While Challenger has faced significant challenges over recent years, with major disruption in the wealth market followed by the impacts of COVID-19, we are pleased to report that your business has demonstrated its resilience and enters 2022 in a strong position. 

The business is strongly capitalised, our strategy to diversify distribution channels and product offering is working, and our Funds Management business continues to deliver standout growth. 

Challenger is a company with positive business momentum and a clear strategy to capture the growth opportunities created by long-term structural tailwinds. The superannuation system continues to grow, and an increasing focus on retirement solutions following the Retirement Income Review has highlighted the benefits of guaranteed products.  

Challenger is uniquely placed to capture the benefits of these tailwinds, with both our Life and Funds Management businesses enjoying market-leading positions and, with the recent addition of a banking licence, we will extend our customer and product reach. Importantly, as the leader in retirement incomes, we can play a meaningful role in supporting older Australians through financial security that can last for life.

2021 financial performance 

Underpinning future growth, the business achieved record assets under management of $110 billion, up 29% driven by strong contributions from both the Life and Funds Management businesses. Normalised net profit before tax of $396 million was within our guidance range and reflected the more defensive and enhanced risk settings maintained throughout the pandemic.

Statutory net profit after tax was $592 million, including positive investment experience of  $319 million.

The more defensive portfolio and enhanced risk settings adopted by the Life business in response to the pandemic related market shock, along with the high levels of cash progressively deployed throughout the year, resulted in a lower return on equity, noting we will realise the full benefit of the deployment of these funds in FY22.

Reflecting confidence in the business and its capital position, the Board resumed paying dividends after pausing during the early stages of the pandemic. The Board declared a final dividend of 10.5 cents per share, bringing the full year dividend to 20.0 cents per share, up 14%, fully franked.

Life

Challenger’s strategy to diversify our product offering and distribution channels has seen us achieve record sales in FY21. Life sales increased 35% on last year with growth achieved across all key segments, driving a 14% increase in the size of Life’s business. 

Sales benefited from improved stability in the advice market, a renewed focus on institutional sales, and Japan delivering sales above target.

Funds Management

Our Funds Management business has been a standout performer again this year. Challenger is now Australia’s third largest and one of the fastest growing active fund managers.

This success has been driven by our diversified client base and expanded product offering, and we are now looking to diversify globally. The business saw record net flows of $16 billion and funds under management increased by $24 billion to reach $106 billion.

Strong corporate governance

Our commitment to effective corporate governance is a key underpinning in our approach to building our strong and resilient business. This year we have continued to renew our Board to ensure it has the mix of skills, perspectives and tenure to fulfil its duties. Some of the critical work we’ve done this year has included overseeing the refinement of Challenger’s strategy and supportive executive changes, responding to shareholder feedback on our remuneration approach, and refining the sustainability strategy. This work is designed to ensure we create value for stakeholders over the short, medium and long term.  

In January, we welcomed Dr Heather Smith as an independent Non-Executive Director. Dr Smith has over 20 years’ experience in senior government roles, most recently as Secretary of the Federal Department of Industry, Innovation and Science. Dr Smith will stand for election at this year’s Annual General Meeting.

Our Board now has an average tenure of six years and 33% are women. We have a strong mix of backgrounds and capabilities and a deep commitment to serving the interests of our shareholders.

Ensuring fair and appropriate remuneration outcomes for Key Management Personnel (KMP) remains an important focus for the Board. This year we have taken significant action in response to shareholder concerns following the first strike against our 2020 remuneration report. This includes extensive consultation with shareholders, changes to our reward framework, and ensuring remuneration outcomes for executives are clearly differentiated to reflect the performance of our different businesses. 

Our leadership team includes a mix of new and long-standing members with a diverse range of skills and experience. In May, we welcomed Rachel Grimes as our new Chief Financial Officer (CFO). Rachel brings an outstanding track record as a leader in her field and we are excited to have her join our team. We have also made changes to our Leadership executive team to streamline our structure and better support delivery of our long-term strategy. 

Sustainability

Ensuring a strong, sustainable business is integral to our purpose. Challenger evolved its sustainability strategy this year reflecting our most material environmental, social and governance opportunities. Responsible investment is an increasing priority across our stakeholder groups, and Challenger’s updated sustainability strategy reflects our strengthened focus in this area. 

We have made significant progress on a range of sustainability initiatives that support our business in the near term and position us well for the future, including our ongoing community partnership with the Council on the Ageing NSW; maintaining a high engagement score in our recent employee engagement survey; and recognition once again as an employer of choice for gender equality.

Corporate strategy

In June, we published our refreshed corporate strategy which sets a clear path forward to create long-term sustainable growth. 

Providing our customers with financial security for a better retirement remains at the core of our strategy. This includes a customer vision to provide one in five Australian retirees with improved financial outcomes as customers of Challenger by 2030. We will achieve this through the expansion of our products and services and by broadening access via multiple channels right across our businesses.

The acquisition of MyLife MyFinance bank is an important part of this strategy and creates the opportunity to further diversify our product offering. It also accelerates our plans to build relationships directly with customers, complementing our other well-established distribution channels including financial advisers and a broad range of institutional clients. 

As we embark on this ambitious plan for growth, we must ensure we continue to appropriately balance our risk settings to protect our growing brand and customer franchise.

With this in mind, we have enhanced our capital settings and this also aligns with our strategic priority to strengthen the resilience and sustainability of our business.

Finally, we would like to thank our Board and highly engaged and committed team who have contributed to the positive outcomes we have achieved this year. 

As we look to 2022, our business is in a strong position. In an uncertain global economic environment, we have taken action to reposition our portfolio and strengthen our capital position. We will continue to pursue our growth strategy to deliver our purpose of financial security for a better retirement.

Peter Polson Independent Chair	Richard Howes Chief Executive Officer