Part One: AMP underlying profit 2 per cent lower in first half of 2008
AMP Financial Services reports Q2 2008 cashflows
Part Two: Investor Presentation (full document attached to
announcement)
Part Three: Investor Report (full document attached to announcement
Part Four: Appendix 4D (full document attached to announcement
Part Five: Directors Report & Financial Report
28 August 2008 (full document attached to announcement
AMP underlying profit 2 per cent lower in first half of 2008
AMP Limited today announced a solid result given challenging investment
market conditions, recording a 2 per cent fall in underlying profit to $437
million for the six months to 30 June 2008.
Underlying profit is AMP''s chosen measure of profitability as it removes
investment market volatility, and is the basis for determination of AMP''s
dividends to shareholders. It also measures profit on a like-for-like basis.
The interim dividend has been maintained at 22 cents per share, 85 per cent
franked. An additional two cents per share payment from the proceeds of the
sale of the Cobalt/Gordian business last year will also be paid, also 85 per
cent franked.
AMP''s performance against its key performance measures was as follows:
- Underlying return on equity: rose 2.5 percentage points to 40.5 per
cent.
- Total operating earnings: up 3 per cent to $394 million.
- Cost to income ratio: increased 1.4 percentage points to 9.9 per
cent.
- Growth measures: net cashflows in AMP Financial Services down 69 per
cent on the previous first half to $760 million and net external cashflows in
AMP Capital Investors down 74 per cent to $369 million. The Value of New
Business in AMP''s risk insurance businesses was up 13 per cent to $44
million.
- Investment performance: 57 per cent of AUM either met or exceeded
benchmarks in the year to June.
AMP Chief Executive Officer Craig Dunn said the business areas with most
market
exposure - Contemporary Wealth Management and AMP Capital Investors - had
performed well by posting broadly steady results, while the Contemporary
Wealth Protection and New Zealand businesses had both delivered much stronger
results.
"AMP is weathering the difficult investment market conditions well,
demonstrating its financial strength and the resilience of its business
model," Mr Dunn said.
At 30 June, AMP Group capital resources exceeded minimum regulatory
requirements by $665 million.
"With market conditions likely to remain volatile for the rest of this year,
delivering growth in the short term will continue to be challenging but we
remain confident in the medium to long term outlook for the wealth management
industry," he said.
"This is why we are continuing to invest in growth initiatives across the
business, with an emphasis in the first half on new product development and
enhanced distribution.
"Overall, AMP remains well positioned in the wealth management industry with
a pre-eminent brand; low cost and scaleable manufacturing platform; large
aligned planner channel; broadly based asset management and packaging
business; and cost and capital efficiency."
Other profit measures
Other profit line measures in the first half of 2008 were as follows:
- Profit attributable to shareholders before accounting mismatches
fell 50 per cent to
$278 million. Excluding an $88 million contribution in the first half of
2007 from the
now-divested Cobalt/Gordian business, this measure fell 41 per cent to $278
million.
- Net profit attributable to shareholders after accounting mismatches,
which represents AMP''s bottom line profit, fell 22 per cent to $366 million.
This includes an $88 million profit on accounting mismatches, compared with a
loss of $91 million previously. Excluding the $88 million contribution in
the first half of 2007 from Cobalt/Gordian, this measure fell 4 per cent to
$366 million.
Both these profit lines take into consideration a number of items including
investment losses on shareholder funds of $49 million. They also include a
market adjustment of $41 million, representing an unrealised loss on the
fixed interest assets that back AMP''s annuities portfolio. AMP runs a
matched portfolio so that if the assets are held to maturity, and there
continues to be no defaults, this adjustment should reverse over time.
Business performance
AMP Financial Services delivered a 3 per cent increase in operating earnings
to
$334 million in the first half, demonstrating its ability to manage through
the current market environment. More than 57 per cent of its first half
operating earnings were from businesses largely immune to short term
investment market movements.
In Contemporary Wealth Management, which includes the financial planning,
superannuation, pensions and banking businesses, operating earnings fell 2
per cent to
$142 million for the half, due largely to lower AUM-related revenue.
Operating earnings to AUM declined two basis points to 51 basis points.
