long-
term incentives;
• capping the maximum possible STI for KMP; and
• allocating a fixed amount of LTI on a face value, or
maximum value, basis.
SShhoorrtt tteerrmm iinncceennttiivvee
Awards are determined by the Board and consider the
performance of Challenger, individual performance and
behaviour, and market pay benchmarks.
To ensure STI award quantum is appropriate and not excessive,
the Board sets an overall budget for variable reward based on
company performance.
A significant portion of STIs is deferred into equity to provide
strong alignment with shareholder interests and support
retention. For financial year 2020, 100% is deferred.
STI terms are set out in the table below:
PPeerrffoorrmmaannccee ppeerriioodd
AAwwaarrdd ddeetteerrmmiinnaattiioonn
aanndd qquuaannttuumm
MMaaxxiimmuumm
DDeelliivveerryy
AAllllooccaattiioonn
mmeetthhooddoollooggyy
VVeessttiinngg ppeerriioodd
Annual in line with Challenger’s financial year.
STIs are discretionary with quantum based on the performance of Challenger, individual
performance and behaviours, and market pay benchmarks.
Individual performance is evaluated based on:
• a balanced scorecard comprising financial, people and culture, customer and strategic KPIs and
application of, and adherence to, the risk management framework; and
• behaviour in line with the Challenger values.
200% of fixed remuneration.
Ordinarily, 50% of the STI award is delivered as cash and 50% is deferred into equity. For 2020,
there is no cash STI for KMP as 100% is deferred into equity.
Deferred STI awards are delivered as Deferred Performance Share Rights (DPSRs) which represent
the right to receive a fully-paid ordinary Challenger share for nil consideration subject to
continued employment at the time of vesting.
Face value with the number of DPSRs granted based on the five-day VWAP of shares prior to grant
date.
DPSRs vest over a four-year period in accordance with the schedule below:
AAtt tthhee eenndd ooff yyeeaarr
%% ooff ggrraanntt vveessttiinngg
1
2
3
4
30%
30%
20%
20%
VVeessttiinngg ccoonnddiittiioonnss
TTeerrmmiinnaattiioonn ttrreeaattmmeenntt Termination for cause will result in forfeiture of all unvested equity awards.
Awards made prior to September 2019 vested in two equal tranches after one and two years.
Vesting is subject to continued service.
Awards issued from 1 July 2019 onwards are subject to specific good leaver conditions specified at the
time of grant, which apply unless the Board exercises its discretion to do otherwise. Where the ‘good
leaver’ treatment applies, unvested equity remains ‘on foot’ i.e. it will vest on the original vesting date.
Board discretion applies in relation to unvested awards issued prior to 30 June 2019.
The Board has the ability to adjust unvested equity (including to zero) in a range of circumstances,
including to protect financial soundness or respond to unexpected or unintended consequences that
were significant and unforeseen by the Board (such as material risk management breaches,
unexpected financial losses, reputational damage or regulatory non-compliance).
FFoorrffeeiittuurree ((mmaalluuss))
3344
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Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
44 RReemmuunneerraattiioonn rreeppoorrtt ((ccoonnttiinnuueedd))
44..55 RReemmuunneerraattiioonn ssttrraatteeggyy aanndd ssttrruuccttuurree ((ccoonnttiinnuueedd))
LLoonngg tteerrmm iinncceennttiivveess
LTIs are awarded annually to support a continued focus on
long-term performance outcomes. Executives only realise value
if total shareholder returns exceed the absolute TSR hurdles.
The meaningful weighting to LTI ensures a significant
proportion of total reward is ‘at risk’ and directly linked to
shareholder outcomes.
The Board considers that TSR is an effective measure of
shareholder outcomes and that an absolute rather than a
relative TSR performance measure is appropriate because:
• there are no other listed companies in the Australian market
with a retirement income business that are directly
comparable to Challenger;
• a broader index is generally not considered an appropriate
peer group, as the outcome can result in a misalignment
between remuneration and shareholder value creation; and
• if the absolute TSR threshold performance target is set at a
level above average market returns over the long term,
vesting will be directly linked to the delivery of superior
returns to shareholders.
The Board reviews the absolute TSR thresholds annually to
ensure it is appropriately challenging, supports retention and
represents a compelling outcome for shareholders.
For 2020, the Board has determined to retain the absolute TSR
thresholds of 7% to 10% (compounded annually) on the basis
they continue to be challenging in a low growth and low
interest rate environment and represent a relatively strong
return for shareholders. By contrast, the ASX 200
Accumulation Index has seen a compound annual growth rate
of 6% over the last five years ending 30 June 2020.
Over four years, 7% annual compound growth represents
total shareholder return of 31%, and 10% compound growth
represents total shareholder return of 46%.
Where the hurdle is not satisfied at four years, a higher test is
applied in year five (requiring total shareholder returns above
the annual thresholds compounded over five years). Any
unvested awards lapse after five years.
Challenger’s approach differs from the common market
practice of three or four-year cliff vesting, reflecting our
commitment to driving a focus on long-term performance with
strong risk management.
The Board continues to consider the appropriateness of
introducing a second LTI performance measure in the future.
LTI terms are set out in the table below.
QQuuaannttuumm ffoorr KKMMPP
DDeelliivveerryy
AAllllooccaattiioonn
mmeetthhooddoollooggyy
VVeessttiinngg ppeerriioodd aanndd
ccoonnddiittiioonnss
PPeerrffoorrmmaannccee hhuurrddllee
Percentage of fixed remuneration at face value, being 225% for 2020 (consistent with 2019).
Hurdled Performance Share Rights (HPSRs) which represent the right to receive a fully-paid
ordinary Challenger share for nil consideration subject to satisfaction of an employment condition
and a performance hurdle.
Face value with the number of HPSRs granted based on the five-day VWAP of shares prior to
grant date. HPSRs for the CEO are granted following shareholder approval at the Annual General
Meeting using the same allocation price as other KMP. Prior to September 2019, Challenger used
a fair value allocation methodology.
LTI awards vest after four or five years subject to satisfaction of an employment condition and
Challenger satisfying the absolute TSR performance hurdle. Awards are tested after four years
with any unvested HPSRs subject to a final cumulative test after five years.
Awards made prior to September 2019 will continue to be tested after three or four years and
subject to a final cumulative test after five years. Two-thirds of an award is eligible to commence
vesting after three years and the final third after four years.
Vesting is subject to an absolute TSR performance hurdle set out in the table below:
AAbbssoolluuttee TTSSRR hhuurrddllee
Less than 7% p.a.
7% to 10% p.a.
10% p.a. and above
%% ooff HHPPSSRRss tthhaatt vveesstt
0%
Straight-line vesting
between 50% and 100%
100%
HPSR awards made prior to September 2016 are assessed against the previous performance
thresholds of 8% to 12% compounded annually.
The start and end price for absolute TSR performance testing is calculated using a 90-day VWAP
leading up to the relevant performance start or end date. A 90-day VWAP eliminates the potential for
short-term price volatility to impact vesting outcomes.
TTeerrmmiinnaattiioonn ttrreeaattmmeenntt Termination for cause will result in forfeiture of all unvested equity awards.
Awards issued from 1 July 2019 onwards are subject to specific good leaver conditions specified at the
time of grant, which apply unless the Board exercises its discretion to do otherwise. Where the ‘good
leaver’ treatment applies, unvested equity remains ‘on foot’, i.e. it will vest on the original vesting
date, subject to satisfaction of the performance hurdle. Board discretion applies in relation to unvested
awards issued prior to 30 June 2019.
As above.
FFoorrffeeiittuurree ((mmaalluuss))
3355
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
DDiirreeccttoorrss’’ rreeppoorrtt
44 RReemmuunneerraattiioonn rreeppoorrtt ((ccoonnttiinnuueedd))
44..55 RReemmuunneerraattiioonn ssttrraatteeggyy aanndd ssttrruuccttuurree ((ccoonnttiinnuueedd))
CChhaalllleennggeerr PPeerrffoorrmmaannccee PPllaann ((CCPPPP)) TTrruusstt
The CPP Trust is an employee share trust established to satisfy
Challenger’s employee equity obligations arising from DPSRs
and HPSRs.
As a result of recent changes to the taxation of employee
share trusts, no distribution has been made during the 2020
financial year.
TTrruusstt ddiissttrriibbuuttiioonnss
Challenger shares held by the CPP Trust generate dividend
income. The CPP Trust does not receive dividends from
forward share purchase agreements.
The Trustee of the CPP Trust has absolute discretion to
determine whether any net income earned from shares held by
the CPP Trust is distributed to beneficiaries.
Any undistributed income at the end of the year is taxed at the
maximum marginal tax rate (which exceeds the company tax
rate) and carries no franking credits.
Distributions are generally made by the Trustee annually. In
2019, the distribution was allocated to DPSRs (equal to
Challenger’s dividend per share) with the remainder allocated
to an approved charity.
Any income distributed to KMP from the CPP Trust is
considered by the Remuneration Committee and the Board
when considering remuneration recommendations. CPP Trust
distributions paid or payable to KMP are disclosed within the
remuneration tables.
TTaaxx EExxeemmpptt SShhaarree PPllaann
The Board believes that greater employee ownership increases
alignment with shareholders and accordingly encourages
employee share ownership.
The Tax Exempt Share Plan provides permanent Australian
employees a means to acquire Challenger shares at no cost,
and to participate in the future growth and performance of
Challenger. Eligible employees are offered $1,000 worth of
fully-paid Challenger ordinary shares on an annual basis,
subject to a three-year minimum holding period.
44..66 RReemmuunneerraattiioonn ggoovveerrnnaannccee
Challenger’s remuneration governance structures, outlined in the table below, provide strong oversight of remuneration practices
and policies. Detailed information concerning the scope of the Board and the Remuneration Committee’s responsibilities can be
found under the corporate governance section of Challenger’s website.
Remuneration governance arrangements promote compliance with the provisions of the ASX Listing Rules, the ASX Corporate
Governance Council’s Corporate Governance Principles and Recommendations, the Corporations Act 2001 and, in respect of CLC
and Challenger Retirement and Investment Services Limited, the principles contained in the Australian Prudential Regulation
Authority standards CPS 510 and SPS 510 respectively.
BBooaarrdd
• The Board is responsible for ensuring effective remuneration governance and related risk management
RReemmuunneerraattiioonn
CCoommmmiitttteeee
IInnddeeppeennddeenntt
rreemmuunneerraattiioonn
aaddvviisseerrss
practices.
• Board approves remuneration principles and structures and ensures that they are competitive and equitable
and that they support the long-term interests of Challenger.
• The Board receives recommendations from the Remuneration Committee and approves these remuneration
recommendations, where appropriate.
• The Board convenes a Remuneration Committee comprising at least three independent Directors to assist the
Board in discharging its responsibilities.
• The Remuneration Committee meets at least five times during the year, with additional meetings scheduled
as required. For the year ended 30 June 2020, six meetings were held.
• The Remuneration Committee determines and recommends to the Board various principles and policies
(including remuneration, recruitment, retention, termination and diversity), Managing Director & CEO and
KMP remuneration, incentives, superannuation and life insurance arrangements, and the Directors’
remuneration framework.
• The Board, independent of management, appoints an adviser to the Remuneration Committee.
• In 2020, the Board continued its engagement of KPMG. This engagement is based on a defined set of
protocols. The Board is satisfied with KPMG’s remuneration structure and quantum related advice and that
such advice is free from undue influence.
• During 2020, KPMG attended all the Remuneration Committee meetings and provided advice with respect to
KMP remuneration arrangements, updates on regulatory developments, tax advice and a review of sales
incentive plans. No ‘remuneration recommendations’, as defined by the Corporations Act 2001, were
provided by KPMG.
• Mercer was retained in 2020 to independently value DPSRs and HPSRs and test HPSR vesting outcomes.
3366
DDiirreeccttoorrss’’ rreeppoorrtt
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
44 RReemmuunneerraattiioonn rreeppoorrtt ((ccoonnttiinnuueedd))
44..66 RReemmuunneerraattiioonn ggoovveerrnnaannccee ((ccoonnttiinnuueedd))
RReemmuunneerraattiioonn bbeenncchhmmaarrkkiinngg
Challenger’s remuneration strategy is supported by a strong
focus on benchmarking remuneration against the external
market to roles with comparable financial services, banking,
insurance and capital markets skills.
Annually, the Board approves the peer groups to be used
when benchmarking KMP remuneration, and in 2020
approved the following peer groups:
1. FFiinnaanncciiaall IInndduussttrryy RReemmuunneerraattiioonn GGrroouupp ssuurrvveeyy::
This peer group supports consideration of roles with
comparable financial services, banking, insurance and
capital markets skills to Challenger’s KMP.
2. FFiinnaanncciiaall sseerrvviicceess ppuubblliiccllyy ddiisscclloosseedd ddaattaa::
Data is comprised of publicly disclosed KMP remuneration
data for select financial services companies. This peer
group supports consideration of roles with comparable
skills to Challenger’s KMP.
In July 2020, the Board considered remuneration benchmark
data as an input when determining 2020 remuneration
outcomes for KMP and is confident that awarded
remuneration reflects performance and is positioned and
structured at a market-competitive level reflective of the
markets in which Challenger competes for talent, and the
specialist nature of the skills and experience of Challenger
KMP.
VVaarriiaabbllee rreemmuunneerraattiioonn ggoovveerrnnaannccee
The Board determines a pool for total variable remuneration
(cash STI and share-based) annually and targets a funding
range of between 10% and 15% of normalised net profit
before variable reward and tax (NNPBVRT).
While generally working within the targeted range, the Board
considers several financial and non-financial factors when
determining the size of the pool. Examples of factors that the
Board considers include overall business results, external
remuneration levels and movements, progress on short and
long-term strategic objectives, the cost and amount of capital
employed, factors beyond management’s control, and
management of risk.
For 2020, the Board approved a variable remuneration pool of
8% of NNPBVRT which is significantly below the targeted
range. The Board considers that the 2020 variable
remuneration pool reflects a reasonable and equitable
distribution between shareholders and employees and provides
a clear line of sight to, and a strong relationship between,
performance and remuneration outcomes.
MMiinniimmuumm sshhaarreehhoollddiinngg gguuiiddeelliinneess
The Board reviews KMP and Non-Executive Director minimum
shareholding guidelines annually in order to ensure alignment
with shareholders and market practice. The 2020 review
determined that no changes were required to the guidelines at
this time. Challenger’s minimum shareholding guidelines do
not count unvested deferred equity towards minimum
holdings; however, for completeness the shareholding
disclosures in Section 4.8 Key Management Personnel
remuneration arrangements also show unvested DPSR equity
awards.
Minimum shareholding requirements are detailed in the
following table:
GGrroouupp
Non-Executive
Directors (NEDs)
Managing Director
& CEO
Other KMP
IImmpplliieedd vvaalluuee11
RReeqquuiirreemmeenntt
One times base fees Chair: $525,500
NEDs: $179,000
$2,550,000
Two times fixed
remuneration
One times fixed
remuneration
$600,000 to
$750,000
1 Based on fees and remuneration at 30 June 2020.
A five-year transitional period in which to acquire the required
shareholding applies for Non-Executive Directors and KMP. The
Board retains discretion to allow Non-Executive Directors and
KMP to vary from this guideline. Where fees are paid to the
employer of the Non-Executive Director, the minimum
shareholding guidelines do not apply.
The shareholdings of Non-Executive Directors and KMP at
30 June 2020 are set out in Sections 4.8 Key Management
Personnel remuneration arrangements and 4.9 Non-Executive
Director disclosures.
EEmmppllooyyeeee sshhaarree ttrraaddiinngg ppoolliiccyy
Employees, including Directors and KMP, must comply with
Challenger’s employee share trading policy and are required to
obtain pre-approval from the Company if they wish to trade in
Challenger shares. KMP and employees are prohibited from
trading during specified prohibited periods, including prior to
the release of Challenger’s financial results.
KMP and employees are prohibited from hedging their
unvested equity awards, as this would not be consistent with
Challenger’s remuneration strategy or appropriate governance
outcomes and is contrary to the intention of equity-based
remuneration arrangements. Should a KMP or employee
be found to have breached this requirement, it would be
regarded as serious misconduct and may be grounds for
dismissal.
Challenger prohibits KMP and employees from taking out
margin loans on Challenger shares, with any exceptions to this
rule requiring Board approval. There have been no requests for
exceptions to this policy for the year ended 30 June 2020 (no
requests in 2019).
EEmmppllooyyeeee sshhaarree oowwnneerrsshhiipp
As at 30 June 2020, 77% of permanent employees hold
unvested Challenger equity (76% in 2019). This constitutes
2% of Challenger’s issued capital as at 30 June 2020 (2% in
2019).
3377
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
DDiirreeccttoorrss’’ rreeppoorrtt
44 RReemmuunneerraattiioonn rreeppoorrtt ((ccoonnttiinnuueedd))
44..77 RRiisskk aanndd rreewwaarrdd
The Board seeks to align remuneration with effective risk
management, the generation of appropriate risk-based returns
and Challenger’s risk appetite.
The Remuneration Committee and the Board consider
potential risk implications of performance targets when setting
performance measures for variable reward plans.
The Board has agreed a risk management framework which
sets out the Board’s tolerance to risk exposures and the
management of risk. Challenger’s risk profile is continuously
monitored and managed against its risk appetite and any
divergence is resolved within Challenger through a series of
escalations and delegated authorities culminating with the
Board. All business activities are carried out in accordance with
this risk management framework, regardless of potential
remuneration outcomes.
During the year, the Risk Committee provides reports to the
Remuneration Committee and the Board summarising risk
management and risk outcomes, including any breaches of the
risk management framework or other compliance policies. The
Remuneration Committee and the Board consider these
reports when finalising remuneration pools and individual
allocations.
All employees are required to comply with Challenger’s
policies and other risk management and regulatory
requirements as they apply to their role and business area.
Breaches of compliance with these policies and other
requirements are taken seriously and may result in a range of
potential consequences including disciplinary action and
termination of employment. During 2020, the Board approved
a new Conduct Risk and Consequence Management
framework to support the fair and consistent application of
consequences. In addition, risk management behaviours and
outcomes, including any breaches, are considered when
determining remuneration outcomes each year.
All employees are assessed against the Challenger values as
part of the annual performance review process, and this
outcome contributes to the overall performance rating and
remuneration outcomes. Satisfactory assessment of behaviours
against the Challenger values is treated as a gate-opener for
variable reward and behaviours can either increase or decrease
reward outcomes.
The Board also places significant focus on risk culture and
monitors and assesses Challenger’s risk culture. In 2020, this
included:
• risk culture pulse check surveys sent to employees through
the year;
• as part of its internal audit program, KPMG provided an
assessment of risk culture arising from interviews and
control findings;
• Ernst & Young undertook a separate review of Challenger’s
risk culture through a series of interviews and focus groups;
and
•• a range of key risk indicator metrics are monitored and
assessed throughout the year.
VVaarriiaabbllee rreewwaarrdd ffoorrffeeiittuurree pprroovviissiioonnss
Under the terms of the CPP, both DPSRs and HPSRs may be
reduced or forfeited should the Board determine that a KMP
or employee:
• has committed an act of dishonesty;
• is ineligible to hold their office for the purposes of Part 2D.6
Disqualification from managing corporations of the
Corporations Act 2001; or
• is found to have acted in a manner that the Board considers
to be gross misconduct or is dismissed with cause.
In addition, the Board may resolve that an award of DPSRs or
HPSRs should be reduced or forfeited in order to:
• protect financial soundness;
• respond to unexpected or unintended consequences that
were significant and unforeseen by the Board (such as
material risk management breaches, unexpected financial
losses, reputational damage or regulatory non-compliance);
and
• respond to any examples of misconduct, risk events, acts or
omissions or breaches of law or regulation.
3388
DDiirreeccttoorrss’’ rreeppoorrtt
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
44 RReemmuunneerraattiioonn rreeppoorrtt ((ccoonnttiinnuueedd))
44..88 KKeeyy MMaannaaggeemmeenntt PPeerrssoonnnneell rreemmuunneerraattiioonn aarrrraannggeemmeennttss
This audited remuneration report describes Challenger’s KMP and Non-Executive Director remuneration arrangements as required
by the Corporations Act 2001.
SSttaattuuttoorryy rreemmuunneerraattiioonn
Statutory remuneration represents the accounting expense of remuneration in the financial year. It includes fixed remuneration,
cash STI awards, the fair value amortisation expense of deferred share awards granted, distributions from the CPP Trust, long
service leave entitlements and insurance.
SShhoorrtt--tteerrmm eemmppllooyyeeee bbeenneeffiittss
LLoonngg--tteerrmm eemmppllooyyeeee bbeenneeffiittss
KKMMPP
RR HHoowweess4
BB BBeennaarrii5
NN HHaammiillttoonn6
AA MMuurrpphhyy7
CC PPllaatteerr
II SSaaiinneess8
AA TToobbiinn
TToottaall
YYeeaarr
22002200
2019
22002200
2019
22002200
2019
22002200
2019
22002200
2019
22002200
2019
22002200
2019
22002200
2019
SSaallaarryy11
$$
11,,225566,,119955
975,009
--
673,510
444499,,779999
-
556655,,886633
323,721
773300,,997700
722,922
118877,,551111
810,605
668888,,660055
688,674
33,,887788,,994433
4,194,441
SSuuppeerr--
aannnnuuaattiioonn
$$
2211,,000033
20,531
--
10,340
1166,,225522
-
2211,,000033
11,406
2211,,000033
20,531
44,,775511
20,531
2211,,000033
20,531
110055,,001155
103,870
CCaasshh SSTTIIss
$$
--
625,000
--
510,000
--
-
--
145,833
--
494,000
--
372,500
--
425,000
--
2,572,333
OOtthheerr22
$$
4466,,555522
88,910
--
64,367
1133,,779933
-
2200,,008833
15,840
3322,,557711
70,873
22,,227788
54,899
2288,,229966
59,924
114433,,557733
354,813
SShhaarree--bbaasseedd
ppaayymmeennttss33
$$
11,,775500,,116688
1,929,641
--
1,600,128
332255,,665599
-
443355,,119966
206,528
11,,333322,,990011
1,497,129
226633,,118855
1,220,782
11,,114411,,336622
1,268,220
55,,224488,,447711
7,722,428
TToottaall
$$
33,,007733,,991188
3,639,091
--
2,858,345
880055,,550033
-
11,,004422,,114455
703,328
22,,111177,,444455
2,805,455
445577,,772255
2,479,317
11,,887799,,226666
2,462,349
99,,337766,,000022
14,947,885
1 Includes the cost of death, total permanent disability and salary continuance insurances.
2 Values represent distributions paid or payable from the CPP Trust and long service leave accruals.
3 Calculated on the basis outlined in Note 29 Employee entitlements and reflects the fair value of the benefit derived at the date at which they were granted. Fair value
is determined using an option pricing model and is undertaken by an independent third party. The HPSRs included in share-based payments are subject to market-
based performance conditions; consequently, no adjustment to the fair valuation following grant date is permitted to be made for the likelihood of performance
conditions not being met. As a result, the value of the share-based payments included in the table may not necessarily have vested during the financial year.
4 Mr Howes was appointed Managing Director & Chief Executive Officer on 2 January 2019.
5 Mr Benari transferred to a non-KMP role on 2 January 2019 as transition to retirement. The 2019 disclosure is pro-rata for the period in which he was KMP.
6 Mr Hamilton transferred to a KMP role on 23 September 2019. The 2020 disclosure is pro-rata for the period in which he was a KMP.
7 Ms Murphy transferred to a KMP role on 12 December 2018. The 2019 disclosure is pro-rata for the period in which she was KMP.
8 Mr Saines ceased to be KMP on 22 September 2019. The 2020 disclosure is pro-rata for the period in which he was KMP.
SSpplliitt ooff ssttaattuuttoorryy rreemmuunneerraattiioonn ccoommppoonneennttss
The splits of KMP statutory remuneration are set out below:
BB BBeennaarrii2
AA MMuurrpphhyy4
NN HHaammiillttoonn3
KKMMPP
RR HHoowweess1
YYeeaarr FFiixxeedd rreemmuunneerraattiioonn
4411%%
22002200
28%
2019
--
22002200
24%
2019
5588%%
22002200
-
-
5566%%
22002200
47%
2019
3355%%
22002200
26%
2019
4422%%
22002200
33%
2019
3377%%
22002200
28%
2019
CCaasshh SSTTIIss
00%%
17%
--
18%
00%%
-
00%%
21%
00%%
18%
00%%
15%
00%%
17%
1 Mr Howes was appointed Managing Director & Chief Executive Officer on 2 January 2019.
2 Mr Benari transferred to a non-KMP role on 2 January 2019 as transition to retirement. The 2019 disclosure is pro-rata for the period in which he was KMP.
3 Mr Hamilton transferred to a KMP role on 23 September 2019. The 2020 disclosure is pro-rata for the period in which he was KMP.
4 Ms Murphy transferred to a KMP role on 12 December 2018. The 2019 disclosure is pro-rata for the period in which she was KMP.
5 Mr Saines ceased to be KMP on 22 September 2019. The 2020 disclosure is pro-rata for the period in which he was KMP.
SShhaarree--bbaasseedd
ppaayymmeennttss
5577%%
53%
--
56%
4400%%
-
4422%%
29%
6633%%
53%
5577%%
49%
6611%%
52%
OOtthheerr
22%%
2%
--
2%
22%%
-
22%%
3%
22%%
3%
11%%
3%
22%%
3%
II SSaaiinneess5
CC PPllaatteerr
AA TToobbiinn
TToottaall
110000%%
100%
--
100%
110000%%
-
110000%%
100%
110000%%
100%
110000%%
100%
110000%%
100%
3399
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
DDiirreeccttoorrss’’ rreeppoorrtt
44 RReemmuunneerraattiioonn rreeppoorrtt ((ccoonnttiinnuueedd))
44..88 KKeeyy MMaannaaggeemmeenntt PPeerrssoonnnneell rreemmuunneerraattiioonn aarrrraannggeemmeennttss ((ccoonnttiinnuueedd))
SShhaarree RRiigghhttss ggrraanntteedd
DDeeffeerrrreedd PPeerrffoorrmmaannccee SShhaarree RRiigghhttss
The number of DPSRs granted is determined based on the five-day volume weighted average price (VWAP) of shares prior to
grant date. This is the face value allocation price that determines the number of DPSRs granted.
DPSRs granted to KMP during the year ended 30 June 2020 are detailed below:
AAwwaarrddeedd
DDPPSSRR
vvaalluuee
ffrroomm
22001199
$$
625,000
262,500
494,000
372,500
425,000
FFaaccee vvaalluuee
aallllooccaattiioonn
pprriiccee
$$
6.6332
6.6332
6.6332
6.6332
6.6332
TToottaall
nnuummbbeerr
DDaattee ooff
ooff DDPPSSRRss
ggrraanntteedd
ggrraanntt
94,220 9/9/19
39,572 9/9/19
74,472 9/9/19
56,156 9/9/19
64,070 9/9/19
KKMMPP11
RR HHoowweess
AA MMuurrpphhyy
CC PPllaatteerr
II SSaaiinneess
AA TToobbiinn
VVeessttiinngg
TTrraanncchhee 11
11 SSeepptteemmbbeerr
22002200
TTrraanncchhee 22
11 SSeepptteemmbbeerr
22002211
TTrraanncchhee 33
11 SSeepptteemmbbeerr
22002222
TTrraanncchhee 44
11 SSeepptteemmbbeerr
22002233
NNuummbbeerr22
28,266
11,872
22,342
16,847
19,221
NNuummbbeerr22
28,266
11,872
22,342
16,847
19,221
NNuummbbeerr22
18,844
7,914
14,894
11,231
12,814
NNuummbbeerr22
18,844
7,914
14,894
11,231
12,814
1 Mr Hamilton transferred to a KMP role on 23 September 2019; grant and vesting outcomes prior to that are not required to be disclosed.
2 The number of DPSRs granted is determined by dividing the dollar value of the award by the face value allocation price which is based on the VWAP in the five days
prior to grant date. The fair value of each tranche was $6.73 for Tranche 1, $6.45 for Tranche 2, $6.19 for Tranche 3 and $5.93 for Tranche 4. The fair value is
independently calculated and is used to determine the accounting value, which is amortised over future vesting periods. The fair value differs to the face value
allocation price, as the DPSRs do not carry a dividend entitlement, and reflects the deferred nature of the award.
HHuurrddlleedd PPeerrffoorrmmaannccee SShhaarree RRiigghhttss
The table below includes the awarded face value of the granted HPSRs as well as the fair value which takes into account the
likelihood of vesting and is in line with accounting standards.
HPSRs granted to KMP during the year ended 30 June 2020 are detailed below:
VVeessttiinngg
TTrraanncchhee 11
11 SSeepptteemmbbeerr 22002233
AAwwaarrddeedd
HHPPSSRR
ffaaccee vvaalluuee
ffrroomm 2200119944
$$
2,868,750
601,100
1,350,000
1,687,500
1,361,000
1,575,000
KKMMPP11
RR HHoowweess
NN HHaammiillttoonn11
AA MMuurrpphhyy
CC PPllaatteerr
II SSaaiinneess
AA TToobbiinn
FFaaccee vvaalluuee
aallllooccaattiioonn
pprriiccee
$$
6.6332
6.6332
6.6332
6.6332
6.6332
6.6332
TToottaall nnuummbbeerr
ooff HHPPSSRRss
ggrraanntteedd33
432,483
90,618
203,521
254,402
205,180
237,441
TTSSRR ssttaarrtt
pprriiccee22
$$
6.7294
6.7294
6.7294
6.7294
6.7294
6.7294
FFaaiirr vvaalluuee aatt
ggrraanntt ddaattee44
$$
4.22
4.42
3.10
3.10
3.10
3.10
GGrraanntt ddaattee
9/12/19
11/11/19
9/9/19
9/9/19
9/9/19
9/9/19
AAwwaarrddeedd
HHPPSSRR
ffaaiirr vvaalluuee
ffrroomm 22001199
$$
1,825,078
400,532
630,915
788,646
636,058
736,067
1 Mr Hamilton transferred to a KMP role on 23 September 2019; grant and vesting outcomes prior to that are not required to be disclosed.
2 The TSR start price is the VWAP in the 90 calendar days prior to 9 September 2019.
3 The number of HPSRs granted is determined by dividing the dollar value of the award by the face value allocation price. This is the VWAP in the five days prior to 9
September 2019.
4 The fair value is independently calculated and is also used to determine the accounting value which is amortised over future vesting periods. The fair value differs to
the face value and the TSR start price as the HPSR vesting events are subject to achieving future TSR hurdles, do not carry a dividend entitlement and reflects the
deferred nature of the award.
4400
DDiirreeccttoorrss’’ rreeppoorrtt
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
44 RReemmuunneerraattiioonn rreeppoorrtt ((ccoonnttiinnuueedd))
44..88 KKeeyy MMaannaaggeemmeenntt PPeerrssoonnnneell rreemmuunneerraattiioonn aarrrraannggeemmeennttss ((ccoonnttiinnuueedd))
SShhaarree RRiigghhttss vveesstteedd
The following tables show the short and long-term incentives that vested during the year ended 30 June 2020.
DDeeffeerrrreedd PPeerrffoorrmmaannccee SShhaarree RRiigghhttss
DPSRs which vested to KMP during the year ended 30 June 2020 are detailed below:
KKMMPP11
RR HHoowweess
AA MMuurrpphhyy
CC PPllaatteerr
II SSaaiinneess
AA TToobbiinn
DDaattee ooff ggrraanntt
12/9/16
11/9/17
11/9/18
12/9/16
11/9/17
11/9/18
12/9/16
11/9/17
11/9/18
12/9/16
11/9/17
11/9/18
12/9/16
11/9/17
11/9/18
NNuummbbeerr
33,930
31,596
34,360
9,500
8,765
6,631
24,429
27,519
29,538
17,643
17,326
21,701
21,715
19,365
22,304
FFaaccee vvaalluuee aatt ggrraanntt
$$
312,499
387,500
356,241
87,496
107,496
68,750
224,994
337,499
306,247
162,494
212,490
224,994
199,997
237,496
231,246
VVeessttiinngg ddaattee
1/9/19
1/9/19
1/9/19
1/9/19
1/9/19
1/9/19
1/9/19
1/9/19
1/9/19
1/9/19
1/9/19
1/9/19
1/9/19
1/9/19
1/9/19
VVeesstteedd vvaalluuee
$$
224,173
208,752
227,014
62,766
57,910
43,811
161,401
181,816
195,155
116,566
114,472
143,377
143,469
127,943
147,361
1 Mr Hamilton transferred to a KMP role on 23 September 2019; grant and vesting outcomes prior to that are not required to be disclosed.
HHuurrddlleedd PPeerrffoorrmmaannccee SShhaarree RRiigghhttss
No HPSR awards vested to KMP during the year ended 30 June 2020 as the minimum absolute TSR performance hurdles were
not achieved. It should also be noted that no HPSRs will vest in September 2020.
GGrraanntt ddeettaaiillss
FFaaiirr vvaalluuee aatt
ggrraanntt22
$$
287,502
937,493
75,002
262,496
112,501
674,998
287,502
487,496
199,998
599,995
NNuummbbeerr
101,233
226,577
26,409
63,441
39,613
163,136
101,233
117,820
70,422
145,009
VVeessttiinngg
ddaattee
1/9/19
1/9/19
1/9/19
1/9/19
1/9/19
1/9/19
1/9/19
1/9/19
1/9/19
1/9/19
VVeessttiinngg ddeettaaiillss
NNuummbbeerr
vveesstteedd
-
-
-
-
-
-
-
-
-
-
CCoommppoouunndd
aannnnuuaall TTSSRR
oouuttccoommee
3%
-5%
3%
-5%
3%
-5%
3%
-5%
3%
-5%
NNuummbbeerr vveesstteedd
oorr llaappsseedd iinn pprriioorr
yyeeaarrss
-
-
-
-
-
-
-
-
-
-
KKMMPP11
RR HHoowweess
AA MMuurrpphhyy
CC PPllaatteerr
II SSaaiinneess
AA TToobbiinn
GGrraanntt ddaattee
13/9/15
12/9/16
13/9/15
12/9/16
13/9/15
12/9/16
13/9/15
12/9/16
13/9/15
12/9/16
NNuummbbeerr yyeett ttoo
vveesstt oorr llaappssee
101,233
226,577
26,409
63,441
39,613
163,136
101,233
117,820
70,422
145,009
1 Mr Hamilton transferred to a KMP role on 23 September 2019; grant and vesting outcomes prior to that are not required to be disclosed.
2 The fair value is independently calculated and has been determined by the Board as the best estimate of the awarded financial value at the grant date.
4411
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
DDiirreeccttoorrss’’ rreeppoorrtt
44 RReemmuunneerraattiioonn rreeppoorrtt ((ccoonnttiinnuueedd))
44..88 KKeeyy MMaannaaggeemmeenntt PPeerrssoonnnneell rreemmuunneerraattiioonn aarrrraannggeemmeennttss ((ccoonnttiinnuueedd))
SShhaarree RRiigghhttss hheelldd
PPeerrffoorrmmaannccee SShhaarree RRiigghhttss hheelldd
Details of KMP DPSRs and HPSRs held as at 30 June 2020 are set out below:
KKMMPP
RR HHoowweess
NN HHaammiillttoonn1
AA MMuurrpphhyy
CC PPllaatteerr
II SSaaiinneess2
AA TToobbiinn
IInnssttrruummeenntt
DPSRs
HPSRs
DPSRs
HPSRs
DPSRs
HPSRs
DPSRs
HPSRs
DPSRs
HPSRs
DPSRs
HPSRs
NNuummbbeerr hheelldd aatt
11 JJuullyy 22001199
201,267
678,870
-
-
39,536
131,998
164,420
483,736
123,034
453,853
131,574
456,203
NNuummbbeerr ggrraanntteedd
aass rreemmuunneerraattiioonn
94,220
432,483
-
-
39,572
203,521
74,472
254,402
56,156
205,180
64,070
237,441
NNuummbbeerr
ffoorrffeeiitteedd NNuummbbeerr vveesstteedd
(99,886)
-
-
-
(24,896)
-
(81,486)
-
(56,670)
-
(63,384)
-
-
-
-
-
-
-
-
-
-
(453,853)
-
-
NNuummbbeerr hheelldd aatt
3300 JJuunnee 22002200
195,601
1,111,353
38,191
282,935
54,212
335,519
157,406
738,138
122,520
205,180
132,260
693,644
1 Mr Hamilton transferred to a KMP role on 23 September 2019; grant and vesting outcomes prior to that are not required to be disclosed.
2 Upon termination of employment, Mr Saines’ unvested DPSRs remained ‘on foot’ subject to the applicable time based vesting conditions. In addition, HPSRs awarded
to Mr Saines in 2019 remain ‘on foot’ subject to the specified performance hurdles and applicable time based vesting conditions. HPSRs awarded between 2015 and
2018 lapsed in accordance with the terms of the award.
KKeeyy MMaannaaggeemmeenntt PPeerrssoonnnneell aanndd tthheeiirr aaffffiilliiaatteess’’ sshhaarreehhoollddiinnggss iinn CChhaalllleennggeerr LLiimmiitteedd
Details of KMP and their affiliates’ shareholdings in Challenger Limited as at 30 June 2020 are detailed below, along with the
number of unvested DPSRs. The CEO and other KMP are required to have a minimum shareholding equal to two times, and one
times, their fixed remuneration respectively. From the date of appointment, KMP have a five-year transition period to reach the
minimum shareholding. Mr Tobin held substantially more than the minimum requirement as at 30 June 2020 and all other
current KMP remain within their transition period.
KKMMPP
RR HHoowweess22
NN HHaammiillttoonn33
AA MMuurrpphhyy44
CC PPllaatteerr55
II SSaaiinneess66
AA TToobbiinn
TToottaall
YYeeaarr
22002200
2019
22002200
2019
22002200
2019
22002200
2019
22002200
2019
22002200
2019
22002200
2019
OOppeenniinngg
bbaallaannccee
446611,,559922
100,000
--
-
--
-
5544,,884455
27,347
--
171,498
336644,,776655
320,880
888811,,220022
619,725
NNuummbbeerr ooff
vveesstteedd DDPPSSRRss
aanndd HHPPSSRRss
9999,,888866
361,592
--
-
2244,,889966
-
8811,,448866
177,498
--
326,792
6633,,338844
243,885
226699,,665522
1,109,767
NNuummbbeerr ooff
sshhaarreess ssoolldd
--
-
--
-
--
-
--
(150,000)
--
(498,290)
--
(200,000)
--
(848,290)
CClloossiinngg
bbaallaannccee ooff
sshhaarreess
556611,,447788
461,592
--
-
2244,,889966
-
113366,,333311
54,845
--
-
442288,,114499
364,765
11,,115500,,885544
881,202
NNuummbbeerr ooff
uunnvveesstteedd
DDPPSSRRss
119955,,660011
201,267
3388,,119911
-
5544,,221122
39,536
115577,,440066
164,420
--
123,034
113322,,226600
131,574
557777,,667700
659,831
SShhaarreehhoollddiinngg aass aa mmuullttiippllee
ooff ffiixxeedd rreemmuunneerraattiioonn11
FFuullllyy--oowwnneedd
sshhaarreess
11..99
3.1
--
-
00..22
-
00..88
0.5
--
-
22..77
3.5
SShhaarreess aanndd
DDPPSSRRss
22..66
4.4
00..33
-
00..66
0.5
11..77
2.0
--
1.0
33..55
4.7
1 Shareholding multiple based on 30 June 2020 closing share price of $4.41 (30 June 2019: $6.64).
2 Mr Howes was appointed Managing Director & Chief Executive Officer on 2 January 2019 and has a five year transition period from the date of appointment in
which to reach the two times holding requirement. It is noted that Mr Howes significantly exceeds the one times holding requirement which applied in his former
KMP role.
3 Mr Hamilton transferred to a KMP role on 23 September 2019 and has a five year transition period in which to acquire the required shareholding.
4 Mrs Murphy transferred to a KMP role on 12 December 2018 and has a five year transition period in which to acquire the required shareholding.
5 Mr Plater transferred to a KMP role on 13 February 2017 and has a five year transition period in which to acquire the required shareholding.
6 Mr Saines ceased to be KMP on 22 September 2019.
4422
DDiirreeccttoorrss’’ rreeppoorrtt
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
44 RReemmuunneerraattiioonn rreeppoorrtt ((ccoonnttiinnuueedd))
44..88 KKeeyy MMaannaaggeemmeenntt PPeerrssoonnnneell rreemmuunneerraattiioonn aarrrraannggeemmeennttss ((ccoonnttiinnuueedd))
RRiicchhaarrdd HHoowweess –– MMaannaaggiinngg DDiirreeccttoorr && CCEEOO
Mr Howes was appointed Managing Director & CEO effective 2 January 2019. All equity awards for the Managing Director &
CEO are satisfied by the purchase of shares on market. The following table summarises the notice periods and payments which
apply to Mr Howes upon termination.
NNoottiiccee ppeerriioodd
PPaayymmeenntt iinn lliieeuu ooff nnoottiiccee
BBaadd lleeaavveerr
tteerrmmiinnaattiioonn11
Employee initiated: 6 months
Employer initiated (Poor
performance): 12 months
The Board may elect to make
a payment of salary package
in lieu of notice
GGoooodd lleeaavveerr
tteerrmmiinnaattiioonn22
Employer initiated
(Misconduct): None
Employee initiated: 6 months
Employee initiated (Material
Change3): 1 month
Employer initiated: 12 months
None
The Board may elect to make
a payment of salary package
in lieu of notice
EElliiggiibbiilliittyy ffoorr
SSTTII
TTrreeaattmmeenntt ooff
uunnvveesstteedd
ppeerrffoorrmmaannccee rriigghhttss
No
Lapse
Continued vesting4
Eligible for a
pro rata STI
payable at
the usual
payment
date
1 Bad leaver termination will occur where employment is terminated by Challenger for poor performance, misconduct or resignation without the prior approval of the
Board.
2 Good leaver termination will occur if employment ends in any circumstances that do not constitute a bad leaver termination.
3 Material Change means where there is a substantial diminution of Mr Howes’ duties, status, responsibilities and/or authority arising without his agreement.
4 Unvested performance rights will remain on foot subject to the specified time based vesting conditions and/or performance hurdles and to the rules of the CPP.
BBrriiaann BBeennaarrii –– ffoorrmmeerr MMaannaaggiinngg DDiirreeccttoorr && CCEEOO
Mr Benari transferred to a non-KMP role on 2 January 2019 as transition to retirement and ceased employment on 1 July 2020.
No termination payments were made to Mr Benari on ceasing employment.
KKeeyy MMaannaaggeemmeenntt PPeerrssoonnnneell ((eexxcclluuddiinngg MMaannaaggiinngg DDiirreeccttoorr && CCEEOO)) eemmppllooyymmeenntt aaggrreeeemmeennttss aanndd nnoottiiccee ppeerriiooddss
KMP do not have fixed terms of employment. The notice period for Challenger and the KMP is 26 weeks unless terminated for
cause.
Upon termination, if the KMP is considered a good leaver (such as cessation of employment due to redundancy), they will be
entitled to a pro rata STI award. Board discretion applies in relation to unvested awards issued under the CPP prior to 30 June
2019. Awards issued under the CPP from 1 July 2019 onwards are subject to specific good leaver conditions specified at the time
of grant, which apply unless the Board exercises its discretion to do otherwise.
LLooaannss aanndd ootthheerr ttrraannssaaccttiioonnss
There were no loans made to Directors or key executives as at 30 June 2020 (30 June 2019: nil). From time to time, Directors of
the Company or their Director related entities may purchase products from the Company. These purchases are on the same arm’s
length terms and conditions as those offered to other employees or customers.
4433
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
DDiirreeccttoorrss’’ rreeppoorrtt
44 RReemmuunneerraattiioonn rreeppoorrtt ((ccoonnttiinnuueedd))
44..99 NNoonn--EExxeeccuuttiivvee DDiirreeccttoorr ddiisscclloossuurreess
FFeeee ppooooll
The maximum aggregate amount of annual fees is approved
by shareholders in accordance with the requirements of the
Corporations Act 2001.
On recommendation from the Remuneration Committee, the
Board approves the fee structure within the bounds of the
overall maximum fee pool.
