- FY 18 statutory net profit1 of A$28 million (FY 17: A$848 million) due to advice remediation and subdued performance in wealth protection.
- FY 18 underlying profit2 of A$680 million (FY 17: A$1,040 million) driven by positive momentum in AMP Capital and AMP Bank.
- Australian wealth management operating earnings of A$363 million (FY 17: A$391 million); net cash outflows of A$3,968 million (FY 17: A$931 million net cash inflows) reflected a range of factors including reputational impact of the Royal Commission.
- Capitalised losses and negative claims experience in wealth protection led to A$3 million operating loss in businesses sold to Resolution Life.
- Operating earnings for New Zealand wealth management of A$53 million; defer IPO consideration until separation completion.
- Strong performance on controllable costs (ex AMP Capital); costs of A$913 million due to business efficiency, lower project costs and lower variable remuneration.
- AMP maintained balance sheet strength with a strong capital surplus of A$1.65 billion above minimum regulatory requirements.
- FY 18 final dividend declared of 4 cents per share, franked to 90 per cent, in recognition of 2H 18 performance, capital impacts and market uncertainties
AMP Chief Executive Francesco De Ferrari said:
“2018 has been a challenging year for AMP. Our core businesses have delivered resilient results, with continued growth in AMP Capital and AMP Bank offsetting the headwinds faced in Australian wealth management.
“The Royal Commission has been a confronting but valuable experience for the financial services industry and has served as a catalyst for change at AMP. We have undertaken Board and leadership renewal, accelerated client remediation and sharpened our focus on delivering better value to customers including reducing fees on our MySuper products.
“The sale of our wealth protection and mature businesses to Resolution Life is also a key milestone for the company, exiting the historic business on which AMP was founded. This is a significant shift but a necessary one given the volatility and capital intensity of these businesses.
"As a specialist in-force manager, Resolution Life is a better owner of these assets with a capital structure to manage them effectively.
“The sale of these businesses fundamentally resets AMP, reducing the capital intensity of our portfolio and creating a new, more streamlined and agile group.
“2019 will be a transitional year as we prioritise the complex legal separation from the businesses sold to Resolution Life, and deliver on our commitments to remediate advice customers and strengthen our risk management, governance and controls. Delivery on these priorities is a precondition to set a strong foundation for future growth.”
Business unit results
Australian wealth management
Australian wealth management earnings declined A$28 million to A$363 million (FY 17: A$391 million). The result was largely due to higher margin compression from the MySuper fee reduction, weaker investment markets and the transition of clients to lower-cost, contemporary products such as MyNorth. Reduced revenues were partially offset by lower controllable costs.
Other revenue decreased largely due to advice impairments on the carrying value of client registers. AMP also acquired fewer minority stakes in advice practices than expected.
Net cash outflows of A$3,968 million (FY17: A$931 million of net cash inflows) reflected a number of factors including the reputational impact of the Royal Commission, particularly during 2H 18, and advisers’ focus on customer retention rather than new business. Superannuation member contributions reduced compared to FY 17 where flows benefitted from a one-off change to non-concessional caps and a significant corporate super mandate win. AMP’s A$30 billion corporate super business showed resilience during 2018 in retaining the majority of employer plans.
North continued to attract good support and recorded A$3,986 million net inflows and a A$3billion increase in AUM to A$37.9 billion.
New Zealand wealth management
Operating earnings for New Zealand wealth management were A$53 million supported by income from financial advice. At FY 18, AMP’s KiwiSaver product had A$4.9 billion in AUM and net cashflows of A$135 million. AMP is a leading provider of KiwiSaver, which remains a focus for growth.
AMP Capital demonstrated continued momentum, with operating earnings up 7 per cent to A$167 million (FY 17: A$156 million) driven by stronger fee income and solid growth in external AUM. AMP Capital continues to invest in international markets where there was strong demand for its real assets capability. As a result, controllable costs rose 10 per cent. However, AMP Capital’s cost to income ratio remained within the 60 – 65 per cent target range.
AMP Capital now manages A$17.3 billion (FY 17: A$12 billion) on behalf of 302 direct international institutional clients. Its real assets business, including its infrastructure equity and debt strategies, contributed to strong external net cashflows of A$4,219 million following a record year in FY 17 (A$5,477 million). AMP Capital’s A$5 billion Australian property development program continues to attract strong support from international and domestic investors.
China Life AMP Asset Management Company (CLAMP) increased its AUM by 10.1 per cent (from FY 17) to RMB 201.7 billion (A$41.7 billion). CLAMP launched 17 new products during FY18 including separately managed accounts, and diversified, equity and bond funds. AMP Capital has a 15 per cent stake in CLAMP. China Life Pension Company (CLPC), in which AMP has a 19.99 per cent stake, grew AUM 35.7 per cent (from FY 17) to RMB 720.7 billion (A$149.1 billion), maintaining its position as a leader in the trustee services and pensions markets.
