Challenger Financial Services Group Limited Half-year results to 31 December 2006

Mike Tilley - Chief Executive Officer

26 February 2007

Challenger Group 31 December 2006 Record 1H07 statutory performance¹ Strong but disciplined headline revenue growth $\tilde{g}_\mu$ across divisions Group NPAT of \$130m up 117% $\tilde{g}_P^{\rm th}$ • Assets under management of \$46.4bn up 18% • Basic EPS of 23.7 cps up 112% • Interim dividend of 5.0 cps fully franked Announced equity stake in Homeloans challenger 1 all comparatives against prior corresponding period (1H06) - 6 months ended 31 December 2005

challenger &

Challenger Financial Services Group Limited Half-year results to 31 December 2006

Paul Rogan, Group Chief Financial Officer

26 February 2007

Challenger Group

Financial highlights Statutory

T ... refer appendix 2 for analysis of the profit result allowing for CIF impacts and other adjustments in each of the respective periods

2 - adjusted to remove CIF minorities in 1H06 and 2H06 $\ddot{\varepsilon}$

challenger $\mathbb{S}$

Challenger Group

31 December 2006

Financial highlights
Historic cost

$\bar{\tau}$

1, refer appendix 5 for analysis of the profit result allowing for CIF impacts and other adjustments in each of the respective periods

challenger $\mathbb{S}^{\mathbb{S}}$

$^{\rm 1}$ ... includes boutique partnerships segregated mandates of \$523m

$^2$ -- annualised

$^{10}$ – $^{3}$ $\scriptstyle\cdots$ as at 1 July 2006.

challenger $\mathbb{S}^{\mathbb{N}}$

Mortgage Management 31 December 2006 Equity stake in Homeloans Challenger has agreed to invest \$44.7m to subscribe for new $\bar{u}$ shares in Homeloans¹ - Initial tranche of 8.3m shares at 80 cents per share - Subsequent tranche of 31.7m shares at \$1.20 per share subject to Homeloan shareholder approval Following the issue of shares, Challenger will have approximately a 40% interest in Homeloans Homeloans is a Perth based ASX listed mortgage originator with $\bar{H}$ strong mortgage flows of approximately \$120m per month Challenger believes there is a significant opportunity to increase $\bar{z}$ scale through growth and consolidation in non-bank distribution Transaction is funded from internal capital resources and is EPS $\mathfrak{g}^{\pm}$ accretive in FY2008 challenger & 1 - ASX code 'HOM' $\bar{\mathcal{D}}\mathcal{R}$

Asset Management

Asset Management 31 December 2006

Asset Management
Historic Cost

¹ -- annualised $2 -$ as at 1 July 2006 $\bar{z}$

challenger $\hat{\mathbb{S}}$

Corporate 31 December 2006 Investing today to develop contemporary, scalable platforms for tomorrow Investment in support services lifting expenses \$5m relating to: $\Phi^{(0)}$ management reporting tools automated reconciliations - new HR system process re-engineering As well as: - clearing tax backlogs - capital management initiatives challenger $\overline{33}$

Challenger Financial Services Group Limited Half-year results to 31 December 2006

Mike Tilley - Chief Executive Officer

26 February 2007

$\overline{37}$

challenger

Outlook

• Our contemporary platforms continue to build fee based income streams and our assets and funds under management will continue to grow
• We are committed to the success of our customers and are working to build stronger relationships and provide better service
• Continued investments in people, processes and systems
• We are committed to maintain strong discipline in all our activities
• We are bringing these disciplines to our Financial Planning business and the results of this will be seen in 2H08
• We remain committed to delivering > 18% RONA from our businesses and double digit EPS growth in the long term

Consolidated profit and loss Statutory - Management presentation

APPENDIX 1 Challenger Group 31 December 2006

¹ Includes realised and revaluation movements on investment portfolios. Includes impact of significant items [2H 06 \$1m and 1H 06 \$(15m)]

and minority interests [18 07 \$21m, 2H 06 \$(3m) and 1H 06 \$7m). ² 2H 06 includes significant item of \$13m of Rilton rent costs.