The current fee pool of $2,500,000 was approved by
shareholders in 2016.
FFeeee ffrraammeewwoorrkk aanndd rreevviieeww
Challenger aims to attract and retain suitably skilled and
experienced Non-Executive Directors to serve on the Board and
to reward them appropriately for their time and expertise.
Non-Executive Directors are remunerated by way of fees paid
in recognition of membership of the Board and its committees.
Additional fees are paid to the Chair of the Board and sub-
committee members to reflect added responsibilities.
The Board is committed to periodically reviewing the fee
framework in order to ensure that fees remain appropriate
against the external market and support the attraction and
retention of high quality Non-Executive Directors.
The fee structure is benchmarked annually to align with the
market and to attract, retain and appropriately reward quality
independent directors. Board and committee fees remain
unchanged for the year ended 30 June 2020, noting the
temporary reduction outlined below.
The following table summarises the fees applicable to
membership and chairmanship of the Board and its sub-
committees, inclusive of services provided at a subsidiary board
level, for the year ended 30 June 2020. All amounts are
inclusive of superannuation, where applicable.
RReedduuccttiioonn ttoo BBooaarrdd ffeeeess
In response to the impact of the COVID-19 pandemic on
Challenger’s performance, the Board determined to reduce its
base fees by 20% for an initial period of six months,
commencing 1 June 2020. After six months, it will review the
position.
BBooaarrdd//CCoommmmiitttteeee
Board1
Group Risk
Group Audit
Remuneration
22002200 ffeeee ssttrruuccttuurree33
CChhaaiirr ffeeee22
$$
525,500
47,000
47,000
47,000
MMeemmbbeerr ffeeee
$$
179,000
14,000
14,000
23,500
22001199 ffeeee ssttrruuccttuurree
CChhaaiirr ffeeee22
$$
525,500
47,000
47,000
47,000
MMeemmbbeerr ffeeee
$$
179,000
14,000
14,000
23,500
1 Board fees include Nomination Committee fees.
2 The Board Chair fees reported in the table are inclusive of committee fees paid to the Board Chair.
3 In May 2020, the Board determined to reduce the Board Chair fee and Member base fees by 20% for a period of six months from 1 June 2020.
The fee framework includes services provided at a subsidiary board level.
4444
DDiirreeccttoorrss’’ rreeppoorrtt
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
44 RReemmuunneerraattiioonn rreeppoorrtt ((ccoonnttiinnuueedd))
44..99 NNoonn--EExxeeccuuttiivvee DDiirreeccttoorr ddiisscclloossuurreess ((ccoonnttiinnuueedd))
NNoonn--EExxeeccuuttiivvee DDiirreeccttoorr ffeeeess ffoorr tthhee yyeeaarr eennddeedd 3300 JJuunnee 22002200
The following table summarises Non-Executive Director fees for the year ended 30 June 2020.
NNoonn--EExxeeccuuttiivvee DDiirreeccttoorr
PP PPoollssoonn
GG CCuubbbbiinn11,,22
JJ MM GGrreeeenn
SS GGrreegggg
MM KKoobbaayyaasshhii33
JJ SStteepphheennssoonn
DD WWeesstt11,,44
MM WWiilllliiss
LL ZZwwiieerr11,,55
TToottaall
YYeeaarr
22002200
2019
22002200
2019
22002200
2019
22002200
2019
22002200
2019
22002200
2019
22002200
2019
22002200
2019
22002200
2019
22002200
2019
DDiirreeccttoorr ffeeeess
$$
449955,,773399
504,969
--
86,638
220077,,777788
203,660
224455,,551144
236,631
--
-
224455,,001144
245,280
220044,,001177
146,569
221177,,336677
210,198
4444,,775500
179,000
11,,666600,,117799
1,812,945
SSuuppeerraannnnuuaattiioonn
$$
2211,,000033
20,531
--
-
1199,,773399
19,348
2211,,000033
20,398
--
-
2211,,000033
20,531
--
-
2200,,665500
19,772
--
-
110033,,339988
100,580
TToottaall
$$
551166,,774422
525,500
--
86,638
222277,,551177
223,008
226666,,551177
257,029
--
-
226666,,001177
265,811
220044,,001177
146,569
223388,,001177
229,970
4444,,775500
179,000
11,,776633,,557777
1,913,525
1 Mr Cubbin, Mr West and Mr Zwier provide services through companies. Fees exclude GST.
2 Mr Cubbin retired from the Board on 26 October 2018. The 2019 remuneration reflects fees earned on a pro-rata basis.
3 Mr Kobayashi was appointed as Director on 26 August 2019 and as a shareholder representative, does not receive fees. Similarily his alternate director, Mr Iioka,
does not receive fees.
4 Mr West was appointed as a director on 10 September 2018. The 2019 remuneration reflects fees earned on a pro-rata basis.
5 Mr Zwier retired from the Board on 31 October 2019. The 2020 remuneration reflects fees earned on a pro-rata basis.
SSuuppeerraannnnuuaattiioonn
Non-Executive Directors receive superannuation contributions where required by Superannuation Guarantee legislation.
EEqquuiittyy ppaarrttiicciippaattiioonn
Non-Executive Directors do not receive equity as part of their remuneration and do not participate in any incentive arrangements.
4455
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
DDiirreeccttoorrss’’ rreeppoorrtt
44 RReemmuunneerraattiioonn rreeppoorrtt ((ccoonnttiinnuueedd))
44..99 NNoonn--EExxeeccuuttiivvee DDiirreeccttoorr ddiisscclloossuurreess ((ccoonnttiinnuueedd))
NNoonn--EExxeeccuuttiivvee DDiirreeccttoorr sshhaarreehhoollddiinnggss iinn CChhaalllleennggeerr LLiimmiitteedd aatt 3300 JJuunnee 22002200
Details of the Non-Executive Directors’ and their affiliates’ shareholdings in Challenger Limited are set out below:
NNoonn--EExxeeccuuttiivvee DDiirreeccttoorr
PP PPoollssoonn
JJ MM GGrreeeenn11
GG CCuubbbbiinn22
SS GGrreegggg33
MM KKoobbaayyaasshhii44
JJ SStteepphheennssoonn33
DD WWeesstt11
MM WWiilllliiss
LL ZZwwiieerr55
TToottaall
YYeeaarr
22002200
2019
22002200
2019
22002200
2019
22002200
2019
22002200
2019
22002200
2019
22002200
2019
22002200
2019
22002200
2019
22002200
2019
SShhaarreess hheelldd aatt tthhee
bbeeggiinnnniinngg ooff tthhee yyeeaarr
112222,,000000
122,000
1100,,000000
-
--
97,878
1144,,000000
14,000
--
-
1155,,000000
15,000
1188,,995577
-
114499,,889922
149,892
77,,336600
7,360
333377,,220099
406,130
MMoovveemmeennttss
--
-
--
10,000
--
(97,878)
--
-
--
-
22,,000000
-
--
18,957
--
-
((77,,336600))
-
((55,,336600))
(68,921)
SShhaarreess hheelldd aatt tthhee eenndd ooff
tthhee yyeeaarr
112222,,000000
122,000
1100,,000000
10,000
--
-
1144,,000000
14,000
--
-
1177,,000000
15,000
1188,,995577
18,957
114499,,889922
149,892
--
7,360
333311,,884499
337,209
1 Mr Green and Mr West are within the five-year transitional period in which to acquire the required shareholding.
2 Mr Cubbin retired from the Board on 26 October 2018.
3 Due to significant share price movement during 2020, Mr Gregg and Ms Stephenson’s shareholdings as at 30 June 2020 did not satisfy the minimum shareholding
requirements.
4 Mr Kobayashi is exempt from the minimum shareholding requirements. His alternate director, Mr Iioka, is exempt also.
5 Mr Zwier retired from the Board on 31 October 2019, so his holding disclosure is removed under ‘movements’.
TToottaall rreemmuunneerraattiioonn ooff KKMMPP aanndd NNoonn--EExxeeccuuttiivvee DDiirreeccttoorrss
SShhoorrtt--tteerrmm
bbeenneeffiittss
$$
PPoosstt--
eemmppllooyymmeenntt
bbeenneeffiittss
$$
SShhaarree--bbaasseedd
ppaayymmeennttss
$$
OOtthheerr
bbeenneeffiittss
$$
TTeerrmmiinnaattiioonn
bbeenneeffiittss
$$
TToottaall
$$
KKMMPP aanndd NNoonn--EExxeeccuuttiivvee DDiirreeccttoorrss
NNoonn--EExxeeccuuttiivvee DDiirreeccttoorrss
22002200
2019
KKMMPP
22002200
2019
11,,666600,,117799
1,812,945
110033,,339988
100,580
--
-
--
-
33,,887788,,994433
6,766,774
110055,,001155
103,870
55,,224488,,447711
7,722,428
114433,,557733
354,813
AAllll KKMMPP aanndd NNoonn--EExxeeccuuttiivvee DDiirreeccttoorrss
22002200
2019
55,,553399,,112222
8,579,719
220088,,441133
204,450
55,,224488,,447711
7,722,428
114433,,557733
354,813
4466
--
-
--
-
--
-
11,,776633,,557777
1,913,525
99,,337766,,000022
14,947,885
1111,,113399,,557799
16,861,410
DDiirreeccttoorrss’’ rreeppoorrtt
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
44 RReemmuunneerraattiioonn rreeppoorrtt ((ccoonnttiinnuueedd))
44..1100 SSuummmmaarryy ooff kkeeyy tteerrmmss aanndd aabbbbrreevviiaattiioonnss uusseedd iinn tthhee rreemmuunneerraattiioonn rreeppoorrtt
KKeeyy tteerrmm
AAwwaarrddeedd
rreemmuunneerraattiioonn
BBooaarrdd
CCPPPP
CCPPPP TTrruusstt
DDPPSSRR
FFaaccee vvaalluuee
FFaaiirr vvaalluuee
HHPPSSRR
KKMMPP
LLTTII
NNoorrmmaalliisseedd
NNPPAATT
NNoorrmmaalliisseedd RRooEE
((pprree--ttaaxx))
NNoorrmmaalliisseedd
NNPPBBVVRRTT
RReemmuunneerraattiioonn
CCoommmmiitttteeee
SSttaattuuttoorryy
rreemmuunneerraattiioonn
SSTTII
TTSSRR
VVaarriiaabbllee
rreemmuunneerraattiioonn
VVWWAAPP
DDeessccrriippttiioonn
Represents the value of remuneration that has been awarded for the financial year. This includes fixed
remuneration, STI (cash and deferred) and LTI.
The Board of Directors of Challenger Limited is the main body responsible for the implementation of effective
remuneration governance and related risk management practices at Challenger.
Challenger Performance Plan. Deferred equity awards are issued under the CPP.
Challenger Performance Plan Trust. The CPP Trust was established in 2006 for the purpose of acquiring,
holding and transferring shares to employees upon the vesting of their equity awards.
Deferred Performance Share Right. Deferred STI awards are delivered as DPSRs under the CPP. DPSRs
represent the right to receive a fully-paid ordinary Challenger share for zero consideration subject to
continued employment at the time of vesting. DPSRs do not provide an entitlement to vote or a right to
dividends; however, employees with unvested DPSRs may receive a distribution of income from the CPP Trust.
The Board has discretion to amend or withdraw DPSRs at any point.
The number of DPSRs granted to KMP is determined based on the face value of the shares using a five-day
Volume Weighted Average Price (VWAP) prior to the grant date. The number of HPSRs granted to KMP from
1 July 2019 is determined based on the face value of the shares using a five-day VWAP prior to the grant
date.
The number of HPSRs awarded to KMP prior to 1 July 2019 was calculated by reference to the fair value. The
fair value for HPSRs is calculated on the basis outlined in Note 29 Employee entitlements and reflects the fair
value of the benefit derived at the date at which they were granted. An independent third party determines
the fair value using an option pricing model and discounted cash flow methodology, as appropriate.
Hurdled Performance Share Right. HPSR awards are delivered under the CPP and are linked to the long-term
performance of Challenger. HPSRs represent the right to receive a fully-paid ordinary Challenger share for
zero consideration subject to satisfying an employemnt condition and Challenger satisfying the absolute TSR
performance hurdle. HPSRs do not provide an entitlement to vote or a right to dividends. HPSR awards are
provided to KMP as their responsibilities provide them with the opportunity to materially influence long-term
performance, strategy and shareholder value. The Board has discretion to amend or withdraw HPSRs at any
point.
Key Management Personnel. Persons having authority and responsibility for planning, directing and
controlling the activities of an entity, directly or indirectly, including any Director (whether executive or
otherwise) as defined in AASB 124 Related Party Disclosures.
Long term incentive. LTIs are awarded annually to KMP to support a continued focus on long-term
performance outcomes. Executives will only realise value from LTIs if total shareholder returns exceed the
hurdles set, ensuring a direct link between executive reward and shareholder outcomes.
Normalised net profit after tax. Excludes asset or liability valuation movements that are above or below
expected long-term trends and significant items that may positively or negatively impact financial results.
Refer to the Operating and financial review section for further information.
Normalised return on equity (pre-tax). Normalised profit before tax divided by average net assets.
Normalised net profit before variable reward and tax. Excludes any asset or liability valuation movements that
are above or below expected long-term trends and any significant items that may positively or negatively
impact the financial results, and excludes STI expense, employee share award expense and tax.
The Board convenes a Remuneration Committee comprising independent Non-Executive Directors and which
is a delegated committee of the Board to assist the Board in discharging its responsibilities.
Represents the accounting expense of remuneration for the financial year. This includes fixed remuneration,
cash STI awards, the fair value amortisation expense of share-based awards granted up to balance sheet date,
distributions from the CPP Trust, long service leave entitlements and insurance.
Short-term incentive. STIs are used to reward KMP and employees for significant contributions to Challenger’s
results over the course of the financial year. Individual STI awards are allocated on the basis of annual
contribution and with reference to market benchmarks. The Board has discretion to amend or withdraw the
STI at any point. STIs may be awarded in the form of cash and/or DPSRs.
Total shareholder return. TSR represents the change in share price plus dividends received over a given
timeframe. Challenger uses absolute TSR as the measure of performance for HPSRs.
Consists of cash STI and share-based awards (DPSRs and HPSRs).
Volume weighted average price. Ratio of the value of shares traded to total volume traded over a time
horizon. A five-day VWAP is used to calculate the number of DPSRs per dollar of deferred STIs. A five-day
VWAP is used to calculate the number of HPSRs per dollar of LTIs. A 90-day VWAP is also used for absolute
TSR performance testing (start and end price) for HPSR awards.
4477
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
DDiirreeccttoorrss’’ rreeppoorrtt
55 IInnddeemmnniiffiiccaattiioonn aanndd iinnssuurraannccee ooff
88 SSiiggnniiffiiccaanntt eevveennttss aafftteerr tthhee
DDiirreeccttoorrss aanndd ooffffiicceerrss
bbaallaannccee ddaattee
In accordance with its Constitution, and where permitted
under relevant legislation or regulation, the Company
indemnifies the Directors and officers against all liabilities to
another person that may arise from their position as Directors
or officers of the Company and its subsidiaries, except where
the liability arises out of conduct that is fraudulent, dishonest,
criminal, malicious or a reckless act, error or omission.
Subsequent to the balance date the Company completed a
non-underwritten share purchase plan (SPP) raising $35.0
million with 8.1 million shares issued to retail shareholders at a
price of $4.32 per share. Of the proceeds received from the
SPP on 30 July 2020, $30.0 million was injected into CLC as
Common Equity Tier 1 capital on 31 July 2020 with the
remaining $5.0 million retained by the Group.
In accordance with the provisions of the Corporations Act
2001, the Company has insured the Directors and officers
against liabilities incurred in their role as Directors and officers
of the Company. The terms of the insurance policy, including
the premium, are subject to confidentiality clauses and
therefore the Company is prohibited from disclosing the
nature of the liabilities covered and the premium paid.
66 IInnddeemmnniiffiiccaattiioonn ooff aauuddiittoorr
To the extent permitted by law, the Company has agreed to
indemnify its auditor, Ernst & Young, as part of the terms of its
audit engagement agreement. The primary purpose of the
indemnity is to indemnify Ernst & Young for any loss that it
may suffer as a result of a false representation given by
Challenger management where a claim is made against Ernst
& Young by a third party.
There is a caveat if Ernst & Young’s loss results from its own
negligence or wrongful or wilful acts or omissions. No
payment has been made to indemnify Ernst & Young during or
since the financial year.
77 EEnnvviirroonnmmeennttaall rreegguullaattiioonn aanndd
ppeerrffoorrmmaannccee
Some members of the Group act as a trustee or responsible
entity for a number of trusts that own assets both in Australia
and overseas. Some of these assets are subject to
environmental regulations under Commonwealth, state and
offshore legislation. The Directors are satisfied that adequate
systems are in place for the management of the Group’s
environmental responsibilities and compliance with various
legislative, regulatory and licence requirements. Further, the
Directors are not aware of any breaches of these requirements,
and to the best of their knowledge all activities have been
undertaken in compliance with environmental requirements.
No other matter or circumstance has arisen that has affected,
or may significantly affect, the Group’s operations, the results
of those operations or the Group’s state of affairs in future
financial years which has not already been reflected in this
report.
99 RRoouunnddiinngg
The amounts contained in this report and the financial report
have been rounded to the nearest $100,000, unless otherwise
stated, under the option available to the Group under
Australian Securities and Investments Commission (ASIC)
Corporations Instrument 2016/191.
1100 NNoonn--aauuddiitt sseerrvviicceess
The Audit Committee has reviewed details of the amounts
paid or payable for non-audit services provided to Challenger
during the year ended 30 June 2020 by the Company’s
auditor, Ernst & Young.
The Directors are satisfied that the provision of those non-
audit services by the auditor is compatible with the general
standard of independence for auditors imposed by the
Corporations Act 2001 and did not compromise the auditor
independence requirements of the Corporations Act 2001 for
the following reasons:
• all non-audit services were approved in accordance with the
Auditor Independence Policy that outlines the approval
process that must occur for all non-audit services and which
involves the Challenger CEO, CFO or delegate, depending
on size and circumstances; and
• no non-audit services were carried out which were
specifically excluded by the Auditor Independence Policy.
For details of fees for non-audit services paid to the auditors,
refer to Note 30 Remuneration of auditor of the financial
report.
4488
DDiirreeccttoorrss’’ rreeppoorrtt
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
1111 AAuutthhoorriissaattiioonn
Signed in accordance with a resolution of the Directors of Challenger Limited:
P Polson
Independent Chair
Sydney
10 August 2020
R Howes
Managing Director & Chief Executive Officer
Sydney
10 August 2020
1122 AAuuddiittoorr’’ss iinnddeeppeennddeennccee ddeeccllaarraattiioonn
The Directors received the following declaration from the auditor of Challenger Limited:
Ernst & Young
200 George Street
Sydney NSW 2000 Australia
GPO Box 2646 Sydney NSW 2001
Tel: +61 2 9248 5555
Fax: +61 2 9248 5959
ey.com/au
AAuuddiittoorr’’ss iinnddeeppeennddeennccee ddeeccllaarraattiioonn ttoo tthhee DDiirreeccttoorrss ooff CChhaalllleennggeerr LLiimmiitteedd
As lead auditor for the audit of the financial report of Challenger Limited for the financial year ended 30 June 2020, I declare to
the best of my knowledge and belief, there have been:
a. no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
b. no contraventions of any applicable code of professional conduct in relation to the audit.
This declaration is in respect of Challenger Limited and the entities it controlled during the financial year.
Ernst & Young
T Johnson
Partner
Sydney
10 August 2020
A member firm of Ernst & Young Global Limited
Liability limited by a scheme approved under Professional Standards Legislation
4499
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
SSuussttaaiinnaabbiilliittyy
SSuussttaaiinnaabbiilliittyy
Challenger’s approach to sustainability addresses
environmental, social and governance (ESG) risks and
opportunities that have the potential to affect its vision to
provide financial security for customers.
Challenger’s sustainability strategy supports the delivery of its
business strategy and highlights its commitment to:
• responsible business practices that focus on its customers,
employees, shareholders and the environment;
• acting on issues affecting the ability of retirees to achieve
financial security; and
• helping customers and communities to be strong and
financially resilient.
Challenger’s 2020 Sustainability Report outlines its approach
to sustainability and is available from the company website:
›› cchhaalllleennggeerr..ccoomm..aauu//aabboouutt--uuss
This report covers Challenger’s key areas of focus, highlights
achievements and demonstrates progress in delivering its
sustainability strategy.
Challenger frames its report through the lens of its most
material matters. These are identified through engagement
with internal and external stakeholders and with consideration
of importance to both the business and its stakeholders.
Responding to the material matters identified, supports the
delivery of the UN Sustainable Development Goals (SDGs).
MMaatteerriiaall mmaatttteerrss
TTrruusstt aanndd ccoonnffiiddeennccee
Challenger’s ability to continue to deliver value for its
stakeholders relies on trust and confidence in our business.
This is gained through setting and maintaining high standards,
and participating in industry-wide commitments. This also
includes how Challenger has conducted itself through the
COVID-19 pandemic and the decisions made as a result of it.
EEccoonnoommiicc uunncceerrttaaiinnttyy
As an investment management company, Challenger is
impacted by market volatility and uncertainty as well as the
low interest rate trend. The need for diversification and
ensuring access to appropriate assets remains an important
focus for its business and stakeholders. The impact of the
COVID-19 pandemic and Government measures put in place
will impact its ongoing approach.
LLoonngg--tteerrmm rriisskk mmaannaaggeemmeenntt
Identifying and managing long-term risks is critical to providing
secure and stable incomes for Challenger’s customers. This
includes ensuring it has resilient business practices to mitigate
risks. Challenger’s ability to continue to deliver on its long term
promises to its customers through the COVID-19 pandemic
demonstrates the strength in its approach.
RReessppoonnssiibbllee iinnvveessttmmeenntt
Effective investment strategies need to consider
environmental, social and governance issues. By considering
non-financial risks, Challenger makes its business more
resilient and this supports long term returns. Stakeholders are
increasingly considering investment in technologies that will
support a low-carbon transition or will support a key social
issue.
5500
CClliimmaattee cchhaannggee
The risks related to climate change, if not considered, will have
financial impacts. Physical risks will impact real assets and
transition risks will be felt more widely through investment
portfolios. There have also been growing expectations and
increased regulator encouragement for companies to review
and disclose climate-related financial risks.
GGrreeaatt ppllaaccee ttoo wwoorrkk
To attract and retain top talent, companies need to meet
evolving employee expectations. Employees want to work for
organisations that share their values. This includes a focus on
diversity and inclusion as well as health and wellbeing.
Providing the tools and technology to enable employees can
lead to increased engagement.
CChhaannggiinngg ooppeerraattiinngg eennvviirroonnmmeenntt
Challenger’s operating environment is complex, impacted by
regulatory shifts. As recommendations from the Royal
Commission come into effect, further regulatory pressure will
also arise from other external events. The ability to keep pace
with changing requirements is essential for sustainable
success.
PPuubblliicc ppoolliiccyy sseettttiinnggss
Many businesses and individuals are impacted by the public
policy debate that drives financial security for retirement. The
retirement income system is under review and findings from
the review will underscore key considerations. Challenger is
engaging broadly and leveraging its research to contribute to
the public policy debate. This will be an ongoing focus.
BBeetttteerr ccuussttoommeerr oouuttccoommeess
Customer preferences and expectations are changing. With
advances in technology and communication channels,
businesses have the opportunity to provide better outcomes
for them. Understanding customer needs and delivering
appropriate products and services are key to helping provide
Challenger’s customers with confidence in retirement.
CCoommmmuunniittyy ccoonnnneeccttiioonn aanndd rreessiilliieennccee
Society holds the business community to a high standard and
expects them to do the right thing for the community. To
demonstrate genuine support, businesses are moving their
strategies to focus on partnerships to address key social issues.
To enhance employee engagement, volunteering and
workplace giving remain important aspects to business
engagement in the community.
PPrroovviiddiinngg aa ggrreeaatt wwoorrkkppllaaccee
Challenger has strong programs in place to celebrate diversity
and inclusion and create engagement throughout its business.
A focus on health and wellbeing and flexible work practices,
has assisted Challenger to support employees in times of crisis.
Through the COVID-19 pandemic, with all employees working
from home, Challenger provided continuous communications
to ensure employees remained engaged. As a result, pulse
surveys throughout this period indicated that 98% of
employees were confident in the Leadership Team’s ability to
navigate through the disruption.
SSuussttaaiinnaabbiilliittyy
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
SSuussttaaiinnaabbiilliittyy ((ccoonnttiinnuueedd))
PPrroovviiddiinngg aa ggrreeaatt wwoorrkkppllaaccee ((ccoonnttiinnuueedd))
During this time, the health and wellbeing of employees was a
top priority. Challenger’s holistic approach to wellbeing
supports employees inside and outside of work. Highlights this
year include:
• delivering career development lunch and learn sessions;
• providing access to free flu shots;
• creating a Working from Home Wellbeing hub;
• promoting voluntary superannuation contributions that are
matched (up to $500) by Challenger; and
• supporting the community through fundraising, including
contributing to the Australian bushfire and drought relief
appeals.
DDiivveerrssiittyy aanndd iinncclluussiioonn
Challenger prides itself on attracting and retaining people with
the diverse skills and experience it needs to succeed. Creating
a diverse and inclusive workplace supports this and in July
2019 Challenger launched its new Diversity and Inclusion
strategy. The strategy focuses on three kery areas:
• DDiivveerrssee aanndd iinncclluussiivvee wwoorrkkppllaaccee – where differences are
valued and employees have a strong sense of belonging;
• GGeennddeerr eeqquuaalliittyy – improving business outcomes through
equal representation, opportunities and reward for women
and men; and
• EEmmppllooyymmeenntt ooppppoorrttuunniittiieess ffoorr ppeeooppllee aaggeedd oovveerr 5500 –
supporting employment outcomes for mature age
employees.
This new strategy is complemented by four employee-led
diversity networks. These networks were developed by
employees and focus on the areas of diversity and inclusion
that matter most to them, including gender, culture, LGBTQI+
and age diversity. The initiatives from these networks are
supported by the Leadership Team who promote them
throughout the business. In addition, targets have been
established for gender diversity and are monitored and
reported to the Board, who have overall oversight of diversity
and inclusion.
In 2020, Challenger was recognised as an Employer of Choice
for Gender Equality (WGEA) for the third year running.
Reflecting continued commitment and progress towards
achieving gender equality, Challenger was recognised for the
first time as a global top 100 employer for gender equality in
the 2019 Equileap Global Gender Equality rankings, and was
also included on the Bloomberg Global Gender Equality Index.
RRiisskk iiss eevveerryybbooddyy’’ss bbuussiinneessss
How risk is managed is fundamental to Challenger’s business
and to building shareholder value. At Challenger, risk is
everybody’s business.
The Board’s Risk Appetite Statement outlines the level of risk
that is acceptable to the business to achieve its strategic
objectives. Guiding its broader suite of policies, the statement
provides clear boundaries on acceptable risk-taking activities
across the organisation.
The Board is committed to ensuring effective risk
management. The Leadership Team is accountable for
managing identified key risks and is required to manage risk as
part of business objectives with risk management integrated
across business processes. There are clear accountabilities for
risk management for all employees and this is measured
through Challenger’s performance management process.
The Board understands the broad range of risks Challenger
faces as a participant in the financial services industry,
including: licence and regulatory risk; investment and pricing
risk; climate change risk; strategic, business and reputation
risk; operational risk; funding and liquidity risk and conduct
risk.
Sustainability issues are an important part of Challenger’s risk
management framework. There are a range of policies and
practices to carefully consider sustainability risks when making
key business decisions.
More detailed information about Challenger’s risk
management approach is provided in the 2020 Sustainability
Report.
IInnvveessttiinngg iinn tthhee ccoommmmuunniittyy
Challenger’s approach to supporting the community focuses
on two primary goals – to address a key social issue aligned to
its strategy and to enhance employee engagement.
In September 2019, Challenger announced a strategic three-
year partnership with COTA New South Wales. Through this
partnership it aims to deliver a program to address the
underemployment of Australians over 50. An initial research
phase is currently underway with outcomes used to inform an
ongoing program and related initiatives.
Employees at Challenger are encouraged to use workplace
giving when making charitable donations. Each employee has
one paid day of leave for volunteering every year and they are
given opportunities to support charities throughout the year.
MMaannaaggiinngg CChhaalllleennggeerr’’ss iimmppaacctt oonn tthhee eennvviirroonnmmeenntt
Challenger’s sustainability strategy has a focus on delivering
improved environmental impacts. This is achieved through
consideration in investment decision-making and through a
commitment to reducing its own operational impact on the
environment.
Challenger’s impact from its direct operations are calculated
and offset each year. In offsetting its emissions, Challenger
supports projects that improve the environment in Australia
and around the world. Continuing its commitment to accuracy
and transparency, Challenger engaged with an external party
to compile a scope 1, 2 and 3 greenhouse gas emissions
profile, which was audited by a third party.
Challenger’s full commitment to sustainability is outlined in the
2020 Sustainability Report, which can be viewed at:
›› cchhaalllleennggeerr..ccoomm..aauu//ssuussttaaiinnaabbiilliittyyrreeppoorrtt22002200
5511
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
5522
This page has been left blank intentionally.
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
FFiinnaanncciiaall ssttaatteemmeennttss
Statement of comprehensive income
Statement of financial position
Statement of changes in equity
Statement of cash flows
NNootteess ttoo tthhee ffiinnaanncciiaall ssttaatteemmeennttss
Section 1: Basis of preparation and overarching significant accounting policies
Section 2: Key numbers
Note 1 Revenue
Note 2 Expenses
Note 3 Segment information
Note 4 Income tax
Section 3: Operating assets and liabilities
Note 5 Financial assets – fair value through profit and loss
Note 6 Investment and development property
Note 7 Special Purpose Vehicles
Note 8 Life contract liabilities
Note 9 External unit holders’ liabilities
Note 10 Derivative financial instruments
Note 11 Notes to statement of cash flows
Section 4: Capital structure and financing costs
Note 12 Contributed equity
Note 13 Interest bearing financial liabilities
Note 14 Reserves and retained earnings
Note 15 Finance costs
Note 16 Dividends paid and proposed
Note 17 Earnings per share
Section 5: Risk management
Note 18 Financial risk management
Note 19 Fair values of financial assets and liabilities
Note 20 Collateral arrangements
Section 6: Group structure
Note 21 Parent entity
Note 22 Controlled entities
Note 23 Investment in associates
Note 24 Related parties
Section 7: Other items
Note 25 Goodwill and other intangible assets
Note 26 Acquisitions and disposals of subsidiaries, businesses and associates
Note 27 Lease assets and liabilities
Note 28 Contingent liabilities, contingent assets and credit commitments
Note 29 Employee entitlements
Note 30 Remuneration of auditor
Note 31 Subsequent events
SSiiggnneedd rreeppoorrttss
Directors’ declaration
Independent auditor’s report
IInnvveessttoorr iinnffoorrmmaattiioonn
AAddddiittiioonnaall iinnffoorrmmaattiioonn
54
55
56
57
58
62
62
63
64
67
69
69
70
74
75
79
79
81
82
82
85
87
88
89
89
91
91
96
100
101
101
102
102
104
105
105
107
108
109
111
114
114
115
116
122
Inside back cover
ContThis financial report covers Challenger Limited (the Company) and its controlled entities (the Group or Challenger).
5533
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
SSttaatteemmeenntt ooff ccoommpprreehheennssiivvee iinnccoommee
FFoorr tthhee yyeeaarr eennddeedd 3300 JJuunnee
Revenue
Expenses
Finance costs
Share of profits of associates
((LLoossss))//pprrooffiitt bbeeffoorree iinnccoommee ttaaxx
Income tax benefit/(expense)
((LLoossss))//pprrooffiitt ffoorr tthhee yyeeaarr aafftteerr iinnccoommee ttaaxx
(Loss)/profit attributable to shareholders of Challenger Limited
(Loss)/profit attributable to non-controlling interests
((LLoossss))//pprrooffiitt ffoorr tthhee yyeeaarr aafftteerr iinnccoommee ttaaxx
OOtthheerr ccoommpprreehheennssiivvee iinnccoommee
IItteemmss tthhaatt mmaayy bbee rreeccllaassssiiffiieedd ttoo pprrooffiitt aanndd lloossss,, nneett ooff ttaaxx
Translation of foreign entities
Hedge of net investment in foreign entities
Cash flow hedges – SPV1
Other comprehensive income for the year
TToottaall ccoommpprreehheennssiivvee iinnccoommee ffoorr tthhee yyeeaarr aafftteerr ttaaxx
Comprehensive income attributable to shareholders of Challenger Limited
Comprehensive income attributable to non-controlling interests
TToottaall ccoommpprreehheennssiivvee iinnccoommee ffoorr tthhee yyeeaarr aafftteerr ttaaxx
EEaarrnniinnggss ppeerr sshhaarree aattttrriibbuuttaabbllee ttoo oorrddiinnaarryy sshhaarreehhoollddeerrss ooff
CChhaalllleennggeerr LLiimmiitteedd
Basic
Diluted
1 SPV = Special Purpose Vehicles.
The statement of comprehensive income should be read in conjunction with the accompanying notes.
NNoottee
1
2
15
23
4
14
14
14
17
17
22002200
$$mm
1,132.8
(1,538.9)
(213.8)
29.3
((559900..66))
169.5
((442211..11))
(416.0)
(5.1)
((442211..11))
1.6
0.5
-
2.1
((441199..00))
(413.9)
(5.1)
((441199..00))
CCeennttss
(68.4)
(68.4)
22001199
$$mm
2,372.6
(1,571.4)
(385.6)
22.2
443377..88
(127.1)
331100..77
307.8
2.9
331100..77
35.4
(34.7)
(0.2)
0.5
331111..22
308.3
2.9
331111..22
CCeennttss
50.9
44.8
5544
SSttaatteemmeenntt ooff ffiinnaanncciiaall ppoossiittiioonn
AAss aatt 3300 JJuunnee
AAsssseettss
Cash and cash equivalents
Cash and cash equivalents – SPV
Receivables
Current tax assets
Derivative assets
Financial assets – fair value through profit and loss
Investment property held for sale
Investment and development property
Mortgage assets – SPV
Finance leases
Property, plant and equipment
Investment in associates
Other assets
Right-of-use lease assets1
Goodwill
Deferred tax assets
Other intangible assets
TToottaall aasssseettss ooff sshhaarreehhoollddeerrss ooff CChhaalllleennggeerr LLiimmiitteedd aanndd
nnoonn--ccoonnttrroolllliinngg iinntteerreessttss
LLiiaabbiilliittiieess
Payables
Current tax liability
Derivative liabilities
Interest bearing financial liabilities
Interest bearing financial liabilities – SPV
External unit holders’ liabilities
Provisions
Lease liabilities1
Deferred tax liabilities
Life contract liabilities
TToottaall lliiaabbiilliittiieess ooff sshhaarreehhoollddeerrss ooff CChhaalllleennggeerr LLiimmiitteedd aanndd
nnoonn--ccoonnttrroolllliinngg iinntteerreessttss
NNeett aasssseettss ooff sshhaarreehhoollddeerrss ooff CChhaalllleennggeerr LLiimmiitteedd aanndd
nnoonn--ccoonnttrroolllliinngg iinntteerreessttss
EEqquuiittyy
Contributed equity
Reserves
Retained earnings
TToottaall eeqquuiittyy ooff sshhaarreehhoollddeerrss ooff CChhaalllleennggeerr LLiimmiitteedd
Non-controlling interests
TToottaall eeqquuiittyy ooff sshhaarreehhoollddeerrss ooff CChhaalllleennggeerr LLiimmiitteedd aanndd
nnoonn--ccoonnttrroolllliinngg iinntteerreessttss
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee
22002200
$$mm
22001199
$$mm
11
7
4
10
5
6
6
7
23
27
25
4
25
4
10
13
7
9
4
8
12
14
14
603.9
58.0
594.1
-
1,112.5
20,834.0
-
3,685.9
706.6
31.7
25.9
63.0
65.8
32.4
579.9
49.8
18.1
725.4
66.5
580.0
2.7
762.5
19,929.6
166.5
3,562.7
860.6
49.5
28.6
58.1
76.6
-
557.3
7.0
23.9
2288,,446611..66
2277,,445577..55
1,640.9
1.0
725.4
7,278.2
460.7
2,415.8
35.5
67.6
5.7
12,581.2
1,168.2
-
569.2
6,313.1
763.4
1,966.2
19.2
-
165.2
12,870.2
2255,,221122..00
2233,,883344..77
33,,224499..66
33,,662222..88
2,377.6
(50.9)
922.9
33,,224499..66
-
2,093.7
(52.4)
1,559.0
33,,660000..33
22.5
33,,224499..66
33,,662222..88
1 Reflects the adoption of AASB 16 on 1 July 2019. As permitted by the standard, the Group has not restated the comparative financial reporting periods.
The statement of financial position should be read in conjunction with the accompanying notes.
5555
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
SSttaatteemmeenntt ooff cchhaannggeess iinn eeqquuiittyy
AAttttrriibbuuttaabbllee ttoo sshhaarreehhoollddeerrss ooff CChhaalllleennggeerr LLiimmiitteedd
FFoorr tthhee yyeeaarr eennddeedd
3300 JJuunnee 22001199
BBaallaannccee aatt 11 JJuullyy 22001188
Profit for the year
Other comprehensive income
for the year
TToottaall ccoommpprreehheennssiivvee iinnccoommee
ffoorr tthhee yyeeaarr
OOtthheerr eeqquuiittyy mmoovveemmeennttss
Ordinary shares issued
Treasury shares purchased
Treasury shares vested
Deferred Treasury share
purchases
Settled forward purchases of
Treasury shares
Share-based payment
expense net of tax less
releases
Dividends paid
Other movements
BBaallaannccee aatt 3300 JJuunnee 22001199
aanndd 11 JJuullyy 22001199
FFoorr tthhee yyeeaarr eennddeedd
3300 JJuunnee 22002200
Transition of new leasing
standard net of tax
RReessttaatteedd bbaallaannccee aatt 11 JJuullyy
22001199
Loss for the year
Other comprehensive income
for the year
TToottaall ccoommpprreehheennssiivvee
iinnccoommee ffoorr tthhee yyeeaarr
OOtthheerr eeqquuiittyy mmoovveemmeennttss
Ordinary shares issued
Treasury shares purchased
Treasury shares vested
Deferred Treasury share
purchases
Settled forward purchases of
Treasury shares
Share-based payment
expense net of tax less
releases
Dividends paid
Other movements
BBaallaannccee aatt 3300 JJuunnee 22002200
Contributed
equity
$m
2,051.7
-
Note
14
Share-
based
payment
reserve
$m
(43.0)
-
Cash flow
hedge
reserve
–SPV
$m
0.3
-
Foreign
currency
translation
reserve
$m
(3.3)
-
Adjusted
controlling
interest
reserve
$m
Total
Retained
shareholder
earnings
equity
$m
$m
12.7 1,467.0 3,485.4
307.8
307.8
-
Non-
Total
controlling
interests
equity
$m
$m
0.4 3,485.8
310.7
2.9
-
--
6.8
(32.8)
42.7
(7.5)
32.8
-
--
-
-
-
-
-
-
-
-
(14.7)
-
-
12
12
12
12
12
14
16
(0.2)
0.7
-
-
0.5
-
0.5
((00..22))
00..77
-- 330077..88
330088..33
22..99
331111..22
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6.8
(32.8)
42.7
(7.5)
32.8
-
-
-
-
-
6.8
(32.8)
42.7
(7.5)
32.8
-
-
(4.9)
-
(215.8)
-
(14.7)
(215.8)
(4.9)
-
-
19.2
(14.7)
(215.8)
14.3
22,,009933..77
((5577..77))
00..11
((22..66))
77..88 11,,555599..00 33,,660000..33
2222..55 33,,662222..88
-
-
-
-
-
(3.7)
(3.7)
-
(3.7)
22,,009933..77
-
((5577..77))
-
00..11
-
((22..66))
-
14
77..88 11,,555555..33 33,,559966..66
(416.0)
(416.0)
-
2222..55 33,,661199..11
(421.1)
(5.1)
-
--
269.4
(8.8)
14.5
-
8.8
-
--
-
-
-
-
-
-
--
-
-
-
-
-
2.1
22..11
-
-
-
-
-
-
-
2.1
-
2.1
--
((441166..00))
((441133..99))
((55..11))
((441199..00))
-
-
-
-
-
-
-
-
-
-
269.4
(8.8)
14.5
-
8.8
-
-
-
-
-
269.4
(8.8)
14.5
-
8.8
-
-
-
22,,337777..66
1.5
-
-
((5566..22))
-
-
-
00..11
-
-
-
((00..55))
1.5
-
-
(216.4)
(216.4)
-
(2.1)
(2.1)
-
55..77 992222..99 33,,224499..66
-
-
(17.4)
1.5
(216.4)
(19.5)
-- 33,,224499..66
12
12
12
12
12
14
16
The statement of changes in equity should be read in conjunction with the accompanying notes.
5566
SSttaatteemmeenntt ooff ccaasshh fflloowwss
FFoorr tthhee yyeeaarr eennddeedd 3300 JJuunnee
OOppeerraattiinngg aaccttiivviittiieess
Receipts from customers
Annuity and premium receipts
Annuity and claim payments
Payments to reinsurer
Receipts from external unit holders
Payments to external unit holders
Payments to vendors and employees
Dividends received
Interest received
Interest paid
Income tax paid
NNeett ccaasshh iinnfflloowwss ffrroomm ooppeerraattiinngg aaccttiivviittiieess
IInnvveessttiinngg aaccttiivviittiieess
Payments on net purchases of investments
Net proceeds from sale of controlled entities
Payments for purchase of controlled entities
Net mortgage loan repayments
Payments for net purchases of property, plant and equipment
Payments for purchase of associate interest
NNeett ccaasshh oouuttfflloowwss ffrroomm iinnvveessttiinngg aaccttiivviittiieess
FFiinnaanncciinngg aaccttiivviittiieess
Proceeds from issue of ordinary shares
Net proceeds from borrowings – interest bearing financial liabilities
Payments for lease liabilities1
Payments for Treasury shares
Net dividends paid
Costs associated with issue of ordinary shares
NNeett ccaasshh iinnfflloowwss ffrroomm ffiinnaanncciinngg aaccttiivviittiieess
NNeett ddeeccrreeaassee iinn ccaasshh aanndd ccaasshh eeqquuiivvaalleennttss
Cash and cash equivalents at the beginning of the year
CCaasshh aanndd ccaasshh eeqquuiivvaalleennttss aatt tthhee eenndd ooff tthhee yyeeaarr
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee
8
8
8
11
13
22002200
$$mm
22001199
$$mm
630.0
3,162.9
(3,747.0)
-
2,024.0
(1,670.9)
(593.3)
66.0
733.6
(104.6)
(15.8)
448844..99
(1,623.4)
-
(10.2)
164.7
(9.3)
-
((11,,447788..22))
275.3
823.7
(5.1)
(8.3)
(216.4)
(5.9)
886633..33
((113300..00))
791.9
666611..99
673.8
3,565.4
(3,246.0)
(58.7)
1,006.9
(1,388.8)
(600.3)
105.6
804.2
(154.4)
(55.4)
665522..33
(1,096.2)
255.9
-
145.0
(59.9)
(5.1)
((776600..33))
6.8
317.4
-
(47.5)
(215.8)
-
6600..99
((4477..11))
839.0
779911..99
1 Reflects the adoption of AASB 16 on 1 July 2019. As permitted by the standard, the Group has not restated the comparative financial reporting periods.
The statement of cash flows should be read in conjunction with the accompanying notes.
5577
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
Section 1: Basis of preparation and overarching significant
accounting policies
Challenger Limited (the Company or the parent entity) is a
company limited by shares, incorporated and domiciled in
Australia, whose shares are publicly traded on the Australian
Securities Exchange (ASX).
preparation of these financial statements, changes to the
estimates and outcomes that have been applied in the
measurement of the Group’s assets and liabilities may arise in
the future.
The financial report for Challenger Limited and its controlled
entities (the Group or Challenger) for the year ended
30 June 2020 was authorised for issue in accordance with
a resolution of the Directors of the Company on 10 August
2020.