Controllable costs were marginally lower, down 1 per cent to $172 million,
despite continued investment in distribution and product initiatives. The
cost to income ratio rose marginally, up from 43.3 per cent to 43.9 per cent.
Return on equity rose 2.8 percentage points to 51.8 per cent.
Achievements against Contemporary Wealth Management''s key strategic
priorities in the first half included continued growth in planner numbers;
continued mandate wins in the Corporate Superannuation business; and the
development of new, more targeted product offers including a Separately
Managed Account platform and a superannuation cash product.
Key priorities in this business continue to be to drive AUM and revenue
growth; to grow planner numbers and productivity; to improve the approach to
customer segmentation; and to achieve ongoing cost and capital efficiencies.
In Contemporary Wealth Protection, operating earnings grew 29 per cent to $76
million in the first half with strong new business growth in both individual
and group risk and an improved claims performance, which contributed to a
lift in experience profits to $10 million.
Individual risk annual premium income grew 12 per cent to $484 million over
the previous corresponding half, reflecting 31 per cent growth in new
business volumes, increased planner focus on risk business, and good growth
in third party markets.
Controllable costs rose 21 per cent to $40 million, reflecting higher sales
and increased project spend. Despite this increase, the cost to income ratio
fell marginally to 22.2 per cent.
Return on equity in this business was 4.2 percentage points higher than the
previous corresponding half at 33.5 per cent.
A renewed focus in this business on product innovation and improved
efficiency has started to show positive results. Automated underwriting is
performing well, with the majority of underwritten insurance now processed by
this method. New products include Loan Cover - a product built specifically
for mortgage brokers that allows them to offer death or terminal cover with
the sale of a mortgage.
Business priorities include the growth of profitable market share, an
increase in the level of risk written within superannuation, and making AMP
easier for planners to do business with.
The Mature business is one of the largest closed life businesses in Australia
with AUM of $17.3 billion at 30 June 2008, down 9 per cent from the previous
corresponding half due to investment market volatility and the natural runoff
of the book.
Operating earnings fell 6 per cent to $89 million for the half while
controllable costs were steady at $33 million.
Return on equity for the half fell to 178.9 per cent from 201.1 per cent in
the first half of 2007.
The focus in this business is on cost and capital efficiency, and
persistency.
The New Zealand business performed well in the half, off the back of a strong
risk result. Operating earnings rose 13 per cent to $27 million (or 20 per
cent in New Zealand dollar terms), with good claims performance contributing
$5 million in experience profits.
This business is also starting to benefit from the introduction of workplace
savings scheme Kiwisaver, which has been reflected in strong first half
cashflow numbers.
Growth in the risk insurance book led to a 13 per cent increase (in NZ dollar
terms) in annual premium inforce.
Controllable costs rose 14 per cent over the previous corresponding half to
$33 million. However this rise largely reflects a provision for
restructuring costs, related to the consolidation of operations in Auckland,
which is expected to lead to future cost savings. The cost to income ratio
rose 0.6 percentage points to 43.1 per cent.
Return on equity fell to 27.3 per cent from 29.8 per cent.
Key priorities for this business include a focus on building the quality,
productivity and number of advisers, and the continued implementation of a
transformation program which will improve cost management, increase earnings
and improve capital efficiency.
In AMP Capital Investors, operating earnings were steady at $78 million
despite market volatility. This was due in part to strong growth in
performance and transaction fee income.
AUM fell 9 per cent to $101 billion for the half, primarily because of
adverse investment market movements. Internally managed AUM fell 11 per cent
to $61 billion while externally managed AUM fell 5 per cent to $40 billion.
External management fees rose 4 per cent to $105 million for the half,
continuing to outstrip internal fees, which were $88 million or 6 per cent
higher for the half. Performance and transaction fees rose 23 per cent to
$59 million, largely driven by fees in infrastructure, property and equities.
A total of 57 per cent of AUM met or exceeded investment performance
benchmarks for the 12 months to 30 June 2008, below the target of 75 per cent
and down from 68 per cent at December 2007.
