Challenger Financial Services Group Ltd has reported a $107.9 million net loss for the first half after the funds manager suffered declines in the value of its investments because of the global financial crisis.

The net loss for the six months to December compared with a profit of $95.7 million in the previous corresponding period, Sydney-based Challenger said in a statement on Monday.

But the company’s normalised net profit, which excludes mark to market movements of some investments, gained 3.9 per cent to $105.9 million as Challenger succeeded in cutting costs to offset the reduction in funds under management.

Challenger said it expected financial markets to remain constrained but believed the company was in a good position to take advantage of the future market recovery.

Revenue declined 21.9 per cent to $1.06 billion while assets under management fell 21 per cent to $37.7 billion.

Challenger declared an interim dividend of five cents per share, unchanged from a year ago.

Challenger said the company held over $400 million more than its regulatory minimum and about $900 million in cash and cash equivalents. The company had $366 million in available cash.

“Our underlying business continues to prove resilient to the worse market conditions in decades,” chief executive Dominic Stevens said in the statement.

“While significant, the mark-to-market adjustments were not unexpected given the continuing dislocation in capital markets.

“Our regulatory capital remains strong and in surplus to both regulatory requirements and internal targets.

“We have no need to raise fresh capital.”

Mr Stevens said the 21 per cent growth in earnings before interest and tax (EBIT) at the mortgage business had more than offset the lower contribution of the funds management division.

“Our mortgage business continues to be a strong cash generator, with our extensive distribution platform positioning Challenger as the largest non-bank participant in the Australian mortgage industry,” he said.

Its EBIT from the mortgage business rose to $63 million while the funds management business declined 65 per cent to $13 million.

The life annuities business, which pays an agreed income to policyholders, grew EBIT 34 per cent to $110 million.

Funds under administration, including mortgages, more than doubled from a year ago to $70.8 billion.

AAP