((ii))
BBaassiiss ooff pprreeppaarraattiioonn aanndd ssttaatteemmeenntt
ooff ccoommpplliiaannccee
This is a general purpose financial report that has been
prepared in accordance, and complies, with the requirements
of the Corporations Act 2001, Australian Accounting
Standards and other authoritative pronouncements of the
Australian Accounting Standards Board (AASB) and
International Financial Reporting Standards (IFRS) as issued by
the International Accounting Standards Board (IASB).
Challenger Limited is a for-profit entity for the purposes of
preparing financial statements.
Unless otherwise stated, amounts in this financial report are
presented in Australian dollars and have been prepared on an
historical cost basis. The assets and liabilities disclosed in the
statement of financial position are grouped by nature and
listed in an order that reflects their relative liquidity. In the
disclosure, the current/non-current split is between items
expected to be settled within 12 months (current) and
those expected to be settled in greater than 12 months
(non-current).
((iiii))
SSiiggnniiffiiccaanntt aaccccoouunnttiinngg jjuuddggeemmeennttss,,
eessttiimmaatteess aanndd aassssuummppttiioonnss
The carrying values of amounts recognised on the statement
of financial position are often based on estimates and
assumptions of future events. The key estimates and
assumptions that have a significant risk of causing a material
adjustment to the recognised amounts within the next annual
reporting period are disclosed individually within each of the
relevant notes to the financial statements. The impact of
COVID-19 has been considered in relation to the disclosures
made in these financial statements.
CCoorroonnaavviirruuss ((CCOOVVIIDD--1199)) iimmppaacctt
BBaacckkggrroouunndd
COVID-19, which is a respiratory illness caused by a new virus,
was declared a worldwide pandemic by the World Health
Organisation in March 2020. COVID-19, as well as measures
to slow the spread of the virus, have since had a significant
impact on global economies and equity and debt markets. The
Group has considered the impact of COVID-19 and associated
market volatility in preparing its financial statements. The
impact of COVID-19 has resulted in the application of further
judgement in the areas in which significant judgement already
occurs. Given the dynamic and evolving nature of COVID-19,
limited recent experience of the economic and financial
impacts of such a pandemic, and the relatively short period of
time between the declaration of the pandemic and the
5588
PPrroocceesssseess aapppplliieedd
As a consequence of COVID-19 and in preparing these
consolidated financial statements, management:
• re-evaluated whether there were any additional areas of
judgement or estimation uncertainty;
• reviewed external market communications to identify other
COVID-19-related impacts;
• reviewed public forecasts and experience from previous
downturns and conducted several internal processes to
ensure consistency in the application of the expected impact
of COVID-19 across all asset classes;
• assessed the carrying values of its assets and liabilities and
determined any impact that may occur as a result of market
inputs and variables impacted by COVID-19;
• ran multiple stress-testing scenarios, which are an integral
component of the Group’s risk management framework and
a key input to the capital adequacy assessment process, to
assess the potential impacts of the COVID-19 pandemic on
its portfolio to assist in the organisation’s prudent risk
management; and
• considered the impact of COVID-19 on the Group’s financial
statement disclosures.
As a result of applying these processes, the Group has made
additional disclosures in respect of the impact of COVID-19 on
accounting judgements and estimates for the following:
• Basis of preparation and overarching significant accounting
policies; (xi) Receivables;
• Note 6 Investment and development property;
• Note 7 Special Purpose Vehicles;
• Note 19 Fair values of financial assets and liabilities; and
• Note 25 Goodwill and other intangible assets.
((iiiiii)) NNeeww aanndd rreevviisseedd aaccccoouunnttiinngg
ssttaannddaarrddss aanndd ppoolliicciieess
Except for the matters referred to below, the accounting
policies and methods of computation are the same as those
adopted in the annual report for the prior comparative period.
Where applicable, comparative figures have been updated to
reflect any changes in the current period.
NNeeww aaccccoouunnttiinngg ssttaannddaarrddss aanndd aammeennddmmeennttss tthhaatt
aarree eeffffeeccttiivvee iinn tthhee ccuurrrreenntt ffiinnaanncciiaall yyeeaarr
There were amendments to existing accounting standards that
were effective from 1 July 2019. The following new
accounting standards have been applied from 1 July 2019.
AAAASSBB 1166 LLeeaasseess
AASB 16 Leases amends the accounting standard for leases
and replaces AASB 117 Leases. The standard removes the
distinction between operating and finance leases and requires
lessees to bring all leases on to the statement of financial
position.
((iiiiii)) NNeeww aanndd rreevviisseedd aaccccoouunnttiinngg ssttaannddaarrddss aanndd ppoolliicciieess ((ccoonnttiinnuueedd))
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
AAAASSBB 1166 LLeeaasseess ((ccoonnttiinnuueedd))
The effect of adopting AASB 16 as at 1 July 2019
(increase/(decrease)) is as follows1:
AAsssseettss
Right-of-use lease asset
Deferred tax asset
TToottaall aasssseettss
LLiiaabbiilliittiieess
Lease liabilities
TToottaall lliiaabbiilliittiieess
TToottaall aaddjjuussttmmeenntt oonn eeqquuiittyy ooff
sshhaarreehhoollddeerrss
RReettaaiinneedd eeaarrnniinnggss1
11 JJuullyy
22001199
$$mm
36.7
1.6
3388..33
72.9
7722..99
((33..77))
((33..77))
1 Existing balances under AASB 117 Leases were utilitised to derive the take-on
position as at 1 July 2019.
This mainly relates to the lease obligations of 5 Martin Place,
Sydney, which is the Group’s principal place of business. Lessor
accounting remains largely unchanged.
Prior to the adoption of AASB 16, the Group classified each of
its leases (where acting as a lessee) at the inception date as
either a finance lease or an operating lease. A lease was
classified as a finance lease if it transferred substantially all of
the risks and rewards incidental to ownership of the leased
asset to the Group; otherwise it was classified as an operating
lease.
Finance leases were capitalised at the commencement of the
lease at the inception date fair value of the leased property or,
if lower, at the present value of the minimum lease payments.
Lease payments were then apportioned between interest
(recognised as finance costs) and reduction of the lease
liability.
In an operating lease, the leased property was not capitalised
and the lease payments were recognised as a rent expense in
the statement of comprehensive income on a straight-line
basis over the lease term. Any prepaid rent or accrual was
recognised under other assets or payables.
Upon adoption of AASB 16, the Group applied a single
recognition and measurement approach for all leases, except
for short term leases and leases of low-value assets.
FFiinnaannccee LLeeaasseess
There was no material impact to the Group for leases classified
as finance leases where the Group acted as a lessee.
OOppeerraattiinngg LLeeaasseess
The Group adopted AASB 16 using the modified retrospective
method of adoption effective from 1 July 2019. Under this
method, the standard is applied retrospectively with the
cumulative effect of initially applying the standard recognised
at the date of initial application. The Group elected to use the
‘transition practical expedient’ method, allowing the standard
to be applied only to contracts that were previously identified
as leases under AASB 117 Leases and Interpretation 4
Determining whether an Arrangement Contains a Lease at the
date of initial application.
The Group also elected to use the recognition exemptions for
lease contracts that, at the commencement date, have a lease
term of 12 months or less and do not contain a purchase
option (‘short-term leases’), and lease contracts for which the
underlying asset is of low value (‘low-value assets’).
The right-of-use lease asset for 5 Martin Place was recognised
based on the carrying amount as if the standard had always
been applied, apart from the use of incremental borrowing
rate at the date of initial application. For other leases, the
right-of-use lease assets were recognised based on the amount
equal to the lease liabilities, adjusted for any related prepaid
and accrued lease payments previously recognised.
The adoption of the modified retrospective method avoids any
restatement of prior year comparative information, including
profit and loss and cash flow reporting.
AAAASSBB IInntteerrpprreettaattiioonn 2233 UUnncceerrttaaiinnttyy oovveerr IInnccoommee TTaaxx
TTrreeaattmmeenntt
The Interpretation addresses the accounting for income taxes
when tax treatments involve uncertainty that affects the
application of AASB 112 Income Taxes and does not apply to
taxes or levies outside the scope of AASB 112, nor does it
specifically include requirements relating to interest and
penalties associated with uncertain tax treatments.
The Interpretation specifically addresses the following:
• whether an entity considers uncertain tax treatments
separately;
• the assumptions an entity makes about the examination of
tax treatments by taxation authorities;
• how an entity determines taxable profit (tax loss), tax bases,
unused tax losses, unused tax credits and tax rates; and
• how an entity considers changes in facts and circumstances.
An entity is required to determine whether to consider each
uncertain tax treatment separately or together with one or
more other uncertain tax treatments. The approach that better
predicts the resolution of the uncertainty should be followed.
The Interpretation is effective for annual reporting periods
beginning on or after 1 July 2019. The Interpretation did not
have a material impact on the consolidated financial
statements of the Group..
AAccccoouunnttiinngg ssttaannddaarrddss aanndd iinntteerrpprreettaattiioonnss iissssuueedd
bbuutt nnoott yyeett eeffffeeccttiivvee
AAAASSBB 1177 IInnssuurraannccee CCoonnttrraaccttss
AASB 17 Insurance Contracts replaces AASB 4 Insurance
Contracts, AASB 1038 Life Insurance Contracts and AASB
1023 General Insurance Contracts and is effective for
Challenger from 1 July 2021. The International Accounting
Standards Board has deferred the effective date to periods
commencing on or after 1 January 2023 and the AASB is
expected to adopt the same effective date. The Group is not
expected to early adopt the standard. AASB 17 Insurance
Contracts establishes globally consistent principles for the
recognition, measurement, presentation and disclosure of life
insurance contracts issued. Life investment contracts are
currently measured under the financial instruments standard
and will continue to be recognised under this standard.
5599
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
((iiiiii)) NNeeww aanndd rreevviisseedd aaccccoouunnttiinngg
ssttaannddaarrddss aanndd ppoolliicciieess ((ccoonnttiinnuueedd))
AAAASSBB 1177 IInnssuurraannccee CCoonnttrraaccttss ((ccoonnttiinnuueedd))
AASB 17 introduces changes to the profit emergence profiles
of life insurance contracts but does not affect the underlying
economics or cash flows of the contracts. The impacts on
capital requirements and income tax are unknown, pending
regulatory responses from APRA and the Australian Taxation
Office (ATO) respectively.
The main changes anticipated for the Group under AASB 17
are set out below:
• insurance contract portfolios will be disaggregated to more
granular levels and will be required to be evaluated by risk
type, issue year and profitability;
• although conceptually similar, the Contractual Service
Margin recognises profit on a different basis to the current
Margin on Services approach and therefore the profit
signature is likely to change for portfolios with positive profit
margins;
• a new risk adjustment for non-financial risk will be
introduced which reflects the compensation that the Group
requires for bearing the uncertainty in relation to the
amount and timing of cash flows. The confidence level used
to determine the risk adjustment will need to be disclosed;
• additional disclosures will be more extensive, requiring
increased granularity and more analysis of movements.
The Group has conducted a business impact assessment and
key recommendations will be implemented ahead of the
standard being introduced.
The standard is expected to impact the Group’s profit and loss,
however, it is not yet practicable to determine the quantum.
EExxiissttiinngg ssttaannddaarrddss aanndd iinntteerrpprreettaattiioonnss nnoott yyeett eeffffeeccttiivvee
Other amendments to existing standards or interpretations
that are not yet effective are not expected to result in a
material impact to the Group’s financial statements.
((iivv)) CCoommppaarraattiivveess
Where necessary, comparative figures have been reclassified
to conform to any changes in presentation made in this
financial report.
RRoouunnddiinngg ooff aammoouunnttss
((vv))
Unless otherwise stated, amounts contained in this report and
the financial report have been rounded to the nearest
$100,000 under the option available to the Group under ASIC
Corporations Instrument 2016/191.
FFoorreeiiggnn ccuurrrreennccyy
((vvii))
Both the presentation currency and the functional currency of
the Company and its controlled Australian entities are
Australian dollars. A number of foreign controlled entities have
a functional currency other than Australian dollars.
Transactions in foreign currency are translated into the
functional currency at the foreign exchange rate ruling at the
date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are retranslated into
Australian dollars at the foreign exchange rate at the
statement of financial position date.
6600
Non-monetary assets and liabilities that are measured in terms
of historical cost in a foreign currency are translated using the
exchange rate as at the date of the transaction.
Non-monetary items measured at fair value in a foreign
currency are translated to the functional currency using the
exchange rates at the date when the fair value was
determined. Derivatives are used to hedge the foreign
exchange risk relating to certain transactions. Refer to Note 10
Derivative financial instruments.
FFoorreeiiggnn ccoonnttrroolllleedd eennttiittiieess
On consolidation, the assets and liabilities of foreign
subsidiaries whose functional currency differs from the
presentation currency are translated into Australian dollars at
the rate of exchange at the statement of financial position
date. Exchange differences arising on the retranslation are
taken directly to the foreign currency translation reserve in
equity.
The change in fair value of derivative financial instruments
designated as a hedge of the net investment in a foreign
controlled entity is also recognised in the foreign currency
translation reserve.
On disposal of a foreign controlled entity, the deferred
cumulative amount recognised in equity relating to that
particular foreign operation is recognised in the statement of
comprehensive income.
((vviiii)) FFiinnaannccee lleeaasseess
Where Challenger acts as a lessor, leases are classified at their
inception as either operating or finance leases based on the
economic substance of the agreement so as to reflect the risks
and benefits incidental to ownership. Contracts to lease assets
and hire purchase agreements are classified as finance leases
for accounting purposes if they transfer substantially all the
risks and rewards of ownership of the asset to the customer or
an unrelated third party. Assets held under a finance lease are
recognised at the beginning of the lease term at an amount
equal to the net investment in the lease which comprises the
gross investment in the lease discounted at the interest rate
implicit in the lease. The collectability of lease receivables is
assessed on an ongoing basis and a provision for expected
credit loss is made using inputs such as historical rates of
arrears and the current delinquency position of the portfolio.
Bad debts are written off as incurred.
((vviiiiii)) PPrrooppeerrttyy,, ppllaanntt aanndd eeqquuiippmmeenntt
Items of property, plant and equipment are stated at cost, or
deemed cost, less accumulated depreciation and impairment
losses. Depreciation is calculated on a straight line basis to
realise the net cost of each class of these assets over its
expected useful life. Estimates of remaining useful lives are
made on a regular basis for all assets, with annual
reassessments for major items. The expected useful life of
property, plant and equipment is three to five years.
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
((vviiiiii)) PPrrooppeerrttyy,, ppllaanntt aanndd eeqquuiippmmeenntt
((ccoonnttiinnuueedd))
The carrying values of property, plant and equipment and
infrastructure fixed assets are reviewed for impairment when
events or changes in circumstances indicate the carrying value
may not be recoverable. Impairment losses are recognised in
the Statement of Comprehensive Income.
Cash flows are included in the statement of cash flows on a
gross (GST inclusive) basis. The GST components of cash flows
arising from investing and financing activities which are
recoverable from, or payable to, the ATO are classified as
operating cash flows.
((xxii)) RReecceeiivvaabblleess
Receivables are recognised at amortised cost using the
effective interest method, less any allowance for expected
credit losses. The entity has applied a simplified approach to
measuring expected credit losses, which uses a lifetime
expected loss allowance. To measure the expected credit
losses, receivables have been grouped based on days overdue.
The modelling methodology applied in estimating expected
credit losses in these financial statements is consistent with
that applied in the financial statements for the year ended
30 June 2019. The impact of COVID-19 on the global
economy and how governments, businesses and consumers
respond is uncertain. This uncertainty is reflected in the
Group’s assessment of expected credit losses from its
receivables portfolio which are subject to a number of
management judgements and estimates.
The judgements and associated assumptions have been made
within the context of the impact of COVID-19, and reflect
historical experience and other factors that are considered to
be relevant, including expectations of future events that are
believed to be reasonable under the circumstances. In relation
to COVID-19, judgements and assumptions include the extent
and duration of the pandemic, the impacts of actions of
governments and other authorities, and the responses of
businesses and consumers in different industries, along with
the associated impact on the global economy. Accordingly, the
Group’s expected credit losses estimates are inherently
uncertain and, as a result, actual results may differ from these
estimates.
((xxiiii)) PPaayyaabblleess
Payables represent unsecured non-derivative, non-interest
bearing financial liabilities in respect of goods and services
provided to the Group prior to the end of the financial year.
They include accruals, trade and other creditors and are
recognised at amortised cost, which approximates fair value.
Any impairment losses recognised in prior periods are reversed
through the Statement of Comprehensive Income if there has
been a change in the estimated useful life used to determine
the asset’s recoverable amount since the last impairment loss
was recognised.
The increased carrying amount of an asset attributable to a
reversal of an impairment loss would not exceed the carrying
amount that would have been determined (net of amortisation
or depreciation) had no impairment loss been recognised for
the asset in prior years.
((iixx)) PPrroovviissiioonnss
Provisions are recognised when the Group has a present
obligation (legal or constructive) as a result of a past event, it is
probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a reliable
estimate can be made of the amount of the obligation. A
provision for restructuring is recognised when the Group has
approved a detailed and formal restructuring plan, and the
restructuring has either commenced or has been announced
publicly. Future operating costs are not provided for.
When the Group expects some or all of a provision to be
reimbursed, for example, under an insurance contract, the
reimbursement is recognised as a separate asset only when the
reimbursement is virtually certain. The expense relating to any
provision is presented in the statement of comprehensive
income net of any reimbursement.
Provisions are measured at the present value of management’s
best estimate of the expenditure required to settle the
obligation at the statement of financial position date. If the
effect of the time value of money is material, provisions are
discounted using a current pre-tax rate that reflects the time
value of money and the risks specific to the liability. The
increase in the provision resulting from the passage of time is
recognised in finance costs.
((xx)) GGooooddss aanndd sseerrvviicceess ttaaxx ((GGSSTT))
Revenue, expenses and assets are recognised net of the
applicable amount of GST, except where the amount of the
GST incurred is not recoverable from the taxation authority. In
these circumstances, the GST is recognised as part of the cost
of the acquisition of the asset or as part of the expense.
Receivables and payables are stated with the applicable
amount of GST included. The net amount of GST recoverable
from, or payable to, the ATO is included as an asset or liability
in the statement of financial position.
6611
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
Section 2: Key numbers
This section presents the results and performance of the Group for the year and provides additional information about
those line items on the statement of comprehensive income that the Directors consider most relevant in the context of
understanding the financial components of the Group’s operations.
NNoottee 11 RReevveennuuee
IInnvveessttmmeenntt rreevveennuuee
FFiixxeedd iinnccoommee sseeccuurriittiieess aanndd ccaasshh
Interest revenue1
Net realised and unrealised (losses)/gains on fixed income securities
IInnvveessttmmeenntt pprrooppeerrttyy aanndd pprrooppeerrttyy sseeccuurriittiieess
Property rental revenue
Dividend revenue
Net realised and unrealised (losses)/gains on investment property and property securities
EEqquuiittyy aanndd iinnffrraassttrruuccttuurree iinnvveessttmmeennttss
Dividend revenue
Net realised and unrealised (losses)/gains on equity investments
Net realised and unrealised (losses)/gains on infrastructure investments
OOtthheerr
Net realised and unrealised (losses)/gains on foreign exchange translation and hedges
Net realised and unrealised losses on interest rate derivatives
Net realised and unrealised losses on equity swap derivatives
Net realised and unrealised (losses)/gains on credit default swap derivatives
FFeeee rreevveennuuee
Management and performance fee revenue
Transaction fee revenue
OOtthheerr rreevveennuuee
Life insurance contract premiums and related revenue
Change in life insurance contract liabilities
Change in life investment contract liabilities
Change in reinsurance contract liabilities
TToottaall rreevveennuuee
3300 JJuunnee
22002200
$$mm
3300 JJuunnee
22001199
$$mm
774.2
(90.5)
283.9
2.0
(112.1)
37.9
(12.7)
(96.7)
(39.7)
(99.8)
(214.1)
(199.7)
183.3
41.2
890.9
714.0
318.6
8.0
60.7
51.4
0.7
128.1
26.5
(186.8)
(25.3)
13.1
176.2
47.6
1,192.7
(502.1)
(15.4)
0.4
11,,113322..88
1,143.5
(916.5)
(98.3)
20.2
22,,337722..66
1 Interest revenue earned for items measured at amortised cost using the effective interest method $41.0 million (30 June 2019: $57.1 million) and interest revenue
earned for items measured at fair value through profit and loss $733.2 million (30 June 2019: $833.8 million).
AAccccoouunnttiinngg ppoolliiccyy
Revenue is recognised at an amount that reflects the
consideration to which the Group expects to be entitled in
exchange for transferring services to a customer. Revenues and
expenses are recognised on an accrual basis. The following
specific policies are applied:
• Gains or losses arising from changes in the fair value of
financial instruments classified as fair value through profit
and loss are recognised as revenue in the statement of
comprehensive income when the change in value is
recognised in the statement of financial position.
• Interest revenue is recognised as it accrues using an effective
interest rate method, taking into account the effective yield
of the financial asset. The effective interest rate is the rate
that discounts estimated future cash flows through the
expected life of a financial instrument, or where appropriate,
a shorter period.
• Interest revenue on finance leases is recognised on a basis
that reflects a constant periodic return on the net
investment in the finance lease.
• Property rental revenue is accounted for on a straight line
basis over the lease term. Contingent rental income is
recognised as income in the period in which it is earned.
• Lease incentives granted are recognised as part of the total
rental income. Operating lease rental income
is recognised on a straight line basis over the life of
the contract.
6622
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 11 RReevveennuuee ((ccoonnttiinnuueedd))
AAccccoouunnttiinngg ppoolliiccyy ((ccoonnttiinnuueedd))
• Dividend revenue from listed equity shares and listed
property securities is recognised as income on the date the
share is quoted ex-dividend. Dividend revenue from unlisted
equity shares and unlisted property securities is recognised
when the dividend is declared.
The Company recognises revenue from performance fees
over the contract period, but only to the extent that it is
highly probable that a significant reversal of revenue will not
occur in subsequent periods.
• Transaction fee revenue is accrued when the transaction is
• Management fees are invoiced quarterly based on a
percentage of the funds under management (FUM).
The fees relate specifically to the services provided in that
quarter, and are distinct from services provided in other
quarters.
• Performance fees are based on returns in excess of a
specified benchmark market return, over the contract
period. Performance fees are typically received at the end of
the performance period specified in the contract.
executed.
• Life insurance contract premiums are recognised as revenue
when risk is transferred to the Group.
• Changes in life insurance and investment contract liabilities
arising from discount rates, inflation rates and other
assumptions are recognised as revenue, with other
movements being included in Note 2 Expenses. Refer
to Note 8 Life contract liabilities for more details on the
accounting policy of life contract liabilities.
NNoottee 22 EExxppeennsseess
Life insurance contract claims and expenses
Cost of life insurance contract liabilities
Cost of life investment contract liabilities
Reinsurance contracts
Investment property related expenses1
Management fee expense
Distribution expenses
Employee expenses
Employee share-based payments and superannuation
Occupancy expense – operating lease
Depreciation of right-of-use lease asset2
Depreciation and amortisation expense
Technology and communications
Professional fees
Other expenses
TToottaall eexxppeennsseess
3300 JJuunnee
22002200
$$mm
749.6
99.2
121.9
-
85.1
163.1
47.6
142.1
23.6
6.0
4.7
10.6
26.7
24.3
34.4
11,,553388..99
3300 JJuunnee
22001199
$$mm
634.0
179.9
214.2
2.0
109.5
107.5
47.8
156.8
30.1
12.2
-
15.3
25.2
18.4
18.5
11,,557711..44
1 Investment property related expenses relate to rental income generating investment properties.
2 Reflects the adoption of AASB 16 on 1 July 2019. As permitted by the standard, the Group has not restated the comparative financial reporting period.
AAccccoouunnttiinngg ppoolliiccyy
Expenses are recognised on an accrual basis. The following
specific policies are applied:
• Investment property expenditure, including rates, taxes,
insurance and other costs associated with the upkeep of a
building, are brought to account on an accrual basis. Repair
costs are expensed when incurred. Rental expenses incurred
under an investment property operating lease are recognised
on a straight line basis over the term of the lease. Other
amounts that improve the condition of the investment are
capitalised into the carrying value of the asset.
• Life insurance contract claims and expenses are recognised
when the liability to the policyholder under the contract has
been established.
• Cost of life insurance and life investment contract liabilities
recognised as an expense consists of the interest expense on
the liability and any loss on the initial recognition of new
business less the release of liability in respect of expenses
incurred in the current period. The interest expense on the
liability represents the unwind of the discount on the
opening liability over the period, whereas the impacts of
changes in the discount rate applied for the current
valuation are included in the change in life contract liabilities
disclosed in Note 1 Revenue.
Refer to Note 8 Life contract liabilities for more details on the
accounting policy of life contract liabilities.
6633
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 33 SSeeggmmeenntt iinnffoorrmmaattiioonn
The reporting segments1 of the Group have been identified as follows:
FFoorr tthhee yyeeaarr eennddeedd
3300 JJuunnee
Net income
Operating expenses
NNoorrmmaalliisseedd EEBBIITT
Interest and borrowing
costs
NNoorrmmaalliisseedd nneett
pprrooffiitt//((lloossss))
bbeeffoorree ttaaxx
Tax on normalised
profit
NNoorrmmaalliisseedd nneett pprrooffiitt
aafftteerr ttaaxx
Investment experience
after tax
Significant items
after tax
PPrrooffiitt aattttrriibbuuttaabbllee ttoo
tthhee sshhaarreehhoollddeerrss ooff
CChhaalllleennggeerr LLttdd
OOtthheerr ssttaattuuttoorryy
sseeggmmeenntt iinnffoorrmmaattiioonn
Revenue from external
customers3
Interest revenue
Interest expense
Intersegment revenue
Depreciation and
amortisation
LLiiffee
22002200
$$mm
638.9
(114.2)
552244..77
FFuunnddss
MMaannaaggeemmeenntt
22001199
$$mm
670.1
(106.5)
556633..66
22002200
$$mm
158.1
(100.4)
5577..77
22001199
$$mm
149.9
(99.0)
5500..99
TToottaall rreeppoorrttiinngg
sseeggmmeennttss
22002200
$$mm
797.0
(214.6)
558822..44
22001199
$$mm
820.0
(205.5)
661144..55
CCoorrppoorraattee aanndd
ootthheerr22
TToottaall
22002200
$$mm
0.4
(69.8)
((6699..44))
22001199
$$mm
1.0
(61.9)
((6600..99))
22002200
$$mm
797.4
(284.4)
551133..00
22001199
$$mm
821.0
(267.4)
555533..66
-
-
-
-
-
-
(6.5)
(5.3)
(6.5)
(5.3)
552244..77
556633..66
5577..77
5500..99
558822..44
661144..55
((7755..99))
((6666..22))
550066..55
554488..33
(162.8)
(152.2)
334433..77
339966..11
(750.3)
(88.3)
(9.4)
-
((441166..00))
330077..88
148.4 1,305.5
889.9
772.6
(343.7)
(172.8)
(46.4)
(43.6)
210.2
-
(0.5)
43.6
176.2
-
-
46.4
358.6 1,481.7
889.9
772.6
(343.7)
(173.3)
-
-
-
1.6
(40.5)
-
-
1.0
(41.9)
-
358.6 1,481.7
890.9
774.2
(385.6)
(213.8)
-
-
(3.4)
(5.7)
(2.3)
(0.6)
(5.7)
(6.3)
(4.9)
(9.0)
(10.6)
(15.3)
AAss aatt 3300 JJuunnee
Segment assets
Segment liabilities
NNeett aasssseettss
aattttrriibbuuttaabbllee ttoo
sshhaarreehhoollddeerrss
19,481.7 19,712.8
(16,543.3) (16,393.9)
291.7
(36.0)
253.3 19,773.4 19,966.1 8,688.2 7,468.9 28,461.6 27,435.0
(27.3) (16,579.3) (16,421.2) (8,632.7) (7,413.5) (25,212.0) (23,834.7)
22,,993388..44 33,,331188..99
225555..77
222266..00 33,,119944..11 33,,554444..99
5555..55
5555..44 33,,224499..66 33,,660000..33
1 Refer below for definitions of the terms used in the management view of segments.
2 Corporate and other includes corporate companies, corporate SPV, non-controlling interests and Group eliminations.
3 Funds Management revenue from external customers is predominantly management fees.
DDeeffiinniittiioonnss
OOppeerraattiinngg sseeggmmeennttss
The following segments are identified on the basis of internal
reporting to Key Management Personnel, including the Chief
Executive Officer (the chief operating decision maker) of the
Group, and comprise component parts of the Group that are
regularly reviewed by senior management in order to allocate
resources and assess performance:
LLiiffee
The Life segment principally includes the annuity and life
insurance business carried out by CLC and Accurium Pty
Limited (provision of self-managed superannuation fund
actuarial certificates). CLC offers fixed rate retirement and
superannuation products that are designed for Australian
investors who are seeking a low-risk, fixed term or lifetime
investment and reliable income. CLC also offers fixed term and
lifetime investments to investors in Japan through its
reinsurance arrangement with MS Primary. CLC invests in
assets providing long-term income streams for customers.
FFuunnddss MMaannaaggeemmeenntt
Funds Management earns fees from its Fidante Partners and
Challenger Investment Partners operations, providing an end-
to-end funds management business. Funds Management has
equity investments in a number of the Fidante Partners
boutique fund managers and, through the Challenger
Investment Partners business, offers a range of managed
investments across fixed income and property.
6644
NNoottee 33 SSeeggmmeenntt iinnffoorrmmaattiioonn ((ccoonnttiinnuueedd))
DDeeffiinniittiioonnss ((ccoonnttiinnuueedd))
CCoorrppoorraattee aanndd ootthheerr
The corporate segment, which is not considered an operating
segment of the Group, is used to reconcile the total segment
results back to the consolidated results and consists of other
income and costs that fall outside the day-to-day operations of
the reportable segments. These include the costs of the Group
CEO and CFO, shared services across the Group, long-term
incentive costs, Directors’ fees, corporate borrowings and
associated borrowing costs and shareholder registry services.
To reconcile to Group results, the Corporate and other
segment also includes eliminations and non-core activities
of the Group.
TTrraannssaaccttiioonnss bbeettwweeeenn sseeggmmeennttss
All transactions and transfers between segments are generally
determined on an arm’s length basis and are included within
the relevant categories of income and expense. These
transactions eliminate on consolidation.
NNoorrmmaalliisseedd vvss.. ssttaattuuttoorryy rreessuullttss
Net income and operating expenses differ from revenue and
expenses as disclosed in the statement of comprehensive
income as certain direct costs (including distribution expenses,
property expenses and management fees) included in expenses
are netted off against revenues in deriving the management
view of net income above. Net income consists of the
following sub-categories of management views of revenue:
• Normalised cash operating earnings (Life segment).
• Net income (Funds Management segment).
• Other income (Corporate and other segment).
In addition, the revenues, expenses and finance costs from
Special Purpose Vehicles (SPV) are separately disclosed in the
statutory view but are netted off in net income.
Revenue also includes investment gains and losses which are
excluded from the management view as they form part of
investment experience (refer below).
NNoorrmmaalliisseedd ccaasshh ooppeerraattiinngg eeaarrnniinnggss
This is calculated as cash earnings plus normalised capital
growth (refer below). Cash earnings represent the sum of
investment yield (being the management view of revenue from
investment assets, such as net rental income, dividends and
interest), interest expense, distribution expenses and fees.
NNoorrmmaalliisseedd EEBBIITT
Normalised earnings before interest and tax (EBIT) comprises
net income less operating expenses, as defined above. It
excludes investment experience, corporate interest and
borrowing costs, tax and any significant items (refer below).
Interest and borrowing costs differ from finance costs as
disclosed in the Statement of comprehensive income for
similar reasons to revenue and expenses, with the major
difference arising from the netting of SPV finance costs against
SPV revenue in net income in the management view of the Life
segment.
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
TTaaxx oonn nnoorrmmaalliisseedd pprrooffiitt
This represents the consolidated statutory tax expense or
benefit for the period, less tax attributable to non-controlling
interests, investment experience and significant items.
IInnvveessttmmeenntt eexxppeerriieennccee aafftteerr ttaaxx
The Group is required by accounting standards to value
applicable assets and liabilities supporting the life insurance
business at fair value. This can give rise to fluctuating valuation
movements being recognised in the Statement of
comprehensive income, particularly during periods of market
volatility. As the Group is generally a long-term holder of
assets, due to assets being held to match the term of life
contract liabilities, the Group takes a long-term view of the
expected capital growth of the portfolio rather than focusing
on short-term volatility. Investment experience is a mechanism
employed to isolate the volatility arising from asset and liability
valuation within the results so as to more accurately reflect the
underlying performance of the Group.
Investment experience is calculated as the difference between
the actual investment gains/losses (both realised and
unrealised) and the normalised capital growth (refer below)
plus life contract valuation changes and new business strain.
Investment experience after tax is investment experience net of
tax at the prevailing income tax rate.
NNoorrmmaalliisseedd ccaappiittaall ggrroowwtthh
This is determined by multiplying the normalised capital
growth rate for each asset class by the average investment
assets for the period. The normalised growth rates represent
the Group’s medium to long-term capital growth expectations
for each asset class over the investment cycle.
The normalised growth rates for the period are +3.5% for
equity and other investments (30 June 2019: +4.5%), +4.0%
for infrastructure (30 June 2019: +4.0%), +2.0% for property
(30 June 2019: +2.0%) and -0.35% for cash and fixed income
(30 June 2019: -0.35%). The rates are set with reference to
medium to long-term market growth rates and are reviewed
to ensure consistency with prevailing market conditions.
Reflecting changes made to the investment portfolio asset
allocation in response to COVID-19, the investment
classification and normalised growth rates have been revised
from 1 July 2020 as follows: +4.0% for equity and
infrastructure investments, 0.0% for alternatives, +2.0% for
property and -0.35% for cash and fixed income.
AAnnnnuuiittyy vvaalluuaattiioonn eexxppeerriieennccee
Life contract valuation assumption changes represent the
impact of changes in macroeconomic variables including bond
yields and inflation factors, expense assumptions and other
factors applied in the valuation of life contract liabilities. It also
includes the attribution of the corresponding interest rate,
foreign exchange and inflation derivatives used for hedging.
New business strain is a non-cash valuation adjustment
recognised when annuity rates on new business are higher
than the risk-free rate used to fair value life contracts.
6655
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 33 SSeeggmmeenntt iinnffoorrmmaattiioonn ((ccoonnttiinnuueedd))
DDeeffiinniittiioonnss ((ccoonnttiinnuueedd))
AAnnnnuuiittyy vvaalluuaattiioonn eexxppeerriieennccee ((ccoonnttiinnuueedd))
MMaajjoorr ccuussttoommeerrss
Maintenance expense allowances over the expected future
term of the new business are also included in the life contract
valuation. New business strain reported in the period
represents the valuation loss on new sales generated in the
current period net of the reversal of new business strain of
prior period sales.
SSiiggnniiffiiccaanntt iitteemmss aafftteerr ttaaxx
The Group presents additional non-IFRS financial information
to the market to provide meaningful insights into the financial
condition of the business. Due consideration has been given to
ensure that disclosure of Challenger’s normalised profit
framework is explained, reconciled and calculated consistently
period-on-period. Within this framework, Challenger defines
significant items as non-recurring or abnormal income or
expense items. For the period ended 30 June 2020, significant
items were negative $9.4 million (after tax). They include the
impairment of an intangible asset recognised in relation to the
revenue share interest owned in respect of Latigo Investment
Partners ($6.6 million), and a boutique impairment charge and
wind-up costs following the closure of FME Asset
Management ($2.8 million).
No individual customer amounted to greater than 10% of the
Group’s segment revenue as defined above.
GGeeooggrraapphhiiccaall aarreeaass
The Group operates predominantly in Australia; hence no
geographical split is provided to the chief operating decision
maker. Reinsurance of annuities issued by MS Primary
accounted for $742.6 million of the Group’s life insurance
premium income in 2020 out of total life insurance premium
income of $1,157.1 million (2019: $268.0 million out of a
total of $1,121.1 million) and comprised 13.7% of total policy
liabilities outstanding as at 30 June 2020 (2019: 9.5%). While
the underlying annuitant resides in Japan, the reinsurance
service provided by CLC is considered to be Australian business
and is therefore not recognised as a geographically separate
segment.
RReeccoonncciilliiaattiioonn ooff mmaannaaggeemmeenntt ttoo ssttaattuuttoorryy vviieeww ooff aafftteerr--ttaaxx pprrooffiitt
Operating segments normalised net profit before tax
Corporate and other normalised net loss before tax
NNoorrmmaalliisseedd nneett pprrooffiitt bbeeffoorree ttaaxx ((mmaannaaggeemmeenntt vviieeww ooff pprree--ttaaxx pprrooffiitt))
Tax on normalised profit
NNoorrmmaalliisseedd nneett pprrooffiitt aafftteerr ttaaxx
Investment experience after tax
Significant items after tax
((LLoossss))//pprrooffiitt aattttrriibbuuttaabbllee ttoo tthhee sshhaarreehhoollddeerrss ooff CChhaalllleennggeerr LLiimmiitteedd
(Loss)/profit attributable to non-controlling interests excluded from management view
SSttaattuuttoorryy vviieeww ooff ((lloossss))//pprrooffiitt aafftteerr ttaaxx
RReeccoonncciilliiaattiioonn ooff mmaannaaggeemmeenntt vviieeww ooff rreevveennuuee ttoo ssttaattuuttoorryy rreevveennuuee
Operating segments
Corporate and other
NNeett iinnccoommee ((mmaannaaggeemmeenntt vviieeww ooff rreevveennuuee))
EExxppeennsseess aanndd ffiinnaannccee ccoossttss ooffffsseett aaggaaiinnsstt rreevveennuuee
SPV expenses and finance costs offset against SPV income
Distribution expenses offset against related income
Change in life contract liabilities and reinsurance contracts recognised in expenses
Property related expenses offset against property income
Interest and loan amortisation costs
Management fee expenses
Adjustment for non-controlling interests and other items
DDiiffffeerreennccee bbeettwweeeenn mmaannaaggeemmeenntt vviieeww ooff iinnvveessttmmeenntt eexxppeerriieennccee aanndd
ssttaattuuttoorryy rreeccooggnniittiioonn
Actual capital growth
Normalised capital growth
Life contract valuation experience
New business strain
SSttaattuuttoorryy rreevveennuuee ((rreeffeerr NNoottee 11 RReevveennuuee))
6666
3300 JJuunnee
22002200
$$mm
3300 JJuunnee
22001199
$$mm
582.4
(75.9)
550066..55
(162.8)
334433..77
(750.3)
(9.4)
((441166..00))
(5.1)
((442211..11))
797.0
0.4
779977..44
11.1
47.6
970.7
85.1
160.3
163.1
(32.0)
614.5
(66.2)
554488..33
(152.2)
339966..11
(88.3)
-
330077..88
2.9
331100..77
820.0
1.0
882211..00
23.1
47.8
1,030.1
109.5
320.5
107.5
16.6
(1,067.3)
(120.2)
85.1
31.9
11,,113322..88
79.1
(155.1)
5.8
(33.3)
22,,337722..66
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 44 IInnccoommee ttaaxx
RReeccoonncciilliiaattiioonn ooff iinnccoommee ttaaxx bbeenneeffiitt//((eexxppeennssee))
(Loss)/profit before income tax
Prima facie income tax based on the Australian company tax rate of 30%
TTaaxx eeffffeecctt ooff aammoouunnttss nnoott aasssseessssaabbllee//ddeedduuccttiibbllee iinn ccaallccuullaattiinngg ttaaxxaabbllee iinnccoommee::
– Challenger Capital Notes distributions
– non-assessable and non-deductible items
– tax rate differentials
– tax adjustment in respect of non-controlling interests
– other items
IInnccoommee ttaaxx bbeenneeffiitt//((eexxppeennssee))
UUnnddeerrllyyiinngg eeffffeeccttiivvee ttaaxx rraattee11
3300 JJuunnee
22002200
$$mm
(590.6)
177.2
(8.3)
(5.3)
5.9
(1.5)
1.5
116699..55
2288..99%%
1 The calculation of the underlying effective tax rate excludes the non-controlling interests’ loss of $5.1 million (30 June 2019: profit $2.9 million).
AAnnaallyyssiiss ooff iinnccoommee ttaaxx bbeenneeffiitt//((eexxppeennssee))
Current income tax expense for the year
Current income tax benefit prior year adjustment
Deferred income tax benefit/(expense)
Deferred income tax expense prior year adjustment
IInnccoommee ttaaxx bbeenneeffiitt//((eexxppeennssee))
Income tax benefit/(expense) on translation of foreign entities
Income tax (expense)/benefit on hedge of net investment in foreign operations
IInnccoommee ttaaxx bbeenneeffiitt ffrroomm ootthheerr ccoommpprreehheennssiivvee iinnccoommee
3300 JJuunnee
22002200
$$mm
(28.6)
3.9
198.3
(4.1)
116699..55
5.0
(0.2)
44..88
3300 JJuunnee
22001199
$$mm
437.8
(131.3)
(9.9)
12.4
4.5
0.9
(3.7)
((112277..11))
2299..22%%
3300 JJuunnee
22001199
$$mm
(65.6)
4.9
(57.8)
(8.6)
((112277..11))
(14.3)
14.9
00..66
AAnnaallyyssiiss ooff ddeeffeerrrreedd ttaaxx
DDeeffeerrrreedd ttaaxx aasssseettss
Accruals and provisions
Employee entitlements
Losses
Other
TToottaall ddeeffeerrrreedd ttaaxx aasssseettss
SSeett ooffff ooff ddeeffeerrrreedd ttaaxx aasssseettss
NNeett ddeeffeerrrreedd ttaaxx aasssseettss rreeccooggnniisseedd iinn ssttaatteemmeenntt ooff
ffiinnaanncciiaall ppoossiittiioonn
DDeeffeerrrreedd ttaaxx lliiaabbiilliittiieess
Unrealised foreign exchange movements
Unrealised net gains on investments
Other
TToottaall ddeeffeerrrreedd ttaaxx lliiaabbiilliittiieess
SSeett ooffff ooff ddeeffeerrrreedd ttaaxx lliiaabbiilliittiieess
NNeett ddeeffeerrrreedd ttaaxx lliiaabbiilliittiieess rreeccooggnniisseedd iinn ssttaatteemmeenntt ooff
ffiinnaanncciiaall ppoossiittiioonn
DDeeffeerrrreedd iinnccoommee ttaaxx bbeenneeffiitt//((eexxppeennssee)) rreeccooggnniisseedd iinn ssttaatteemmeenntt ooff
ccoommpprreehheennssiivvee iinnccoommee
SSttaatteemmeenntt ooff ffiinnaanncciiaall
ppoossiittiioonn
SSttaatteemmeenntt ooff
ccoommpprreehheennssiivvee iinnccoommee
3300 JJuunnee
22002200
$$mm
3300 JJuunnee
22001199
$$mm
3300 JJuunnee
22002200
$$mm
3300 JJuunnee
22001199
$$mm
49.4
5.1
92.1
16.6
116633..22
((111133..44))
39.1
4.0
11.3
9.7
6644..11
((5577..11))
4499..88
77..00
(1.9)
(114.6)
(2.6)
((111199..11))
111133..44
(19.0)
(183.1)
(20.2)
((222222..33))
5577..11
((55..77))
((116655..22))
10.2
1.2
80.9
3.6
9955..99
12.3
68.4
17.6
9988..33
10.9
0.1
(14.0)
(2.8)
((55..88))
(20.0)
(35.0)
(5.6)
((6600..66))
119944..22
((6666..44))
6677
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 44 IInnccoommee ttaaxx ((ccoonnttiinnuueedd))
TTaaxx TTrraannssppaarreennccyy CCooddee DDiisscclloossuurreess
AAuussttrraalliiaa aanndd oovveerrsseeaass ttaaxx bbeenneeffiitt//((eexxppeennssee))
Total Australia
Total overseas
IInnccoommee ttaaxx bbeenneeffiitt//((eexxppeennssee))
AAnnaallyyssiiss ooff ccuurrrreenntt ttaaxx lliiaabbiilliittyy//((aasssseett))
Opening balance
Current income tax expense for the year
Current income tax prior year adjustment
Tax in equity
Income tax paid
Other
CClloossiinngg bbaallaannccee
UUnnrreeccooggnniisseedd ddeeffeerrrreedd ttaaxx bbaallaanncceess
Non-tax consolidated group revenue losses – tax effected
Tax consolidated group capital losses – tax effected
AAccccoouunnttiinngg ppoolliiccyy
IInnccoommee ttaaxx eexxppeennssee
3300 JJuunnee
22002200
$$mm
176.6
(7.1)
116699..55
3300 JJuunnee
22001199
$$mm
(117.6)
(9.5)
((112277..11))
3300 JJuunnee
22002200
$$mm
(2.7)
28.6
(3.9)
(1.8)
(15.8)
(3.4)
11..00
3300 JJuunnee
22002200
$$mm
7.4
56.2
CChhaannggee
$$mm
294.2
2.4
229966..66
3300 JJuunnee
22001199
$$mm
0.9
65.6
(4.9)
(5.5)
(55.4)
(3.4)
((22..77))
3300 JJuunnee
22001199
$$mm
2.9
54.8
Income tax expense for the year comprises current and
deferred tax. Income tax is recognised in the Statement of
comprehensive income except to the extent that it relates to
items recognised directly in equity.
settle on a net basis. Deferred tax assets are recognised for the
carryforward of unused tax losses to the extent that it is
probable that future taxable profit will be available against
which the unused tax losses can be utilised.