Growth in residential mortgages and a reduction in deposit costs drove a 5.7 per cent increase in operating earnings for AMP Bank to A$148 million. AMP Bank maintained a competitive lending position with residential loans increasing 3 per cent to A$19.5 billion during FY 18. Loan growth was affected during 2H 18 by competition in the subdued housing market, regulatory limits and conservative liquidity management. Residential mortgage competition was particularly apparent in the owner-occupied principal and interest market. Controllable costs increased by A$15 million due to continued investment in technology to support growth. AMP Bank has maintained its strong capital position in response to changing regulatory requirements.
Australian and New Zealand wealth protection and mature Performance in wealth protection during FY 18 was impacted during the second half by A$180 million of capitalised losses (and other one off experience items) and approximately A$50 million of experience losses. These losses followed an increase in income protection and total and permanent disability claims.
The Australian mature business recorded profit margins of A$132 million reflecting expected portfolio runoff and market impacts. The wealth protection losses and other negative impacts, however, offset total profit margins of A$269 million, resulting in an operating loss of A$3 million (FY 17: A$331 million) from the businesses sold to Resolution Life.
Under the terms of the sale agreement, Resolution Life assumes the risks and profit impacts from 1 July 2018, subject to risk-sharing arrangements. AMP, however, remains responsible for the operations and capital management of these businesses until the sale completes, expected by the end of Q3 19. Any required adjustments from this period will be made on settlement of the transaction.
Customers’ policy terms and conditions are unchanged as a result of the transaction and the business will benefit from the support of the current team of employees – led by AMP Life CEO Megan Beer – as it largely transfers to Resolution Life.
Capital and dividend
AMP retains its strong balance sheet and capital position, with its Level 3 eligible capital above minimum regulatory requirements (MRR) of A$1.65 billion at 31 December 2018, down from A$2.34 billion at 31 December 2017. Post final dividend, AMP will have a capital surplus above MRR of A$1.5 billion, in line with Board limits for target capital surplus.
The surplus has been impacted primarily by recent strengthening of best estimate assumptions in wealth protection and the previously-announced advice remediation provisions.
Recognising the 2H 18 performance of the business, the related capital impacts and the uncertainties in the operating environment, the Board has declared a final dividend of 4 cents per share. The dividend will be franked at 90 per cent. The total FY 18 dividend is 14 cents per share, which represents a dividend payout ratio of 60 per cent of underlying profit.
The Board anticipates maintaining the target capital surplus ahead of the completion of the Resolution Life transaction.
AMP reaffirms its commitment to returning the majority of the net cash proceeds received on settlement of the transaction with Resolution Life to shareholders, subject to unforeseen circumstances.
AMP remains committed to making the changes that are required to transform the business and reposition it to deliver significantly better performance and value over the long term.
Priorities for 2019 include:
- Separate Australian and New Zealand wealth protection and mature: Drive transaction completion by the end of Q3 19.
- Deliver advice remediation: Remediate clients as quickly as possible.
- Strengthen risk management, internal controls and governance: Optimise investment in risk and compliance systems; improve risk culture.
- Transform Australian wealth management: Reshape the advice network and improve economics; streamline the operating model and product offering.
- Drive growth in AMP Bank: Deliver solutions through broker and advice channels; grow retail deposit base.
- Grow New Zealand wealth management: Focus on separation and growth;
- defer IPO consideration until separation completion.
- Maintain growth momentum in AMP Capital: Continue international expansion and leverage strategic partnerships.
More detailed information on the FY 18 result is available in the FY 18 investor report and presentation, both accessible at amp.com.au/shares.
1 AMP’s profit measures exclude MUFG: Trust Bank’s (formerly MUTB) 15 per cent share of AMP Capital’s earnings.
2 Underlying profit is the basis on which the AMP Board determines the dividend payment and reflects the business performance of AMP. It is AMP’s key measure of business profitability as it normalises investment market volatility stemming from shareholder assets invested in investment markets and aims to reflect the trends in the underlying business performance of the AMP group. Underlying profit includes earnings attributable to Resolution Life under the terms of the sale and purchase agreement entered into on 25 October 2018. While Resolution Life assumes the risks and profit impacts from the “sold” businesses, subject to certain risksharing arrangements, AMP remains responsible for the operations and capital management of these businesses until the sale completes and accordingly will continue to include earnings from these businesses until then. Any required adjustments from this period will be made on settlement of the transaction.