Challenger Reports $225m Normalised Profit, $131bn AUM in 1H25

Financial Performance Highlights

Challenger Limited’s interim financial report for the six months ended 31 December 2024 reveals a strong financial performance, with statutory net profit after tax rising 28% to $72.2 million. Normalised net profit after tax also increased by 12% to $225.2 million, driven by solid contributions from both the Life and Funds Management businesses.

The company declared an interim dividend of 14.5 cents per share, fully franked and up 12% on the prior corresponding period, reflecting confidence in ongoing earnings and capital strength.

Life Business: Navigating Sales Decline Amid Strategic Gains

The Life segment, which focuses on retirement income products such as annuities, reported a 7.4% increase in normalised net profit after tax to $224.6 million. This was supported by a 7.3% rise in normalised cash operating earnings, underpinned by higher average investment assets and improved margins.

However, total Life sales declined 12% to $4.6 billion, influenced by a lower volume of lifetime annuity sales compared to the previous year’s period, which included a significant institutional deal with Aware Super. Notably, retail lifetime annuity sales hit a record high, growing 24.2%, and Japanese annuity sales surged 77.7%, signaling strong demand in these segments.

Challenger continues to deepen institutional partnerships, including a recent group lifetime annuity issuance supporting defined benefit fund de-risking, reinforcing its leadership in retirement income solutions.

Funds Management: Robust Growth and Improved Returns

The Funds Management business delivered a 37.1% increase in normalised net profit after tax to $27 million, driven by higher net fee income and disciplined expense management. Funds under management (FUM) rose 12.5% to $121 billion, despite net outflows of $3.1 billion, primarily from fixed income strategies.

Fidante and Challenger Investment Management (CIM) both contributed to growth, with Fidante’s net income up 6.4% and CIM’s up 16.4%. Fidante’s affiliates maintained strong long-term investment performance, with 95% outperforming benchmarks over five years.

Capital Position and Strategic Initiatives

Challenger’s capital position remains robust, with $1.8 billion in excess regulatory capital and a Prescribed Capital Amount (PCA) ratio of 1.61 times, comfortably within the target range. The company reduced its corporate debt facility limit from $400 million to $250 million, maintaining an undrawn position to preserve financial flexibility.

Strategically, Challenger advanced its technology and operational capabilities through partnerships with Accenture and State Street, aiming to enhance customer experience and operational efficiency. The Accenture partnership is expected to deliver $90 million in operating savings over seven years and includes re-platforming Life’s core customer registry.

Outlook and Market Position

Challenger reaffirmed its FY25 normalised net profit after tax guidance range of $440 million to $480 million, implying mid-point growth of 10.4% over FY24. The company’s strong brand recognition, particularly as Australia’s leading annuity provider, and its expanding institutional footprint position it well to capitalize on the growing retirement phase of superannuation.

Despite the decline in total life sales, Challenger’s focus on longer-duration annuity products and retail growth segments suggests a strategic pivot towards higher-quality, sustainable earnings streams.