CCuurrrreenntt ttaaxx aasssseettss aanndd lliiaabbiilliittiieess
TTaaxx ccoonnssoolliiddaattiioonn
Current tax assets and liabilities for the current and prior
periods are the amounts expected to be recovered from or
paid to the taxation authorities based on the respective
period’s taxable income. The tax rates and tax laws used to
compute the amounts are those that are enacted or
substantively enacted as at the statement of financial position
date. Current tax assets and liabilities have been offset where
there is a legally enforceable right to set off.
DDeeffeerrrreedd iinnccoommee ttaaxx aasssseettss aanndd lliiaabbiilliittiieess
Deferred income tax is provided on temporary differences at
the statement of financial position date between the tax bases
of assets and liabilities and their carrying amounts for financial
reporting purposes.
Deferred income tax assets and liabilities are recognised for
deductible or taxable temporary differences and are measured
at the tax rates that are expected to apply to the year the asset
is realised or the liability is settled, based on the tax rates (and
tax laws) that have been enacted or substantially enacted as at
the statement of financial position date. Deferred income tax
assets and liabilities have been offset where they relate to
income tax levied by the same taxation authority on either the
same taxable entity or different taxable entities within the
same taxable group who have a legal right and an intention to
Challenger Limited and its 100% owned Australian resident
subsidiaries have formed a tax consolidated group with effect
from 1 July 2002 and are therefore taxed as a single entity
from that date. Challenger Limited is the head entity of the tax
consolidated group.
TTaaxx eeffffeecctt aaccccoouunnttiinngg bbyy mmeemmbbeerrss ooff tthhee ttaaxx ggrroouupp
Members of the tax consolidated group have applied tax
funding principles under which Challenger Limited and each of
the members of the tax consolidated group agree to pay or
receive tax equivalent amounts to or from the head entity,
based on the current tax liability or current tax asset of the
member. Such amounts are reflected in the amounts
receivable from or payable to each member and the head
entity. The group allocation approach is applied in determining
the appropriate amount of current tax liability or current tax
asset to allocate to members of the tax consolidated group.
KKeeyy eessttiimmaatteess aanndd aassssuummppttiioonnss
Deferred tax assets are recognised for deductible temporary
differences and unused tax losses only if it is probable that
future taxable amounts will be available to utilise those
temporary differences and losses.
6688
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
Section 3: Operating assets and liabilities
This section discloses information relating to the assets and liabilities underlying the Group’s financial performance and
the key sources of funding for those assets. It further presents the derivative financial instruments employed to hedge the
Group’s financial risk exposures, and consolidated information relating to the cash flows of the Group.
NNoottee 55 FFiinnaanncciiaall aasssseettss –– ffaaiirr vvaalluuee tthhrroouugghh pprrooffiitt aanndd lloossss
Domestic sovereign bonds and semi-government bonds
Floating rate notes and corporate bonds
Residential mortgage and asset-backed securities
Non-SPV mortgage assets
FFiixxeedd iinnccoommee sseeccuurriittiieess
Shares in listed and unlisted corporations
Unit trusts, managed funds and other
EEqquuiittyy sseeccuurriittiieess
Units in listed and unlisted infrastructure trusts
Other infrastructure investments
IInnffrraassttrruuccttuurree iinnvveessttmmeennttss
Indirect property investments in listed and unlisted trusts
PPrrooppeerrttyy sseeccuurriittiieess
TToottaall ffiinnaanncciiaall aasssseettss –– ffaaiirr vvaalluuee tthhrroouugghh pprrooffiitt aanndd lloossss
Current
Non-current
AAccccoouunnttiinngg ppoolliiccyy
The Group categorises its financial assets as financial assets –
fair value through profit and loss (being initially designated as
such). Assets designated as fair value through profit and loss
consist of fixed income, equity, infrastructure, and property
securities. They are carried at fair value with unrealised gains
and losses being recognised through the Statement of
comprehensive income.
Purchases and sales of financial assets are recognised on the
date on which the Group commits to purchase or sell the asset
and when all risks and rewards of ownership have been
substantially transferred. Financial assets are then
derecognised when the right to receive cash flows from the
asset has expired.
The fair value of financial assets that are actively traded in
organised financial markets are determined by reference to
quoted market bid prices at the close of business on the
statement of financial position date. Assets backing life
contract liabilities of the statutory fund are required to be
designated at fair value through profit and loss in accordance
with AASB 1038 Life Insurance Contracts when permitted by
other Australian Accounting Standards.
3300 JJuunnee
22002200
$$mm
8,610.3
4,915.6
5,809.2
139.8
1199,,447744..99
97.8
804.9
990022..77
55.9
324.2
338800..11
76.3
7766..33
2200,,883344..00
8,339.2
12,494.8
2200,,883344..00
3300 JJuunnee
22001199
$$mm
5,554.5
7,730.8
4,044.4
272.8
1177,,660022..55
96.1
1,236.1
11,,333322..22
542.5
324.6
886677..11
127.8
112277..88
1199,,992299..66
9,985.2
9,944.4
1199,,992299..66
KKeeyy eessttiimmaatteess aanndd aassssuummppttiioonnss
UUnnlliisstteedd iinnvveessttmmeenntt vvaalluuaattiioonnss
Investments held at fair value through profit and loss for which
there is no active market or external valuation available are
valued making as much use of available and supportable
market data as possible and keeping judgemental inputs to a
minimum, either by:
• reference to the current market value of another instrument
that is substantially the same;
• using recent arm’s length market transactions;
• option pricing models refined to reflect the issuer’s specific
circumstances;
• discounted cash flow analysis; or
• other methods consistent with market best practice.
Refer to Note 18 Financial risk management for further
disclosure.
6699
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 66 IInnvveessttmmeenntt aanndd ddeevveellooppmmeenntt pprrooppeerrttyy
Investment property held for sale1
Investment property in use
Investment property under development
TToottaall iinnvveessttmmeenntt pprrooppeerrttyy
1 No properties were held for sale at 30 June 2020 (30 June 2019: Next Hotel, Aulnay sous Bois and TRE Data Centre).
3300 JJuunnee
22002200
$$mm
-
3,679.7
6.2
33,,668855..99
3300 JJuunnee
22001199
$$mm
166.5
3,384.3
178.4
33,,772299..22
IInnvveessttmmeenntt
pprrooppeerrttyy hheelldd ffoorr
ssaallee
IInnvveessttmmeenntt pprrooppeerrttyy
iinn uussee
3300 JJuunnee
22002200
$$mm
166.5
3300 JJuunnee
22001199
$$mm
3300 JJuunnee
22002200
$$mm
3300 JJuunnee
22001199
$$mm
452.2 3,384.3 3,328.6
-
(155.9)
(10.7)
-
(236.2)
(60.0)
10.5
105.1
-
10.7
-
(443.6)
60.0
239.3
-
102.3
0.1
39.5
-
-
58.2
-- 116666..55 33,,667799..77 33,,338844..33
173.7
72.8
(78.4)
11.5
-
-
-
IInnvveessttmmeenntt pprrooppeerrttyy
uunnddeerr ddeevveellooppmmeenntt
3300 JJuunnee
3300 JJuunnee
22001199
22002200
$$mm
$$mm
254.4
178.4
DDeevveellooppmmeenntt
pprrooppeerrttyy hheelldd ffoorr
rreessaallee
3300 JJuunnee
22002200
$$mm
-
3300 JJuunnee
22001199
$$mm
0.7
-
-
-
(173.7)
0.2
1.3
-
66..22
1.8
-
-
(249.8)
164.6
7.4
-
117788..44
-
-
-
-
-
-
-
--
-
(0.7)
-
-
-
-
-
--
RReeccoonncciilliiaattiioonn ooff ccaarrrryyiinngg aammoouunnttss
Balance at the beginning of the year
Movements for the year
– acquisitions1
– disposals
– net transfers to/(from) investment
property held for sale
– transfers to/(from) investment property
under development
– capital expenditure
– net revaluation gain/(loss)
– foreign exchange gain
BBaallaannccee aatt tthhee eenndd ooff tthhee yyeeaarr
1 Investment property acquisitions: Acquisition of remaining 50% of Lennox, NSW $33.5 million, Aeon Matsusaka XD, Japan $14.7 million, Kotesashi Towers, Japan
$25.2 million and Yorktown Toride, Japan $31.7 million during the year (30 June 2019: Acquisition of 839 Collins EXO Car Park $1.8 million).
AAccccoouunnttiinngg ppoolliiccyy
Investment and development property is initially recognised at
cost, including transaction costs. Subsequent to initial
recognition, investment and development property is
recognised at fair value.
Investment property is classified as held for sale if its carrying
value will be recovered principally through a sale transaction
rather than through continuing use. This condition is met only
when management is committed to the sale, and the sale is
highly probable to occur in the next 12 months. Investment
property held for sale is carried at fair value, being the latest
valuation available, or agreed sale price.
Gains or losses arising from changes in the fair values of
investment properties are included in the Statement of
comprehensive income in the period in which they arise.
Investment properties are derecognised when they have either
been disposed of or when the investment property is
permanently withdrawn from use and no future benefit is
expected from its disposal. Any gain or loss on the retirement
or disposal of an investment property is recognised in the
Statement of comprehensive income in the year of retirement
or disposal.
Where properties are debt financed, that finance is provided
either by secured mortgages or by funding that contains a
number of negative undertakings (including undertakings not
to create or allow encumbrances, and undertakings not to
incur financial indebtedness which ranks in priority to
existing debt).
IImmppaacctt ooff CCOOVVIIDD--1199
Across all sectors, particularly retail, some tenants are seeking
rent relief as a result of the impact of the COVID-19 pandemic.
Rent relief is granted after considering various factors and
individual tenant circumstances. Rent relief occurs in respect of
three categories: (i) current rent due and payable now; (ii)
deferred rent, payable at a later date; or (iii) waived rent, not
payable.
If relief is given for current and deferred rent, income will
continue to be recognised on a straight line basis over the
term of the lease. The resulting rent receivable assets
recognised in the statement of financial position as at 30 June
2020 have been assessed for impairment. The methodology
adopted for determining whether these rent receivable assets
should be impaired is aligned to the requirements of AASB 9
Financial Instruments.
Any waived rent is capitalised and recognised on the
statement of financial position from the effective date of the
lease modification and amortised over the remaining lease
term.
7700
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 66 IInnvveessttmmeenntt aanndd ddeevveellooppmmeenntt pprrooppeerrttyy ((ccoonnttiinnuueedd))
AAccccoouunnttiinngg ppoolliiccyy ((ccoonnttiinnuueedd))
IInnvveessttmmeenntt pprrooppeerrttyy uunnddeerr ddeevveellooppmmeenntt
IImmppaacctt ooff CCOOVVIIDD--1199
When redevelopment of an existing investment property
commences, it continues to be classified and measured as
investment property when the asset is being redeveloped for
continued future use as an investment property.
Investment property under construction is held at cost until an
estimate of the fair value can be reliably determined.
DDeevveellooppmmeenntt pprrooppeerrttyy hheelldd ffoorr rreessaallee
Development properties held for the purpose of resale are
stated at the lower of cost and net realisable value. Net
realisable value is the estimated selling price in the ordinary
course of business on completion, less estimated costs of
completion and selling costs.
Cost includes cost of acquisition, development costs, holding
costs and directly attributable interest on borrowed funds
where the development is a qualifying asset. Capitalisation of
borrowing costs ceases during extended periods in which
active development is interrupted. When a development is
completed and ceases to be a qualifying asset, borrowing costs
and other costs are expensed as incurred.
KKeeyy eessttiimmaatteess aanndd aassssuummppttiioonnss
Independent valuations for all investment properties are
conducted at least annually by suitably qualified valuers, and
the Directors make reference to these independent valuations
when determining fair value.
Each independent valuer is appointed in line with the valuation
policy, which requires that valuers are authorised to practise
under the law of the relevant jurisdiction where the valuation
takes place and have at least five years of continuous
experience in the valuation of property of a similar type to
the property being valued and on the basis that they are
engaged for no longer than two consecutive years on an
individual property.
The valuer must have no pecuniary interest that could conflict
with the valuation of the property, must be suitably
indemnified, and must comply with the Australian Property
Institute (API) Code of Ethics and Rules of Conduct (or foreign
equivalent). An internal valuation is undertaken for all
investment properties every six months unless they have been
independently valued during the current reporting period. In
certain circumstances an independent valuation might be
obtained.
Fair value for the purposes of the valuation is market value as
defined by the International Assets Valuation Standards
Committee. In determining market value, valuers examine
available market evidence and apply this analysis to both the
traditional market capitalisation approach and the discounted
cash flow approach (using market-determined risk-adjusted
discount rates). Valuers are required to provide valuation
methodology and calculations for fair value including reference
to annual net market income, comparable capitalisation rates,
and property-specific adjustments. The values of investment
property do not reflect anticipated enhancement from future
capital expenditure.
As at 30 June 2020 the real estate markets to which the
Group’s investment properties belong were impacted by
significant uncertainty caused by the COVID-19 pandemic. This
has created valuation uncertainty and had an impact on the
value of investment property as at 30 June 2020.
The valuation uncertainty has affected key inputs, assumptions
and processes used in the valuation of the Group’s investment
properties, being:
• estimating the net income that a property can produce; and
• converting that income to value by applying investment
rates of return which are derived from analysis of recent
market transactions.
Income uncertainty
The impact of COVID-19 on the income earning potential of
the Group’s properties is uncertain. The Group leases
commercial space to a range of businesses from where they
conduct their operations. Restrictions imposed by Government
to combat COVID-19 has, in a majority of cases, impacted the
ability for these businesses to operate effectively from their
premises, or has affected their ability to operate in the usual
manner prior to the onset of COVID-19.
In response to this and the Government’s Code of Conduct for
commercial tenancies, the Group is currently working through
a cost sharing program in compliance with the Code of
Conduct for each tenant that has been affected. This involves
the Group either deferring or waiving rent owed by the tenant
depending on the individual circumstances. This program has
had an impact for this reporting period and will continue to
have an impact for the year ending 30 June 2021.
Rent receivable balances in respect of current and deferred
rent recognised in the statement of financial position for the
reporting period, have been assessed for impairment. An
approach has been adopted which applies a lifetime expected
credit loss and assesses all possible default events over the
expected life of the receivables balance. An appropriate loss
rate has then been determined after considering the following
factors:
• the asset sector in which the affected rent receivable is
recognised. Each sector is affected differently by COVID-19
and this needs to be reflected in any loss assumption;
• the ranking of tenants by most to least affected by
COVID-19 impacts; and
• the ageing of rent receivables.
After taking these factors into consideration and assessing the
overall progress of the cost sharing programme underway with
tenants, an impairment of $2.2 million was recognised in the
Statement of comprehensive income as at 30 June 2020 in
relation to the rent receivable gross asset value of
$12.7 million. This assessment was conducted based on
reasonable and supporting information readily available and
considering current and expected future economic conditions.
7711
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 66 IInnvveessttmmeenntt aanndd ddeevveellooppmmeenntt pprrooppeerrttyy ((ccoonnttiinnuueedd))
Valuation uncertainty
Valuation uncertainty has also arisen from an inactive property
investment market. An inactive market means a lack of
transactional evidence demonstrating current market pricing.
In these circumstances, the only inputs and metrics available to
reliably estimate fair value relate to the market before
COVID-19 occurred and the impact of COVID-19 on prices
cannot be known with certainty until the market stabilises.
As a result of these income and investment uncertainties, the
Group’s independent valuers noted the difficulty in
undertaking valuations at this time and, in the absence of
relevant market evidence, they have adjusted valuation inputs
and estimates to reflect the impact of COVID-19 on
investment property value.
While these estimates have been formed by valuers after
careful consideration and consultation with a range of reliable
sources, it must be recognised that COVID-19 is a unique,
rapidly evolving situation and critical events that could help
determine the duration and depth of its impact remain
unknown at the date of valuation.
In response to this valuation uncertainty, the Group
determined that all directly held investment properties would
be independently valued by external valuers at 30 June 2020.
To reflect the impact of COVID-19 on investment property
value, the valuers have generally adopted softer valuation
inputs including expanded capitalisation and discount rates,
lower growth rates in the near term, lower market rental
levels, increased vacancy rates and increased rental allowances.
The valuers have also made deductions for the costs of
estimated rent relief to tenants for occupancy disruption
resulting from COVID-19 related impacts.
AAnnaallyyssiiss ooff iinnvveessttmmeenntt pprrooppeerrttyy aass aatt
3300 JJuunnee
IInnvveessttmmeenntt pprrooppeerrttyy iinn uussee aanndd hheelldd ffoorr ssaallee
AAuussttrraalliiaa
6 Chan Street (formerly DIBP Building),
ACT
AAccqquuiissiittiioonn
ddaattee11
01-Dec-01
14 Childers Street, ACT
21 O'Sullivan Circuit, NT
31 O'Sullivan Circuit, NT
35 Clarence Street, NSW
45 Benjamin Way (formerly ABS
Building), ACT
82 Northbourne Avenue, ACT
215 Adelaide Street, QLD
565 Bourke Street, VIC
839 Collins Street, VIC
Bunbury Forum, WA
Channel Court, TAS
01-Dec-17
27-Jan-16
27-Jan-16
15-Jan-15
01-Jan-00
01-Jun-17
31-Jul-15
28-Jan-15
22-Dec-16
03-Oct-13
21-Aug-15
Cosgrave Industrial Park, Enfield, NSW
31-Dec-08
County Court, VIC
Discovery House, ACT
Executive Building, TAS
Gateway, NT
Golden Grove, SA
Karratha, WA
Kings Langley, NSW
Lennox, NSW4
Next Hotel, QLD5
North Rocks, NSW
TRE Data Centre, ACT5
TToottaall AAuussttrraalliiaa
30-Jun-00
28-Apr-98
30-Mar-01
01-Jul-15
31-Jul-14
28-Jun-13
29-Jul-01
27-Jul-13
25-Mar-15
18-Sep-15
14-Apr-10
TToottaall
ccoosstt22
$$mm
CCaarrrryyiinngg
vvaalluuee
22002200
$$mm
CCaapp
rraattee
2200220033
%%
LLaasstt
eexxtteerrnnaall
vvaalluuaattiioonn
ddaattee
CCaarrrryyiinngg
vvaalluuee
22001199
$$mm
CCaapp
rraattee
2200119933
%%
121.0
202.0
5.50
30-Jun-20
156.7
5.50
97.5
47.7
29.2
91.0
32.1
23.5
153.6
235.0
148.6
223.0
61.0
252.0
106.1
212.0
155.7
84.2
92.3
218.4
102.6
34.5
122.2
157.6
55.9
16.2
62.8
53.3
230.5
147.5
238.5
82.0
76.0
131.9
326.0
152.5
46.5
105.1
147.0
44.3
23.0
61.0
-
185.1
-
-
171.1
-
22,,551166..22 22,,884422..88
6.50
8.50
8.50
5.00
5.75
6.00
6.13
5.00
4.75
7.50
7.75
5.00
n/a
5.63
7.00
6.34
6.25
7.50
6.25
6.75
-
6.25
-
30-Jun-20
30-Jun-20
30-Jun-20
92.5
36.7
26.5
30-Jun-20
220.0
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
219.2
55.4
245.5
142.0
232.5
90.0
80.0
122.0
323.9
148.5
45.3
118.5
171.4
49.0
23.9
31.5
145.3
-
-
30-Jun-20
-
10.5
22,,778866..88
6.50
8.00
8.25
5.13
5.75
6.00
6.00
5.00
4.88
6.75
7.00
5.50
n/a
5.63
7.00
5.85
5.75
7.25
6.25
6.50
6.11
-
-
1 Acquisition date represents the date of initial acquisition or consolidation of the investment vehicle holding the asset.
2 Total cost represents the original acquisition cost plus additions less full and partial disposals since acquisition date.
3 The capitalisation rate is the rate at which net market income is capitalised to determine the value of the property. The rate is determined with regard to
market evidence.
4 Lennox, NSW was 50% owned in 2019 with the remaining share acquired during 2020.
5 Classified as ‘held for sale’ in 2019 and sold during 2020.
7722
NNoottee 66 IInnvveessttmmeenntt aanndd ddeevveellooppmmeenntt pprrooppeerrttyy ((ccoonnttiinnuueedd))
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
31-Dec-08
AAccqquuiissiittiioonn
ddaattee11
AAnnaallyyssiiss ooff iinnvveessttmmeenntt pprrooppeerrttyy aass aatt
3300 JJuunnee ((ccoonnttiinnuueedd))
EEuurrooppee
Avenue de Savigny, Aulnay sous Bois4
JJaappaann
Aeon Kushiro
Aeon Matsusaka XD
Carino Chitosedai
Carino Tokiwadai
DeoDeo Kure
Fitta Natalie Hatsukaichi
Izumiya Hakubaicho
Kansai Super Saigo
Kojima Nishiarai
Kotesashi Towers
Life Asakusa
Life Higashi Nakano
Life Nagata
MaxValu Tarumi
Seiyu Miyagino
TR Mall Ryugasaki
Valor Takinomizu
Valor Toda
Yaoko Sakato Chiyoda
Yorktown Toride
TToottaall iinntteerrnnaattiioonnaall
TToottaall iinnvveessttmmeenntt pprrooppeerrttyy iinn uussee aanndd hheelldd ffoorr ssaallee55
31-Jan-10
26-Sep-19
31-Jan-10
31-Jan-10
31-Jan-10
28-Aug-15
31-Jan-10
31-Jan-10
31-Jan-10
28-Nov-19
31-Jan-10
31-Jan-10
31-Jan-10
28-Aug-15
31-Jan-10
30-Mar-18
31-Jan-10
31-Jan-10
31-Jan-10
05-Mar-20
CCaarrrryyiinngg
vvaalluuee
22002200
$$mm
TToottaall
ccoosstt
$$mm22
CCaapp
rraattee
2200220033
%%
LLaasstt
eexxtteerrnnaall
vvaalluuaattiioonn
ddaattee
CCaarrrryyiinngg
vvaalluuee
22001199
$$mm
CCaapp
rraattee
2200119933
%%
20.3
10.1
7.33
30-Jun-20
10.7
6.53
30.5
14.7
118.4
77.0
32.2
11.4
69.4
13.2
12.2
25.2
27.8
32.9
25.2
16.9
9.8
86.7
26.9
42.5
19.7
31.9
774444..88
38.5
14.5
138.6
85.9
35.3
14.8
78.0
14.7
16.4
24.3
38.6
40.7
30.3
20.6
12.0
98.7
26.5
46.3
22.8
29.3
883366..99
33,,226611..00 33,,667799..77
5.40
5.80
4.50
4.70
5.60
6.00
5.00
5.30
4.40
5.10
4.30
4.40
4.20
5.60
5.20
5.60
5.50
5.10
4.90
5.30
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
30-Jun-20
37.8
-
138.9
85.3
34.4
14.7
79.8
14.4
16.1
-
38.0
40.9
30.0
20.0
11.8
98.4
25.5
45.9
21.4
-
776644..00
33,,555500..88
5.40
-
4.50
4.60
5.50
5.90
4.80
5.50
4.40
-
4.30
4.40
4.20
5.70
5.20
5.70
5.80
5.20
4.80
-
n/a
6.50
IInnvveessttmmeenntt pprrooppeerrttyy uunnddeerr ddeevveellooppmmeenntt
Maitland, NSW
North Rocks, NSW6
TToottaall iinnvveessttmmeenntt pprrooppeerrttyy uunnddeerr ddeevveellooppmmeenntt
6-Dec-06
18-Sep-15
5.6
-
55..66
6.2
-
66..22
n/a
-
30-Jun-20
-
4.7
173.7
117788..44
1 Acquisition date represents the date of initial acquisition or consolidation of the investment vehicle holding the asset.
2 Total cost represents the original acquisition cost plus additions less full and partial disposals since acquisition date.
3 The capitalisation rate is the rate at which net market income is capitalised to determine the value of the property. The rate is determined with regard to market
evidence.
4 Avenue de Savigny, Aulnay sous Bois was classified as ‘held for sale’ in 2019 and subsequently withdrawn from sale in 2020. Classified as ‘investment property in
use’ in 2020.
5 At 30 June 2020, the investment property portfolio occupancy rate for Australia was 90.7% (30 June 2019: 92.6%) with a weighted average lease expiry of 5.5
years (30 June 2019: 6.1 years), Europe 100% (30 June 2019: 100.0%) with a weighted average lease expiry of 0.1 years (30 June 2019: 0.1 years) and Japan
99.5% (30 June 2019: 100%) with a weighted average lease expiry of 9.7 years (30 June 2019: 10.3 years).
6 Transferred to investment property in use.
7733
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 77 SSppeecciiaall PPuurrppoossee VVeehhiicclleess
CCoonnssoolliiddaatteedd
Cash and cash equivalents
Mortgage assets1
Derivative assets
TToottaall aasssseettss
Payables
Derivative liabilities
Interest bearing financial liabilities1
TToottaall lliiaabbiilliittiieess
NNeett aasssseettss
Cash flow hedge reserve
TToottaall eeqquuiittyy aattttrriibbuuttaabbllee ttoo rreessiidduuaall iinnccoommee uunniitt hhoollddeerrss
3300 JJuunnee
22002200
$$mm
58.0
706.6
0.4
776655..00
303.9
0.3
460.7
776644..99
00..11
0.1
00..11
3300 JJuunnee
22001199
$$mm
66.5
860.6
0.5
992277..66
163.7
0.3
763.4
992277..44
00..22
0.2
00..22
1 $137.7 million (30 June 2019: $209.7 million) of the Mortgage assets balance is considered current, and $89.8 million (30 June 2019: $186.0 million) of the Interest
bearing financial liabilities balance is considered current.
AAccccoouunnttiinngg ppoolliiccyy
The Group manages and services Special Purpose Vehicle (SPV)
trusts that hold residential mortgage-backed assets and issue
securitised financial liabilities. The trusts are entities that fund
pools of residential mortgage-backed loans via the issuance of
residential mortgage-backed securities (RMBS). All borrowings
of these SPVs are limited in recourse to the assets of the SPV.
As the Group retains the beneficial interest to the residual
income of these trusts, it is deemed to control them and, as a
result, they are consolidated. However, the significant risks and
rewards (most notably credit risk) lie with the RMBS holders.
The assets and liabilities of the SPV have been separately
disclosed in the financial report as this presentation is
considered to provide a more transparent view of the Group’s
financial position. Transactions between the SPV and other
entities within the Group are eliminated on consolidation.
SPV cash and cash equivalents are financial assets and
comprise cash at bank and in hand plus short-term deposits
with an original maturity of three months or less that are
readily convertible to known amounts of cash and which are
subject to an insignificant risk of changes in value. Cash and
cash equivalents are initially recognised at fair value and
subsequently carried at amortised cost.
SPV mortgage assets are non-derivative financial loan assets
with fixed or determinable payments that are not quoted in an
active market. They are recognised net of any credit loss
provision.
The Group uses derivative financial instruments to hedge the
risks associated with SPV interest rate and foreign currency
fluctuations. All these derivative financial instruments are
stated at fair value. Gains or losses arising from fair value
changes on derivatives that do not qualify for hedge
accounting are recognised in the Statement of comprehensive
income.
SPV payables represent unsecured non-derivative, non-interest
bearing financial liabilities in respect of services provided to the
trusts prior to the end of the financial year. They include
accruals and other creditors and are recognised at amortised
cost.
SPV interest bearing financial liabilities are initially recognised
at fair value calculated net of directly attributable transaction
costs, and subsequently measured at amortised cost. Any
difference between the proceeds (net of transaction costs) and
the redemption amount is recognised in the statement of
comprehensive income over the period of the contract using
the effective interest rate method.
KKeeyy eessttiimmaatteess aanndd aassssuummppttiioonnss
The Group continues to apply the historical provisioning
methodology which is considered to be materially consistent
with the provision estimated under the ECL impairment model.
In estimating ECL for individual mortgage loans, the Group
makes judgements and assumptions in relation to expected
repayments, the realisable value of the secured property, the
prospects of the customer, the value of any mortgage
insurance and the likely cost and duration of the work-out
process. Judgements and assumptions in respect of these
matters have been updated to reflect the potential impact of
COVID-19. The Group has also considered historical
probabilities of default, the relative age of the mortgage loan
portfolio and the loan to valuation ratios applicable to the
mortgage loans and has determined that the current provision
estimated by the ECL impairment model is adequate and no
further overlay for the impact of COVID-19 is required.
AAnnaallyyssiiss ooff SSPPVV mmoorrttggaaggee aasssseettss iimmppaaiirrmmeenntt pprroovviissiioonn
Balance at the beginning of the year
Increase/(decrease) in provisions
Utilisation of provision against incurred losses and adjustments to estimates
BBaallaannccee aatt tthhee eenndd ooff tthhee yyeeaarr
7744
3300 JJuunnee
22002200
$$mm
10.2
0.9
0.4
1111..55
3300 JJuunnee
22001199
$$mm
13.6
(3.9)
0.5
1100..22
NNoottee 88 LLiiffee ccoonnttrraacctt lliiaabbiilliittiieess
FFaaiirr vvaalluuee ooff lliiffee ccoonnttrraacctt lliiaabbiilliittiieess
Life investment contract liabilities – at fair value
Life insurance contract liabilities – at margin on services value
Reinsurance contract liabilities – at margin on services value
TToottaall lliiffee ccoonnttrraacctt lliiaabbiilliittiieess
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
3300 JJuunnee
22002200
$$mm
5,867.8
6,714.4
(1.0)
1122,,558811..22
3300 JJuunnee
22001199
$$mm
6,757.7
6,113.1
(0.6)
1122,,887700..22
MMoovveemmeenntt iinn lliiffee ccoonnttrraacctt
lliiaabbiilliittiieess
Balance at the beginning of
the year
Deposits and premium
receipts
Payments and withdrawals
Revenue per Note 1
Expense per Note 2
BBaallaannccee aatt tthhee eenndd ooff
tthhee yyeeaarr
LLiiffee iinnvveessttmmeenntt
ccoonnttrraacctt lliiaabbiilliittiieess
3300 JJuunnee
22002200
$$mm
3300 JJuunnee
22001199
$$mm
LLiiffee iinnssuurraannccee ccoonnttrraacctt
lliiaabbiilliittiieess
3300 JJuunnee
22002200
$$mm
3300 JJuunnee
22001199
$$mm
OOuuttwwaarrdd rreeiinnssuurraannccee
ccoonnttrraacctt lliiaabbiilliittiieess
3300 JJuunnee
22002200
$$mm
3300 JJuunnee
22001199
$$mm
TToottaall lliiffee ccoonnttrraacctt
lliiaabbiilliittiieess
3300 JJuunnee
22002200
$$mm
3300 JJuunnee
22001199
$$mm
6,757.7
6,635.3
6,113.1
5,016.7
(0.6)
76.3 12,870.2 11,728.3
1,970.2
(2,997.4)
15.4
121.9
2,421.9
(2,612.0)
98.3
214.2
1,192.7
(749.6)
(690.6)
848.8
1,143.5
(634.0)
(227.0)
813.9
-
-
(0.4)
-
-
(58.7)
(20.2)
2.0
3,162.9
(3,747.0)
(675.6)
970.7
3,565.4
(3,304.7)
(148.9)
1,030.1
55,,886677..88
66,,775577..77
66,,771144..44
66,,111133..11
((11..00))
((00..66)) 1122,,558811..22 1122,,887700..22
AAnnaallyyssiiss ooff lliiffee iinnssuurraannccee aanndd rreeiinnssuurraannccee ccoonnttrraacctt lliiaabbiilliittyy aanndd eexxppeennsseess
BBeesstt eessttiimmaattee lliiaabbiilliittyy
Value of future life insurance contract benefits
Value of future expenses
Value of future acquisition expenses
Value of future premiums
TToottaall bbeesstt eessttiimmaattee lliiaabbiilliittyy
Value of future profit margins
NNeett lliiffee iinnssuurraannccee aanndd rreeiinnssuurraannccee ccoonnttrraacctt lliiaabbiilliittyy
LLiiffee iinnssuurraannccee aanndd rreeiinnssuurraannccee ccoonnttrraacctt ooppeerraattiinngg eexxppeennsseess
Maintenance expenses
TToottaall lliiffee iinnssuurraannccee aanndd rreeiinnssuurraannccee ccoonnttrraacctt ooppeerraattiinngg eexxppeennsseess
AAnnaallyyssiiss ooff lliiffee ccoonnttrraacctt pprrooffiitt
Profit margin release on life insurance contracts
Loss recognition in respect of life insurance contracts1
Loss recognition in respect of life investment contracts
Difference in actual and assumed experience in respect of life insurance contracts
Difference in actual and assumed experience in respect of life investment contracts
((LLoossss))//pprrooffiitt aarriissiinngg ffrroomm ddiiffffeerreennccee bbeettwweeeenn aaccttuuaall aanndd aassssuummeedd eexxppeerriieennccee
Investment earnings on assets in excess of life contract liabilities
LLiiffee ccoonnttrraacctt ((lloossss))//pprrooffiitt aafftteerr ttaaxx
3300 JJuunnee
22002200
$$mm
6,435.1
171.3
166.9
(889.3)
55,,888844..00
829.4
66,,771133..44
54.9
5544..99
27.8
(43.5)
(54.2)
(74.5)
(68.6)
((221133..00))
(123.6)
((333366..66))
3300 JJuunnee
22001199
$$mm
5,849.8
159.8
134.9
(526.6)
55,,661177..99
494.6
66,,111122..55
43.7
4433..77
19.9
(76.8)
(68.9)
176.0
174.1
222244..33
172.2
339966..55
1 Under margin on services (MoS), any profits expected over the life of a contract are recognised over the life of the contract; however, if on the liability valuation basis
the contract is expected to be loss making, the capitalised value of these future losses is recognised at the point of sale. Retail insurance contracts are in loss
recognition because the liability valuation basis uses a risk-free discount rate but the rates offered to customers are higher.
7755
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 88 LLiiffee ccoonnttrraacctt lliiaabbiilliittiieess ((ccoonnttiinnuueedd))
AAccccoouunnttiinngg ppoolliiccyy
LLiiffee iinnssuurraannccee ccllaaiimmss eexxppeennssee
The operations of the Group include the selling and
administration of life contracts through Challenger Life
Company Limited (CLC). These contracts are governed under
the Life Insurance Act 1995 (the Life Act) and are classified as
either life insurance contracts or life investment contracts. Life
insurance and life investment contract liabilities are collectively
referred to as life contract liabilities or policy liabilities.
LLiiffee iinnvveessttmmeenntt ccoonnttrraacctt lliiaabbiilliittiieess
Life investment contracts are contracts regulated under the
Life Act but which do not meet the definition of life insurance
contracts under AASB 1038 Life Insurance Contracts and
similar contracts issued by entities operating outside
of Australia.
For fixed term policies, the liability is based on the fair value of
the income payments and associated expenses, being the net
present value of the payments and expenses using an
appropriate discount rate curve as determined by the
Appointed Actuary.
LLiiffee iinnssuurraannccee ccoonnttrraacctt lliiaabbiilliittiieess
Life insurance contracts are contracts regulated under the Life
Act that involve the acceptance of significant insurance risk.
Insurance risk is defined as significant if, and only if, an insured
event could cause an insurer to pay significant additional
benefits in any scenario, excluding scenarios that lack
commercial substance (i.e. have no discernible effect on the
economics of the transaction).
The financial reporting methodology used to determine the
value of life insurance contract liabilities is referred to as
margin on services (MoS). Under MoS, the excess of premiums
received over payments to customers and expenses (the
margin) is recognised over the life of the contract in a manner
that reflects the pattern of risk accepted from the policyholder
(the service) unless future margins are negative, in which case
the future losses are recognised in the period in which they
occur. The planned release of this margin is recognised in the
statement of comprehensive income as part of the life
insurance contract premiums and related revenue.
Life insurance contract liabilities are usually determined using
a projection method, whereby estimates of policy cash flows
(premiums, payments and expenses) are projected into the
future. The liability is calculated as the net present value of
these projected cash flows using a risk-free discount
rate curve.
The key areas of judgement in the determination of the
actuarial assumptions are the duration of claims/policy
payments, mortality, surrenders, acquisition and maintenance
expense levels, and economic assumptions for discount and
inflation rates.
LLiiffee iinnssuurraannccee pprreemmiiuumm rreevveennuuee
Life insurance premiums are recognised as revenue when risk
is transferred to the Group.
Life insurance claims expense is recognised in expenses when
the liability to the policyholder under the contract has
been established.
IInnwwaarrddss rreeiinnssuurraannccee
The Group has maintained inwards reinsurance arrangements
during the period that meet the definition of a life insurance
contract. The MoS methodology requires the present value of
future cash flows arising from reinsurance contracts to be
included in the calculation of life insurance contract liabilities.
VVaalluuaattiioonn
The MoS valuation, calculated in accordance with APRA
Prudential Standards results in the systematic release of
planned margins over the life of the policy via a ‘profit carrier’.
The Group maintains life insurance contracts including
individual lifetime annuities, wholesale mortality, wholesale
morbidity, longevity reinsurance and wholesale lifetime
annuities. Annuity payments are used as the profit carrier for
lifetime annuities and premium receipts or best estimate claim
payments are used as the profit carrier for wholesale mortality,
wholesale morbidity and longevity reinsurance.
KKeeyy aassssuummppttiioonnss aapppplliieedd iinn tthhee vvaalluuaattiioonn ooff lliiffee
ccoonnttrraacctt lliiaabbiilliittiieess
TTaaxx rraatteess
The bases of taxation (including deductibility of expenses) are
assumed to continue in accordance with legislation current at
the reporting date.
DDiissccoouunntt rraatteess
Under APRA Prudential Standards and AASB 1038 Life
Insurance Contracts, life insurance contract liabilities are
calculated by discounting expected future cash flows at a risk-
free rate, set at the Commonwealth Government Bond curve
plus an illiquidity premium where applicable or for foreign-
denominated liabilities, a curve derived from the yields of
highly liquid AAA-rated sovereign risk securities in the currency
of the policy liabilities plus an illiquidity premium where
applicable. The illiquidity premium is determined by reference
to observable market rates including Australian sovereign debt,
corporate, securitised and collateralised debt publicly placed in
the domestic market, and market swap rates.
Life investment contract liabilities are calculated under the fair
value through profit and loss provisions of AASB 9 Financial
Instruments. The discount rates are determined based on the
current observable, objective rates that relate to the nature,
structure and term of the future liability cash flows.
For both insurance and investment contracts the approach is
the same as adopted at 30 June 2019. Discount rates applied
for Australian liabilities were between 0.9%-2.4% (30 June
2019: 1.5%-2.5%) per annum.
7766
NNoottee 88 LLiiffee ccoonnttrraacctt lliiaabbiilliittiieess ((ccoonnttiinnuueedd))
VVaalluuaattiioonn ((ccoonnttiinnuueedd))
KKeeyy aassssuummppttiioonnss aapppplliieedd iinn tthhee vvaalluuaattiioonn ooff lliiffee ccoonnttrraacctt
lliiaabbiilliittiieess ((ccoonnttiinnuueedd))
EExxppeennsseess
Forecasted expenses for the next year are allocated between
acquisition, maintenance and investment based on the nature
of the expense. Forecasted maintenance expenses then are
converted to a per-contract unit cost or percentage of account
balance, depending on the nature of the expense.
IInnffllaattiioonn
Inflation estimates are based on long-term expectations and
reviewed at least annually for changes in the market
environment based on a comparison of real and nominal yields
of instruments of equivalent term and credit risk. The current
assumption for Australia is -0.2% per annum for short-term
inflation and 1.8% per annum for long-term inflation
(30 June 2019: 1.2% short-term, 1.6% long-term).
SSuurrrreennddeerrss
For life investment contracts, no surrenders or voluntary
discontinuances are assumed. For Australian life insurance
contracts where a surrender value is payable on withdrawal,
a rate of surrenders is assumed in line with Challenger’s own
experience on these products, currently between 0.0%-2.1%
per annum (30 June 2019: 1.3%-1.7%). For inwards
reinsurance of Japanese business, a rate of surrenders is
assumed in line with local experience in relation to similar
contracts, currently 3.5% per annum (30 June 2019: 3.5%).
Where policyholders have the option to commute a life
insurance contract, the value of this option is included within
the life contract liabilities. We also assume surrender rates
based on past experience for this business which vary by
product types and duration in-force for the contract.
MMoorrttaalliittyy
Base mortality rates for individual lifetime annuities are
determined as a multiple of annuitant experience based on
LML08 and LFL08 tables, adjusted for Challenger’s own recent
experience. LML08 and LFL08 are mortality tables developed
by the Continuous Mortality Investigation (CMI) based on
United Kingdom annuitant lives experience from 2007–2010.
The tables refer to male and female lives respectively. Rates
are adjusted for expected future mortality improvements
based on observed and expected improvements. For the age
ranges and cash flow projection periods that contribute the
majority of CLC’s exposure, rates of future mortality
improvement applied are between 0.3%-2.5% per annum
(30 June 2019: 0.3%-2.6%).
Base mortality rates for wholesale mortality and longevity
reinsurance are determined as a multiple of pensioner
mortality rates (based on the self-administered pension
schemes or SAPS2 tables mortality investigation developed by
the Institute and Faculty of Actuaries (UK) using United
Kingdom data collected between 2004–2012). Rates are
adjusted for expected future mortality improvements based on
observed and expected improvements.
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
For the age ranges and cash flow projection periods that
contribute the majority of CLC’s exposure, rates of future
mortality improvement applied are between 0.6%-2.1% per
annum (30 June 2019: 0.6%-2.1%). Base mortality rates for
the inwards reinsurance of Japanese business are determined
as a multiple of Japanese population mortality rates.
Mortality assumptions have been reviewed but not adjusted in
light of the COVID-19 pandemic.
IImmppaacctt ooff cchhaannggeess iinn aassssuummppttiioonnss oonn lliiffee iinnssuurraannccee ccoonnttrraaccttss
Under MoS, changes in actuarial assumptions are recognised
by adjusting the value of future profit margins in life insurance
contract liabilities. Changes in future profit margins are
released over future periods unless that product group is in an
expected net loss position (loss recognition), in which case
changes in assumptions are recognised in the statement of
comprehensive income in the period in which they occur. The
valuation impact of changes to discount rate assumptions as a
result of market and economic conditions, such as changes in
benchmark market yields, are recognised in the statement of
comprehensive income in the period in which they occur.
RReessttrriiccttiioonnss oonn aasssseettss
Financial assets held in Challenger Life Company Limited (CLC)
can only be used within the restrictions imposed under the Life
Insurance Act 1995 (the Life Act). The main restrictions are
that the assets in a statutory fund can only be used to meet
the liabilities and expenses of that statutory fund, to acquire
investments to further the business of the statutory fund or as
distributions when capital adequacy requirements are met.
