Craig Meller
AMP Limited has reported a net profit of A$672 million for the year to 31 December 2013, compared with A$689 million for FY 12.
Underlying profit for FY 13 was A$849 million compared with A$950 million for FY 12.
Underlying profit benefited from strong growth in Wealth Management, AMP Bank, Mature and New Zealand, offset by the challenging life insurance environment and a decline in investment income on shareholder funds.
The board has declared a final 2013 dividend of 11.5 cents per share, the same as the 2013 interim dividend. This represents a full year payout ratio of 80 per cent of underlying profit and is within AMP’s target payout range of 70 to 80 per cent of underlying profit. The dividend will be 70 per cent franked with the unfranked amount being declared as conduit foreign income.
Shareholders will be invited to participate in AMP’s dividend reinvestment plan (DRP) however no discount will be applied to the DRP allocation price and the shares will be acquired on-market.
The board reviews its approach to the DRP every six months as part of its review of AMP’s capital position.
AMP remains strongly capitalised with capital resources of A$2.1 billion above minimum regulatory requirements at 31 December 2013, up from A$1.7 billion at 30 June 2013, reflecting retained profits and A$325 million raised through the AMP Notes 2 retail subordinated debt issue. Subject to APRA approval, it is intended that the 2009 issued AMP Notes of A$266 million be redeemed for cash in May 2014.
AMP Chief Executive Craig Meller said that while AMP has delivered strong underlying earnings growth across the majority of its business units, the result has clearly been impacted by the ongoing challenges facing the life insurance sector.
Excluding Wealth Protection, AMP achieved an average 15 per cent earnings growth across the company compared with FY 12. This reflects particularly strong sales momentum in Wealth Management, improved net interest margin in AMP Bank, improved investment returns in the closed Mature business and strong cost management across the group.
Performance against key measures
- Underlying profit: A$849 million for FY 13, down 11 per cent compared with FY 12.
- Cost to income ratio: 49.4 per cent for FY 13, up from 47.3 per cent for FY 12[2] reflecting improved cost control offset by lower income, particularly in the Wealth Protection business. Controllable costs fell 2.6 per cent on FY 12.
- Growth measures:
- AMP Financial Services (AFS) net cash flows were A$1.3 billion, up fromA$308 million for FY 12[3] reflecting strong flows from the Australian Wealth Management business.
- AMP Capital external net cash outflows were A$1,039 million compared with net cash outflows of A$1,784 million in FY 12. This improvement was largely driven in 2H 13 by strong inflows into infrastructure assets and a slow-down in Japanese net outflows.
- AFS value of risk new business was A$116 million, compared with A$203 million for FY 12, reflecting the challenging life insurance environment.
- Underlying return on equity: 10.7 per cent, down from 12.7 per cent FY 12[4] reflecting higher capital held to meet new prudential requirements, lower Wealth Protection profits and lower investment income earned on shareholder capital as a result of lower short-term interest rates.
Wealth Management, AMP’s largest business unit, delivered an increase in operating earnings of 16 per cent, reflecting stronger net cashflows and improved investment markets leading to 14 per cent growth in average assets under management (AUM). Margins in the wealth management business declined 4 basis points to 121 basis points which is within AMP’s market guidance.
The life insurance sector remains challenging with insurance claims and policy lapses remaining at higher levels than the long term average.
AMP has undertaken a comprehensive review across all aspects of its life insurance business and researched global best practice, and as a result launched a series of initiatives that are expected to improve claims and lapse experience over the medium term.
“We’re already seeing the benefit of working more closely with our customers to help them get back to work after illness or injury, improving the financial outcome for both our customers and AMP. We’re also investing in new systems and data analytics that will improve claims management performance over the medium and long term.
“As market leader, AMP has the scale, capacity and executional capability to continue to deliver quality life insurance products that provide Australians with much needed security in a market that is changing. And, we play an important role in helping people understand the fundamental difference life insurance can make in the lives of Australians,” Mr Meller said.
The benefits of a stronger AMP with the advantages of scale and operational capacity are becoming evident as the company capitalises on improving investment markets and a rebound in the level of discretionary superannuation contributions.
Key highlights
- AMP Bank delivered record profit of A$83 million – up 34 per cent on FY 12 reflecting ongoing growth in home loan customers and lower funding costs.
- Strong AFS net cashflows of A$1.3 billion – net AFS cashflows up from A$308 million FY 12. Cashflows into the Australian wealth management business unit almost tripled to $2.2 billion from A$821 million FY 12.
- North platform cashflows almost doubled to A$4.1 billion – now with A$10 billion AUM, a fivefold increase since AMP acquired North in 2011 as part of the AXA merger. North’s success demonstrates this wrap platform’s appeal and quality, including fast online technology and access to a broad range of quality investments.
- AMP SMSF administration established as market leader – following both organic growth and a number of strategic acquisitions aimed at delivering scale and efficiency, AMP is now focused on broadening distribution reach, developing advice capabilities and developing quality investment products tailored for the SMSF market.
- 86 per cent and 67 per cent of AMP Capital funds met or exceeded client performance targets over one and three years respectively – representing improved investment performance.
- New Zealand operating profit up 19 per cent – buoyed by strong cost management, improved life insurance experience and a stronger New Zealand dollar.
Growth strategy
“With the AXA integration now complete, and most of the significant regulatory changes largely implemented, AMP’s strategy remains to focus on the attractive A$2.2 trillion Australian wealth management market; transform the core of the Australian business to a more customer-centric model; reduce costs to maintain market-leading efficiency and to continue to invest selectively internationally, with a focus on high growth Asian markets.
“We made considerable progress against our growth strategy in 2013. The pathway to a more customer-centric organisation is clear and work is underway on improving multi-channel access, diversifying advice models and better using data to drive customer offers,” Mr Meller said.
As announced in August 2013, AMP expects to deliver A$200 million pre-tax recurring, run-rate cost savings by the end of 2016. AMP expects to invest A$320 million (pre-tax) over the next three years to deliver these efficiencies.
Our commitment to investing in selective growth opportunities in Asia is providing returns through the successful launch of a A$2.2 billion mutual fund by our joint venture with China Life and the further development of our relationship with MUTB in Japan,” Mr Meller said.
AMP established its joint venture with China Life during the year and is now well-positioned to participate in China’s rapidly growing mutual fund investment market. AMP Capital further deepened and broadened its relationship with MUTB and now offers two institutional funds and three retail funds through MUTB’s extensive distribution network with AUM of more thanA$570 million.