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Challenger posts $548 million normalised profit before tax in FY 2019

The Challenger Ltd (ASX: CGF) share price will be one to watch this morning following the release of the annuities company’s full year results.

How did Challenger perform in FY 2019?

For the 12 months ended June 30, Challenger recorded revenue of $2,372.6 million and net profit after tax of $307.8 million. This was an 8.3% increase and 4.6% decline, respectively, on the prior corresponding period.

Normalised net profit before tax came in at $548 million, which was an increase of $1 million on FY 2018’s result. This means the company has achieved the updated guidance given in June for the bottom end of its $545 million to $565 million guidance range.

Another metric that the company provided guidance for was its normalised cost to income ratio. In FY 2019 the company achieved a ratio of 32.6%, which was at the mid to upper end of its 30% to 34% guidance range.

A final dividend of 18 cents per share was declared. This brought its full year dividend to a fully franked 35.5 cents per share, which was flat on FY 2018’s dividend. This final dividend will be paid to eligible shareholders on September 25 2019.

What were the drivers of the result?

Management advised that the company’s performance was impacted by a challenging operating environment driven by the disruption in the financial advice industry.

Challenger Life earnings remained steady for the year with book growth offset by a lower margin.

Whereas its Funds Management business was impacted by lower performance fees which offset strong underlying earnings. The business recorded a $1 million decline in net income to $150 million, but was up $14 million excluding performance fees.

Average funds under management (FUM) increased 6% to $77.5 billion. This was driven largely by both its Fidante Partners business which saw its FUM increase 5% to $58.6 billion and Challenger Investment Partners (CIP) which increased its FUM by 8% to $18.9 billion.

However, it could have been much better had Fidante Partners not experienced net outflows of $3.6 billion during FY 2019. This was due largely to a significant redemption by a profit-for-member fund client of $3.9 billion, which was made predominantly due to the internalisation of their investment management capability.


Challenger revealed that challenging operating conditions are expected to persist in FY 2020 and reiterated the guidance it provided with its investor day update.

It expects normalised net profit before tax in the range of $500 million to $550 million, which at worst implies a year on year decline of 8.75% and at best implies a 0.3% increase.

It also confirmed that it continues to expect its normalised cost to income ratio to be above the 30% to 34% target range in FY 2020 due to Distribution, Product and Marketing (DPM) initiatives. Its return on equity target continues to be the RBA cash rate plus a 14% margin.

And finally, the company reiterated its plan to maintain its 35.5 cents per share dividend in FY 2020 despite the potential fall in profits.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Challenger Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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