In terms of AMP Capital-managed single sector funds, Australian equities
recorded a strong performance, with 81 per cent performing at or above
benchmark. The flagship capital investment style beat benchmark by 4.7
percentage points for the 12 month period. Property also performed well with
79 per cent of AUM above benchmark. Continued global bond market volatility
and deteriorating credit conditions significantly impacted the Australian
bond portfolio, with 22 per cent of domestic fixed interest AUM at or above
benchmark.
Controllable costs rose 11 per cent to $138 million compared with the
previous half, with the cost to income ratio up 2.2 percentage points to 53.6
per cent. This reflects increased expenditure as the business expands into
Asia, as well as increased employee costs due to higher staff numbers and
tight labour market conditions.
Achievements against AMP Capital''s strategy in the first half included
continued expansion into Asia, with more than 20 investment professionals now
based across the region including Singapore, Tokyo, Mumbai and Beijing.
Product development also continues to be a key focus, with a number of awards
received in the first half including Best New Investment Product of the Year
by Rainmaker for the Core Infrastructure Fund.
Key priorities for the business include continued expansion into Asia and
further development of specialised, higher margin product and investment
capabilities.
Capital management
In terms of the dividend, the policy remains to pay out 85 per cent of
underlying profits,
85 per cent franked. The dividend has been maintained at 22 cents per share
for the first half, taking the payout ratio to 94 per cent. An additional
two cents per share payment from the sale proceeds of Cobalt/Gordian has also
been made, 85 per cent franked.
The Board''s decision to maintain the dividend is a statement of confidence in
AMP''s ability to see through short term adverse market conditions.
Mr Dunn said that AMP would continue to take a prudent approach to its
capital management given current volatile market conditions.
"AMP remains soundly capitalised, with surplus capital above target levels in
the Life company and across the Group at 30 June," Mr Dunn said.
"Group gearing remains low, at 13 per cent on an S&P basis, while underlying
interest cover is at 13.5 times. AMP also has significant capacity to raise
additional Tier 2 capital.
"Our capital strategy is aimed at enhancing this already strong position in
the current climate, increasing business flexibility to grow and further
optimising our capital mix.
"In difficult market conditions like these, we have a bias towards holding
more capital rather than less. For this reason, we are taking a number of
steps to enhance our strong position."
The first step in these capital managements plans is aimed at optimising the
capital mix. AMP is currently evaluating options to raise lower Tier 2
capital (subordinated debt). A final decision on the quantum and timing of
any issue is yet to be made and is dependent on capital market conditions.
Part of the funds would be used to refinance the $267 million of subordinated
debt maturing in 2009. There are no plans for a buyback in the current
environment.
The second step involves two changes to the Dividend Reinvestment Plan (DRP):
the current 10,000 cap on participation has been lifted, while new shares
will be issued to fund the DRP rather than buying shares on-market.
The final step involves the likely cessation of further payments from the
Cobalt/Gordian sale proceeds. While AMP had planned to make two further
payments of two cents per share (four cents in total), it is now considered
unlikely that these payments will be made.
"AMP has demonstrated a disciplined approach to capital management in recent
years and will continue to be responsive to changing market conditions," Mr
Dunn said.
Market exposures
In terms of current credit market issues and exposures, AMP has a prudently
managed, diversified book of business which means no shareholder or customer
funds are disproportionately exposed to any one asset, asset class or counter
party.
AMP has immaterial shareholder exposure to US subprime, US Alt A mortgages,
monolines, SIVs and CDOs.
Outlook
Mr Dunn said that AMP remained confident about the medium to long term
outlook for the wealth management industry, although market conditions were
likely to remain volatile for the remainder of 2008.
AMP believes that while the Australian economy is slowing, conditions should
improve once likely interest rate falls flow through later this year and into
2009. The New Zealand economy faces tougher conditions, although the long
term attractiveness of the wealth management industry has been enhanced by
initiatives such as Kiwisaver.
While Asian economies, including China and India, are slowing, most are still
growing at significantly stronger rates than the rest of the world.
"While AMP will prudently manage through these market conditions, we will
also continue to invest where we see potential growth opportunities that
position us well over the medium to long term," Mr Dunn said.
AMP is pursuing a focused growth strategy to strengthen its position in its
core Australian and New Zealand markets, while selectively expanding into
Asian markets through AMP Capital Investors.