SSttaattuuttoorryy ffuunndd iinnffoorrmmaattiioonn
The life contract operations of CLC are conducted within four
separate statutory funds. Both the shareholders’ and
policyholders’ interests in these statutory funds are reported in
aggregate in the financial report of the Group. Fund 1 is a
non-investment-linked fund and Fund 3 is investment-linked.
Both of these are closed to new business. Funds 2 and 4 are
the principal operating funds of the Group. Fund 2 contains
non-investment-linked contracts, including the Group’s term
annuity business, lifetime annuity policies and the related
outwards reinsurance, plus the wholesale mortality, wholesale
morbidity and longevity inwards reinsurance. Fund 4 contains
inwards reinsurance of annuity business written in Japan.
Life contract liabilities for Funds 1, 2, 3 and 4 are $1.5 million,
$10,854.4 million, $2.6 million and $1,722.7 million
respectively (30 June 2019: $2.0 million, $11,649.0 million,
$2.9 million, and $1,216.3 million).
CCuurrrreenntt//nnoonn--ccuurrrreenntt sspplliitt ffoorr ttoottaall lliiffee ccoonnttrraaccttss
There is a fixed settlement date for the majority of life contract
liabilities. Approximately $2,661.5 million on a discounted
basis (30 June 2019: $2,428.7 million) of life contract liabilities
have a contractual maturity within 12 months of the reporting
date.
7777
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 88 LLiiffee ccoonnttrraacctt lliiaabbiilliittiieess ((ccoonnttiinnuueedd))
CCuurrrreenntt//nnoonn--ccuurrrreenntt sspplliitt ffoorr ttoottaall lliiffee ccoonnttrraaccttss
((ccoonnttiinnuueedd))
Based on assumptions applied for the 30 June 2020 valuation
of life contract liabilities, $3,392.9 million of principal
payments on fixed term and lifetime business are expected in
the year to 30 June 2021 (expected in the year to 30 June
2020: $3,046.8 million).
LLiiffee iinnssuurraannccee rriisskk
The Group is exposed to longevity risk on its individual lifetime
annuities (both direct and reinsured) and wholesale longevity
reinsurance. Longevity risk is the risk that policyholders may
live longer than expectations. The Group is exposed to
mortality risk on the wholesale mortality reinsurance and
reinsurance of fixed term business written in Japan. This is the
risk that death rates in the reference portfolios exceed
expectations. The Group is also exposed to morbidity risk on
the wholesale morbidity reinsurance. That is the risk that
morbidity rates in the reference portfolios exceed expectation.
The Group manages the longevity risk by regular reviews of
the portfolio to confirm continued survivorship of policyholders
receiving income plus regular reviews of longevity experience
to ensure that longevity assumptions remain appropriate.
In addition, the Group maintained reinsurance arrangements
to manage longevity risk in respect of part of the closed book
of individual lifetime annuities.
The Group manages the mortality and morbidity risk by regular
reviews of the portfolio to ensure that mortality and morbidity
assumptions remain appropriate. The Company’s insurance
risk policy is approved by the Board and sets out the relevant
risk limits for insurance exposures, to ensure the insurance risk
portfolio is appropriately diversified and contains no significant
concentrations of insurance risk.
IInnssuurraannccee rriisskk sseennssiittiivviittyy aannaallyyssiiss
The following table discloses the sensitivity of life insurance
contract liabilities, profit after income tax and equity to
changes in the key assumptions relating to insurance risk, both
gross and net of reinsurance:
IInnssuurraannccee rriisskk sseennssiittiivviittyy
aannaallyyssiiss
50% increase in the rate
of mortality improvement
10% increase in
maintenance expenses
IInnccrreeaassee iinn lliiffee iinnssuurraannccee ccoonnttrraacctt lliiaabbiilliittiieess
GGrroossss
NNeett
LLoossss aafftteerr ttaaxx aanndd eeqquuiittyy iimmppaacctt
GGrroossss
NNeett
3300 JJuunnee
22002200
$$mm
3300 JJuunnee
22001199
$$mm
3300 JJuunnee
22002200
$$mm
3300 JJuunnee
22001199
$$mm
3300 JJuunnee
22002200
$$mm
3300 JJuunnee
22001199
$$mm
3300 JJuunnee
22002200
$$mm
3300 JJuunnee
22001199
$$mm
51.0
32.3
50.8
32.2
(35.7)
(22.6)
(36.6)
(22.5)
16.3
15.2
16.3
15.2
(11.4)
(10.6)
(11.4)
(10.6)
LLiiqquuiiddiittyy rriisskk ffoorr iinnssuurraannccee ccoonnttrraaccttss
The following table summarises the undiscounted maturity
profile of the Group’s life insurance contract liabilities. The
analysis is based on undiscounted estimated cash outflows,
including interest and principal payments. The undiscounted
maturity profile of life investment contracts is disclosed in Note
18 Financial risk management.
UUnnddiissccoouunntteedd lliiffee iinnssuurraannccee
ccoonnttrraacctt lliiaabbiilliittiieess
22002200
2019
AAccttuuaarriiaall iinnffoorrmmaattiioonn
11 yyeeaarr oorr lleessss
$$mm
777755..44
672.7
11--33 yyeeaarrss
$$mm
11,,227722..11
1,129.0
33--55 yyeeaarrss
$$mm
11,,001144..44
871.6
>>55 yyeeaarrss
$$mm
44,,557744..99
4,449.5
TToottaall
$$mm
77,,663366..88
7,122.8
Mr A Kapel FIAA, as the Appointed Actuary of CLC, is satisfied
as to the accuracy of the data used in the valuations of life
contract liabilities in the financial report and the tables in this
note. The life contract liabilities have been determined at the
reporting date in accordance with the Life Act, APRA
Prudential Standards, AASB 1038 Life Insurance Contracts, and
AASB 9 Financial Instruments.
7788
NNoottee 99 EExxtteerrnnaall uunniitt hhoollddeerrss’’ lliiaabbiilliittiieess
Current
Non-current
TToottaall lliiaabbiilliittiieess ttoo eexxtteerrnnaall uunniitt hhoollddeerrss
AAccccoouunnttiinngg ppoolliiccyy
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
3300 JJuunnee
22002200
$$mm
1,587.3
828.5
22,,441155..88
3300 JJuunnee
22001199
$$mm
1,356.4
609.8
11,,996666..22
The Group controls a number of guaranteed index return
trusts that contain contributed funds in respect of fixed term
wholesale mandates. The fixed term and guaranteed nature of
the mandates effectively places the balance of the risks related
to the performance of the trusts with the Group. As a result,
the Group is deemed to control these trusts. The contributed
funds for these trusts are classed as external unit holders’
liabilities on the statement of financial position and represent
the funds owing to third parties on these mandates. The
liability is recognised at fair value.
NNoottee 1100 DDeerriivvaattiivvee ffiinnaanncciiaall iinnssttrruummeennttss
AAnnaallyyssiiss ooff ddeerriivvaattiivvee ffiinnaanncciiaall iinnssttrruummeennttss
NNoonn--SSPPVV
IInntteerreesstt rraattee sswwaappss
Less than one year
One to three years
Three to five years
Greater than five years
TToottaall iinntteerreesstt rraattee sswwaappss
IInnffllaattiioonn--lliinnkkeedd sswwaappss
Less than one year
One to three years
Three to five years
Greater than five years
TToottaall iinnffllaattiioonn--lliinnkkeedd sswwaappss
FFuuttuurreess ccoonnttrraaccttss
Less than one year
TToottaall ffuuttuurreess ccoonnttrraaccttss
FFoorrwwaarrdd ccuurrrreennccyy ccoonnttrraaccttss
Less than one year
TToottaall ffoorrwwaarrdd ccuurrrreennccyy ccoonnttrraaccttss
CCrroossss--ccuurrrreennccyy sswwaappss
Less than one year
One to three years
Three to five years
Greater than five years
TToottaall ccrroossss--ccuurrrreennccyy sswwaappss
EEqquuiittyy sswwaappss
Less than one year
One to three years
TToottaall eeqquuiittyy sswwaappss
IInnffrraassttrruuccttuurree sswwaappss
Less than one year
TToottaall iinnffrraassttrruuccttuurree sswwaappss
NNoottiioonnaall
vvaalluuee
$$mm
7,511.9
8,962.4
8,739.3
37,974.2
6633,,118877..88
211.0
243.0
72.0
1,407.0
11,,993333..00
18,101.9
1188,,110011..99
2,947.5
22,,994477..55
1,268.7
2,332.3
1,332.1
825.4
55,,775588..55
596.6
-
559966..66
-
--
3300 JJuunnee 22002200
3300 JJuunnee 22001199
NNeett ffaaiirr
vvaalluuee
aasssseettss
$$mm
NNeett ffaaiirr
vvaalluuee
lliiaabbiilliittiieess
$$mm
NNoottiioonnaall
vvaalluuee
$$mm
NNeett ffaaiirr
vvaalluuee
aasssseettss
$$mm
NNeett ffaaiirr
vvaalluuee
lliiaabbiilliittiieess
$$mm
7.1
34.7
100.7
539.0
668811..55
7.6
10.1
3.0
164.0
118844..77
5,597.8
(5.2)
9,363.0
(38.3)
5,415.3
(72.0)
(434.0)
25,152.0
((554499..55)) 4455,,552288..11
(1.4)
-
(7.8)
(43.0)
((5522..22))
51.0
211.0
245.6
1,394.1
11,,990011..77
-
--
(0.6)
10,838.2
((00..66)) 1100,,883388..22
63.2
6633..22
29.2
69.8
36.6
25.3
116600..99
20.0
-
2200..00
-
--
(46.9)
((4466..99))
2,005.7
22,,000055..77
(44.0)
(15.3)
(10.5)
(5.5)
((7755..33))
-
-
--
-
--
1,546.1
1,762.6
2,140.6
1,041.5
66,,449900..88
1,451.0
846.8
22,,229977..88
200.0
220000..00
8.2
23.6
61.0
352.4
444455..22
1.7
6.3
5.8
111.6
112255..44
-
--
16.6
1166..66
26.7
10.4
17.7
10.5
6655..33
11.0
8.0
1199..00
-
--
(3.2)
(13.6)
(29.5)
(272.2)
((331188..55))
-
-
-
(36.9)
((3366..99))
(0.9)
((00..99))
(9.9)
((99..99))
(113.4)
(55.7)
(19.3)
(6.5)
((119944..99))
(7.7)
-
((77..77))
-
--
7799
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 1100 DDeerriivvaattiivvee ffiinnaanncciiaall iinnssttrruummeennttss ((ccoonnttiinnuueedd))
AAnnaallyyssiiss ooff ddeerriivvaattiivvee ffiinnaanncciiaall iinnssttrruummeennttss
((ccoonnttiinnuueedd))
CCrreeddiitt ddeeffaauulltt sswwaappss
Less than one year
One to three years
Three to five years
TToottaall ccrreeddiitt ddeeffaauulltt sswwaappss
OOppttiioonnss
Less than one year
One to three years
TToottaall ooppttiioonnss
TToottaall nnoonn--SSPPVV
SSPPVV
IInntteerreesstt rraattee sswwaappss –– SSPPVV
Less than one year
One to three years
Three to five years
TToottaall iinntteerreesstt rraattee sswwaappss –– SSPPVV
CCrroossss--ccuurrrreennccyy sswwaappss –– SSPPVV
Greater than five years
TToottaall ccrroossss--ccuurrrreennccyy sswwaappss –– SSPPVV
TToottaall –– SSPPVV
TToottaall ddeerriivvaattiivvee ffiinnaanncciiaall iinnssttrruummeennttss11
3300 JJuunnee 22002200
3300 JJuunnee 22001199
NNoottiioonnaall
vvaalluuee
$$mm
NNeett ffaaiirr
vvaalluuee
aasssseettss
$$mm
NNeett ffaaiirr
vvaalluuee
lliiaabbiilliittiieess
$$mm
NNoottiioonnaall
vvaalluuee
$$mm
NNeett ffaaiirr
vvaalluuee
aasssseettss
$$mm
NNeett ffaaiirr
vvaalluuee
lliiaabbiilliittiieess
$$mm
-
67.9
-
6677..99
-
1.2
-
11..22
-
(0.6)
-
((00..66))
10.0
66.9
1,638.8
11,,771155..77
2.5
-
22..55
9922,,559955..77
0.6
-
00..66
11,,111122..11
-
-
--
((772255..11))
1.1
2.5
33..66
7700,,998811..66
5.1
7.6
0.5
1133..22
-
-
-
--
(0.1)
(0.1)
-
((00..22))
6.5
5.7
0.2
1122..44
-
1.0
88.9
8899..99
-
0.6
00..66
776622..00
-
-
-
--
261.0
226611..00
227744..22
9922,,886699..99
0.4
00..44
00..44
11,,111122..55
(0.1)
((00..11))
((00..33))
((772255..44))
320.3
332200..33
333322..77
7711,,331144..33
0.5
00..55
00..55
776622..55
(0.1)
-
-
((00..11))
-
-
--
((556688..99))
(0.1)
(0.1)
-
((00..22))
(0.1)
((00..11))
((00..33))
((556699..22))
1 The Group’s derivative financial instruments are subject to enforceable netting arrangements under International Swaps and Derivatives Association (ISDA) Master
Agreements with derivative counterparties, allowing for net settlement as a single arrangement of multiple instruments with a counterparty in the event of default or
other specified circumstances. If applied to the derivative portfolio, the derivative assets would reduce by $474.1 million (30 June 2019: $342.2 million) and the
derivative liabilities would reduce by $474.1 million (30 June 2019: $342.2 million).
AAccccoouunnttiinngg ppoolliiccyy
The Group uses derivative financial instruments predominantly
to hedge its risks associated with interest rate and foreign
currency fluctuations and to gain exposure to different
markets. All derivative financial instruments are stated at fair
value. Gains or losses arising from fair value changes on
derivatives that do not qualify for hedge accounting are
recognised in the Statement of comprehensive income. For the
purpose of hedge accounting, hedges are classified as:
• cash flow hedges when they hedge the exposure to
variability in cash flows that is attributable either to a
particular risk associated with a recognised asset or liability
or to a forecast transaction; or
• hedges of net investments in foreign operations when they
hedge the exposure to changes in the value of the assets
and liabilities of foreign-controlled entities when they are
translated from their functional currency to the presentation
currency.
At the inception of a hedge relationship to which the Group
wishes to apply hedge accounting, the Group formally
designates and documents the hedge relationship and the risk
management objectives and strategies for undertaking the
hedge. The documentation includes identification of the
hedging instrument, the hedged item or transaction, the
nature of the risk being hedged and how the entity will assess
the effectiveness of the instrument in offsetting the exposure
to changes in the hedged item.
Such hedges are expected to be highly effective in achieving
offsetting changes in fair values, cash flows or foreign
exchange differences and are assessed on an ongoing basis to
determine that they actually have been effective over the
period that they were designated.
CCaasshh ffllooww hheeddggeess
Cash flow hedges are hedges of the Group’s exposure to
variability in cash flows attributable to a particular risk
associated with a recognised asset or liability, or a highly
probable forecast transaction, that could affect the Statement
of comprehensive income. The effective portion of the gain or
loss on the hedging instrument is recognised directly in equity,
while the ineffective portion is recognised in the Statement of
comprehensive income.
Amounts recognised in equity are transferred to the Statement
of comprehensive income when the hedged transaction affects
profit or loss, such as when hedged income or expenses are
recognised or when a forecast sale or purchase occurs. When
the hedged item is the cost of a non-financial asset or liability,
the amounts taken to equity are transferred to the initial
carrying amount of the non-financial asset or liability.
If the forecast transaction is no longer expected to occur,
amounts previously recognised in equity are transferred to the
Statement of comprehensive income.
If the hedging instrument expires or is sold, terminated or
exercised without replacement or rollover, or if its designation
as a hedge is revoked, amounts previously recognised in equity
remain in equity until the forecast transaction occurs.
8800
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 1100 DDeerriivvaattiivvee ffiinnaanncciiaall iinnssttrruummeennttss ((ccoonnttiinnuueedd))
AAccccoouunnttiinngg ppoolliiccyy ((ccoonnttiinnuueedd))
HHeeddggeess ooff nneett iinnvveessttmmeennttss iinn ffoorreeiiggnn ooppeerraattiioonnss
DDeerriivvaattiivveess ddeessiiggnnaatteedd aass ccaasshh ffllooww hheeddggeess
The gain or loss on the effective portion of the hedging
instrument is recognised directly in equity and the gain or loss
on the ineffective portion is recognised immediately in the
Statement of comprehensive income. The cumulative gain or
loss previously recognised in equity is recognised in the
Statement of comprehensive income on disposal or partial
disposal of the foreign operation.
DDeerriivvaattiivveess ddeessiiggnnaatteedd aass hheeddggeess ooff nneett iinnvveessttmmeenntt
iinn ffoorreeiiggnn ccuurrrreennccyy ooppeerraattiioonnss
The Group hedges its exposure to accounting gains and losses
arising from translation of foreign-controlled entities from their
functional currency into the Group’s presentation currency on
consolidation. At 30 June 2020, a post-tax gain of $0.5 million
(30 June 2019: post-tax loss of $34.7 million) was recognised
in Other comprehensive income (OCI) for the hedging of
exposure to the net investment in foreign currency operations.
The Group applies hedge accounting when it can demonstrate
that all, or a portion of, the value movements of a derivative
financial instrument effectively hedges the variability in cash
flows attributable to a specific risk associated with a
recognised asset or liability or probable future transaction. As
described in Note 18 Financial risk management, SPVs enter
into interest rate swap agreements to hedge the interest rate
risk between variable rate loans, which generally reprice with
changes in official interest rates, and issued RMBS that reprice
with changes in the 30-day and 90-day bank bill swap rates.
Cross-currency swaps are also used to hedge currency
movements on foreign denominated RMBS. The SPVs apply
hedge accounting to both types of transactions, with the fair
value change on the effective portion of the derivative being
recognised in OCI.
For the year ended 30 June 2020, a post-tax result of nil
(30 June 2019: post-tax loss of $0.2 million) was recognised in
OCI for cash flow hedges with no Statement of comprehensive
income impact in relation to any ineffective portions during
either the current or prior comparative period.
NNoottee 1111 NNootteess ttoo ssttaatteemmeenntt ooff ccaasshh fflloowwss
RReeccoonncciilliiaattiioonn ooff pprrooffiitt ttoo ooppeerraattiinngg ccaasshh ffllooww
((LLoossss))//pprrooffiitt ffoorr tthhee yyeeaarr
AAddjjuusstteedd ffoorr
Net realised and unrealised losses/(gains) on investment assets
Share of associates’ net profit
Change in life contract liabilities1
Depreciation and amortisation expense
Impairment in intangible assets, associates and other investments
Share-based payments
Dividends from associates
CChhaannggee iinn ooppeerraattiinngg aasssseettss aanndd lliiaabbiilliittiieess
Decrease in receivables
Increase in other assets
Increase/(decrease) in payables
Increase/(decrease) in provisions
(Decrease)/increase in life contract liabilities
Increase/(decrease) in external unit holders’ liabilities
(Decrease)/increase in net tax liabilities
NNeett ccaasshh fflloowwss ffrroomm ooppeerraattiinngg aaccttiivviittiieess
1 Changes relate to movements through the statement of comprehensive income.
RReeccoonncciilliiaattiioonn ooff ccaasshh
Cash at bank and on hand
Cash at bank and on hand – SPV
TToottaall ccaasshh aanndd ccaasshh eeqquuiivvaalleennttss11
1 All cash and cash equivalents are considered current.
AAccccoouunnttiinngg ppoolliiccyy
3300 JJuunnee
22002200
$$mm
((442211..11))
3300 JJuunnee
22001199
$$mm
331100..77
866.6
(29.3)
295.1
15.3
12.8
14.2
22.4
7.9
(9.2)
27.0
16.3
(584.1)
449.6
(198.6)
448844..99
(731.0)
(22.2)
881.2
15.3
(20.4)
21.4
31.6
36.9
(6.4)
(21.8)
(1.4)
260.7
(168.8)
66.5
665522..33
3300 JJuunnee
22002200
$$mm
603.9
58.0
666611..99
3300 JJuunnee
22001199
$$mm
725.4
66.5
779911..99
Cash and cash equivalents are financial assets and comprise
cash at bank and on hand plus short-term deposits with an
original maturity of three months or less that are readily
convertible to known amounts of cash and which are subject
to an insignificant risk of changes in value.
Cash and cash equivalents are recognised and carried at fair
value. For the purposes of the statement of cash flows, cash
and cash equivalents are stated net of bank overdrafts.
8811
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
Section 4: Capital structure and financing costs
This section outlines how the Group manages its capital structure and related financing costs, as well as capital adequacy
and reserves. It also provides details on the dividends and earnings per share of the Company.
NNoottee 1122 CCoonnttrriibbuutteedd eeqquuiittyy
AAnnaallyyssiiss ooff ccoonnttrriibbuutteedd eeqquuiittyy
OOrrddiinnaarryy sshhaarreess iissssuueedd aanndd ffuullllyy ppaaiidd
CPP Trust shares treated as Treasury shares
CPP deferred share purchases treated as Treasury shares
TToottaall ccoonnttrriibbuutteedd eeqquuiittyy
MMoovveemmeennttss iinn ccoonnttrriibbuutteedd eeqquuiittyy
OOrrddiinnaarryy sshhaarreess
Balance at the beginning of the year
Equity placement
Issued under dividend reinvestment plan
BBaallaannccee aatt tthhee eenndd ooff tthhee yyeeaarr
CCPPPP TTrruusstt
Balance at the beginning of the year
Shares purchased (including settled forwards)
Vested shares released to employees
BBaallaannccee aatt tthhee eenndd ooff tthhee yyeeaarr
CCPPPP ddeeffeerrrreedd sshhaarree ppuurrcchhaasseess
Balance at the beginning of the year
CPP deferred share purchases
Settled forward purchases
BBaallaannccee aatt tthhee eenndd ooff tthhee yyeeaarr
3300 JJuunnee 22002200
3300 JJuunnee 22001199
NNoo.. ooff sshhaarreess
mm
VVaalluuee ooff sshhaarreess
$$mm
NNoo.. ooff sshhaarreess
mm
VVaalluuee ooff sshhaarreess
$$mm
667.5
(2.4)
(2.0)
666633..11
611.6
55.2
0.7
666677..55
3.0
0.8
(1.4)
22..44
2.8
-
(0.8)
22..00
2,424.7
(24.8)
(22.3)
22,,337777..66
2,155.3
264.1
5.3
22,,442244..77
30.5
8.8
(14.5)
2244..88
31.1
-
(8.8)
2222..33
611.6
(3.0)
(2.8)
660055..88
610.9
-
0.7
661111..66
4.4
2.8
(4.2)
33..00
4.8
0.8
(2.8)
22..88
2,155.3
(30.5)
(31.1)
22,,009933..77
2,148.5
-
6.8
22,,115555..33
40.4
32.8
(42.7)
3300..55
56.4
7.5
(32.8)
3311..11
AAccccoouunnttiinngg ppoolliiccyy
TTeerrmmss aanndd ccoonnddiittiioonnss ooff ccoonnttrriibbuutteedd eeqquuiittyy
Ordinary shares are classified as equity and have no par value.
Issued capital in respect of ordinary shares is recognised as the
fair value of the consideration received by the parent entity.
Incremental costs directly attributable to the issue of new
shares or options are shown in equity as a deduction, net of
tax, from the proceeds.
Treasury shares are ordinary shares in the Company held by
the Challenger Performance Plan (CPP) Trust or under CPP
deferred share purchase agreements in respect of equity
incentive plan awards to employees. Refer to Note 29
Employee entitlements for further details.
OOrrddiinnaarryy sshhaarreess
A holder of an ordinary share is entitled to receive dividends
and to one vote on a show of hands and on a poll.
CChhaalllleennggeerr PPeerrffoorrmmaannccee PPllaann ((CCPPPP)) TTrruusstt
The CPP Trust is a controlled entity and holds shares in the
Company. As a result, the CPP Trust’s shareholding in the
Company is disclosed as Treasury shares and deducted from
equity. Dividends paid from the Company to the CPP Trust are
eliminated on consolidation.
CCPPPP ddeeffeerrrreedd sshhaarree ppuurrcchhaasseess
The shares purchased under forward agreements are treated
as Treasury shares from the date of the agreement. Shares are
transferred to the CPP Trust on the future settlement date.
8822
NNoottee 1122 CCoonnttrriibbuutteedd eeqquuiittyy ((ccoonnttiinnuueedd))
CCaappiittaall mmaannaaggeemmeenntt
A company is generally limited in the risk-taking activities that it
can engage in by the amount of capital it holds, with capital
acting as a buffer against risk, ensuring that there are sufficient
resources to enable the company to continue normal business
in the event of an unexpected loss.
The Group manages capital via an Internal Capital Adequacy
Assessment Process (ICAAP) at both the Group and the
prudentially-regulated Challenger Life Company Limited (CLC)
level. The objective of the ICAAP is to maintain financial
stability of the Group and CLC while ensuring the shareholders
earn an appropriate risk-adjusted return through optimisation
of the capital.
There were no material changes to the Group’s capital
management process during the period. All of the Group
regulated entities have at all times during the current and prior
financial year complied with the externally imposed capital
requirements to which they are subject.
EEqquuiittyy ppllaacceemmeenntt
On 22 June 2020, the Company conducted an underwritten
institutional share placement, raising $270.0 million with
55.2 million ordinary shares issued to institutional investors at
a price of $4.89 per share. This represented an 8.1% discount
to Challenger’s last traded price on 19 June 2020. Total issue
costs (net of tax) were $5.9 million resulting in net proceeds of
$264.1 million. The full $270.0 million proceeds from the
institutional share placement were injected into CLC as
Common Equity Tier 1 (CET1) capital.
In addition, subsequent to balance date the Company
conducted a non-underwritten share purchase plan (SPP)
raising $35.0 million with 8.1 million shares issued to retail
shareholders at a price of $4.32 per share. The proceeds from
the SPP were received on 30 July 2020 and $30.0 million of
the proceeds from the SPP were injected into CLC as CET1
capital on 31 July 2020.
IInntteerrnnaall CCaappiittaall AAddeeqquuaaccyy AAsssseessssmmeenntt PPrroocceessss ((IICCAAAAPP))
SSuummmmaarryy SSttaatteemmeenntt –– CChhaalllleennggeerr LLiimmiitteedd
The Group is a Level 3 Head (as defined in Prudential Standard
3PS 001) under the APRA conglomerates framework. Level 3
groups are groups of companies that perform material
activities across more than one APRA-regulated industry and/or
in one or more non-APRA regulated industries. APRA’s non-
capital conglomerate prudential standards relating to the
measurement, management, monitoring and reporting of
aggregate risk exposures and intragroup transactions and
exposures came into effect on 1 July 2017.
In March 2016, APRA announced that it would defer the
implementation of conglomerate capital requirements until a
number of other domestic and international policy initiatives
were further progressed. There has been no further update
from APRA in relation to this position.
Under the draft standards, the Group is required to have an
ICAAP Summary Statement. The Group ICAAP Summary
Statement aims to maintain an investment grade credit rating
and robust capital ratios in order to support its business
objectives, protect regulated entities within the Group from
operational and other risks outside those regulated entities and
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
maximise shareholder returns. The Group believes that
maintaining an investment grade rating is the most appropriate
target from a capital structure perspective and is essential in
order to secure access to capital at a reasonable cost.
CCrreeddiitt rraattiinnggss
Standard & Poor’s long-term credit ratings for the Company
and CLC at the statement of financial position date are ‘BBB+’
(stable) and ‘A’ (stable) respectively (30 June 2019: ‘BBB+’
(positive) and ‘A’ (positive) respectively). There were no
changes to either the Company or CLC’s ratings during the
period; however the outlooks were revised from positive to
stable as a result of the uncertainty caused by the COVID-19
pandemic.
DDiivviiddeennddss
The Group has historically targeted a dividend payout ratio of
between 45% - 50% of normalised profit after tax over the
medium term, subject to prevailing market conditions and
alternate uses of capital.
The dividend payout ratio for the year ended 30 June 2020
was 31.0% of normalised profit after tax (30 June 2019:
54.2%). The reduction is in light of the Board’s decision not to
declare and pay a final dividend for 2020 given the significant
investment experience losses incurred in the second half and in
order to continue to protect the Group’s strong capital
position given the uncertainty caused by COVID-19.
DDiivviiddeenndd RReeiinnvveessttmmeenntt PPllaann ((DDRRPP))
The Company maintained a DRP during the period. On
25 September 2019, the Company issued 364,482 ordinary
shares to shareholders under the DRP. The DRP issue price per
share for the 2019 final dividend was $7.0372 and represents
the volume weighted average share price over the ten trading
days from 4 to 17 September 2019. The DRP participation rate
was 2.3% of all issued shares, resulting in proceeds of
$2.6 million.
The Group continued the DRP for the interim 2020 dividend,
and on 24 March 2020 issued 338,871 ordinary shares to
satisfy the plan. The DRP issue price per share for the interim
2020 dividend was $8.1983 and represented the volume
weighted average share price over the ten trading days from
28 February 2020 to 12 March 2020. The interim DRP
participation rate was 2.6% of all issued shares, resulting in
proceeds of $2.8 million.
IICCAAAAPP SSuummmmaarryy SSttaatteemmeenntt –– CCLLCC
CLC is a life insurance company regulated under the Life Act.
The Life Act, via prudential standards issued by APRA, imposes
minimum statutory capital requirements on all life insurance
companies. Under these standards a life company must have in
place an ICAAP, documented in an ICAAP Summary
Statement. CLC complied with these requirements at all times
during the year.
8833
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 1122 CCoonnttrriibbuutteedd eeqquuiittyy ((ccoonnttiinnuueedd))
CCaappiittaall mmaannaaggeemmeenntt ((ccoonnttiinnuueedd))
PPrreessccrriibbeedd ccaappiittaall aammoouunntt ((PPCCAA))
CCLLCC’’ss ttaarrggeett ssuurrpplluuss
CLC holds capital in order to ensure that under a range of
adverse scenarios it can continue to meet its regulatory and
contractual obligations to its customers. CLC is regulated
by APRA and is required to hold a minimum level of
regulatory capital.
CLC’s regulatory capital base and PCA have been calculated in
accordance with prudential capital standards issued by APRA.
While CLC does not target a specific PCA ratio, under current
circumstances CLC’s internal capital models result in a PCA
ratio in the range of 1.3 to 1.6 times. This range can change
over time and is dependent on numerous factors.
The PCA ratio at 30 June 2020 was 1.81 times (30 June 2019:
1.53 times), higher than this range of 1.3 to 1.6 times, mainly
due to an increase in CET1 capital and changes in asset
allocation during the period to target lower capital intensive
assets following the impact of COVID-19 on investment
markets. The CET1 ratio was 1.20 times at 30 June 2020, up
from 1.06 times at 30 June 2019.
CCLLCC ccaappiittaall
CCLLCC’’ss rreegguullaattoorryy ccaappiittaall
Common Equity Tier 1 regulatory capital
Additional Tier 1 regulatory capital
Tier 2 regulatory capital – subordinated debt1
CCLLCC ttoottaall rreegguullaattoorryy ccaappiittaall bbaassee
PPrreessccrriibbeedd ccaappiittaall aammoouunntt
Asset risk charge2
Insurance risk charge
Operational risk charge
Aggregation benefit
CCLLCC pprreessccrriibbeedd ccaappiittaall aammoouunntt
CCLLCC eexxcceessss oovveerr pprreessccrriibbeedd ccaappiittaall aammoouunntt
CCaappiittaall aaddeeqquuaaccyy rraattiioo ((ttiimmeess))
CCoommmmoonn EEqquuiittyy TTiieerr 11 rraattiioo ((ttiimmeess))
CLC maintains a target level of capital representing APRA’s
PCA plus a target surplus. The target surplus is a management
guide to the level of excess capital that CLC seeks to hold over
and above APRA’s minimum requirements. CLC’s target
surplus is set to ensure that it provides a buffer against adverse
market conditions and having regard to CLC’s credit rating.
CLC uses internal capital models to determine its target
surplus, which are risk-based and are responsive to changes in
CLC’s asset allocation and market conditions.
Details of the CLC capital adequacy multiple are below:
3300 JJuunnee 22002200
$$mm
3300 JJuunnee 22001199
$$mm
2,337.0
805.0
396.7
33,,553388..77
1,842.8
199.5
56.5
(144.8)
11,,995544..00
11,,558844..77
11..8811
11..2200
2,789.4
805.0
405.3
33,,999999..77
2,539.5
135.3
51.8
(104.0)
22,,662222..66
11,,337777..11
11..5533
11..0066
1 Differs from $395.7 million (30 June 2019: $403.8 million) disclosed in Note 13 Interest bearing financial liabilities due to $1.0 million (30 June 2019: $1.5 million) of
accrued interest.
2 Asset risk charge includes the combined stress scenario adjustment and default stress.
8844
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 1133 IInntteerreesstt bbeeaarriinngg ffiinnaanncciiaall lliiaabbiilliittiieess
3300 JJuunnee 22001199
CCaasshh fflloowwss
NNoonn--ccaasshh mmoovveemmeennttss
3300 JJuunnee 22002200
FFaacciilliittyy
$$mm
OOppeenniinngg
bbaallaannccee
$$mm
PPrroocceeeeddss//
((rreeppaayymmeennttss))
$$mm
FFoorreeiiggnn
eexxcchhaannggee
$$mm
FFaaiirr vvaalluuee
cchhaannggeess
$$mm
OOtthheerr
$$mm
CClloossiinngg
bbaallaannccee
$$mm
FFaacciilliittyy
$$mm
BBaannkk llooaannss
Corporate1
Controlled property trusts2,4
Controlled infrastructure trusts4
Repurchase agreements
TToottaall bbaannkk llooaannss
NNoonn--bbaannkk llooaannss
Subordinated debt
Challenger Capital Notes 14
Challenger Capital Notes 24
Other finance
TToottaall nnoonn--bbaannkk llooaannss
TToottaall iinntteerreesstt bbeeaarriinngg ffiinnaanncciiaall
lliiaabbiilliittiieess
Current
Non-current
-
400.0
459.8
459.8
192.0
192.0
4,448.5
4,448.5
55,,550000..33 55,,110000..33
400.0
345.0
460.0
12.7
403.8
343.6
452.7
12.7
11,,221177..77 11,,221122..88
66,,771188..00 66,,331133..11
4,473.2
1,839.9
66,,331133..11
50.0
(17.7)
(6.2)
944.9
997711..00
-
-
-
(12.5)
((1122..55))
-
6.8
-
-
66..88
-
-
-
-
--
-
2.2
-
-
22..22
(8.1)
-
-
(0.2)
((88..33))
50.0
453.8
185.8
400.0
-
453.8
2.7
185.8
-
- 5,393.4 5,393.4
22..77 66,,008833..00 66,,443333..00
-
1.4
1.8
-
395.7
345.0
454.5
-
400.0
345.0
460.0
-
33..22 11,,119955..22 11,,220055..00
995588..5533
66..88
((66..11))
55..99 77,,227788..22 77,,663388..00
5,468.9
1,809.3
77,,227788..22
1 In March 2020, the Group elected to fully draw its $400.0 million banking facility in order to provide additional financial flexibility during the COVID-19 crisis. $350.0
million of this drawing was repaid in June 2020.
2 Total facility limit consists of non-redraw loan facilities limits totalling $453.8 million (30 June 2019: $459.8 million).
3 Differs to Statement of cash flows due to $134.8 million (30 June 2019: $189.0 million) repayments relating to SPV. Net cash proceeds comprise $1,344.9 million (30
June 2019: $632.8 million) proceeds from borrowings and $521.2 million (30 June 2019: $315.4 million) repayments of borrowings.
4 Held at amortised cost except for the controlled property trust loan in respect of County Court. The fair value of these are: Challenger Capital Notes 1 and 2
$340.9 million and $457.7 million (30 June 2019: $350.3 million and $485.7 million) respectively; controlled property trusts $474.9 million (30 June 2019:
$458.0 million); controlled infrastructure trusts $189.8 million (30 June 2019: $192.5 million).
3300 JJuunnee 22001188
CCaasshh fflloowwss
NNoonn--ccaasshh mmoovveemmeennttss
3300 JJuunnee 22001199
FFaacciilliittyy
$$mm
OOppeenniinngg
bbaallaannccee
$$mm
PPrroocceeeeddss//
((rreeppaayymmeennttss))
$$mm
FFoorreeiiggnn
eexxcchhaannggee
$$mm
FFaaiirr vvaalluuee
cchhaannggeess
$$mm
OOtthheerr
$$mm
CClloossiinngg
bbaallaannccee
$$mm
FFaacciilliittyy
$$mm
BBaannkk llooaannss
Corporate
Controlled property trusts1
Controlled infrastructure trusts
Repurchase agreements
TToottaall bbaannkk llooaannss
NNoonn--bbaannkk llooaannss
Subordinated debt
Challenger Capital Notes 1
Challenger Capital Notes 2
Other finance
TToottaall nnoonn--bbaannkk llooaannss
TToottaall iinntteerreesstt bbeeaarriinngg ffiinnaanncciiaall
lliiaabbiilliittiieess
Current
Non-current
400.0
-
551.2
548.4
197.2
197.2
3,816.0
3,816.0
44,,996644..44 44,,556611..66
400.0
345.0
460.0
15.0
403.7
341.9
450.9
15.0
11,,222200..00 11,,221111..55
66,,118844..44 55,,777733..11
3,839.5
1,933.6
55,,777733..11
-
(118.6)
(5.2)
632.5
550088..77
-
-
-
(2.3)
((22..33))
-
32.4
-
-
3322..44
-
-
-
-
--
-
1.4
-
-
11..44
0.1
-
-
-
00..11
-
459.8
192.0
400.0
-
459.8
(3.8)
-
192.0
- 4,448.5 4,448.5
((33..88)) 55,,110000..33 55,,550000..33
-
1.7
1.8
-
400.0
403.8
345.0
343.6
460.0
452.7
12.7
12.7
33..55 11,,221122..88 11,,221177..77
550066..4422
3322..44
11..55
((00..33)) 66,,331133..11 66,,771188..00
4,473.2
1,839.9
66,,331133..11
1 Total facility limit consists of redraw loan facilities limits totalling nil (30 June 2018: $101.0 million) and non-redraw loan facility limits totalling $459.8 million
(30 June 2018: $450.2 million).
2 Differs to Statement of cash flows due to $189.0 million (30 June 2018: $258.2 million) net repayments relating to SPVs. Total net cash proceeds comprise
$632.8 million (30 June 2018: $988.7 million) proceeds from borrowings and $315.4 million (30 June 2018: $708.3 million) repayments of borrowings, inclusive of
SPVs.
8855
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 1133 IInntteerreesstt bbeeaarriinngg ffiinnaanncciiaall lliiaabbiilliittiieess ((ccoonnttiinnuueedd))
AAccccoouunnttiinngg ppoolliiccyy
All borrowings and subordinated debt are financial liabilities
and are initially recognised at fair value. For borrowings and
subordinated debt that are subsequently measured at fair
value through profit or loss, directly attributable transaction
costs are expensed with movements on fair value recognised in
the Statement of comprehensive income.
Borrowings and subordinated debt, other than those held by
CLC’s statutory funds or their controlled entities, are
subsequently measured at amortised cost. Any difference
DDeettaaiillss ooff lliiaabbiilliittiieess
BBaannkk llooaannss
BBaannkk llooaannss
Corporate
TTyyppee
Facility
Loan
Controlled
property
trusts1
MMaattuurriittyy
Tranche 1: $150m expiring
on 30 June 2022
Tranche 2: $250m expiring
on 30 June 2024
June 2022 to October 2024
Facility
June 2022
Controlled
infrastructure
trusts2
between the proceeds (net of transaction costs) and the
redemption amount is recognised in the Statement of
comprehensive income over the period of the contract using
the effective interest rate method.
Repurchase agreements are all short-term in nature, and are
therefore valued at amortised cost which approximates fair
value.
RRaattee ttyyppee RRaannkkiinngg//sseeccuurriittyy
Floating
Secured by guarantees between members of the
Group
Variable
1) First ranking mortgages over Japanese
investment properties: $424.7 million
(30 June 2019: $420.9 million)
2) First ranking mortgage over County Court,
VIC: $27.0 million (30 June 2019:
$38.6 million)
Variable
First ranking mortgages over infrastructure
assets
1 Controlled properties trusts consists of multiple loans with maturity dates from June 2022 to October 2024. At 30 June 2020 $424.9 million (30 June 2019: $419.3
million) of these loans are held at amortised cost. The fair value of these liabilities at 30 June 2020 was $474.9 million (30 June 2019: $458.0 million)
2 These loans are held at amortised cost. The fair value of these liabilities at 30 June 2020 was $189.8 million (30 June 2019: $192.5 million).
RReeppuurrcchhaassee aaggrreeeemmeennttss
CChhaalllleennggeerr CCaappiittaall NNootteess –– 11 aanndd 22 ((NNootteess 11 aanndd NNootteess 22))
CLC has entered into repurchase agreements with certain
counterparties whereby fixed income securities are sold for
cash whilst simultaneously agreeing to repurchase the fixed
income security at a fixed price and fixed date in the future.
These agreements finance bonds held for hedging purposes
and are interest bearing, with interest factored into the price
at which the bonds are repurchased and paid on repurchase.
All agreements as at 30 June 2020 are current and all mature
by December 2020. They will continue to be rolled into new
agreements in the future.
CLC uses Australian Government and Semi-Government Bonds
with repurchase agreements, interest rate swaps and bond
futures to hedge movements in interest rates on its asset
portfolio, annuity policy liabilities, Guaranteed Index Return
mandates and the Challenger Index Plus Fund.
NNoonn--bbaannkk llooaannss
SSuubboorrddiinnaatteedd ddeebbtt
CLC issued subordinated notes of $400.0 million on 24
November 2017 with a call date on 24 November 2022.
Holders of the subordinated notes have the option to convert
their holding into ordinary shares of Challenger Limited on 24
November 2024 if CLC has not exercised its call option on 24
November 2022. If holders do not elect to convert the
subordinated notes to ordinary shares of Challenger Limited,
the subordinated notes will be fully eligible as Tier 2 regulatory
capital of CLC until 24 November 2038.
8866
Notes 1 and Notes 2 have similar structural characteristics,
including:
• quarterly, floating, discretionary, non-cumulative
distributions based on a margin over 3 month BBSW;
• optional exchange whereby notes may be redeemed or
resold for cash or converted to ordinary shares in the
Company, at the Company’s option, on the relevant
Optional Exchange Date (or on an earlier date in certain
circumstances), subject to APRA’s prior written
approval; and
• mandatory conversion to ordinary shares in the Company on
the relevant Mandatory Conversion Date, subject to certain
conditions being satisfied. If the conditions to mandatory
conversion are not met on the relevant Mandatory
Conversion Date, conversion will be deferred to a later date
when the conditions are retested.
Issue date
Issue amount
Optional Exchange
Date
Mandatory Conversion
Date
NNootteess 11
9 October 2014
$345.0 million
NNootteess 22
7 April 2017
$460.0 million
25 May 2020
22 May 2023
25 May 2022
22 May 2025
NNoottee 1133 IInntteerreesstt bbeeaarriinngg ffiinnaanncciiaall lliiaabbiilliittiieess ((ccoonnttiinnuueedd))
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
Notwithstanding Challenger not exercising its right to call
Challenger Capital Notes 1 on its Optional Exchange Date, the
notes issued by CLC to the Company in respect of Challenger
Capital Notes 1 continue to constitute Additional Tier 1 capital
of CLC.
KKeeyy eessttiimmaatteess aanndd aassssuummppttiioonnss
SSuubboorrddiinnaatteedd ddeebbtt vvaalluuaattiioonn
Subordinated debt is recognised at fair value and is valued by
reference to the ask price observable in the market at balance
date.
The change recognised in the statement of comprehensive
income in respect of valuation changes for the year ended 30
June 2020 was a gain of $8.1 million (30 June 2019: loss of
$0.1 million).
With the unprecedented market conditions created by the
COVID-19 crisis, Challenger informed the market that the
ability to issue a replacement instrument, was not possible at
the time and therefore elected not to exercise its right to call
Challenger Capital Notes 1 on its Optional Exchange Date of
25 May 2020. Challenger has the ongoing right to repurchase
Challenger Capital Notes 1 on any distribution date prior to
the Mandatory Conversion Date.