40

Adjusted result Statutory - post tax

APPENDIX 2 Challenger Group 31 December 2006

¹ Final profit on deconsolidation of CIF post audit review. 1H 07 result of \$39m is lower than \$43m indicated in November 2006 disclosure due to underestimation of tax effects.

CIF deconsolidation reconciliation Statutory

APPENDIX 3 Challenger Group 31 December 2006

* Incorporates significant items and minorities adjustment

Consolidated profit and loss Historic Cost¹

¹ Challenger adopts modified historic cost accounting basis for reporting the operations of the Life company within the Asset

-43 Management division. All other aspects of Challenger's financial reporting are per AIFRS. ² 2H 06 includes significant item of \$13m of Hilton rent costs.

APPENDIX 4 Challenger Group 31 December 2006

Adjusted result
Historic Cost – pre tax

APPENDIX 5 Challenger Group 31 December 2006

³ Actual annual realised gains split 50/50.

CIF deconsolidation reconciliation Historic Cost

APPENDIX 6 Challenger Group 31 December 2006

* Incorporates significant items and minorities adjustment

APPENDIX7 Challenger Group 31 December 2006

Consolidated profit and loss
Reconciliation of Statutory to Historic Cost

Consolidated balance sheet CIF deconsolidated

Smillions 31 Dec 2006 30 Jun 2006 31 Dec 2005 Assets Cash & cash equivalents 1.029.2 388.9 465.9 Receivables 296.3 363.6 258.2 6.7 Derivative Assets $10.1$ Financial assets fair valued through income statement 1.215.0 903.6 810.8 Infrastructure Investments 564.9 635.3 676.2 Other financial assets $12.0$ 10.9 11.8 Investment properties 1.452.2 1,800.7 1,779.4 Fixed assets $7.0$ 8.5 14.8 Securitised assets 20,043.8 19,667.9 18,270.9 Deferred tax assets $15.2$ $7.3$ $5.7$ Investment accounted for under the equity method $7.3$ 6.3 6.3 Goodwill 557.0 552.8 564.0 Other intangible assets 15.4 -17.1 18.2 Other assets 182.7 221.2 193.9 Total assets 25,408.1 24,590.8 23,076.1 Liabilities Payables 390.2 582.0 508.0 Derivative liabilities $10.3$ 74.9 Financial liabilities fair valued through income statement 70.6 18.4 Interest bearing liabilities 1.247.4 635.7 791.1 Securitised liabilities 20.053.7 19.680.2 18,189.9 Provisions $47.1$ 64.3 $\sim$ Deferred tax liabilities 155.6 136.6 73.8 88.2 91.1 $95.1$ Life insurance contract liabilities Life investment contract liabilities 2.012.4 2,047.3 2,239.3 Life insurance policy liabilities Total liabilities 24,075.5 23,330.5 21,897.2 Net assets 1,332.6 1,260.3 1,178.9 Shareholder equity Contributed equity 1,250.4 1,244.0 1,237.7 Reserves 81.9 76.6 80.6 Retained profits/(losses) $1.7$ $(61.8)$ $(142.6)$ Total equity attributable to shareholders 1,334.0 1,258.8 1,175.7 Cashflow hedge reserve - SPV's $(9.9)$ $(12.3)$ $(8.1)$ Minority interests 8.5 13.8 11.3 1,332.6 1,260.3 Total equity 1,178.9

