Challenger profit slumps as ‘market volatility’ bites

Half-year profit at Australia's biggest annuities provider, Challenger, has been all but eradicated because of market volatility, the company said.

Net profit in the six months ended December 31 plunged to just $6.1 million, from $195.4 million in the same period a year earlier.

Challenger said its result had been affected by increased market volatility, industry disruption and political uncertainty.Credit:Peter Braig

Revenue slumped 20.8 per cent to $893.5 million, from $1.13 billion in the second half of 2018.

"Our results have clearly been impacted by the difficult operating environment we’re experiencing, with increased market volatility, industry disruption and political uncertainty," Challenger chief executive Richard Howes said in a statement accompanying the earnings release.

Challenger said it would pay an unchanged fully franked dividend of 17.5¢ a share on March 26.

Challenger's normalised net profit after tax for the six months ended December 31, which excludes the impact of investments, dipped marginally by 3.9 per cent to $199.8 million.

"While some of these factors are beyond our control, the fundamentals underpinning our business remain supportive," Mr Howes said.

"We continue to target a growing market of retirees, we have the leading retirement income brand in the country and our capital position remains very strong.

"Our resilient position is well demonstrated by the solid domestic annuity sales we achieved in the half. Australian annuity sales were up 4 per cent on the same period last year, reflecting the continued demand from retirees for our products."

Challenger downgraded its full-year earnings guidance by 8 per cent last month, citing market volatility. The move resulted in Citi analysts slashing their earnings estimates for fiscal year 2019 by 47 per cent.

With more than $78 billion in assets under management, Challenger’s business model involves paying retirees guaranteed returns via annuities from its investment returns.

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