The costs associated with the issue of both Notes 1 and Notes
2 have been capitalised against the relevant liability; Notes 1
costs have been fully amortised to the Statement of
comprehensive income, while those related to Notes 2 will
continue to be amortised over the life of the Notes.
Neither the Notes 1 issue nor the Notes 2 issue constitute
regulatory capital of the Company. The proceeds from the
issue of both Notes 1 and Notes 2 were used to fund a
subscription for notes issued by CLC.
Both issues of notes by CLC to the Company were approved
by APRA and constitute Additional Tier 1 capital of CLC.
NNoottee 1144 RReesseerrvveess aanndd rreettaaiinneedd eeaarrnniinnggss
SShhaarree--bbaasseedd ppaayymmeennttss rreesseerrvvee
Balance at the beginning of the year
Share-based payments for the period
Releases from share-based payments reserve
Tax in equity
BBaallaannccee aatt tthhee eenndd ooff tthhee yyeeaarr
CCaasshh ffllooww hheeddggee rreesseerrvvee –– SSPPVV11
Balance at the beginning of the year
Gain/(loss) on cash flow hedges
BBaallaannccee aatt tthhee eenndd ooff tthhee yyeeaarr
FFoorreeiiggnn ccuurrrreennccyy ttrraannssllaattiioonn rreesseerrvvee11
Balance at the beginning of the year
Gain on translation of foreign entities2
Gain/(loss) on hedge of net investment in foreign entities2
BBaallaannccee aatt tthhee eenndd ooff tthhee yyeeaarr
AAddjjuusstteedd ccoonnttrroolllliinngg iinntteerreessttss rreesseerrvvee11
Balance at the beginning of the year
Change in holdings in controlled entities
BBaallaannccee aatt tthhee eenndd ooff tthhee yyeeaarr
TToottaall rreesseerrvveess
RReettaaiinneedd eeaarrnniinnggss
Balance at the beginning of the year
AASB 16 adjustment
(Loss)/profit attributable to equity holders
Dividends paid
TToottaall rreettaaiinneedd eeaarrnniinnggss
1 These items may eventually be recycled to the profit and loss section of the Statement of comprehensive income.
2 Net of tax.
3300 JJuunnee
22002200
$$mm
3300 JJuunnee
22001199
$$mm
(57.7)
14.2
(14.5)
1.8
((5566..22))
0.1
-
00..11
(2.6)
1.6
0.5
((00..55))
7.8
(2.1)
55..77
((5500..99))
(43.0)
21.4
(42.7)
6.6
((5577..77))
0.3
(0.2)
00..11
(3.3)
35.4
(34.7)
((22..66))
12.7
(4.9)
77..88
((5522..44))
1,559.0
(3.7)
(416.0)
(216.4)
992222..99
1,467.0
-
307.8
(215.8)
11,,555599..00
8877
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 1144 RReesseerrvveess aanndd rreettaaiinneedd eeaarrnniinnggss ((ccoonnttiinnuueedd))
AAccccoouunnttiinngg ppoolliiccyy
SShhaarree--bbaasseedd ppaayymmeennttss rreesseerrvvee
AAddjjuusstteedd ccoonnttrroolllliinngg iinntteerreessttss rreesseerrvvee
An expense is recognised over the vesting period of share-
based payments granted to employees. This expense is based
on the valuation of the equity benefits conferred at the grant
date. When an instrument is granted, and an expense
incurred, there is a corresponding increase in the share-based
payments reserve directly in equity.
This reserve relates to changes arising from movements in the
ownership interests in entities already controlled by the Group.
The difference between the fair value of the consideration
paid/received for the change in holding and the change in the
Group’s share of the net assets of the entity is recorded in this
reserve.
The total of this reserve is net of any gain or loss realised on
the disposal of forfeited shares held within the schemes. On
vesting of the award they are subsequently recognised as an
increase in equity and a reduction in share-based payment
reserve at an average acquisition price, which may be higher or
lower than the initial recognised valuation price.
FFoorreeiiggnn ccuurrrreennccyy ttrraannssllaattiioonn rreesseerrvvee
This reserve is used to record foreign exchange differences
arising from the translation of the foreign subsidiaries. It also
includes the effective portion of fair value changes on foreign
exchange derivative contracts designated as hedges of a net
investment in a foreign entity.
NNoottee 1155 FFiinnaannccee ccoossttss
Interest expense
Interest expense – lease liabilities
Interest expense – SPV
Interest expense – property trusts1
Interest expense – Challenger Capital Notes 1 and 2
Other finance costs
TToottaall ffiinnaannccee ccoossttss
1 No interest was capitalised in the period (30 June 2019: $4.9 million).
AAccccoouunnttiinngg ppoolliiccyy
Finance costs represent interest incurred on interest bearing
financial liabilities (primarily external unit holders’ liabilities
distributions, repurchase agreements, the securitised
residential mortgage-backed securities (RMBS) issued by the
consolidated Special Purpose Vehicles (SPV), subordinated
debt, bank loans and other borrowings) and are recognised as
an expense in the period in which they are incurred.
Finance costs that are directly attributable to the acquisition,
construction or production of qualifying property assets (being
assets that take a substantial period of time to develop for
their intended use or sale) are capitalised as part of the cost of
that asset. Revenue earned on the investment of specific
CCaasshh ffllooww hheeddggee rreesseerrvvee –– SSPPVV
This comprises the effective portion of the cumulative net
change in the fair value of cash flow hedging instruments
related to hedged transactions.
3300 JJuunnee
22002200
$$mm
155.5
2.9
11.1
6.1
31.1
7.1
221133..88
3300 JJuunnee
22001199
$$mm
313.7
-
23.1
6.8
36.5
5.5
338855..66
borrowings pending their expenditure on qualifying assets is
deducted from the borrowing costs eligible for capitalisation.
To the extent that the Group allocates general borrowed funds
for the purpose of obtaining a qualifying property asset, the
borrowing costs eligible for capitalisation are determined by
applying a capitalisation rate to the expenditure on that asset.
The capitalisation rate of 3.0% (30 June 2019: 3.9%) is the
weighted average of the borrowing costs applicable to the
borrowings that are outstanding during the period, other than
borrowing made specifically for the purpose of obtaining the
qualifying asset.
8888
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 1166 DDiivviiddeennddss ppaaiidd aanndd pprrooppoosseedd
DDiivviiddeennddss ddeeccllaarreedd aanndd ppaaiidd dduurriinngg tthhee yyeeaarr
Final 30 June 2019 100% franked dividend: 18.0 cents (30 June 2018: 18.0 cents 100%
franked dividend)
Interim 30 June 2020 100% franked dividend: 17.5 cents (30 June 2019: 17.5 cents 100%
franked dividend)
TToottaall ddiivviiddeennddss ppaaiidd
DDiivviiddeenndd pprrooppoosseedd ((nnoott rreeccooggnniisseedd aass aa lliiaabbiilliittyy aatt 3300 JJuunnee))
Final 30 June 2020 dividend: nil (30 June 2019: 100% franked 18.0 cents)
Refer to Note 12 Contributed equity for details of the dividend policy.
DDiivviiddeenndd ffrraannkkiinngg ccrreeddiittss
3300 JJuunnee
22002200
$$mm
3300 JJuunnee
22001199
$$mm
109.7
109.4
106.7
221166..44
106.4
221155..88
-
109.7
Franking credits available to shareholders are $12.4 million (30
June 2019: $87.5 million), based on a tax rate of 30%. The
amount is calculated from the balance of the franking account
as at the end of the reporting period, adjusted for franking
debits that will arise after the end of the reporting period in
respect of interest on Challenger Capital Notes 1 and 2.
NNoottee 1177 EEaarrnniinnggss ppeerr sshhaarree
Basic earnings per share
Diluted earnings per share
(Loss)/profit attributable to ordinary shareholders
Add back interest expense on Challenger Capital Notes 1 and 2
Add back interest expense net of tax on CLC Subordinated Notes
TToottaall eeaarrnniinnggss uusseedd iinn tthhee ccaallccuullaattiioonn ooff ddiilluutteedd eeaarrnniinnggss ppeerr sshhaarree
NNuummbbeerr ooff sshhaarreess
Weighted average of ordinary shares issued
Weighted average of Treasury shares
WWeeiigghhtteedd aavveerraaggee oorrddiinnaarryy sshhaarreess ffoorr bbaassiicc eeaarrnniinnggss ppeerr sshhaarree
AAddjjuusstteedd ffoorr ppootteennttiiaall oorrddiinnaarryy sshhaarreess::
Weighted average effect of Challenger Performance Plan
Weighted average effect of Challenger Capital Notes 1 and 2
Weighted average effect of CLC Subordinated Notes
WWeeiigghhtteedd aavveerraaggee oorrddiinnaarryy sshhaarreess ffoorr ddiilluutteedd eeaarrnniinnggss ppeerr sshhaarree
3300 JJuunnee
22002200
cceennttss
(68.4)
(68.4)
$$mm
(416.0)
-
-
((441166..00))
3300 JJuunnee
22001199
cceennttss
50.9
44.8
$$mm
307.8
32.9
11.2
335511..99
NNuummbbeerr
NNuummbbeerr
612,872,293 611,216,128
(6,205,078)
660088,,333311,,336622 660055,,001111,,005500
(4,540,931)
-
4,481,432
- 117,792,197
58,479,532
-
660088,,333311,,336622 778855,,776644,,221111
AAccccoouunnttiinngg ppoolliiccyy
Basic earnings per share is calculated by dividing the total
profit for the year attributable to equity holders of the
Company by the weighted average number of ordinary shares
outstanding during the financial year. The number of ordinary
shares outstanding is net of Treasury shares held by the
Challenger Performance Plan (CPP) Trust or under CPP
deferred share purchase agreements in respect of equity
incentive plan awards to employees.
The weighted average number of Treasury shares for the
period was 4,540,931 (2019: 6,205,078).
AAccccoouunnttiinngg ttrreeaattmmeenntt ooff CCaappiittaall NNootteess aanndd ssuubboorrddiinnaatteedd
ddeebbtt
Challenger Capital Notes 1 and 2 and subordinated debt are
an effective source of funding for Challenger.
Each of the Capital Notes 1 and 2 and subordinated debt have
convertibility features which would result in these instruments
converting to ordinary shares under certain circumstances,
including APRA determining CLC to be non-viable.
8899
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 1177 EEaarrnniinnggss ppeerr sshhaarree ((ccoonnttiinnuueedd))
AAccccoouunnttiinngg ppoolliiccyy ((ccoonnttiinnuueedd))
It is Challenger’s current intention to refinance each of these
instruments at a future date.
However, under AASB 133 Earnings per Share, convertible
debt is considered dilutive whenever the interest per potential
ordinary share for each of these instruments is less than
Challenger’s basic EPS for the period. As such, a test is
required at each reporting period to determine if they are
included in the dilutive share count.
Diluted earnings per share is calculated by dividing the total
adjusted profit attributable to equity holders of the Company
by the weighted average number of ordinary shares
outstanding during the year adjusted for the effects of dilutive
shares that may be converted under the terms of Challenger
Capital Notes 1 and 2 (Notes), CLC Subordinated Notes and
shares granted under the Challenger Performance Plan (CPP).
The dilutive share count for Challenger’s convertible debt
(Challenger Capital Notes 1 and 2 and subordinated debt) is
based on the following formula:
Face value of debt
Conversion factor x Challenger’s 20-day VWAP share price
The conversion factor on all Challenger’s convertible debt is
99% of the weighted average Challenger share price over the
last 20 days of trading in each reporting period.
An assessment of the dilutive impact of convertible securities is
usually done by reference to the determination as to whether
the interest received would be more or less than the EPS and
whether it would be rational for a holder to receive coupon
from the convertible security or dividends from holding the
shares. However, when the company is in a loss position the
dilutive EPS is capped at the basic EPS. This is because the
dilutive impact of issuing more shares means that the loss
incurred is spread over a higher number of shares which
results in a lower loss per share. In these circumstances, the
dilutive EPS cannot be lower than the basic EPS. As a result,
the potential shares that might be considered dilutive by virtue
of their conversion to equity, are considered non-dilutive in a
loss position and are therefore not included in the calculation.
In the current year this results in no adjustment for potential
dilution from the conversion of securities to ordinary shares.
The profit attributable to ordinary shareholders is adjusted by
interest on the Notes and CLC Subordinated Notes for the
diluted calculation when the Notes and CLC Subordinated
Notes are considered dilutive. No adjustment was required for
the year (30 June 2019: $44.1 million).
In addition, subsequent to balance date the Company
conducted a non-underwritten share purchase plan (SPP)
raising $35.0 million with 8.1 million shares issued to retail
shareholders at a price of $4.32 per share. The proceeds from
the SPP were received on 30 July 2020 and $30.0 million of
the proceeds from the SPP were injected into CLC as Common
Equity Tier 1 capital on 31 July 2020.
9900
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
Section 5: Risk management
This section outlines how financial risk is managed within the Group and provides additional information about how the
overall risk management program seeks to minimise potentially adverse financial effects associated with key financial risks.
This section also provides disclosures on the fair values of assets and liabilities of the Group, the valuation techniques used
in determining the fair value of those assets and liabilities, and the sensitivities of assets categorised as Level 3 instruments
to reasonably possible changes in valuation assumptions.
NNoottee 1188 FFiinnaanncciiaall rriisskk mmaannaaggeemmeenntt
GGoovveerrnnaannccee aanndd rriisskk mmaannaaggeemmeenntt ffrraammeewwoorrkk
IInntteerreesstt rraattee rriisskk
Interest rate risk is the risk of fluctuations in the Group’s
earnings and equity arising from movements in market interest
rates, including changes in the absolute levels of interest rates,
the shape of the yield curve, the margin between the different
yield curves and the volatility of interest rates.
It is the Group’s policy to minimise the impact of interest rate
movements on debt servicing capacity, Group profitability,
business requirements and company valuation. The amount of
drawn net recourse corporate interest bearing liabilities, and
their duration, is determined with reference to the annual
budget and the most current forecasts. The Group’s strategy is
to have no interest rate hedges with a duration of greater than
five years and targets average hedge duration of three years.
CLC’s market risk policy is approved by the CLC Board and sets
out the relevant risk limits for interest rate exposure. It is CLC’s
policy to minimise the impact of interest rate movements on its
projected future cash flows. The management of the risks
associated with life investment and life insurance contracts,
including interest rate risk, are subject to the prudential
requirements of the Life Act and APRA. This includes satisfying
capital adequacy requirements, which in turn include
consideration of how the interest rate sensitivity of assets and
liabilities are matched.
For the SPV entities, the impact of a rising/falling bank bill
swap rate (BBSW) results in an increase/decrease in the cost of
funding and therefore on the profit of the trusts. This interest
rate risk is mitigated by actively adjusting the interest rates
charged to borrowers if a sustained adverse differential to the
benchmark is evidenced. SPV entities are also exposed to the
risks arising from borrowers fixing the rates on their mortgage.
This interest rate risk is managed by using cash flow hedges to
swap the fixed rate to a floating rate exposure at an amount
equal to the notional value of the mortgages being fixed.
The Group’s activities expose it to a variety of financial risks,
such as market risk (including currency risk, interest rate risk,
inflation risk, equity price risk and credit spread risk), credit
default risk and liquidity risk. The management of these risks is
fundamental to the Group’s business and to building
shareholder value. The Board is responsible, in conjunction
with senior management, for understanding the risks
associated with the activities of the Group and implementing
structures and policies to adequately monitor and manage
those risks.
The Board has established the Group Risk Committee (GRC)
and Group Audit Committee (GAC) to assist in the discharge
of certain responsibilities. In particular, the GRC assists the
Board in setting the risk appetite and ensuring the Group has
an effective risk management framework incorporating
management, operational and financial controls.
The Executive Risk Management Committee (ERMC) is an
executive committee, chaired by the Chief Risk Officer (CRO),
which assists the GRC, GAC and Board in the discharge of
their risk management obligations by implementing the
Board-approved risk management framework.
The Group’s Risk division has day-to-day responsibility for
monitoring the implementation of the framework with
oversight, analysis, monitoring and reporting of risks. The CRO
provides regular reporting to the GRC and the Board.
The Group’s principal financial instruments consist of cash and
cash equivalents, receivables, financial assets at fair value
through profit and loss, payables, life insurance contract
liabilities, life investment contract liabilities, derivatives and
other interest bearing financial liabilities.
Details of the significant accounting policies and methods
adopted, including the criteria for recognition, the basis of
measurement and the basis on which income and expenses
are recognised, in respect of each class of financial
instruments, are disclosed in Section 1: Basis of preparation
and overarching significant accounting policies and included in
the relevant notes to the financial statements.
MMaarrkkeett rriisskk
Market risk is the risk that the fair value and/or future cash
flows from a financial instrument will fluctuate as a result of
changes in market factors. Market risk comprises (amongst
others) interest rate risk (due to fluctuations in market interest
rates), price risk (due to fluctuations in the fair value of equities
and other alternatives or credit spreads) and currency risk (due
to fluctuations in foreign currency exchange rates).
9911
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 1188 FFiinnaanncciiaall rriisskk mmaannaaggeemmeenntt ((ccoonnttiinnuueedd))
IInntteerreesstt rraattee rriisskk ((ccoonnttiinnuueedd))
IInntteerreesstt rraattee sseennssiittiivviittyy
The Group’s sensitivity to movements in interest rates in
relation to the value of financial assets and liabilities is shown
in the table below. It is assumed that the change happens at
the statement of financial position date and that there are
concurrent movements in interest rates and parallel moves in
the yield curve. All material underlying exposures and related
hedges are included in the analysis which includes investment
properties with leases, where the future income stream is
duration-hedged for interest rate movements. The impact on
profit and equity is post-tax at a rate of 30%. The risks faced
and methods used in the sensitivity analysis are the same as
those applied in the comparative period. As shown below,
100 basis points (1%) movements in interest rates would have
minimal impact on the Group’s financial position:
CChhaannggee iinn vvaarriiaabbllee
+100bps
-100bps
+100bps
-100bps
++110000bbppss
--110000bbppss
PPrrooffiitt//((lloossss))
3300 JJuunnee 22002200
$$mm
0.8
(0.8)
(0.3)
0.3
00..55
((00..55))
CChhaannggee iinn eeqquuiittyy
3300 JJuunnee 22002200
$$mm
0.8
(0.8)
(0.3)
0.3
00..55
((00..55))
PPrrooffiitt//((lloossss))
3300 JJuunnee 22001199
$$mm
1.2
(1.2)
(0.7)
0.7
00..55
((00..55))
CChhaannggee iinn eeqquuiittyy
3300 JJuunnee 22001199
$$mm
1.2
(1.2)
(0.7)
0.7
00..55
((00..55))
Non-SPV
SPV
TToottaall
PPrriiccee rriisskk
Price risk is the risk that the fair value of a financial instrument
will fluctuate as a result of changes in market prices (other
than those arising from interest rate or currency risk), whether
those changes are caused by factors specific to the individual
financial instrument or its issuer, or factors affecting all similar
financial instruments. The Group is exposed to equity price risk
on its holdings in equity securities, which include a range of
investments in absolute return strategies where returns are
considered to be generally uncorrelated to listed equity market
returns, and credit spread risk on its fixed income securities.
The Group is required to fair value all equities and fixed
income securities held to back life contract liabilities.
Equity risks will arise as a natural result of CLC’s Asset
Allocation Plan. Equity prices can be driven by a range of risk
factors specific to an individual exposure including broad
macroeconomic and instrument specific factors that may be
uncorrelated with broader equity markets. The Group’s
primary tools for managing investment price risks are CLC’s
Internal Capital Adequacy Assessment Process (ICAAP) and
Asset Allocation plan.
EEqquuiittyy pprriiccee rriisskk sseennssiittiivviittyy
The potential impact of movements in the market value of
listed and unlisted equities on the Group’s Statement of
comprehensive income and Statement of financial position is
shown in the below sensitivity analysis. This sensitivity analysis
has been performed to assess the direct risk of holding equity
instruments; therefore, any potential indirect impact on fees
from the Group’s funds management business has been
excluded.
The impact on profit and equity is post-tax at a rate of 30%.
The risks faced and methods used in the sensitivity analysis are
the same as those applied in the comparative period. As
shown below, a 10% movement in equity prices would have a
material impact on the consolidated Group’s financial position.
It is assumed that the relevant change occurs as at the
Statement of financial position date.
EEqquuiittiieess aanndd ootthheerr aalltteerrnnaattiivveess
Property securities
Infrastructure investments
Other equities and alternative
assets
TToottaall aasssseettss
CChhaannggee iinn
vvaarriiaabbllee
+10%
-10%
+10%
-10%
+10%
-10%
++1100%%
--1100%%
PPrrooffiitt//((lloossss))
3300 JJuunnee 22002200
$$mm
5.3
(5.3)
3.9
(3.9)
101.7
(101.7)
111100..99
((111100..99))
CChhaannggee iinn eeqquuiittyy
3300 JJuunnee 22002200
$$mm
5.3
(5.3)
3.9
(3.9)
101.7
(101.7)
111100..99
((111100..99))
PPrrooffiitt//((lloossss))
3300 JJuunnee 22001199
$$mm
8.9
(8.9)
56.5
(56.5)
164.9
(164.9)
223300..33
((223300..33))
CChhaannggee iinn eeqquuiittyy
3300 JJuunnee 22001199
$$mm
8.9
(8.9)
56.5
(56.5)
164.9
(164.9)
223300..33
((223300..33))
9922
NNoottee 1188 FFiinnaanncciiaall rriisskk mmaannaaggeemmeenntt ((ccoonnttiinnuueedd))
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
PPrriiccee rriisskk ((ccoonnttiinnuueedd))
CCrreeddiitt sspprreeaadd rriisskk sseennssiittiivviittyy
The Group is exposed to price movements resulting from credit
spread fluctuations through its fixed income securities (net of
subordinated debt) and policy liabilities. As at 30 June 2020, a
50 basis point increase/decrease in credit spreads would result
in a post-tax (at 30%) unrealised loss/gain in the Statement of
comprehensive income and equity of $102.9 million in respect
of fixed income securities partially offset by an unrealised
gain/loss of $77.8 million in respect of policy liabilities (30 June
2019: $133.6 million fixed income securities, $59.7 million
policy liabilities).
CCuurrrreennccyy rriisskk
It is the Group’s policy to minimise the exposure of all
statement of financial position items to movements in foreign
exchange rates. Currency exposure arises primarily as a result
of investments in the Eurozone, Japan, the United Kingdom
and the United States, so currency risk therefore arises from
fluctuations in the value of the Euro, Japanese Yen, British
Pound and US Dollar against the Australian Dollar. In order to
protect against foreign currency exchange rate movements,
the Group has entered into foreign currency derivatives.
3300 JJuunnee 22002200
Financial assets
Financial liabilities
Foreign currency contracts and cross currency swaps
NNeett eexxppoossuurree iinn AAuussttrraalliiaann ddoollllaarrss
3300 JJuunnee 22001199
Financial assets
Financial liabilities
Foreign currency contracts and cross currency swaps
NNeett eexxppoossuurree iinn AAuussttrraalliiaann ddoollllaarrss
The analysis in the currency risk table shows the impact on
the Statement of comprehensive income and equity of a
movement in the Group’s major foreign currency exposure
exchange rates against the Australian dollar using the net
exposure at the balance date. All underlying exposures and
related hedges are included in the analysis.
A sensitivity of 10% has continued to have been applied as it
still reflects a reasonable measurement given the current level
of exchange rates and the volatility observed during the
conditions created by the COVID-19 crisis. The impact on
profit and equity is post-tax at a rate of 30%.
In addition, the Group has exposure to foreign exchange risk
upon consolidation of its foreign currency denominated
controlled entities and materially mitigates this by designating
foreign currency derivatives as hedges of net investments in
foreign entities in equity to match its foreign currency
translation reserve exposure. Effectiveness is monitored on a
regular basis to ensure that the hedge remains effective and
any ineffective portion of the hedge is recognised directly in
the Statement of comprehensive income.
The SPV entities hedge exposure to foreign currency risk
arising from issuing mortgage-backed securities in foreign
currencies. The currencies impacted are primarily the British
Pound, Euro and US Dollar. All derivatives in the SPV entities
are designated as cash flow hedges. These hedges are
effective and there is no material impact on the profit and loss.
The following table details the Group’s net exposure to foreign
currency as at the reporting date in Australian dollar
equivalent amounts:
GGBBPP
$$mm
UUSSDD
$$mm
EEuurroo
$$mm
JJPPYY
$$mm
OOtthheerr
$$mm
560.3
(4.7)
(550.8)
44..88
1,940.2
(648.8)
(1,260.3)
3311..11
899.7
(1.7)
(895.4)
22..66
503.9
(5.8)
(497.0)
11..11
2,506.8
-
(2,506.6)
00..22
1,031.5
(3.2)
(1,019.1)
99..22
420.3
(0.8)
(405.5)
1144..00
899.3
(419.0)
(486.1)
((55..88))
514.3
-
(513.6)
00..77
624.9
-
(624.3)
00..66
The risks faced and methods used in the sensitivity analysis are
the same as those applied in the comparative period. As
shown in the table on the following page, a 10% movement
in foreign currency exchange rates would have minimal impact
on the Group’s financial position.
9933
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 1188 FFiinnaanncciiaall rriisskk mmaannaaggeemmeenntt ((ccoonnttiinnuueedd))
CCuurrrreennccyy rriisskk ((ccoonnttiinnuueedd))
British Pound (GBP)
US Dollar (USD)
Euro (EUR)
Japanese Yen (JPY)
Other
TToottaall
MMoovveemmeenntt iinn
vvaarriiaabbllee aaggaaiinnsstt $$
+10%
-10%
+10%
-10%
+10%
-10%
+10%
-10%
+10%
-10%
++1100%%
--1100%%
PPrrooffiitt//((lloossss))
3300 JJuunnee 22002200
$$mm
0.4
(0.4)
2.2
(2.2)
0.2
(0.2)
-
-
-
-
22..88
((22..88))
CChhaannggee iinn eeqquuiittyy
3300 JJuunnee 22002200
$$mm
0.4
(0.4)
2.2
(2.2)
0.2
(0.2)
1.0
(1.0)
-
-
33..88
((33..88))
PPrrooffiitt//((lloossss))
3300 JJuunnee 22001199
$$mm
0.1
(0.1)
-
-
0.7
(0.7)
-
-
-
-
00..88
((00..88))
CChhaannggee iinn eeqquuiittyy
3300 JJuunnee 22001199
$$mm
0.1
(0.1)
-
-
0.7
(0.7)
(0.4)
0.4
-
-
00..44
((00..44))
CCrreeddiitt ddeeffaauulltt rriisskk
The Group makes use of external ratings agencies (Standard &
Poor’s, Fitch, Moody’s or other reputable credit rating agency)
to determine credit ratings. Where a counterparty or debt
obligation is rated by multiple external ratings agencies, the
Group will use Standard & Poor’s ratings where available. All
credit exposures with an external rating are also rated
internally and cross-referenced to the external rating, if
applicable. Where external credit ratings are not available,
internal credit ratings are assigned by appropriately qualified
and experienced credit personnel who operate separately from
the risk originators.
Each business unit is responsible for managing credit risks
that arise with oversight from a centralised credit risk
management team.
COVID-19 has led to a number of external and internal ratings
downgrades and loan restructures and amendments.
CCrreeddiitt eexxppoossuurree bbyy ccrreeddiitt rraattiinngg
The table below provides information regarding the maximum
credit risk exposure of the Group in respect of the major
classes of financial assets by equivalent credit rating. The
maximum credit exposure is deemed to be the carrying value
of the asset not including any collateral or other credit
protection in place. The analysis classifies the assets according
to internal or external credit ratings. Assets rated investment
grade are those rated by Standard & Poor’s at BBB– or above,
with non-investment grade therefore being below BBB–.
IInnvveessttmmeenntt ggrraaddee
AAAAAA
$$mm
AAAA
$$mm
AA
$$mm
NNoonn--iinnvv..
ggrraaddee
$$mm
BBBBBB
$$mm
OOtthheerr
$$mm
TToottaall
$$mm
3300 JJuunnee 22002200
Cash and cash equivalents
Cash and cash equivalents – SPV
Receivables
Mortgage assets – SPV
Fixed income securities
Derivative assets
Financial leases
TToottaall aasssseettss wwiitthh ccrreeddiitt eexxppoossuurreess
3300 JJuunnee 22001199
Cash and cash equivalents
Cash and cash equivalents – SPV
Receivables
Mortgage assets – SPV
Fixed income securities
Derivative assets
Finance leases
TToottaall aasssseettss wwiitthh ccrreeddiitt eexxppoossuurreess
9944
603.9
58.0
27.7
348.5
11,443.9
-
-
1122,,448822..00
725.4
66.5
16.5
431.1
7,530.8
-
-
88,,777700..33
-
-
41.7
68.3
1,189.9
1,033.4
-
22,,333333..33
-
-
12.5
144.5
3,022.7
611.9
0.1
33,,779911..77
-
-
58.2
125.4
2,113.0
78.4
11.4
22,,338866..44
-
-
212.4
222.2
2,191.6
60.3
8.6
22,,669955..11
-
-
21.6
166.8
2,474.7
0.1
7.3
22,,667700..55
-
-
21.5
55.4
2,629.5
14.6
7.9
22,,772288..99
-
-
5.9
-
2,120.7
0.6
13.0
22,,114400..22
-
-
3.7
7.9
2,112.1
75.7
32.9
22,,223322..33
-
-
439.0
(2.4)
603.9
58.0
594.1
706.6
132.7 19,474.9
1,112.5
31.7
556699..33 2222,,558811..77
-
-
-
-
313.4
(0.5)
725.4
66.5
580.0
860.6
115.8 17,602.5
762.5
49.5
442288..77 2200,,664477..00
-
-
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 1188 FFiinnaanncciiaall rriisskk mmaannaaggeemmeenntt ((ccoonnttiinnuueedd))
CCrreeddiitt ddeeffaauulltt rriisskk ((ccoonnttiinnuueedd))
MMoorrttggaaggee aasssseettss –– SSPPVV
CCoonncceennttrraattiioonn rriisskk
Mortgage assets – SPV are funded via securitised residential
mortgage-backed securities (RMBS). As a result, the Group is
not exposed to significant credit risk on these assets as this is
borne by the RMBS holder.
The credit risk framework includes an assessment of the
counterparty credit risk in each business unit and at a total
Group level. The Group has no significant concentrations of
credit risk at the statement of financial position date.
CCoollllaatteerraall hheelldd oovveerr aasssseettss
AAggeeiinngg ooff aammoorrttiisseedd ccoosstt ffiinnaanncciiaall aasssseettss
In the event of a default against any of the mortgages in any
SPV, the trustee has the legal right to take possession of the
secured property and sell it as a recovery action against
settlement of the outstanding account mortgage balance. At
all times of possession, the risks and rewards associated with
ownership of the property are held by the trustee on behalf of
the RMBS holder.
The table below gives information regarding the carrying value
of the Group’s financial assets measured at amortised cost.
The analysis splits these assets by those that are not past due
and those that are past due (including an ageing analysis at
the Statement of financial position date):
AAmmoorrttiisseedd ccoosstt ffiinnaanncciiaall aasssseettss
3300 JJuunnee 22002200
Receivables
Mortgage assets – SPV
Finance leases
TToottaall rreecceeiivvaabblleess
3300 JJuunnee 22001199
Receivables
Mortgage assets – SPV
Finance leases
TToottaall rreecceeiivvaabblleess
LLiiqquuiiddiittyy rriisskk
NNoott ppaasstt
dduuee
$$mm
00--11
mmoonntthhss
$$mm
PPaasstt dduuee
11--33
mmoonntthhss
$$mm
33--66
mmoonntthhss
$$mm
66++
mmoonntthhss
$$mm
TToottaall
$$mm
587.8
598.2
31.7
11,,221177..77
580.0
742.9
49.5
11,,337722..44
-
26.1
-
2266..11
-
44.8
-
4444..88
4.5
26.7
-
3311..22
-
29.0
-
2299..00
1.8
51.2
-
5533..00
-
14.5
-
1144..55
-
4.4
-
44..44
594.1
706.6
31.7
11,,333322..44
-
29.4
-
2299..44
580.0
860.6
49.5
11,,449900..11
Liquidity risk is the risk that the Group will encounter difficulty
in raising funds to meet cash commitments associated with
financial instruments. This may result from either the inability
to sell financial assets at their fair values, a counterparty failing
on repayment of a contractual obligation, the inability to
generate cash inflows as anticipated or an unexpected increase
in cash outflows.
The Group aims to ensure that it has sufficient liquidity to
meet its obligations on a short and medium-term basis. In
setting the level of sufficient liquidity, the Group considers
new business activities in addition to current contracted
obligations. It considers: minimum cash requirements;
collateral and margin call buffers; Australian Financial Services
Licence (AFSL) requirements; cash flow forecasts; associated
reporting requirements; other liquidity risks; and contingency
plans.
The basis of the approach to liquidity management is to target
sufficient liquidity to meet all cash requirements of the Group
over an ensuing 12 month period which ensures that the
regulatory guidelines set out in ASIC Regulatory Guide
166 Licensing: Financial requirements for holders of an AFSL
are met.
The Group aims to ensure that it has sufficient liquidity to
meet its obligations on a short, medium and long-term basis.
The Life liquidity management policy is approved by the CLC
Board and sets out liquidity targets and mandated actions
depending on actual liquidity levels relative to those targets.
Detailed forecast cash positions are reported regularly to the
Financial Risk Committee (FRC). The FRC and the Investment
Committee (IC) replaced the CLC Asset Liability Committee
(ALCo) from 1 July 2019. The IC is a committee of investment
professionals from within CLC and represents the first line. The
FRC is a committee of professionals mainly from the Risk
division that is separate from the investment team of CLC. The
FRC represents the second line for CLC. At the reporting date,
all requirements of the CLC Board approved liquidity
management policy were satisfied.
MMaattuurriittyy pprrooffiillee ooff uunnddiissccoouunntteedd ffiinnaanncciiaall lliiaabbiilliittiieess
The table on the following page summarises the maturity
profile of the Group’s undiscounted financial liabilities. This is
based on contractual undiscounted repayment obligations.
Totals differ to the amounts on the statement of financial
position by the amount of time value of money discounting
reflected in the Statement of financial position values.
9955
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 1188 FFiinnaanncciiaall rriisskk mmaannaaggeemmeenntt ((ccoonnttiinnuueedd))
MMaattuurriinngg pprrooffiillee ooff uunnddiissccoouunntteedd ffiinnaanncciiaall lliiaabbiilliittiieess
3300 JJuunnee 22002200
Payables
Payables – SPV
Interest bearing financial liabilities
Interest bearing financial liabilities – SPV
External unit holders’ liabilities
Life investment contract liabilities
Life insurance contract liabilities1
Derivative liabilities
TToottaall uunnddiissccoouunntteedd ffiinnaanncciiaall lliiaabbiilliittiieess11
3300 JJuunnee 22001199
Payables
Payables – SPV
Interest bearing financial liabilities
Interest bearing financial liabilities – SPV
External unit holders’ liabilities
Life investment contract liabilities
Life insurance contract liabilities1
Derivative liabilities
TToottaall uunnddiissccoouunntteedd ffiinnaanncciiaall lliiaabbiilliittiieess11
11 yyeeaarr oorr
lleessss
$$mm
1,555.5
2.0
5,458.0
139.9
1,587.3
2,966.4
775.4
97.1
1122,,558811..66
1,077.2
2.3
4,885.8
236.5
1,356.4
2,822.7
672.7
135.2
1111,,118888..88
11--33
yyeeaarrss
$$mm
33--55
yyeeaarrss
$$mm
-
10.2
1,336.0
260.6
828.5
2,325.5
1,272.1
48.7
66,,008811..66
6.1
10.2
154.5
326.3
609.8
2,866.7
1,129.0
75.2
55,,117777..88
-
45.3
453.2
147.1
-
542.5
1,014.4
80.7
22,,228833..22
-
46.2
1,341.9
185.1
-
830.7
871.6
51.7
33,,332277..22
>>55
yyeeaarrss
$$mm
27.9
-
168.8
170.2
-
427.0
4,574.9
498.9
55,,886677..77
26.2
-
185.7
222.9
-
510.2
4,449.5
307.1
55,,770011..66
TToottaall
$$mm
1,583.4
57.5
7,416.0
717.8
2,415.8
6,261.4
7,636.8
725.4
2266,,881144..00
1,109.5
58.7
6,567.9
970.8
1,966.2
7,030.3
7,122.8
569.2
2255,,339955..55
1 Disclosure of life insurance contract liabilities is not required under AASB 7 Financial Risk Management, for reference purposes they have been included. Refer to
Note 8 Life contract liabilities for further details.
NNoottee 1199 FFaaiirr vvaalluueess ooff ffiinnaanncciiaall aasssseettss aanndd lliiaabbiilliittiieess
FFaaiirr vvaalluuee ddeetteerrmmiinnaattiioonn aanndd ccllaassssiiffiiccaattiioonn
Fair value reflects the price that would be received on sale of
an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The
majority of the Group’s financial instruments are held in the
life insurance statutory funds of CLC and, as a result, are
required by AASB 1038 Life Insurance Contracts to be
designated at fair value through profit and loss where this is
permitted under AASB 9 Financial Instruments.
Financial instruments measured at fair value are categorised
under a three level hierarchy, reflecting the availability of
observable market inputs when estimating the fair value. If
different levels of inputs are used to measure a financial
instrument’s fair value, the classification within the hierarchy is
based on the lowest level that is significant to the fair value
measurement. The three levels are:
Level 1
Level 2
unadjusted quoted prices in active markets are the valuation inputs for identical assets or liabilities (i.e. listed
securities).
valuation inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either
directly (as prices) or indirectly (derived from prices) are used.
Level 3
there are valuation inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The unobservable inputs into the valuation of the Group’s
Level 3 assets and liabilities are determined based on the best
information available, including the Group’s own assessment
of the assumptions that market participants would use in
pricing the asset or liability. Examples of unobservable inputs
are estimates about the timing and amount of cash flows,
discount rates, earnings multiples and internal credit ratings.
VVaalluuaattiioonn tteecchhnniiqquueess
The majority of the Group’s listed and unlisted fixed income
securities, over-the-counter derivative financial instruments
and interest bearing liabilities including the subordinated debt
issuance are classified as Level 2. This recognises the availability
of a quoted price but not from an active market as defined by
the standard.
Fixed income securities where market observable inputs are
not available are classified Level 3. The Group’s derivative
financial instruments are traded over-the-counter so, while
they are not exchange traded, there is a market observable
price. All of the fixed income and government/semi-
government securities have prices determined by a market.
9966
NNoottee 1199 FFaaiirr vvaalluueess ooff ffiinnaanncciiaall aasssseettss aanndd lliiaabbiilliittiieess ((ccoonnttiinnuueedd))
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
VVaalluuaattiioonn tteecchhnniiqquueess ((ccoonnttiinnuueedd))
Externally rated unlisted fixed income securities are valued by
applying market observable credit spreads on similar assets
with an equivalent credit rating and are classified as Level 2.
Internally-rated fixed income securities are Level 3 as the
determination of an equivalent credit rating is a significant
non-observable input.
Equity, infrastructure and property securities that are exchange
traded are generally classified as Level 1. Where quoted prices
are available, but are not from an active market, they are
classified as Level 2. If market observable inputs are not
available, they are classified as Level 3. Valuations can make
use of cash flow forecasts discounted using the applicable
yield curve, earnings-multiple valuations or, for managed
funds, the net assets of the trust per the most recent financial
report.
External unit holders’ liabilities are valued at the face value of
the amounts payable and classified as Level 2. The portion of
life investment contract liabilities classified as Level 2 represent
products or product options for which the liability is
determined based on an account balance, rather than a
discounted cash flow as applied to the rest of the portfolio.
Cash and cash equivalents are carried at amortised cost. To
determine a fair value where the asset is liquid or maturing
within three months, the fair value is approximate to the
carrying amounts. This assumption is applied to liquid assets
and the short-term elements of all other financial assets and
financial liabilities.
The mortgage SPVs have total equity attributable to residual
income unitholders (RIU) holders at amortised cost of
$0.1 million (2019: $0.2 million). The fair value of this RIU
holders’ asset is $41.0 million (2019: $62.4 million) and would
be classified as Level 3 in the fair value hierarchy.
Challenger Capital Notes 1 and 2 have carrying values of
$345.0 million and $460.0 million. The fair value of these
notes is $340.9 million and $457.7 million respectively and are
classified as Level 1 in the fair value hierarchy.
VVaalluuaattiioonn pprroocceessss
For financial instruments and investment properties
categorised within Level 3 of the fair value hierarchy, the
valuation process applied in valuing such instruments is
governed by the CLC Practice Note on Investment Asset and
Financial Liability Valuation. The Practice Note outlines the
Valuation Committee’s responsibilities in the valuation of
investment assets and financial liabilities for the purposes of
financial reporting. All significant Level 3 financial instruments
are referred to the Valuation Committee which generally
meets monthly, or more frequently if required.
All financial instruments and investment properties are
measured on a recurring basis. Refer Note 5 Financial assets –
fair value through profit and loss and Note 6 Investment and
development property for further details on the valuation
process applied to unlisted financial instruments and
investment properties.
The table on the following page summarises the financial
instruments and investment properties measured at fair value
at each level of the fair value hierarchy as at the statement of
financial position date.
9977
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 1199 FFaaiirr vvaalluueess ooff ffiinnaanncciiaall aasssseettss aanndd lliiaabbiilliittiieess ((ccoonnttiinnuueedd))
VVaalluuaattiioonn pprroocceessss ((ccoonnttiinnuueedd))
3300 JJuunnee 22002200
Derivative assets
Fixed income securities1
Equity and other alternatives
Infrastructure investments1
Property securities
Investment and development property2
TToottaall aasssseettss
Derivative liabilities
Interest bearing financial liabilities
External unit holders’ liabilities
Life investment contract liabilities
TToottaall lliiaabbiilliittiieess
3300 JJuunnee 22001199
Derivative assets
Fixed income securities
Equity and other alternatives
Infrastructure investments1
Property securities
Investment and development property2
TToottaall aasssseettss
Derivative liabilities
Interest bearing financial liabilities
External unit holders’ liabilities
Life investment contract liabilities
TToottaall lliiaabbiilliittiieess
LLeevveell 11
$$mm
LLeevveell 22
$$mm
-
-
0.5
-
-
-
00..55
-
798.6
-
-
779988..66
-
-
6.9
210.6
-
-
221177..55
-
836.0
-
-
883366..00
1,111.9
17,566.5
627.8
9.8
-
-
1199,,331166..00
725.4
422.7
2,415.8
49.9
33,,661133..88
761.9
15,604.8
1,025.7
234.9
-
155.8
1177,,778833..11
569.1
443.1
1,966.2
58.1
33,,003366..55
LLeevveell 33
$$mm
0.6
1,908.4
274.4
370.3
76.3
3,685.9
66,,331155..99
-
-
-
5,817.9
55,,881177..99
0.6
1,997.7
299.6
421.6
127.8
3,573.4
66,,442200..77
0.1
12.5
-
6,699.6
66,,771122..22
TToottaall
$$mm
1,112.5
19,474.9
902.7
380.1
76.3
3,685.9
2255,,663322..44
725.4
1,221.3
2,415.8
5,867.8
1100,,223300..33
762.5
17,602.5
1,332.2
867.1
127.8
3,729.2
2244,,442211..33
569.2
1,291.6
1,966.2
6,757.7
1100,,558844..77
1 The Group has exposures to structured entities (entities designed so that voting or similar rights are not the dominant factor in determining who controls the entity;
for example, when any voting rights relate purely to administrative tasks) via investments in asset-backed finance vehicles (where it may act as a lender or purchaser
of notes and/or residual income units) and securitisations (such as mortgages, finance leases and other types of collateralised vehicles). The Company assesses, at
inception and at each reporting date, whether a structured entity should be consolidated based on the accounting policy. The maximum exposure to loss is limited to
the reported fair value of the underlying securities plus any guaranteed undrawn commitments to the counterparties. At 30 June 2020 the carrying value of asset-
backed financing assets was $91.1 million (30 June 2019: $81.8 million) with $32.0 million undrawn commitments (30 June 2019: $39.5 million) and securitisations
was $5,386.5 million (30 June 2019: $4,313.3 million) plus $107.2 million undrawn commitments (30 June 2019: $81.2 million).