APPENDIX 8 Challenger Group 31 December 2006

APPENDIX 9 Challenger Group 31 December 2006

Cashflow Excluding SPV cashflows

1 Excludes cash balances within the Life company statutory funds.

Issued share capital

APPENDIX 10 Challenger Group 31 December 2006

1 Weighted average number of shares for 2006 have been restated to reflect annual statutory financial report.

Contemporary long term incentive scheme

APPENDIX 11 Challenger Group 31 December 2006

• Introduction of a contemporary long term incentive scheme introduced with ability to acquire $\langle \hat{q} \rangle$ shares on-market to avoid dilution
• Class of securities: Options $\langle \xi \rangle$
• Initial number of options to issued: 7.6 million $\langle \hat{Q}_{\mathrm{S}} \rangle$
• Principle terms: $\eta_{\rm c}$
• Options over Challenger shares with an exercise price of \$4.00. There is no consideration payable for the grant of the options
• Options vest after a four year vesting period subject to achievement of the performance condition(s) and continued employment with Challenger
• Options only fully vest where either compound annual Basic EPS growth over the performance period is 10% or greater, or the TSR for Challenger is greater than or equal to the 75th percentile of the S&P ASX 100 comparator group of companies at the end of the 4 year vesting period. If neither of those measures is satisfied, half of the awards vest where TSR for Challenger is greater than or equal to the median of the S&P ASX 100 comparator group of companies at the end of the 4 year vesting period. If this is not satisfied all options lapse
• Where options vest, they must be exercised with 60 days, otherwise they will also lapse
• Options generally lapse on termination of employment other than under special circumstances such as redundancy
• Purpose: $\langle \hat{q} \rangle$
• Satisfaction of awards made under the Challenger Performance Plan to certain key value generators of Challenger
• We will seek approval of the scheme from shareholders at our Annual General Meeting $\langle \hat{q} \rangle$

Earnings and dividends per share

** Board approved dividend policy is for an annual payout ratio of a minimum of 30% of statutory profits.

Debt and gearing

APPENDIX 13 Challenger Group 31 December 2006

'Recourse to Challenger Financial Services Group.

²Non recourse to Challenger Financial Services Group.

³Gearing ratios are based on financial (recourse) debt.

fNet debt is after available cash is deducted.

Funds Management

$53$ $^{-1}$ - The acquisition of HSBC Asset Management business occurred in April 2005.
² - Half on half data annualised. 2005 figures not comparable due to impact of HSBC acquisition.

APPENDIX 14 Funds Management 31 December 2006

Mortgage Management

APPENDIX 15 Mortgage Management
31 December 2006

54 $^{-1}$ - Half on Half data annualised.

Mortgage Management

$55^{-1}$ - Half on Half data annualised

APPENDIX 16 Mortgage Management 31 December 2006

Mortgage Management

APPENDIX 17 Mortgage Management
31 December 2006

challenger@

$^{-1}$ - Half on Half data annualised

$~56$

Asset Management

³ Includes realised gains and revaluation movements on investment portfolios.

APPENDIX 18 Asset Management 31 December 2006

$57\,$

Asset Management

¹ Challenger adopts modified historic cost accounting basis for reporting the operations of the Life company

within the Asset Management division. All other aspects of Challenger's financial reporting are per AIFRS. 58

APPENDIX 19 Asset Management 31 December 2006

Asset Management

APPENDIX 20 Asset Management 31 December 2006

*31 Dec 06 figures includes \$480m of senior property debt.

Financial Planning

¹ - The acquisition of Associated Planners occurred in August 2004.

APPENDIX 21 Financial Planning 31 December 2006

$60$

Corporate

APPENDIX 22 Corporate 31 December 2006

³ 2H 06 has been restated to:

-include the \$13m Hilton relocation provision; and

-exclude the release of a general provision under Historic Cost booked

in Corporate, as it was not attributable to Asset Management.

$2$ Interest includes \$9.3m on CIF gain.

³ FY 05 has been shown post IFRS adjustments. The impact on Corporate in 2005 was \$6m.

⁴ FTE numbers include permanent and part time employees, contractors, temps and sole traders.

Group assets, Loans & Funds under Management

APPENDIX 23 Challenger Group 31 December 2006

1: Net senior debt

62

2: Including Life investment in CIF

3: Includes \$523m for Segragated Boutique Mandates

4: Adjustments reflect the prevention of double counting of cross

holdings of Commercial Lending (\$2,820) and Life Company

Specialised Funds \$588m

• Unlisted Funds \$274m

5: Funds under advice that earn on-going revenue

Operating efficiency

APPENDIX 24 Challenger Group 31 December 2006

Glossary

Glossary

Glossary

Disclaimer: The material in this presentation is general background information about Challenger Financial Services Group activities and is current at the date of the presentation. It is information given in summary form and does not purport to be complete. It is not intended to be relied upon as advice to investors or potential investors and does not take into account the investment objectives, financial situation or needs of any particular investor. These should be considered with or without professional advice when deciding if an investment is appropriate.