In terms of costs, AMP Financial Services is expected to record cost growth
of 3-4 per cent for 2008, while Group office costs should remain around
current levels. AMP Capital''s costs will be managed closely, contingent on
opportunities and conditions.
"Notwithstanding the short term pressures caused by markets, our goal remains
to deliver top quartile TSR performance over a five year cycle, which means
average annual growth of 15 per cent in the value of an investment in AMP,"
Mr Dunn said.
The value of an investment is measured by growth in AMP''s share price, plus
the payment of dividends and returns of capital.
Media enquiries Investor enquiries
Karyn Munsie Howard Marks
Tel: +61 2 9257 9870 Tel: +61 2 9257 7109
Mobile: +61 421 050 430 Mobile: +61 402 438 019
Amanda Wallace
Tel: +61 2 9257 2700
Mobile: +61 2 422 379 964
28 August 2008
AMP Financial Services reports Q2 2008 cashflows
AMP Financial Services today reported cashflows for the second quarter to 30
June 2008.
Total net cashflows for the quarter were $631 million, compared with $1,660
million in the previous corresponding quarter.
AMP Financial Services Managing Director Craig Meller said the reduction in
net cashflows in Q2 2008, compared to Q2 2007, was due to the impact of a
legislative opportunity that resulted in a significant one-off increase in
superannuation contributions before July 2007 which was not matched in Q2
2008. The weaker investment market conditions this year also contributed to
the reduction.
Ongoing investment market volatility has led to a reduction in discretionary
contributions across the business. It was however partially offset by a
solid performance from AMP Financial Services New Zealand.
Overall persistency for AMP Financial Services, excluding internal product
flows, was
88.1 per cent in line with 88.0 per cent persistency in the June 2007
quarter.
The attached tables contain cashflows for the June 2008 quarter.
Retail superannuation and allocated pensions/annuities
The June quarter continued the recent trend of flows moving from retail
superannuation to pensions and annuities.
- Total retail super and pensions/annuities inflows fell 25 per cent to
$2.05 billion compared to $2.73 billion in the corresponding 2007 quarter.
2007 inflows for the second quarter were boosted by the one-off jump in super
contributions sparked by legislative changes. As well as this, lower
discretionary contributions in Q2 2008 were mainly due to worsening consumer
and investment sentiment.
- Total outflows remained relatively stable, increasing 2 per cent from
$1.46 billion in
Q2 2007 to $1.49 billion in Q2 2008. The percentage of outflows retained
within AMP fell
2 percentage points to 44 per cent. The outflows not retained were primarily
higher annuity payments to customers in line with the growth of allocated
pensions/annuities business.
- External persistency (excluding internal product flows) for retail
superannuation was
89.0 per cent - in line with the previous corresponding quarter. External
persistency for allocated pensions/annuities in Q2 2008 fell slightly to 83.5
per cent from 84.9 per cent in Q2 2007.
Corporate superannuation
Corporate superannuation netflows decreased 43 per cent to $191 million
(excluding mandate wins).
- Including mandate wins, total corporate super inflows increased 1 per
cent to $1.0 billion for the quarter, compared with $992 million for Q2 2007.
- Excluding mandate wins, inflows dropped 8 per cent in Q2 2008 to $908
million from $992 million in the corresponding 2007 quarter, largely driven
by lower discretionary member contributions.
- AMP retained more than 60 per cent of all corporate superannuation
outflows, a small increase on 2007.
- External persistency in the quarter was 92.9 per cent, compared with
93.0 per cent previously.
Mature products
- Outflows were $538 million, a 13 per cent improvement on the previous
corresponding quarter due to lower transaction volumes and the guaranteed
nature of many of the mature products.
- Net cash outflows fell 6 per cent.
New Zealand
- The recently introduced Kiwisaver scheme continues to positively
impact the New Zealand business with inflows for the quarter at $188 million
compared to $142 million for the previous corresponding period. Outflows
fell 6 per cent to $170 million.
- Net cashflows were $18 million, up from a net outflow of $38 million
in the previous corresponding quarter.
Channel flows
- AMP Financial Planning netflows for Q2 2008 were $497 million
compared to
$1.19 billion for the previous corresponding quarter with the decrease mainly
driven by the one-off spike in inflows in Q2 2007 resulting from the
legislative changes in Q2 2007.