2 Refer Note 6 Investment and development property for valuation techniques and key unobservable inputs.
LLeevveell 33 rreeccoonncciilliiaattiioonn
The following table shows a reconciliation of the movement in the fair value of financial instruments categorised within Level 3 of
the fair value hierarchy during the year:
Balance at the beginning of the year
Fair value gains/(losses)
Acquisitions
Maturities and disposals
Transfers to other categories1,2
BBaallaannccee aatt tthhee eenndd ooff tthhee yyeeaarr
Unrealised gains/(losses) included in the statement of
comprehensive income for assets and liabilities held at the
statement of financial position date
3300 JJuunnee 22002200
AAsssseettss
$$mm
6,420.7
(187.5)
2,764.2
(2,666.0)
(15.5)
66,,331155..99
LLiiaabbiilliittiieess
$$mm
6,712.2
135.7
1,992.4
(3,022.4)
-
55,,881177..99
3300 JJuunnee 22001199
AAsssseettss
$$mm
6,440.9
72.4
2,723.3
(2,772.3)
(43.6)
66,,442200..77
LLiiaabbiilliittiieess
$$mm
6,585.3
312.0
2,354.0
(2,539.1)
-
66,,771122..22
(187.5)
135.7
76.3
(312.0)
1 The Group transfers between levels of the fair value hierarchy when there is a change in the observability of the pricing inputs or a change to valuation methodology.
2 Transfers to/from other categories are due to changes in the market observability of inputs used in the valuation of financial instruments. There were no transfers
between Level 1 and Level 2 during the reporting period. There were $2.5 million of transfers into Level 3 (30 June 2019: $216.0 million) and there were
$18.0 million of transfers out of Level 3 and into Level 2 (30 June 2019: $259.6 million) during the reporting period.
9988
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 1199 FFaaiirr vvaalluueess ooff ffiinnaanncciiaall aasssseettss aanndd lliiaabbiilliittiieess ((ccoonnttiinnuueedd))
LLeevveell 33 sseennssiittiivviittiieess
The following table shows the sensitivity of Level 3 financial instruments to a reasonably possible change in alternative
assumptions in respect of the non-observable inputs into the fair value calculation:
3300 JJuunnee 22002200
Derivative assets
Fixed income securities
Equity and other alternatives
Infrastructure investments
Property securities
LLeevveell 33
vvaalluuee11
$$mm
PPoossiittiivvee
iimmppaacctt
$$mm
0.6
1,908.4
274.4
370.3
76.3
-
23.1
18.8
2.6
3.8
Investment contract liabilities
(5,817.9)
Investment and development property 3,685.9
2.3
165.3
NNeeggaattiivvee
iimmppaacctt
$$mm VVaalluuaattiioonn tteecchhnniiqquuee
RReeaassoonnaabbllyy ppoossssiibbllee cchhaannggee
iinn nnoonn--oobbsseerrvvaabbllee iinnppuutt22,,33
- Discounted cash flow
(74.9) Discounted cash flow
(20.1) Pricing model
Primarily credit spreads
Primarily credit spreads
Earnings multiple, Mortality rate
(2.6) Discounted cash flow,
External financial report
(3.8) Market capitalisation,
Discounted cash flow
(2.3) Discounted cash flow
(116.9) Market capitalisation,
Discounted cash flow
Primarily discount rate on cash
flow models
Primarily capitalisation rate
Primarily expense assumptions
Primarily capitalisation rate
449988..00
221155..99
((222200..66))
TToottaall LLeevveell 33
3300 JJuunnee 22001199
Derivative assets
Derivative liabilities
Fixed income securities
Interest bearing financial liabilities
Equity and other alternatives
Infrastructure investments
Property securities
0.6
(0.1)
1,997.7
(12.5)
299.6
421.6
127.8
0.1
0.2
10.5
0.2
22.7
4.9
6.4
(6,699.6)
Investment contract liabilities
Investment and development property 3,573.4
3.5
166.7
(0.1) Discounted cash flow
0.1 Discounted cash flow
(37.2) Discounted cash flow
(0.4) Discounted cash flow
(24.2) Pricing model
Primarily credit spreads
Primarily credit spreads
Primarily credit spreads
Primarily credit spreads
Earnings multiple, Mortality rate
(4.9) Discounted cash flow,
External financial report
(6.4) Market capitalisation,
Discounted cash flow
(3.5) Discounted cash flow
(152.7) Market capitalisation,
Discounted cash flow
Primarily discount rate on cash
flow models
Primarily capitalisation rate
Primarily expense assumptions
Primarily capitalisation rate
TToottaall LLeevveell 33
((229911..55))
221155..22
((222299..33))
1 The fair value of the asset or liability would increase/decrease if the credit spread, discount rate or expense assumptions decrease/increase or if the other inputs
increase/decrease.
2 Specific asset valuations will vary from asset to asset as each individual industry profile will determine appropriate valuation inputs to be utilised.
3 The effect of a change to reflect a reasonably possible alternative assumption was calculated by moving the credit band by one tier, adjusting the discount rates by
between 50bps – 100bps, adjusting property capitalisation rates by 25bps (Australia) or 10bps (Japan), adjusting credit spreads by 50bps, changing the valuation of
the unlisted schemes by 5% and adjusting the expense assumption allocation splits by 10%.
The COVID-19 pandemic has had a significant impact on the
economy and continues to drive uncertainty across the
commercial property market. Independent valuers have noted
these uncertainties in respect of the assumptions applied in the
course of performing the independent valuation assessments
for the direct property portfolio as at the reporting date. As a
result of this uncertainty, a further sensitivity analysis has been
undertaken to assess the impact on fair value when the
significant non-observable input (capitalisation rates)
experience a more material movement. Under this additional
sensitivity scenario, the capitalisation rate is moved by 50bps
(Australia) / 20 bps (Japan), resulting in a positive impact of
$324.3 million and a negative impact of $246.4 million across
the direct property portfolio.
Fixed income also forms a material part of the level 3 asset
class held by the Group. This portfolio primarily consists of
internally rated securities where the valuation is derived from
applying the market observable comparable spread. The key
non-observable input in these valuations is the internally
derived credit rating which is based upon credit assessment
undertaken by the Risk division. The COVID-19 pandemic has
impacted many businesses across various industries and the
long term effects are difficult to assess and not all industries
and businesses have been impacted equally. An assessment of
the current impact of COVID-19 on the performance of the
Level 3 component of the fixed income portfolio has been
undertaken and that performance has not changed sufficiently
to currently warrant any additional sensitivity being included.
9999
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 2200 CCoollllaatteerraall aarrrraannggeemmeennttss
AAccccoouunnttiinngg ppoolliiccyy
CLC receives collateral, where it is considered necessary, when
entering into certain financial arrangements. The amount of
collateral required is subject to management’s credit
evaluation of the counterparty which is performed on a case-
by-case basis. As at 30 June 2020 $471.8 million (30 June
2019: $415.1 million) cash received from third parties as
collateral is recorded in payables and $221.4 million (30 June
2019: nil) of collateral assets received from counterparties
were repledged by the Company to third parties. Except in the
event of default, collateral received can be called back by the
counterparty in accordance with the financial arrangement.
CLC is required to pledge collateral, as part of the standard
terms of transactions, when entering into certain financial
arrangements. Cash paid to third parties as collateral is
recorded in receivables. Other financial assets transferred as
collateral are not derecognised from the statements of
financial position as the risks and rewards of ownership remain
with CLC. At the balance sheet date the fair value of cash and
financial assets pledged are as follows:
CCoollllaatteerraall pplleeddggeedd aass sseeccuurriittyy
Cash
Other financial assets1
TToottaall ccoollllaatteerraall pplleeddggeedd
1 Includes assets sold under repurchase agreements. Please refer Note 13 Interest bearing financial liabilities for more information.
3300 JJuunnee
22002200
$$mm
98.4
7,730.3
77,,882288..77
3300 JJuunnee
22001199
$$mm
220.1
5,991.0
66,,221111..11
110000
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
Section 6: Group structure
This section provides details and disclosures relating to the parent entity of the Group, controlled entities, investments in
associates and any acquisitions and/or disposals of businesses in the year. Disclosure for related parties is also provided in
this section.
NNoottee 2211 PPaarreenntt eennttiittyy
CCoommppaannyy
SSttaatteemmeenntt ooff ccoommpprreehheennssiivvee iinnccoommee ffoorr tthhee yyeeaarr eennddeedd
Dividends and interest from controlled entities
Finance costs
Profit before income tax
Income tax benefit
TToottaall ccoommpprreehheennssiivvee iinnccoommee ffoorr tthhee yyeeaarr
SSttaatteemmeenntt ooff ffiinnaanncciiaall ppoossiittiioonn aass aatt
AAsssseettss
Cash and cash equivalents
Receivables
Financial asset – fixed income securities1
Current tax asset
Deferred tax assets
Investment in controlled entities
TToottaall aasssseettss
LLiiaabbiilliittiieess
Payables
Interest bearing financial liabilities
TToottaall lliiaabbiilliittiieess
NNeett aasssseettss
EEqquuiittyy
Contributed equity
Share-based payments reserve
Retained earnings
TToottaall eeqquuiittyy
3300 JJuunnee
22002200
$$mm
3300 JJuunnee
22001199
$$mm
232.5
(31.1)
201.4
1.7
220033..11
322.7
(36.5)
286.2
3.3
228899..55
3.0
1,439.0
805.0
-
84.1
2,373.8
44,,770044..99
661.6
799.8
11,,446611..44
33,,224433..55
2.8
1,224.1
805.0
6.0
-
2,088.9
44,,112266..88
344.7
796.5
11,,114411..22
22,,998855..66
2,424.7
(111.0)
929.8
33,,224433..55
2,155.3
(113.6)
943.9
22,,998855..66
1 Financial asset – fixed income securities relates to the subscription by the Company of notes issued by CLC that qualify as Additional Tier 1 capital of CLC.
Refer Note 28 Contingent liabilities, contingent assets and credit commitments for details of any contingent liabilities applicable to the parent entity.
110011
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 2222 CCoonnttrroolllleedd eennttiittiieess
The table below presents the hierarchical structure of Challenger Limited showing its controlled entities that form the main
composition of the Group as at 30 June 2020:
EEnnttiittyy nnaammee
CChhaalllleennggeerr LLiimmiitteedd
CChhaalllleennggeerr GGrroouupp HHoollddiinnggss LLiimmiitteedd
Challenger Group Services Pty Limited
Challenger Treasury Limited
Challenger Japan Holdings Pty Limited
CChhaalllleennggeerr FFuunnddss MMaannaaggeemmeenntt HHoollddiinnggss PPttyy LLiimmiitteedd
Fidante Partners Holdings Pty Limited
Fidante Partners Holdings Europe Limited (incorporated in the UK)
Challenger Investment Partners Limited
CChhaalllleennggeerr LLiiffee CCoommppaannyy HHoollddiinnggss LLiimmiitteedd
Challenger Life Company Limited
CChhaalllleennggeerr WWhhoolleessaallee FFiinnaannccee HHoollddiinnggss PPttyy LLiimmiitteedd
PPrriinncciippaall aaccttiivviittyy
Corporate
Corporate
Corporate
Corporate
Funds management
Funds management
Funds management
Funds management
Life
Life
Life
Challenger’s percentage holding of the above entities is 100% and all are incorporated in Australia unless otherwise stated.
Entities with non-controlling interests represent net assets of nil (30 June 2019: $22.5 million).
AAccccoouunnttiinngg ppoolliiccyy
PPrriinncciipplleess ooff ccoonnssoolliiddaattiioonn
Controlled entities are consolidated from the date on which
control is transferred to the Group and cease to be
consolidated from the date on which control is transferred out
of the Group. The acquisition method of accounting is applied
on acquisition or initial consolidation. This method ascribes fair
values to the identifiable assets and liabilities acquired. The
difference between the net fair value acquired and the fair
value of the consideration paid (including the fair value of any
pre-existing investment in the entity) is recognised as either
goodwill on the Statement of financial position or a discount
on acquisition through the Statement of comprehensive
income.
NNoottee 2233 IInnvveessttmmeenntt iinn aassssoocciiaatteess
The financial statements consolidate the financial information
of controlled entities. An entity is controlled when the
Company is exposed, or has rights, to variable returns from its
involvement with the entity and has the ability to affect those
returns through its power over the entity. The statement of
financial position date and the accounting policies of
controlled entities are consistent with those of the Company.
The Company assesses, at inception and at each reporting
date, whether an entity should be consolidated based on the
accounting policy.
All intercompany balances and transactions, including
unrealised profits arising from intra-group transactions, are
eliminated in full. Non-controlling interests represent the share
in the net assets of subsidiaries attributable to equity interests
not owned directly or indirectly by the Group.
PPrriinncciippaall aaccttiivviittyy
Funds Management
Funds Management
Funds Management
Funds Management
Funds Management
Funds Management
Funds Management
Funds Management
Funds Management
Funds Management
Funds Management
Funds Management
Funds Management
Funds Management
Funds Management
Funds Management
CCoouunnttrryy ooff
ddoommiicciillee
Australia
Australia
Australia
Australia
Australia
Australia
UK
Australia
Australia
Australia
Australia
UK
UK
Australia
Australia
UK
3300 JJuunnee
22002200
%%11
30
30
35
40
49
40
-
48
40
30
49
-
-
33
30
49
3300 JJuunnee
22001199
%%11
30
30
-
40
49
40
20
50
40
30
49
-
50
33
30
49
3300 JJuunnee
22002200
$$mm
2.0
3.3
0.2
3.3
0.7
0.8
-
39.8
2.0
2.0
0.3
0.7
-
2.2
5.6
0.1
6633..00
3300 JJuunnee
22001199
$$mm
1.3
3.1
-
2.7
0.7
0.8
2.0
34.2
2.1
1.7
0.2
0.7
0.4
2.3
4.9
1.0
5588..11
NNaammee ooff ccoommppaannyy
Alphinity Investment Management Pty Ltd
Ardea Investment Management Pty Ltd
Ares Australia Management
Avenir Capital Pty Ltd
Bentham Asset Management Pty Ltd
Eiger Capital Pty Ltd
FME Asset Management Ltd
Greencape Capital Pty Ltd
Lennox Capital Partners Pty Ltd
Merlon Capital Partners Pty Ltd
Novaport Capital Pty Ltd
Resonance Asset Management Limited22
Structured Credit Research LLP
Wavestone Capital Pty Ltd
Whitehelm Capital Pty Ltd
Wyetree Asset Management Pty Ltd
TToottaall iinnvveessttmmeenntt iinn aassssoocciiaatteess33
1 Represents ownership and voting rights percentages.
2 Challenger is deemed to have significant influence.
3 Investment in associates is all considered non-current.
110022
NNoottee 2233 IInnvveessttmmeenntt iinn aassssoocciiaatteess ((ccoonnttiinnuueedd))
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
MMoovveemmeennttss iinn ccaarrrryyiinngg aammoouunntt ooff iinnvveessttmmeenntt iinn aassssoocciiaatteess
Opening balance
Acquisition of investment in associates
Share of associates’ net profit
Dividends and net capital redemptions
Reclassification to investment in controlled entities
Impairment of investment in associates
CCaarrrryyiinngg aammoouunntt aatt tthhee eenndd ooff tthhee yyeeaarr
SShhaarree ooff aassssoocciiaatteess’’ pprrooffiitt oorr lloossss
PPrrooffiitt aafftteerr ttaaxx ffoorr tthhee yyeeaarr
SShhaarree ooff tthhee aassssoocciiaatteess’’ ssttaatteemmeenntt ooff ffiinnaanncciiaall ppoossiittiioonn
Current assets
Non-current assets
TToottaall aasssseettss
Current liabilities
Non-current liabilities
TToottaall lliiaabbiilliittiieess
NNeett aasssseettss
3300 JJuunnee
22002200
$$mm
3300 JJuunnee
22001199
$$mm
58.1
-
29.3
(21.9)
(0.6)
(1.9)
6633..00
62.4
2.2
22.2
(28.7)
-
-
5588..11
2299..33
2222..22
38.0
4.6
4422..66
21.8
1.4
2233..22
1199..44
36.3
1.8
3388..11
18.5
1.8
2200..33
1177..88
IInnvveessttmmeennttss iinn aassssoocciiaatteess hheelldd bbyy CChhaalllleennggeerr LLiiffee
CCoommppaannyy ((CCLLCC))
As at 30 June 2019, CLC held a 33.3% equity interest in
Assetsecure Pty Ltd and was deemed to have significant
influence. The investment was $8.0 million. In November
2019, CLC acquired the residual equity interest. Since 27
November 2019, Assetsecure Pty Ltd is consolidated. Refer to
Note 26 Acquisitions and disposals of subsidiaries, businesses
and associates.
The consolidated Statement of comprehensive income reflects
the share of the results of operations of associates. Where
there has been a change recognised directly in the associate’s
equity, the Group recognises its share of any changes in the
statement of changes in equity.
KKeeyy eessttiimmaatteess aanndd aassssuummppttiioonnss
Investments in entities held to back investment contract
liabilities and life insurance contract liabilities are exempt from
the requirement to apply equity accounting and have been
designated on initial recognition as financial assets measured
at fair value through profit or loss.
An assessment is performed at each statement of financial
position date to determine whether there is any indication of
impairment and whether it is necessary to recognise any
impairment loss against the carrying value of the net
investment in associates.
The Group determines the dates of obtaining or losing
significant influence of another entity based on an assessment
of all pertinent facts and circumstances that affect the ability
to significantly influence the financial and operating policies of
that entity.
AAccccoouunnttiinngg ppoolliiccyy
Associates are entities over which the Group has significant
influence of the entities’ financial and operating policies but
not control. Investments in associates, other than those
backing life contracts, are accounted for under the equity
method whereby investments are carried at cost adjusted for
post-acquisition changes in the Group’s share of the net assets
of the entity.
Associates’ financial reports are used to apply the equity
method and both the financial year end date and accounting
policies of associate entities are consistent with those of the
Group.
110033
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 2244 RReellaatteedd ppaarrttiieess
KKeeyy mmaannaaggeemmeenntt ppeerrssoonnnneell
The Directors and key executives of Challenger Limited during the reporting period were as follows:
DDiirreeccttoorrss
PPeetteerr PPoollssoonn
RRiicchhaarrdd HHoowweess
JJoohhnn MM GGrreeeenn
SStteevveenn GGrreegggg
MMaassaahhiikkoo KKoobbaayyaasshhii11 (appointed 26 August 2019)
JJooAAnnnnee SStteepphheennssoonn
DDuunnccaann WWeesstt
MMeellaanniiee WWiilllliiss
LLeeoonn ZZwwiieerr (retired 31 October 2019)
Independent Chair
Managing Director and Chief Executive Officer
Independent Non-Executive Director
Independent Non-Executive Director
Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
1 Hiroyuki Iioka was appointed as an alternate director to Masahiko Kobayashi on 13 December 2019.
KKeeyy eexxeeccuuttiivveess
RRiicchhaarrdd HHoowweess
NNiicckk HHaammiillttoonn11
AAnnggeellaa MMuurrpphhyy
CChhrriiss PPllaatteerr
IIaann SSaaiinneess22
AAnnddrreeww TToobbiinn
1 Nick Hamilton commenced being a key executive on 23 September 2019.
2 Ian Saines ceased being a key executive on 22 September 2019.
CCoonnttrroolllleedd eennttiittiieess aanndd aassssoocciiaatteess
Unless an exception applies under relevant legislation,
transactions between commonly-controlled entities within the
Group (except where otherwise disclosed) are conducted on
an arm’s length basis under normal commercial terms and
conditions. The Group’s interests in controlled entities are
disclosed in Note 22 Controlled entities.
OOtthheerr rreellaatteedd ppaarrttiieess
During the year, there were transactions between the Group
and Challenger-sponsored managed funds for the provision of
investment management, transaction advisory and other
professional services.
Transactions were also entered into between the Group and
associated entities (refer to Note 23 Investment in associates)
for the provision of distribution and administration services.
Managing Director and Chief Executive Officer
Chief Executive, Funds Management
Chief Executive, Distribution, Product and Marketing
Chief Executive & Chief Investment Officer, Life
Chief Executive, Funds Management
Chief Financial Officer
The Group earned fee income during the year of $47.4 million
(2019: $46.0 million) from transactions entered into with non-
controlled funds and associates. Transactions are conducted
on an arm’s length basis under normal commercial terms and
conditions.
LLooaannss ttoo DDiirreeccttoorrss aanndd kkeeyy eexxeeccuuttiivveess
There were no loans made to Directors or key executives as at
30 June 2020 (30 June 2019: nil).
GGrroouupp pprroodduuccttss
From time to time, Directors or key executives of the Company
or their related entities may purchase products from the
Group. These purchases are on the same arm’s length terms
and conditions as those offered to other employees or
customers.
TToottaall rreemmuunneerraattiioonn ooff KKeeyy MMaannaaggeemmeenntt PPeerrssoonnnneell aanndd NNoonn--EExxeeccuuttiivvee DDiirreeccttoorrss
KKMMPP aanndd NNoonn--EExxeeccuuttiivvee DDiirreeccttoorrss
NNoonn--EExxeeccuuttiivvee DDiirreeccttoorrss
22002200
2019
KKMMPP
22002200
2019
SShhoorrtt--
tteerrmm
bbeenneeffiittss
$$
PPoosstt--
eemmppllooyymmeenntt
bbeenneeffiittss
$$
SShhaarree--bbaasseedd
ppaayymmeennttss
$$
OOtthheerr
bbeenneeffiittss
$$
TTeerrmmiinnaattiioonn
bbeenneeffiittss
$$
TToottaall
$$
11,,666600,,117799
1,812,945
110033,,339988
100,580
--
-
--
-
--
-
11,,776633,,557777
1,913,525
33,,887788,,994433
6,766,774
110055,,001155 55,,224488,,447711
7,722,428
103,870
114433,,557733
354,813
--
99,,337766,,000022
- 14,947,885
AAllll KKMMPP aanndd NNoonn--EExxeeccuuttiivvee DDiirreeccttoorrss
22002200
2019
55,,553399,,112222
8,579,719
220088,,441133 55,,224488,,447711
7,722,428
204,450
114433,,557733
354,813
-- 1111,,113399,,557799
- 16,861,410
110044
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
Section 7: Other items
This section provides information that is less significant in understanding the financial performance and position of the
Group perhaps due to lack of movement in the amount or the overall size of the balance. Nevertheless, these items assist
in understanding the Group or are required under Australian or International Accounting Standards, the Corporations Act
2001 and/or the Corporations Regulations.
NNoottee 2255 GGooooddwwiillll aanndd ootthheerr iinnttaannggiibbllee aasssseettss
GGooooddwwiillll
OOtthheerr iinnttaannggiibbllee aasssseettss
Software at cost
Less: accumulated amortisation
Less: asset impairment
Less: asset reclassification
Revenue sharing agreement
Less: accumulated amortisation
Foreign exchange gain
Less: impairment
Identifiable Intangible (Assetsecure)
Less: accumulated amortisation
TToottaall ootthheerr iinnttaannggiibbllee aasssseettss
3300 JJuunnee
22002200
$$mm
557799..99
3300 JJuunnee
22001199
$$mm
555577..33
32.6
(10.7)
(4.1)
(1.3)
1166..55
5.9
(0.7)
0.7
(5.9)
--
1.7
(0.1)
11..66
1188..11
25.7
(7.7)
-
-
1188..00
5.8
(0.5)
0.6
-
55..99
-
-
--
2233..99
GGooooddwwiillll
SSooffttwwaarree
RReevveennuuee sshhaarriinngg
aaggrreeeemmeenntt
3300 JJuunnee
22002200
$$mm
3300 JJuunnee
22001199
$$mm
3300 JJuunnee
22002200
$$mm
3300 JJuunnee
22001199
$$mm
3300 JJuunnee
22002200
$$mm
3300 JJuunnee
22001199
$$mm
IIddeennttiiffiiaabbllee IInnttaannggiibbllee
3300 JJuunnee
22001199
$$mm
3300 JJuunnee
22002200
$$mm
557.3
22.6
-
-
-
-
-
571.6
-
(14.3)
-
-
-
-
18.0
6.9
-
(4.1)
(3.0)
-
(1.3)
15.5
6.1
-
-
(3.6)
-
-
5.9
-
-
(5.9)
(0.2)
0.2
-
5.8
-
-
-
(0.4)
0.5
-
-
1.7
-
-
(0.1)
-
-
557799..99
555577..33
1166..55
1188..00
--
55..99
11..66
-
-
-
-
-
-
-
--
BBaallaannccee aatt tthhee bbeeggiinnnniinngg
ooff tthhee yyeeaarr
Additions
Disposal of operation1
Impairment
Amortisation expense
Foreign exchange gain
Reclassification
BBaallaannccee aatt tthhee eenndd ooff
tthhee yyeeaarr
1 Disposal of infrastructure business operation (Oikos Storage Limited) within the Life CGU.
AAccccoouunnttiinngg ppoolliiccyy
GGooooddwwiillll
Goodwill acquired in a business combination is initially
measured at cost, being the excess of the fair value of the
consideration for the business combination over the Group’s
interest in the net fair value of the acquiree’s identifiable
assets, liabilities and contingent liabilities. Following initial
recognition, goodwill is measured at cost less any accumulated
impairment losses.
For the purpose of impairment testing, goodwill acquired in a
business combination is, from the acquisition date, allocated to
each of the Group’s cash generating units (CGU), or groups of
CGUs, that are expected to benefit from the synergies of the
combination, irrespective of whether other assets or liabilities
of the Group are assigned to those units or groups of units.
110055
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 2255 GGooooddwwiillll aanndd ootthheerr iinnttaannggiibbllee aasssseettss ((ccoonnttiinnuueedd))
AAccccoouunnttiinngg ppoolliiccyy ((ccoonnttiinnuueedd))
Each unit, or group of units, to which the goodwill is allocated
represents the lowest level within the Group at which the
goodwill is monitored for internal management purposes.
Impairment is determined by assessing the recoverable amount
of the CGU (or group of CGUs) to which the goodwill relates.
When the recoverable amount of the CGU (or group of CGUs)
is less than the carrying amount, an impairment loss is
recognised and allocated first to reduce the carrying amount
of any goodwill allocated to that CGU, then to reduce the
carrying amount of the other assets in the unit on a pro rata
basis. Impairment losses recognised for goodwill are not
subsequently reversed.
CGUs within the Group are predominantly business
operations.
When goodwill forms part of a CGU (or group of CGUs) and
an operation within that unit is disposed of, the goodwill
associated with the operation disposed of is included in the
carrying amount of the operation when determining the gain
or loss on disposal of the operation. Goodwill disposed of in
this manner is measured based on the relative values of
the operation disposed of and the portion of the CGU
retained.
OOtthheerr iinnttaannggiibbllee aasssseettss
Other intangible assets acquired are recorded at cost less
accumulated amortisation and impairment losses. The cost of
an intangible asset acquired in a business combination is its
fair value as at the date of acquisition.
Amortisation is calculated based on the timing of projected
cash flows over the estimated useful lives.
Certain internal and external costs directly incurred in
acquiring and developing software have been capitalised and
are being amortised on a straight line basis over their
useful lives.
Leases, where the lessor retains substantially all the risk and
benefits of ownership, are classified as operating leases. Initial
direct costs incurred in negotiating an operating lease are
added to the carrying amount of the leased asset and
recognised as an expense over the term of the lease on the
same basis as the lease income. Incentives received on entering
into operating leases are recognised as liabilities and are
amortised over the life of the lease.
KKeeyy eessttiimmaatteess aanndd aassssuummppttiioonnss
GGooooddwwiillll rreeccoovveerraabbllee aammoouunnttss
The Group assesses whether goodwill is impaired at least
annually in accordance with its accounting policy. The
recoverable amount of each CGU is determined based on
value in use calculations that utilise cash flow projections
based on financial forecasts approved by senior management
which cover an appropriate time horizon. In determining these
cash flow projections management considers:
• current and expected performance of each CGU;
• Board and management approved budgets and strategic
plans; and
• changes in Australian and international economic and
market environments.
110066
The impact of COVID-19 has had a profound effect on
economies and markets. In addition, the duration and extent
of the pandemic together with government responses to it
remains uncertain. Notwithstanding, management has made
reasonable assumptions of the impact of COVID-19 when
determining the cash flow projections to be used for the value
in use calculations.
The cash flow projections determined by management are
discounted using an appropriate discount rate. The
determination of the discount rate is a matter of judgement
and is based on a number of factors including a theoretical
calculation, observation of third party reports and discount
rates used by comparable financial services companies.
The relevant assumptions in deriving the value of the CGU are
as follows:
• the budgeted net profit after tax for each CGU for each year
within the cash flow projection period;
• the discount rate; and
• growth rates, which are consistent with long-term trends in
the industry segments in which the CGUs operate.
The derived values in use for each CGU are in excess of the
carrying values of goodwill.
The following CGUs represent the carrying amounts of
goodwill:
DDiissccoouunntt rraattee
3300 JJuunnee
22002200
$$mm
452.3
3300 JJuunnee
22001199
$$mm
429.7
3300 JJuunnee
22002200
%%
10.0
3300 JJuunnee
22001199
%%
10.0
CCaasshh
ffllooww
hhoorriizzoonn
((yyeeaarrss))
5
127.6
557799..99
127.6
555577..33
10.0
10.0
5
CCGGUU
Life
Funds
Management
TToottaall
SSeennssiittiivviittyy ttoo cchhaannggee iinn aassssuummppttiioonnss
Management is of the view that reasonable changes in the key
assumptions, such as an increase in the discount rate by 1% or
a change in projected cash flows of 5%, would not cause the
respective recoverable amounts for each CGU to fall short of
the carrying amounts as at 30 June 2020. All goodwill is non-
current.
OOtthheerr iinnttaannggiibbllee aasssseettss aammoorrttiissaattiioonn
Useful lives of intangible assets used in the calculation
of the amortisation expense are examined on an annual
basis and where applicable, adjustments are made on a
prospective basis.
IInnttaannggiibbllee UUsseeffuull LLiiffee DDeepprreecciiaattiioonn mmeetthhoodd
Goodwill
Indefinite
Not applicable
Straight line basis over its useful
life, usually a period of five years
Software
3-10 years
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 2266 AAccqquuiissiittiioonnss aanndd ddiissppoossaallss ooff ssuubbssiiddiiaarriieess,, bbuussiinneesssseess aanndd aassssoocciiaatteess
On 27 November 2019, 255 Finance (a member of the
Group’s Life business unit), acquired the residual equity of
Assetsecure Pty Ltd (Assetsecure), a specialist trade receivables
financier with approximately 10 employees. The Group had
previously held a 35% equity interest disclosed as an
investment in associates measured at fair value through profit
or loss. As part of the business combination, the Group has
consolidated five Special Purpose Vehicle (SPV) trusts that
Assetsecure manages as it is both a significant noteholder and
retains the beneficial interest in these SPVs.
A total acquisition of Assetsecure provides 255 Finance a full
accounts receivable origination and servicing capability, cost
and revenue synergies together with ongoing access to a key
origination channel. From the date of acquisition,
Assetsecure's revenue and expenses have been included in the
statement of comprehensive income. Acquisition related
transaction costs have been incurred through other expenses.
Details of the fair values of the assets and liabilities acquired
and goodwill on acquisition are as follows:
Total purchase consideration1
Less: fair value of net identifiable assets acquired
GGooooddwwiillll oonn aaccqquuiissiittiioonn
1 Includes existing investment held at fair value; $20.0 million was paid to acquire the residual 65% interest.
AAsssseettss
Cash and cash equivalents
Financial assets – fair value through profit and loss
Right-of-use lease asset
Receivables
Deferred tax asset
Other assets
Other intangible assets
TToottaall aasssseettss
LLiiaabbiilliittiieess
Payables
Provisions
Current tax liabilities
Lease liabilities
Interest bearing liabilities
TToottaall lliiaabbiilliittiieess
NNeett aasssseettss
3300 JJuunnee
22002200
$$mm
30.8
(8.2)
2222..66
AAccqquuiirreeee’’ss
ccaarrrryyiinngg
aammoouunntt
$$mm
FFaaiirr vvaalluuee
$$mm
9.8
316.8
0.8
0.7
0.4
0.1
0.5
332299..11
(176.6)
(0.3)
(0.4)
(0.8)
(143.7)
((332211..88))
77..33
9.8
316.8
0.8
0.8
0.2
0.1
1.7
333300..22
(176.8)
(0.3)
(0.4)
(0.8)
(143.7)
((332222..00))
88..22
OOtthheerr ssiiggnniiffiiccaanntt eennttiittiieess aanndd bbuussiinneesssseess aaccqquuiirreedd
oorr ccoonnssoolliiddaatteedd dduuee ttoo aaccqquuiissiittiioonn ooff ccoonnttrrooll
SSiiggnniiffiiccaanntt eennttiittiieess aanndd bbuussiinneesssseess ddiissppoosseedd ooff oorr
ddeeccoonnssoolliiddaatteedd dduuee ttoo lloossss ooff ccoonnttrrooll
There were no other significant entities or businesses acquired
or consolidated due to acquisition of control during the period.
There were no significant entities or businesses disposed of or
deconsolidated due to loss of control during the period.
110077
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 2277 LLeeaassee aasssseettss aanndd lliiaabbiilliittiieess
RRiigghhtt--ooff--uussee lleeaassee aasssseett
Cost
Less: accumulated amortisation
RRiigghhtt--ooff--uussee lleeaassee aasssseett
BBaallaannccee aatt tthhee bbeeggiinnnniinngg ooff tthhee yyeeaarr33
Additions
Amortisation expense
BBaallaannccee aatt tthhee eenndd ooff tthhee yyeeaarr
3300 JJuunnee
22002200
$$mm
37.1
(4.7)
3322..44
3300 JJuunnee
22001199
$$mm
-
-
--
OOffffiiccee pprreemmiisseess11
PPrrooppeerrttyy,, ppllaanntt aanndd
eeqquuiippmmeenntt22
3300 JJuunnee
22002200
$$mm
36.7
-
(4.7)
3322..00
3300 JJuunnee
22001199
$$mm
-
-
-
--
3300 JJuunnee
22002200
$$mm
-
0.4
-
00..44
3300 JJuunnee
22001199
$$mm
-
-
-
--
1 The Group has entered into commercial leases for the rental of properties where it is not in the best interests of the Group to purchase these properties. These leases
have terms ranging between one and 12 years with renewal terms included in the contracts. Renewals are at the specific option of the entity that holds the lease.
2 Property, plant and equipment relates to leases for photocopying equipment.
3 The balance arises due to the adoption of AASB 16.
LLeeaassee lliiaabbiilliittiieess
MMaattuurriittyy aannaallyyssiiss ooff ccoonnttrraaccttuuaall uunnddiissccoouunntteedd ccaasshhfflloowwss
Amounts due in less than one year
Amounts due between one and two years
Amounts due between two and five years
Amounts due in greater than five years
TToottaall lleeaassee lliiaabbiilliittiieess
Current
Non current
TToottaall lleeaassee lliiaabbiilliittiieess1
3300 JJuunnee
22002200
$$mm
6.3
6.8
22.4
32.1
6677..66
3300 JJuunnee
22002200
$$mm
6.3
61.3
6677..66
3300 JJuunnee
22001199
$$mm
-
-
-
-
--
3300 JJuunnee
22001199
$$mm
-
-
--
1 Refer to Note 15 for interest expense on lease liabilities and the Statement of cash flows for total cash outflow for leases.
AAccccoouunnttiinngg ppoolliiccyy
RRiigghhtt--ooff--uussee--lleeaassee aasssseettss
The Group recognises right-of-use lease assets at the
commencement date of the lease (i.e. the date the underlying
asset is available for use). Right-of-use lease assets are
measured at cost, less any accumulated depreciation and
impairment losses, and less any adjustments for any
remeasurement of lease liabilities. The cost of right-of-use
lease assets includes the amount of lease liabilities recognised,
initial direct costs incurred, and lease payments made at or
before the commencement date less any lease incentives
received.
Unless the Group is reasonably certain to obtain ownership of
the leased assets at the end of the lease term, the recognised
right-of-use lease assets are depreciated on a straight line basis
over the shorter of its estimated useful life and the lease term.
Right-of-use lease assets are subject to impairment.
LLeeaassee lliiaabbiilliittiieess
At the commencement date of the lease, the Group recognises
lease liabilities measured at the present value of lease
payments to be made over the lease term. The lease payments
include fixed payments (including in-substance fixed
payments), less any lease incentives receivable, variable lease
payments that depend on an index or a rate, and amounts
expected to be paid under residual value guarantees. The lease
payments include the exercise price of a purchase option
reasonably certain to be exercised by the Group and payments
of penalties for terminating a lease, if the lease term reflects
the Group exercising the option to terminate.
110088
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 2277 LLeeaassee aasssseettss aanndd lliiaabbiilliittiieess ((ccoonnttiinnuueedd))
AAccccoouunnttiinngg ppoolliiccyy ((ccoonnttiinnuueedd))
The variable lease payments that do not depend on an index
or a rate are recognised as an expense in the period in which
the event or condition that triggers the payment occurs. In
calculating the present value of lease payments, the Group
uses the incremental borrowing rate at the lease
commencement date if the interest rate implicit in the lease is
not readily determinable. After the commencement date, the
amount of lease liabilities is increased to reflect the accretion
of interest and reduced for the lease payments made. In
addition, the carrying amount of lease liabilities is remeasured
if there is a modification, a change in the lease term, a change
in the in-substance fixed lease payments or a change in the
assessment to purchase the underlying asset.
SSiiggnniiffiiccaanntt jjuuddggeemmeenntt iinn ddeetteerrmmiinniinngg tthhee lleeaassee tteerrmm ooff
ccoonnttrraaccttss wwiitthh rreenneewwaall
The Group determines the lease term as the non-cancellable
term of the lease, together with any periods covered by an
option to extend the lease if it is reasonably certain to be
exercised, or any periods covered by an option to terminate
the lease, if it is reasonably certain not to be exercised.
The Group has the option, under some of its leases to lease
the assets for additional terms. The Group applies judgement
in evaluating whether it is reasonably certain to exercise the
option to renew. That is, it considers all relevant factors that
create an economic incentive for it to exercise the renewal.
After the commencement date, the Group reassesses the lease
term if there is a significant event or change in circumstances
that is within its control and affects its ability to exercise (or
not exercise) the option to renew.
NNoottee 2288 CCoonnttiinnggeenntt lliiaabbiilliittiieess,, ccoonnttiinnggeenntt aasssseettss aanndd ccrreeddiitt ccoommmmiittmmeennttss
WWaarrrraannttiieess
CCoonnttiinnggeenntt ffuuttuurree ccoommmmiittmmeennttss
Over the course of its corporate activity the Group has given,
as a seller of companies and as a vendor of assets, including
real estate properties, warranties to purchasers on several
agreements that are still outstanding at 30 June 2020. Other
than noted below, at the date of this report no material claims
against these warranties have been received by the Group.
PPaarreenntt eennttiittyy gguuaarraanntteeeess aanndd uunnddeerrttaakkiinnggss
The Company has extended the following guarantees and
undertakings to entities that form part of the Group:
1. A guarantee supporting the corporate banking facility and
certain other financial commitments, such as hedging
arrangements;
2. Letters of support in respect of certain subsidiaries in the
normal course of business. The letters recognise the
Company’s intention to provide support to those
subsidiaries so that they can continue to meet their
obligations;
3. Australian Financial Services Licence deeds of undertaking
as an eligible provider; and
4. Guarantees to support contractual commitments on
warranties to certain third parties.
TThhiirrdd ppaarrttyy gguuaarraanntteeeess
Bank guarantees have been issued by third party financial
institutions on behalf of the Group and its subsidiaries for items
in the normal course of business, such as rental contracts. The
amounts involved are not considered to be material to the Group.
CLC has made capital commitments to external counterparties
for future investment opportunities such as development or
investment purchases. As at 30 June 2020 there are potential
future commitments totalling $419.7 million (30 June 2019:
$398.0 million) in relation to these opportunities. The Group
has made capital commitments to associates to subscribe for
up to $7.2 million (30 June 2019: $10.0 million) of non-
redeemable preference shares to enable them to meet their
working capital requirements. Contractual obligations for
future property repairs and maintenance are in place but
cannot be quantified until required.
SSuubbssiiddiiaarryy gguuaarraanntteeeess
CLC has provided a guarantee to a third party regarding the
performance of its subsidiary in respect of certain reinsurance
arrangements.
CCoonnttiinnggeenntt ttaaxx aasssseettss aanndd lliiaabbiilliittiieess
From time to time the Group has interactions and matters
under review, audit or dispute with the Australian Taxation
Office in relation to the taxation treatments of various matters
including reportable tax positions. Any potential tax liability
resulting from these interactions is only provided for when it is
probable that an outflow will occur and a reliable estimate of
the amount can be made. No specific contingent liability
amounts have been disclosed in relation to these matters as it
is considered that it would be prejudicial to their conduct and
outcome.
110099
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 2288 CCoonnttiinnggeenntt lliiaabbiilliittiieess,, ccoonnttiinnggeenntt aasssseettss aanndd ccrreeddiitt ccoommmmiittmmeennttss
((ccoonnttiinnuueedd))
AAnnaallyyssiiss ooff ccrreeddiitt ccoommmmiittmmeennttss
CCoonnttrraacctteedd ccaappiittaall eexxppeennddiittuurree
Amounts due in less than one year
Amounts due between one and two years
Amounts due between two and five years
Amounts due in greater than five years
TToottaall ccaappiittaall eexxppeennddiittuurree ccoommmmiittmmeennttss
NNoonn--ccaanncceellllaabbllee ooppeerraattiinngg lleeaasseess –– GGrroouupp aass lleessssoorr
Amounts due in less than one year
Amounts due between one and two years
Amounts due between two and five years
Amounts due in greater than five years
TToottaall ooppeerraattiinngg lleeaasseess –– GGrroouupp aass lleessssoorr
OOtthheerr ccoonnttrraacctteedd ccoommmmiittmmeennttss
Amounts due in less than one year
TToottaall ootthheerr ccoonnttrraacctteedd ccoommmmiittmmeennttss
NNeett ccoommmmiittmmeennttss oowweedd ttoo GGrroouupp
3300 JJuunnee
22002200
$$mm
3300 JJuunnee
22001199
$$mm
18.7
0.8
-
-
1199..55
(221.0)
(213.5)
(511.3)
(954.3)
((11,,990000..11))
6.2
66..22
((11,,887744..44))
32.1
19.8
0.8
-
5522..77
(223.7)
(214.7)
(549.1)
(789.0)
((11,,777766..55))
15.9
1155..99
((11,,770077..99))
OOtthheerr iinnffoorrmmaattiioonn
CCoonnttrraacctteedd ccaappiittaall eexxppeennddiittuurree ccoommmmiittmmeennttss
In the normal course of business, the Group enters into various
contracts that could give rise to contingent liabilities in relation
to performance obligations under those contracts. The
information usually required by Australian Accounting
Standards is not disclosed for a number of such contracts on
the grounds that it may seriously prejudice the outcome of the
claims. At the date of this report, significant uncertainty exists
regarding any potential liability under these claims.
OOppeerraattiinngg lleeaasseess
GGrroouupp aass lleessssoorr
Investment properties owned by the Group are leased to third
parties under operating leases. Lease terms vary between
tenants and some leases include percentage rental payments
based on sales volume.
These represent amounts payable in relation to capital
expenditure commitments contracted for at the statement of
financial position date but not recognised as liabilities. They
primarily relate to the investment property portfolio and
property, plant and equipment.
OOtthheerr ccoonnttrraacctteedd ccoommmmiittmmeennttss
This represents amounts payable in relation to fitout
commitments and acquisition of investment properties that
have exchanged prior to the balance date and will settle
subsequent to the balance date.
111100
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 2299 EEmmppllooyyeeee eennttiittlleemmeennttss
Annual leave
Long service leave
EEmmppllooyyeeee11 eennttiittlleemmeennttss pprroovviissiioonn
1 The total number of employees of the Group at 30 June 2020 was 735 (30 June 2019: 687) on a full-time equivalent (FTE) basis.
