A decision to drop its final dividend tells us all we want to know about the outlook for Challenger Ltd, the Sydney-based annuities giant.
The company revealed the decision in its full-year results announcement yesterday.
It is expecting a fall in earnings for the 2020-21 financial year thanks to the impact of COVID-19, the record low-interest rates, high unemployment, and weak markets.
“Given the uncertain conditions, investment market volatility, and intention to maintain a strong capital position while optimising earnings, the Board has decided not to pay a final FY20 dividend,” Challenger told the ASX.
This means its interim dividend of 17.5 cents a share will be the only dividend it pays this year, down from 35.5 cents a share in 2018-19.
Investors went blah and marked the shares down 7.6% to 44.01 yesterday.
CEO Richard Howes, commented: “While investment losses resulting from the major COVID-19 market event have impacted our net statutory performance, our strategy of growing funds under management and diversifying our revenue base demonstrates underlying business resilience.”
The company reported a statutory net loss after tax was $416 million, including negative investment experience of $750 million, which represented fair value movements on Challenger Life assets and liabilities.
Directors said the “performance was affected by the severe impact of the COVID-19 pandemic on top of ongoing structural change to the financial advice industry, and broader operating environment.”
Group assets under management rose 4%, finishing the year at $85.2 billion.
“The growth was particularly strong given the disruption in financial markets, and the federal government’s early release scheme for superannuation,” directors said.
What Challenger calls its “normalised” net profit before tax (NPBT) was down 8% to $507 million. “normalised” net profit after tax (NPAT) was down 13% to $344 million.
The statutory loss is the one that should be the focus and is far more accurate than the ’normalised’ results which sees to exclude asset movements
Looking to 2020-21, Challenger was not upbeat saying it is expecting its “normalised” net profit before tax to decline again in FY 2021.
It has provided guidance for normalised net profit before tax in the range of $390 million to $440 million. This represents a 13.2% to 23% decline year on year.
This guidance assumes Challengers Life’s strong capital position will be prudently deployed over the course of the year, with the deployment of up to $3 billion in cash and liquids into higher returning investments.
Challenger said this reflects an intention to maintain defensive portfolio settings and carefully manage expenses over the next year at least.