- Hillross netflows for the quarter were $74 million compared to $360
million for the corresponding quarter, reflecting lower member contributions
in the quarter compared to the jump experienced in Q2 2007. An increasing
amount of off-platform business (such as direct shares) from Hillross''
affluent customer base is also not being reflected in cashflow reporting.
Outlook
Mr Meller said that while the one-off increase in super contributions in the
second quarter of 2007 resulting from legislative changes had impacted the
comparative 2008 results, investment market conditions meant delivering
growth in the short term will remain challenging.
"However, the business is well placed and we remain confident about its long
term outlook," Mr Meller said.
"We have a proven, resilient business model and a sharp focus on driving
growth through increasing the size and productivity of our distribution
footprint, and increasing our penetration into high value customer segments."
Mr Meller added that the third and fourth quarter of 2008 are likely to be
positively impacted by a number of recent tender wins by the corporate
superannuation business, totalling more than $500 million.
Media enquiries Investor enquiries
Karyn Munsie Howard Marks
Tel: +61 2 9257 9870 Tel: +61 2 9257 7109
Mobile: +61 421 050 430 Mobile: +61 402 438 019
Amanda Wallace
Tel: +61 2 9257 2700
Mobile: +61 2 422 379 964
Table 1: Cashflows by business line
Q2 08 Q2 07 % Change - Q2 08 vs Q2 07
Inflows(A$m) Outflows(A$m) Net(A$m) Inflows(A$m)
Outflows(A$m) Net(A$m) Inflows Outflows Net
(%) (%) (%)
Retail superannuation 1,504 1,167 337 2,231 1,214 1,017 -33%
-4% -67%
Allocated pensions/annuities 546 320 226 503 251 252
9% 27% -10%
Total retail superannuation and pensions/annuities 2,050 1,487 563
2,734 1,465 1,269 -25% 2% -56%
Retail investment 71 106 (35) 122 159 (37) -42%
-33% -5%
Fixed term annuities 40 61 (21) 41 55 (14) -2%
11% 50%
External platforms 516 461 55 928 515 413 -44%
-10% -87%
Total retail 2,677 2,115 562 3,825 2,194 1,631 -30% -4%
-66%
Corporate superannuation 908 717 191 992 658 334
-8% 9% -43%
Corporate superannuation mandate wins 93 0 93 0 0
0 n/a n/a n/a
Australian contemporary wealth management 3,678 2,832 846 4,817
2,852 1,965 -24% -1% -57%
Group risk 42 18 24 43 19 24 -2% -5%
0%
Individual risk 123 42 81 110 45 65 12% -7%
25%
Lifetime annuities 1 37 (36) 3 37 (34) -67%
0% 6%
Australian contemporary wealth protection 166 97 69 156
101 55 6% -4% 25%
Australian mature 236 538 (302) 298 620 (322) -21%
-13% -6%
New Zealand 188 170 18 142 180 (38) 32% -6%
N/A
Total AMP Financial Services 4,268 3,637 631 5,413 3,753 1,660
-21% -3% -62%
Table 2: Cashflows by distribution channel
Q2 08 Q2 07 % Change - Q2 08 vs Q2 07
Inflows(A$m) Outflows(A$m) Net(A$m) Inflows(A$m)
Outflows(A$m) Net(A$m) Inflows Outflows Net
(%) (%) (%)
AMP Financial Planning 2,555 2,058 497 3,250 2,062 1,188 -21%
0% -58%
Hillross (including Arrive and Magnify) 564 490 74 956 596
360 -41% -18% -79%
Corporate Super - direct sales force 514 329 185 529 291
238 -3% 13% -18%
Centrally managed clients and other 209 307 (98) 264 323
(59) -21% -5% -66%
3rd Party Distributors 238 283 (45) 273 302 (29) -13%
-6% 55%
New Zealand 188 170 18 142 180 (38) 32% -6%
N/A
Total AMP Financial Services 4,268 3,637 631 5,413 3,753 1,660
-21% -3% -62%
A copy of the investor presentation can be obtained by e-mailing lcr@nzx.com
End CA:00169293 For:AMP Type:HALFYR Time:2008-08-28:10:36:42