3300 JJuunnee
22002200
$$mm
7.8
9.4
1177..22
3300 JJuunnee
22001199
$$mm
5.9
7.2
1133..11
AAccccoouunnttiinngg ppoolliiccyy
SSuuppeerraannnnuuaattiioonn ffuunnddss
Obligations for contributions to superannuation funds are
recognised as an expense in the Statement of comprehensive
income as they are incurred. The Group does not hold or pay
into any defined benefit superannuation schemes on behalf of
employees.
WWaaggeess,, ssaallaarriieess,, aannnnuuaall lleeaavvee aanndd nnoonn--mmoonneettaarryy bbeenneeffiittss
Liabilities for wages and salaries, including non-monetary
benefits and annual leave expected to be settled wholly within
12 months of the Statement of financial position date, are
recognised in respect of employees’ services up to the
Statement of financial position date. They are measured at the
amounts expected to be paid when the liabilities are settled.
Liabilities for accumulated sick leave are recognised when the
leave is taken and are measured at the rates paid or payable.
LLoonngg sseerrvviiccee lleeaavvee
A liability for long service leave is recognised as the present
value of estimated future cash outflows to be made in respect
of services provided by employees up to the Statement of
financial position date. The estimated future cash outflows are
discounted using yields from Australian corporate bonds which
have durations to match, as closely as possible, the estimated
future cash outflows. Factors which affect the estimated future
cash outflows such as expected future salary increases,
experience of employee departures and period of service, are
included in the measurement.
SShhaarree--bbaasseedd ppaayymmeenntt ttrraannssaaccttiioonnss
LLoonngg--tteerrmm eeqquuiittyy--bbaasseedd iinncceennttiivvee ppllaann
The Group has an employee share incentive plan for the
granting of non-transferable share rights to executives and
senior employees. Shares in the Company held by the
employee share trust are classified as Treasury shares and
presented in the Statement of financial position as a deduction
from equity.
Employees of the Group receive remuneration in the form of
share-based payment transactions, whereby employees render
services in exchange for shares or rights over shares (equity-
settled transactions).
The cost of equity-settled transactions with employees is
measured by reference to the fair value at the date at which
they are granted. The fair value is determined using an option
pricing model.
SShhaarree--bbaasseedd ppaayymmeenntt ttrraannssaaccttiioonnss ((ccoonnttiinnuueedd))
In accordance with Australian Accounting Standards, the cost
of equity-settled transactions is recognised in the Statement of
comprehensive income, together with a corresponding
increase in equity, over the period in which the performance
conditions are fulfilled, ending on the date on which the
relevant employees become fully entitled to the award
(vesting date).
At the Company level, the cost of Treasury shares is recognised
as a reduction in equity. On vesting of the award they are
subsequently recognised as an increase in equity and a
reduction in share-based payment reserve at an average
acquisition price.
The cumulative expense or investment recognised for equity-
settled transactions at each Statement of financial position
date reflects the extent to which the vesting period has expired
and the best estimate of the number of awards that will
ultimately vest.
No adjustment is made for the likelihood of market
performance conditions being met as the effect of these
conditions is included in the determination of fair value at
grant date. This results in the share-based payment expense
being recognised in the Statement of comprehensive income
and an increase in equity being recognised even if the market
performance conditions are not met at the vesting date and
the share rights ultimately lapse.
Where the terms of an equity-settled award are modified, as a
minimum an expense is recognised as if the terms had not
been modified. In addition, an expense is recognised for any
increase in the value of the transaction as a result of the
modification, as measured at the date of modification.
Where an equity-settled award is cancelled during the vesting
period (other than an award cancelled when the vesting
conditions are not satisfied), it is treated as if it had vested on
the date of cancellation, and any expense not yet recognised
for the award is recognised immediately.
However, if a new award is substituted for the cancelled
award, and designated as a replacement award on the date
that it is granted, the cancelled and new awards are treated as
if they were a modification of the original award.
111111
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 2299 EEmmppllooyyeeee eennttiittlleemmeennttss ((ccoonnttiinnuueedd))
AAccccoouunnttiinngg ppoolliiccyy ((ccoonnttiinnuueedd))
EEmmppllooyyeeee sshhaarree aaccqquuiissiittiioonn ppllaann
Share-based compensation benefits are provided to employees
via the Challenger Performance Plan (CPP). The Group has
formed a trust to administer the Group’s employee share
acquisition plan (CPP Trust).
The CPP Trust is consolidated, as the substance of the
relationship is that the trust is controlled by the Group.
Through contributions to the CPP Trust, the Group typically
purchases shares in the Company on market. Shares acquired
are held by the CPP Trust, are disclosed as Treasury shares and
are deducted from contributed equity.
In addition to shares held by the CPP Trust, the Group has
entered into forward purchase agreements (CPP deferred
share purchases) to hedge unvested performance share rights.
The CPP deferred share purchase agreements have exercise
dates that broadly match the vesting dates of the performance
rights issued by the CPP and they require the delivery of
Challenger Limited shares to the CPP Trust, by a third party,
for the contracted price. The shares to be purchased under
these agreements are treated as Treasury shares from the date
of the agreement.
In such deferred contracts, changes in the fair value arising
from variations in market rates do not affect the amount of
cash to be paid or the number of Challenger shares to be
received, and these contracts are classified as equity
instruments. Changes in the fair value of an equity instrument
are not recognised in the financial statements. The liability to
the third party is recorded on the balance sheet at present
value and the discount is unwound through the Statement of
comprehensive income over the duration of the contract.
DDeeffeerrrreedd ppeerrffoorrmmaannccee sshhaarree rriigghhttss ((DDPPSSRRss))
This instrument is a performance right which gives a right to a
fully-paid share in the Company at the end of the vesting period.
The vesting period is typically between one and four years on
existing awards.
The table below sets out the details of the DPSRs granted
under the CPP during 2020 and movements on previous
issues.
LLaatteesstt
ddaattee ffoorr
vveessttiinngg11
GGrraanntt ddaattee
11 Nov 19 01 Sep 23
11 Nov 19 01 Sep 22
11 Nov 19 01 Sep 21
11 Nov 19 01 Sep 20
09 Sep 19 01 Sep 23
09 Sep 19 01 Sep 22
09 Sep 19 01 Sep 21
09 Sep 19 01 Sep 20
11 Sep 18 01 Sep 21
11 Sep 18 01 Sep 20
11 Sep 18 01 Sep 19
11 Sep 17 01 Sep 20
11 Sep 17 01 Sep 19
01 Sep 19
09 Jun 17
12 Sep 16 01 Sep 19
TToottaall
RReeffeerreennccee
pprriiccee
$$
6.633
6.633
6.633
6.633
6.633
6.633
6.633
6.633
10.368
10.368
10.368
12.264
12.264
12.596
9.210
FFaaiirr vvaalluuee
aatt ggrraanntt
$$
7.87
7.55
7.23
6.94
5.93
6.19
6.45
6.73
9.66
9.94
10.22
11.39
11.73
11.79
7.95
OOuuttssttaannddiinngg
aatt
11 JJuullyy 22001199
-
-
-
-
-
-
-
-
459,987
437,856
437,854
391,483
384,042
2,439
376,869
22,,449900,,553300
GGrraanntteedd
dduurriinngg
tthhee yyeeaarr
15,377
15,377
23,065
23,065
206,908
206,908
310,393
310,394
-
-
-
-
-
-
-
11,,111111,,448877
VVeesstteedd
dduurriinngg tthhee
yyeeaarr
-
-
-
-
-
-
-
-
(65,104)
(68,562)
(434,089)
(65,943)
(381,291)
(2,439)
(371,441)
((11,,338888,,886699))
EExxppiirreedd
dduurriinngg tthhee
yyeeaarr
-
-
-
-
(5,212)
(5,212)
(7,821)
(7,821)
(42,577)
(13,440)
(3,765)
(36,311)
(2,751)
-
(5,428)
((113300,,333388))
OOuuttssttaannddiinngg
aatt
3300 JJuunnee 22002200
15,377
15,377
23,065
23,065
201,696
201,696
302,572
302,573
352,306
355,854
-
289,229
-
-
-
22,,008822,,881100
1 At the date of vesting, fully-paid shares are transferred to the individual and released from the CPP Trust.
111122
NNoottee 2299 EEmmppllooyyeeee eennttiittlleemmeennttss ((ccoonnttiinnuueedd))
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
AAccccoouunnttiinngg ppoolliiccyy ((ccoonnttiinnuueedd))
HHuurrddlleedd ppeerrffoorrmmaannccee sshhaarree rriigghhttss ((HHPPSSRRss))
This instrument is a performance share right which gives a
right to a fully-paid share in the Company at certain vesting
dates, subject to the achievement of performance conditions
based on total shareholder returns (TSR). The HPSRs are
awarded based on a range of criteria reflecting, in addition to
current year performance, the longer-term ability for an
employee to add significant value to Challenger and for
retention purposes. The award of HPSRs ensures longer-term
alignment of interests between Challenger and its employees.
For grants made between 1 July 2014 and 30 June 2019,
subject to continued employment and meeting the absolute
TSR performance target, two-thirds of an HPSR award will be
eligible to commence vesting on the third anniversary and the
final third on the fourth anniversary following grant. For grants
from 1 July 2019, subject to continued employment and
meeting the absolute TSR performance target, an HPSR award
is eligible to commence vesting on the fourth anniversary and
is subject to a final cumulative test on the fifth anniversary.
This change has the effect of increasing the vesting period.
To the extent that the absolute TSR performance targets are
not satisfied for a particular tranche of award, unvested HPSRs
have the opportunity to vest at the end of the following
tranche’s vesting period, subject to the higher absolute TSR
performance requirements which reflect another year of
compound growth. Unvested awards have the opportunity to
vest on the fifth anniversary following grant. Any unvested
awards lapse at the end of the fifth anniversary following
grant. This approach is applied to ensure that Key
Management Personnel and employees are motivated to
deliver strong long-term performance. HPSRs are converted to
ordinary fully paid shares upon vesting.
The table below sets out details of the HPSRs granted under
the CPP during 2020 and movements on previous issues:
EExxppeecctteedd
ddaattee ffoorr
vveessttiinngg11
GGrraanntt ddaattee
09 Dec 19 01 Sep 23
11 Nov 19 01 Sep 23
09 Sep 19 01 Sep 23
11 Sep 18 01 Sep 22
11 Sep 18 01 Sep 21
11 Sep 17 01 Sep 21
11 Sep 17 01 Sep 20
01 Sep 20
09 Jun 17
09 Jun 17
01 Sep 19
12 Sep 16 01 Sep 20
12 Sep 16 01 Sep 19
13 Sep 15 01 Sep 19
TToottaall
RReeffeerreennccee
pprriiccee
$$
6.729
6.729
6.729
11.720
11.720
12.732
12.732
9.017
9.017
9.017
9.017
7.013
FFaaiirr vvaalluuee
aatt ggrraanntt
$$
4.22
4.42
3.10
3.94
4.56
5.42
6.11
8.55
9.71
3.80
4.33
2.84
OOuuttssttaannddiinngg
aatt
11 JJuullyy 22001199
-
-
-
794,475
1,372,843
653,019
1,158,513
3,594
6,329
806,883
1,416,260
1,004,997
77,,221166,,991133
GGrraanntteedd
dduurriinngg
tthhee yyeeaarr
432,483
90,618
3,330,183
-
-
-
-
-
-
-
-
-
33,,885533,,228844
VVeesstteedd dduurriinngg
tthhee yyeeaarr
-
-
-
-
-
-
-
-
-
-
-
-
--
EExxppiirreedd
dduurriinngg tthhee
yyeeaarr
-
-
(142,812)
(114,300)
(197,509)
(100,095)
(177,580)
(3,594)
(6,329)
(108,549)
(190,528)
(184,420)
((11,,222255,,771166))
OOuuttssttaannddiinngg
aatt
3300 JJuunnee 22002200
432,483
90,618
3,187,371
680,175
1,175,334
552,924
980,933
-
-
698,334
1,225,732
820,577
99,,884444,,448811
1 At the date of vesting, fully-paid shares are transferred to the individual and released from the CPP Trust.
111133
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
NNoottee 2299 EEmmppllooyyeeee eennttiittlleemmeennttss ((ccoonnttiinnuueedd))
KKeeyy eessttiimmaatteess aanndd aassssuummppttiioonnss
SShhaarree--bbaasseedd ppaayymmeennttss
The Group measures the cost of equity-settled transactions
with employees granted during the year by reference to the
fair value of the share rights at the date at which they are
granted. The fair values are determined by independent
external valuers using a Black-Scholes model for DPSRs and a
Monte Carlo simulation model for HPSRs which utilises the TSR
share price hurdles. Key inputs into the valuation models for
equity awards granted during the year are as follows:
99 SSeepp 1199
DDPPSSRR11
4.2
0.83-0.85
N/A
6.73-5.93
1111 NNoovv 1199
DDPPSSRR11
4.2
0.87-0.97
N/A
7.87-6.94
99 SSeepp 1199
HHPPSSRR11
4.2
0.83-0.85
29
3.10
1111 NNoovv 1199
HHPPSSRR11
4.2
0.87-0.97
29
4.42
99 DDeecc 1199
HHPPSSRR11
4.2
0.75-0.81
29
4.22
IInnppuutt
Dividend yield (%)
Risk-free rate (%)
Volatility2 (%)
Valuation ($)
1 Staggered deferred vesting applies to these grants.
2 Forecast volatility rate implied from historic trend.
NNoottee 3300 RReemmuunneerraattiioonn ooff aauuddiittoorr
AAmmoouunnttss rreecceeiivveedd oorr dduuee aanndd rreecceeiivvaabbllee bbyy EErrnnsstt && YYoouunngg ((AAuussttrraalliiaa)) rreellaattiinngg ttoo::
Full year audit and half year review of the Group financial report
Other audit services – audit and review of trusts and funds
Other assurance services
Other services in relation to the Group
– taxation services
– other assurance services
AAmmoouunnttss rreecceeiivveedd oorr dduuee aanndd rreecceeiivvaabbllee bbyy ootthheerr oovveerrsseeaass mmeemmbbeerr ffiirrmmss ooff EErrnnsstt &&
YYoouunngg ((AAuussttrraalliiaa)) ffoorr::
Fees for auditing the financial report of any controlled entities
Other services in relation to the Group
– taxation services
TToottaall aauuddiittoorr rreemmuunneerraattiioonn11
1 Auditor’s remuneration for the Group is paid by Challenger Group Services Limited, a wholly owned entity within the Group.
NNoottee 3311 SSuubbsseeqquueenntt eevveennttss
3300 JJuunnee
22002200
$$
1,928,488
525,567
633,389
3300 JJuunnee
22001199
$$
1,630,924
469,196
495,113
157,500
45,000
33,,228899,,994444
55,000
164,305
22,,881144,,553388
391,810
413,154
90,238
448822,,004488
33,,777711,,999922
103,150
551166,,330044
33,,333300,,884422
Subsequent to the balance date the Company completed a non-underwritten share purchase plan (SPP) raising $35.0 million with
8.1 million shares issued to retail shareholders at a price of $4.32 per share. Of the proceeds received from the SPP on 30 July
2020, $30.0 million was injected into CLC as Common Equity Tier 1 capital on 31 July 2020 with the remaining
$5.0 million retained by the Group.
No other matter or circumstance has arisen that has affected, or may significantly affect, the Group’s operations, the results of
those operations or the Group’s state of affairs in future financial years which has not already been reflected in this report.
111144
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
Directors’ declaration
In accordance with a resolution of the Directors of Challenger Limited, we declare that, in the opinion of the Directors:
a)
the financial statements and notes of Challenger Limited and its controlled entities (the Group) are in accordance with the
Corporations Act 2001, including:
(i) giving a true and fair view of the Group’s financial position as at 30 June 2020 and of its performance for the year ended
on that date; and
(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001;
b)
c)
d)
the financial statements and notes of the Group also comply with International Financial Reporting Standards as issued by the
International Accounting Standards Board, which is disclosed in Section 1(i) Basis of preparation and statement of compliance;
there are reasonable grounds to believe that the Group will be able to pay its debts as and when they become due and
payable; and
this declaration has been made after receiving the declarations required to be made to the Directors from the Chief Executive
Officer and Chief Financial Officer in accordance with section 295A of the Corporations Act 2001 for the financial year ended
30 June 2020.
On behalf of the Board
P Polson
Independent Chair
Sydney
10 August 2020
R Howes
Managing Director and Chief Executive Officer
Sydney
10 August 2020
111155
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
IInnddeeppeennddeenntt aauuddiittoorr’’ss rreeppoorrtt
Ernst & Young
200 George Street
Sydney NSW 2000 Australia
GPO Box 2646 Sydney NSW 2001
Tel: +61 2 9248 5555
Fax: +61 2 9248 5959
ey.com/au
Independent auditor’s report to the shareholders of Challenger Limited
RReeppoorrtt oonn tthhee AAuuddiitt ooff tthhee FFiinnaanncciiaall RReeppoorrtt
OOppiinniioonn
We have audited the financial report of Challenger Limited (the Company) and its subsidiaries (collectively the Group), which
comprises the consolidated statement of financial position as at 30 June 2020, the consolidated statement of comprehensive
income, consolidated statement of changes in equity and consolidated statement of cash flows for the year then ended, notes to
the financial statements, including a summary of significant accounting policies, and the directors’ declaration.
In our opinion, the accompanying financial report of the Group is in accordance with the Corporations Act 2001, including:
a) giving a true and fair view of the consolidated financial position of the Group as at 30 June 2020 and of its consolidated
financial performance for the year ended on that date; and
b) complying with Australian Accounting Standards and the Corporations Regulations 2001.
BBaassiiss ffoorr OOppiinniioonn
We conducted our audit in accordance with Australian Auditing Standards. Our responsibilities under those standards are further
described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our report. We are independent of the
Group in accordance with the auditor independence requirements of the Corporations Act 2001 and the ethical requirements of
the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (including
Independence Standards) (the Code) that are relevant to our audit of the financial report in Australia. We have also fulfilled our
other ethical responsibilities in accordance with the Code.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
KKeeyy AAuuddiitt MMaatttteerrss
Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial
report of the current year. These matters were addressed in the context of our audit of the financial report as a whole, and in
forming our opinion thereon, but we do not provide a separate opinion on these matters. For each matter below, our description
of how our audit addressed the matter is provided in that context.
We have fulfilled the responsibilities described in the Auditor’s Responsibilities for the Audit of the Financial Report section of our
report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond
to our assessment of the risks of material misstatement of the financial report. The results of our audit procedures, including
the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying
financial report.
111166
IInnddeeppeennddeenntt aauuddiittoorr’’ss rreeppoorrtt
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
11 VVaalluuaattiioonn ooff LLiiffee CCoonnttrraacctt LLiiaabbiilliittiieess
Financial report reference: NNoottee 88
WWhhyy ssiiggnniiffiiccaanntt ttoo tthhee aauuddiitt
HHooww oouurr aauuddiitt aaddddrreesssseedd tthhee kkeeyy aauuddiitt mmaatttteerr
The Group recognised a provision for future claims
associated with insurance policies. The valuation
methodology to estimate the provision adopted by the
Group involves complex and subjective judgments about
future events.
Key assumptions used in the Group’s model to determine
the value of the life contract liabilities include:
• Discount rates
• Inflation
• Future claims administration expenses
• Mortality rates and redemptions
These assumptions, along with policy information, are used
as inputs to the Group’s model to calculate the Life Contract
Liabilities.
This was a key audit matter due to the value of the balance
(30 June 2020: $12,581.2 million), relative to total liabilities
and the degree of judgment and estimation uncertainty
associated with the valuation.
Our audit procedures involved an assessment of the
effectiveness of relevant controls over assumptions and policy
information used as inputs into the Group’s model. Our IT
specialists were involved to assess whether policy information
was extracted accurately from the Group’s underlying
administration system into the valuation process.
Our audit procedures included the following in the evaluation
of the assumptions used by the Group:
• Considered the Group’s governance process and controls to
determine the methodology and assumptions.
• Assessed the results of the experience investigations carried
out by the Group to determine whether they supported the
assumptions used by the Group.
• Assessed the movements in modelled profit margins and
best estimate liabilities for insurance risk transactions.
• Performed a recalculation for a sample of the life contract
liability valuations.
Where appropriate, we involved our life insurance actuarial
specialists in the above procedures and overall assessment of
the valuation methodology, key assumptions and models
deriving the valuation of the life contract liabilities.
We assessed the adequacy of the related financial report
disclosures.
22 VVaalluuaattiioonn ooff LLeevveell 33 NNoonn--PPrrooppeerrttyy IInnvveessttmmeenntt AAsssseettss
Financial report reference: NNoottee 1199
WWhhyy ssiiggnniiffiiccaanntt ttoo tthhee aauuddiitt
HHooww oouurr aauuddiitt aaddddrreesssseedd tthhee kkeeyy aauuddiitt mmaatttteerr
The Group holds a portfolio of assets carried at fair value,
for which an observable market value is not readily available.
These assets are classified as Level 3 assets within the fair
value hierarchy of the financial report.
Level 3 assets require judgment to be applied in determining
their fair value, as the valuation inputs for these assets are
not based on observable market transactions or other readily
available market data.
The valuation of Level 3 assets is inherently subjective given
that there are alternative assumptions and valuation methods
that may result in a range of values. The impact of COVID-19
at 30 June 2020 has resulted in a wider range of possible
values than at past valuation points.
Our audit procedures included the following, using sampling
techniques:
• Considered the Group’s controls over the valuation of Level
The Group exercised judgment to arrive at their best estimates
of fair value of these assets. There is complexity in this process,
as well as uncertainty associated with the valuation and
modelling methodologies and the assumptions adopted.
As at 30 June 2020 there is significant valuation uncertainty
arising from the COVID-19 pandemic and the response of
Governments to it. This means that the Level 3 asset values
may change significantly and unexpectedly over a relatively
short period of time. In this situation the disclosures in the
financial statements provide particularly important information
about the assumptions made in the Level 3 asset valuations
and the market conditions at 30 June 2020.
We have, therefore, considered this a key audit matter due to
the number of judgments required in determining fair value.
For the same reasons we consider it important that attention
is drawn to the information in Note 19 in assessing the Level
3 valuations at 30 June 2020.
3 assets.
• Tested the mathematical accuracy of the valuation models
and consistency with the Group’s documented methodology
and assumptions.
• Our valuation specialists assessed the Group’s valuation and
modelling methodologies and assessed the key judgmental
inputs used in the year-end valuations, including the
discount rate and the terminal value.
• Obtained valuation statements provided by external
investment managers in respect of unit trusts and hedge
funds. We assessed the valuations of investments as
provided by external investment managers, including an
assessment of the reliability of the information received and
the appropriateness of the underlying valuation method.
We assessed the adequacy and appropriateness of the related
financial report disclosures, in particular those relating to the
valuation uncertainty.
111177
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
IInnddeeppeennddeenntt aauuddiittoorr’’ss rreeppoorrtt
33 VVaalluuaattiioonn ooff LLeevveell 33 PPrrooppeerrttyy IInnvveessttmmeenntt AAsssseettss
Financial report reference: NNoottee 66
WWhhyy ssiiggnniiffiiccaanntt ttoo tthhee aauuddiitt
HHooww oouurr aauuddiitt aaddddrreesssseedd tthhee kkeeyy aauuddiitt mmaatttteerr
The Group owns a diversified portfolio of investment property
assets valued at $3.7 billion as at 30 June 2020, which
represents 13.0% of total assets of the Group. The carrying
value of investment properties is measured at the fair value
of each property, which is assessed by the directors with
reference to external independent property valuations and
based on market conditions existing at the reporting date.
The fair value of investment property is inherently subjective
and impacted by factors such as prevailing market conditions,
its geographic location, expected future income and the
characteristics and attributes of the subject property.
As at 30 June 2020 there is significant valuation uncertainty
arising from the COVID-19 pandemic and the response
of Governments to it. This means that the property values
may change significantly and unexpectedly over a relatively
short period of time.
Given the market conditions at balance date, a number of
independent valuers have reported on the basis of the
existence of ‘material valuation uncertainty’, noting that less
certainty, and a higher degree of caution, should be attached
to the valuations than would normally be the case. In this
situation the disclosures in the financial statements provide
particularly important information about the assumptions
made in the property valuations and the market conditions
at 30 June 2020.
We have, therefore, considered this a key audit matter due
to the number of judgments required in determining fair value.
For the same reasons we consider it important that attention
is drawn to the information in Note 6 in assessing the property
valuations at 30 June 2020.
The valuation of investment properties is inherently subjective
given that there are alternative assumptions and valuation
methods that may result in a range of values. The impact of
COVID-19 at 30 June 2020 has resulted in a wider range of
possible values than at past valuation points.
Our audit procedures included the following:
• We assessed the following matters with management:
• movements in the Group’s investment property portfolio;
• changes in the condition of selected properties;
• controls in place relevant to the valuation process; and
• the impact that COVID-19 has had on the Group’s
investment property portfolio including rent abatements
offered to tenants and tenant occupancy risk arising from
changes in the estimated lease renewals.
• We performed the following procedures for selected
properties, using sampling techniques:
• Evaluated the key assumptions and agreed key inputs to
tenancy schedules. These assumptions and inputs
included market and contractual rent, occupancy rates
including forecast occupancy levels, forecast rent, lease
terms, re-leasing costs, operating expenditure and future
capital expenditure. We assessed the effectiveness of
relevant controls over the leasing process and associated
tenancy reports which are used as source data in the
property valuations by testing a sample of the relevant
controls.
• Assessed whether COVID-19 relief provided to tenants
had been factored into the valuations and that changes in
tenant occupancy risk were also considered.
• Where relevant we compared the valuation against
comparable transactions utilised in the valuation process.
• Evaluated the suitability of the valuation methodology
across the portfolio based on the type of asset. We
considered the reports of the independent valuers and
held discussions with them where considered
appropriate, to gain an understanding of the assumptions
and estimates used and the valuation methodology
applied. This included the impact that COVID-19 has had
on key assumptions such as the capitalisation, discount or
growth rate and future forecast rentals. We have also
considered and responded to restrictions imposed on the
valuation process, if any, and the market conditions at
balance date.
• We have considered whether there have been any indicators
of material changes in property valuations from 30 June
2020 up to the date of our opinion.
Where appropriate, we involved our real estate valuation
specialists in the above procedures.
We assessed the adequacy and appropriateness of the related
financial report disclosures, in particular those relating to the
valuation uncertainty.
111188
IInnddeeppeennddeenntt aauuddiittoorr’’ss rreeppoorrtt
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
44 RReeccoovveerraabbiilliittyy ooff GGooooddwwiillll
Financial report reference: NNoottee 2255
WWhhyy ssiiggnniiffiiccaanntt ttoo tthhee aauuddiitt
Goodwill has been recognised as a result of the Group’s
historical acquisitions, representing the excess of the
purchase consideration over the fair value of assets and
liabilities acquired. On acquisition date, the goodwill has been
allocated to the applicable Cash Generating Units (CGUs).
An impairment assessment is performed at each reporting
period, comparing the carrying amount of each CGU
containing goodwill with its recoverable amount. The
recoverable amount of each CGU is determined on a value
in use basis. This calculation incorporates a range of
assumptions, including future cash flows, discount rate and
terminal growth rate.
This was a key audit matter due to the value of Goodwill
relative to total assets (30 June 2020: $579.9 million), and
the degree of judgment and estimation uncertainty
associated with the impairment assessment.
HHooww oouurr aauuddiitt aaddddrreesssseedd tthhee kkeeyy aauuddiitt mmaatttteerr
Our audit procedures included the following:
• Considered the carrying amount of the net assets of the
Group against its market capitalisation at 30 June 2020.
• Assessed the valuation methodology used to calculate the
recoverable amount of each CGUs.
• Agreed the projected cash flows used in the impairment
models to the Board approved five-year plan of the Group.
• Compared the Group’s implied growth rate assumption to
comparable companies.
• Considered the accuracy of historical cash flow forecasts.
• Assessed the methodology and assumptions used in the
calculation of the discount rate, including comparison of the
rate to market benchmarks.
• Tested the mathematical accuracy of the impairment model
for each CGU.
• Considered the Group’s sensitivity analysis and evaluated
whether any reasonably foreseeable change in assumptions
could lead to a material impairment.
Our valuation specialists were involved in the above procedures
where appropriate.
We assessed the Group’s determination of the CGUs to which
goodwill is allocated and the adequacy of the related financial
report disclosures.
111199
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
IInnddeeppeennddeenntt aauuddiittoorr’’ss rreeppoorrtt
IInnffoorrmmaattiioonn OOtthheerr tthhaann tthhee FFiinnaanncciiaall RReeppoorrtt aanndd AAuuddiittoorr’’ss RReeppoorrtt TThheerreeoonn
The directors are responsible for the other information. The other information comprises the information included in the
Company’s 2020 Annual Report, but does not include the financial report and our auditor’s report thereon.
Our opinion on the financial report does not cover the other information and accordingly we do not express any form of
assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion.
In connection with our audit of the financial report, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the financial report or our knowledge obtained in the audit or
otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are
required to report that fact. We have nothing to report in this regard.
RReessppoonnssiibbiilliittiieess ooff tthhee DDiirreeccttoorrss ffoorr tthhee FFiinnaanncciiaall RReeppoorrtt
The directors of the Company are responsible for the preparation of the financial report that gives a true and fair view in
accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal control as the directors
determine is necessary to enable the preparation of the financial report that gives a true and fair view and is free from material
misstatement, whether due to fraud or error.
In preparing the financial report, the directors are responsible for assessing the Group’s ability to continue as a going concern,
disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors
either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so.
AAuuddiittoorr''ss RReessppoonnssiibbiilliittiieess ffoorr tthhee AAuuddiitt ooff tthhee FFiinnaanncciiaall RReeppoorrtt
Our objectives are to obtain reasonable assurance about whether the financial report as a whole is free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a
high level of assurance, but is not a guarantee that an audit conducted in accordance with the Australian Auditing Standards will
always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the
basis of this financial report.
As part of an audit in accordance with the Australian Auditing Standards, we exercise professional judgment and maintain
professional scepticism throughout the audit. We also:
• Identify and assess the risks of material misstatement of the financial report, whether due to fraud or error, design and perform
audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for
our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related
disclosures made by the directors.
• Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit
evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the
Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw
attention in our auditor’s report to the related disclosures in the financial report or, if such disclosures are inadequate, to
modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However,
future events or conditions may cause the Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the financial report, including the disclosures, and whether the
financial report represents the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the
Group to express an opinion on the financial report. We are responsible for the direction, supervision and performance of the
Group audit. We remain solely responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal control that we identify during our audit.
We also provide the directors with a statement that we have complied with relevant ethical requirements regarding
independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our
independence, and where applicable, actions taken to eliminate threats or safeguards applied.
From the matters communicated to the directors, we determine those matters that were of most significance in the audit of the
financial report of the current year and are therefore the key audit matters. We describe these matters in our auditor’s report
unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine
that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be
expected to outweigh the public interest benefits of such communication.
112200
IInnddeeppeennddeenntt aauuddiittoorr’’ss rreeppoorrtt
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
RReeppoorrtt oonn tthhee AAuuddiitt ooff tthhee RReemmuunneerraattiioonn RReeppoorrtt
OOppiinniioonn oonn tthhee RReemmuunneerraattiioonn RReeppoorrtt
We have audited the Remuneration Report included in pages 27 to 47 of the Directors’ report for the year ended 30 June 2020.
In our opinion, the Remuneration Report of Challenger Limited for the year ended 30 June 2020, complies with section 300A of
the Corporations Act 2001.
RReessppoonnssiibbiilliittiieess
The directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance
with section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based
on our audit conducted in accordance with Australian Auditing Standards.
Ernst & Young
T Johnson
Partner
Sydney
10 August 2020
G McKenzie
Partner
Sydney
10 August 2020
112211
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
IInnvveessttoorr iinnffoorrmmaattiioonn
SSuubbssttaannttiiaall sshhaarreehhoollddeerrss
The number of shares held by substantial shareholders and their associates, based on the latest substantial shareholder
notifications, and the 20 largest individual shareholders are as follows:
SSuubbssttaannttiiaall sshhaarreehhoollddeerrss aass aatt 3311 JJuullyy 22002200
MS&AD Insurance Group Holdings Inc
Caledonia (Private) Investments Pty Ltd
BNP Paribas Nominees Pty Ltd
UBS Nominees Pty Ltd
HSBC Custody Nominees (Australia) Limited - A/C 2
BNP Paribas Nominees Pty Ltd
Citicorp Nominees Pty Limited
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
National Nominees Limited
HSBC Custody Nominees (Australia) Limited - GSCO ECA
2200 llaarrggeesstt iinnddiivviidduuaall sshhaarreehhoollddeerrss aass aatt 3311 JJuullyy 22002200
1.
2.
3.
4.
5.
6. Merrill Lynch (Australia) Nominees Pty Limited
7.
8.
9.
10.
11. Argo Investments Limited
12. HSBC Custody Nominees (Australia) Limited - GSI EDA
13. CPU Share Plans Pty Ltd
14. Australian United Investment Company Limited
15. Citicorp Nominees Pty Limited
16. National Nominees Limited
17. Warbont Nominees Pty Ltd
18. Netwealth Investments Limited
19. Merrill Lynch (Australia) Nominees Pty Limited
20. AMP Life Limited
TToottaall 2200 llaarrggeesstt iinnddiivviidduuaall sshhaarreehhoollddeerrss –– iissssuueedd ccaappiittaall
TToottaall rreemmaaiinniinngg sshhaarreehhoollddeerrss bbaallaannccee
NNuummbbeerr ooff
sshhaarreess
101,030,303
98,935,890
%% ooff iissssuueedd
ccaappiittaall
14.95
14.64
199,504,992
145,404,473
88,219,590
14,539,858
11,492,590
9,081,709
7,716,627
7,668,360
6,759,847
5,448,553
5,440,311
4,718,651
2,357,766
2,310,000
1,973,379
1,930,224
1,781,026
1,401,673
1,303,924
1,263,409
552200,,331166,,996622
115555,,229977,,776688
29.53
21.52
13.06
2.15
1.70
1.34
1.14
1.14
1.00
0.81
0.80
0.70
0.35
0.34
0.29
0.29
0.26
0.21
0.19
0.19
7777..0011
2222..9999
DDiissttrriibbuuttiioonn ooff sshhaarreess ((aass aatt 3311 JJuullyy 22002200))
RRaannggee
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
TToottaall
UUnnmmaarrkkeettaabbllee ppaarrcceellss
Minimum $500.00 parcel at $4.34 per unit
NNuummbbeerr ooff
sshhaarreehhoollddeerrss
20,923
18,843
3,944
2,496
91
4466,,229977
MMiinniimmuumm
ppaarrcceell ssiizzee
116
NNuummbbeerr ooff
sshhaarreess
9,654,429
45,518,938
28,651,655
50,854,721
540,934,987
667755,,661144,,773300
%% ooff iissssuueedd
ccaappiittaall
1.43
6.73
4.24
7.53
80.07
110000..0000
HHoollddeerrss
2,723
UUnniittss
176,165
AASSXX lliissttiinngg
VVoottiinngg rriigghhttss
On a show of hands, every member present at the meeting in
person or by proxy shall have one vote and upon a poll each
share shall have one vote.
Challenger Limited shares are listed on the ASX under code
CGF. Share price details and company information can be
accessed via either the Company website:
›› wwwwww..cchhaalllleennggeerr..ccoomm..aauu
or the ASX website:
›› wwwwww..aassxx..ccoomm..aauu
112222
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
IInnvveessttoorr iinnffoorrmmaattiioonn ((ccoonnttiinnuueedd))
BBuuyy--bbaacckk
There is currently no market buy-back.
OOnn mmaarrkkeett aaccqquuiissiittiioonnss ffoorr eemmppllooyyeeee iinncceennttiivvee sscchheemmeess dduurriinngg tthhee ffiinnaanncciiaall yyeeaarr eennddeedd
3300 JJuunnee 22002200
0.8 million Challenger Limited ordinary shares were purchased on market to satisfy entitlements under Challenger’s employee
incentive schemes at an average price per share of $11.00.
TToopp 2200 nnootteehhoollddeerrss ooff CChhaalllleennggeerr CCaappiittaall NNootteess 11 aass aatt 3311 JJuullyy 22002200
HSBC Custody Nominees (Australia) Limited
J P Morgan Nominees Australia Pty Limited
BNP Paribas Nominees Pty Ltd HUB24 Custodial Serv Ltd
Australian Executor Trustees Limited
National Nominees Limited
Citicorp Nominees Pty Limited
BNP Paribas Nominees Pty Ltd
Netwealth Investments Limited
Eastcote Pty Ltd
Navigator Australia Ltd
Taverners No 11 Pty Ltd
MF Investments No 1 Pty Ltd
Sandhurst Trustees Ltd
Madingley Nominees Pty Ltd
Australian Executor Trustees Limited
Willimbury Pty Ltd
Nulis Nominees (Australia) Limited
BNP Paribas Nominees Pty Ltd
GCF Investments Pty Ltd
270 King Street Pty Ltd
2200 llaarrggeesstt iinnddiivviidduuaall nnootteehhoollddeerrss aass aatt 3311 JJuullyy 22001199
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
TToottaall 2200 llaarrggeesstt iinnddiivviidduuaall nnootteehhoollddeerrss –– iissssuueedd nnootteess
TToottaall rreemmaaiinniinngg nnootteehhoollddeerrss bbaallaannccee
DDiissttrriibbuuttiioonn ooff nnootteess ((aass aatt 3311 JJuullyy 22002200))
NNuummbbeerr ooff
nnootteess
318,683
150,424
94,149
88,882
88,326
57,735
50,915
40,463
40,000
32,084
30,586
30,000
28,833
27,512
26,355
22,000
20,461
20,153
20,000
17,600
11,,220055,,116611
22,,224444,,883399
%% ooff iissssuueedd
nnootteess
9.24
4.36
2.73
2.57
2.56
1.67
1.48
1.17
1.16
0.93
0.89
0.87
0.84
0.80
0.76
0.64
0.59
0.58
0.58
0.51
3344..9933
6655..0077
RRaannggee
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
TToottaall
UUnnmmaarrkkeettaabbllee ppaarrcceellss
Minimum $500.00 parcel at $98.30 per unit
NNuummbbeerr ooff
hhoollddeerrss
2,861
387
38
28
2
33,,331166
MMiinniimmuumm
ppaarrcceell ssiizzee
6
NNuummbbeerr ooff
nnootteess
1,042,550
775,976
286,713
875,654
469,107
33,,445500,,000000
%% ooff nnootteess
30.22
22.49
8.31
25.38
13.60
110000..0000
HHoollddeerrss
3
UUnniittss
14
112233
Challenger Limited 22002200 AAnnnnuuaall RReeppoorrtt
IInnvveessttoorr iinnffoorrmmaattiioonn ((ccoonnttiinnuueedd))
TToopp 2200 nnootteehhoollddeerrss ooff CChhaalllleennggeerr CCaappiittaall NNootteess 22 aass aatt 3311 JJuullyy 22002200
HSBC Custody Nominees (Australia) Limited
BNP Paribas Nominees Pty Ltd HUB24 Custodial Serv Ltd
J P Morgan Nominees Australia Pty Limited
Australian Executor Trustees Limited
Citicorp Nominees Pty Limited
National Nominees Limited
Netwealth Investments Limited
Taverners No 11 Pty Ltd
Navigator Australia Ltd
Mutual Trust Pty Ltd
Navigator Australia Ltd
Australian Executor Trustees Limited
BNP Paribas Nominees Pty Ltd
Taverners J Pty Ltd
LBL Investment Pty Ltd
Trustees Of Church Property, Diocese Of Newcastle
HSBC Custody Nominees (Australia) Limited - A/C 2
Nulis Nominees (Australia) Limited
Sargon Ct Pty Ltd
Taverners No 11 Pty Ltd
2200 llaarrggeesstt iinnddiivviidduuaall nnootteehhoollddeerrss aass aatt 3311 JJuullyy 22002200
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
TToottaall 2200 llaarrggeesstt iinnddiivviidduuaall nnootteehhoollddeerrss –– iissssuueedd nnootteess
TToottaall rreemmaaiinniinngg nnootteehhoollddeerrss bbaallaannccee
DDiissttrriibbuuttiioonn ooff nnootteess ((aass aatt 3311 JJuullyy 22002200))
NNuummbbeerr ooff
nnootteess
405,615
150,458
123,064
112,602
91,773
60,054
57,901
54,689
50,692
47,058
42,610
39,451
33,332
32,538
30,000
29,270
27,287
26,404
23,129
21,604
11,,445599,,553311
33,,114400,,446699
%% ooff iissssuueedd
nnootteess
8.82
3.27
2.67
2.45
2.00
1.31
1.26
1.19
1.10
1.02
0.93
0.86
0.72
0.71
0.65
0.64
0.59
0.57
0.50
0.47
3311..7733
6688..2277
RRaannggee
1 – 1,000
1,001 – 5,000
5,001 – 10,000
10,001 – 100,000
100,001 and over
TToottaall
UUnnmmaarrkkeettaabbllee ppaarrcceellss
Minimum $500.00 parcel at $100.20 per unit
NNuummbbeerr ooff
hhoollddeerrss
5,683
519
29
31
4
66,,226666
MMiinniimmuumm
ppaarrcceell ssiizzee
5
NNuummbbeerr ooff
nnootteess
1,624,526
1,094,062
217,113
872,560
791,739
44,,660000,,000000
%% ooff nnootteess
35.32
23.78
4.72
18.97
17.21
110000..0000
HHoollddeerrss
5
UUnniittss
9
AASSXX lliissttiinngg
SShhaarreehhoollddeerr qquueerriieess
Challenger Capital Notes 1 are listed on the ASX under the
trade symbol CGFPA. Challenger Capital Notes 2 are listed on
the ASX under the trade symbol CGFPB. Note price details can
be accessed via the ASX website:
›› wwwwww..aassxx..ccoomm..aauu
VVoottiinngg rriigghhttss
Challenger Capital Notes 1 and 2 do not confer any voting
rights in the Company but if they are exchanged or converted
for ordinary shares in accordance with their terms of issue,
then the voting rights of the ordinary shares will be the same
as for ordinary shares.
For any administrative matters in respect of your Challenger
Limited shareholding or noteholding, please contact the
Company’s share registrar, Computershare:
Computershare Investor Services Pty Limited
Level 3, 60 Carrington Street, Sydney NSW 2000
Telephone: 1800 780 782
Website: ›› wwwwww..ccoommppuutteerrsshhaarree..ccoomm..aauu
To assist with all enquiries, please quote your unique Security
Reference Number (SRN) and your current address when
dealing with Computershare.
112244
Additional information
PPrriinncciippaall ppllaaccee ooff bbuussiinneessss aanndd
rreeggiisstteerreedd ooffffiiccee iinn AAuussttrraalliiaa
Level 2
5 Martin Place
Sydney NSW 2000
Telephone: 02 9994 7000
Facsimile: 02 9994 7777
Investor services: 13 35 66
DDiirreeccttoorrss
Peter Polson (Chair)
Richard Howes (Managing Director and
Chief Executive Officer)
John M Green
Steven Gregg
Masahiko Kobayashi
JoAnne Stephenson
Duncan West
Melanie Willis
CCoommppaannyy sseeccrreettaarriieess
Michael Vardanega
Andrew Brown
WWeebbssiittee
›› cchhaalllleennggeerr..ccoomm..aauu
MMaannaaggee yyoouurr sshhaarreehhoollddiinngg aatt
CCoommppuutteerrsshhaarree IInnvveessttoorr SSeerrvviicceess
Computershare Investor
Services Pty Limited
Level 3, 60 Carrington Street
Sydney NSW 2000
Telephone: 02 8234 5000
›› ccoommppuutteerrsshhaarree..ccoomm..aauu
Telephone: 1800 780 782
AAuuddiittoorr
Ernst & Young
200 George Street
Sydney NSW 2000
GGoo eelleeccttrroonniicc
Challenger can deliver all of your
shareholder communications electronically,
by updating your details via
Computershare Investor Services.
OOnnlliinnee ddiiggiittaall vveerrssiioonn ooff tthhiiss rreeppoorrtt
The 2020 Annual Report is available at:
›› cchhaalllleennggeerr..ccoomm..aauu//aannnnuuaallrreeppoorrtt22002200