Craig Meller
AMP Limited has reported a net profit of A$382 million for the half year to 30 June 2014[1], down 3 per cent on A$393 million reported for 1H 13.
Underlying profit[2] was A$510 million compared with A$440 million for 1H 13, up 16 per cent half on half, with double digit growth in operating earnings for all contemporary businesses.
The Board has declared a 9 per cent increase to the interim dividend to 12.5 cents per share compared with 11.5 cents per share for the 2013 interim dividend. This represents a payout ratio of 73 per cent of underlying profit and is within AMP’s target range of paying 70-80 per cent of underlying profit.
Chief Executive Craig Meller said: “This is a solid result with 16 per cent underlying profit growth. We have made good progress on our strategy to be a leaner, more efficient and increasingly customer-driven organisation.
“We are continuing to transform our core Australian business with a market leading mobile platform launched[3] and a new operating model in place to focus on the customer and to drive sustained growth as the Australian wealth industry doubles in size[4] by 2022.
“It is particularly pleasing to see AMP’s offshore strategy already delivering good cashflows while building strong growth potential in the long term from partnerships with national champions in China and Japan.
“The wealth protection business is stabilising, with the improvement plan delivering encouraging results however, we have more work to do,” Mr Meller said.
Key performance measures
- Underlying profit: A$510 million in 1H 14, up 16 per cent on 1H 13.
- Cost to income: Controllable costs have been managed tightly with the rise in income more than offsetting a A$4 million increase in costs from 1H 13 to A$650 million. The cost to income ratio was 45.0 per cent for 1H 14, an improvement of 3.4 percentage points on 1H 13.
Cashflows:
- AMP Australian wealth management net cashflows were A$1.1 billion in 1H 14, down A$267 million on net cash flows of A$1.4 billion in 1H 13. Total retail net cashflows on AMP platforms continue to perform strongly, growing 39 per cent to A$1.6 billion in 1H 14. These flows were partially offset by higher net cash outflows on external platforms of A$615 million.
- AMP Capital external net cashflows were A$1.6 billion, a A$3.7 billion turnaround from net cash outflows of A$2.1 billion for 1H 13. This was driven by the new inflows generated by the China Life AMP Asset Management joint venture and improved flows from the MUTB alliance.
Underlying return on equity:
- Increased 1.3 percentage points to 12.5 per cent in 1H 14, reflecting the 16 per cent increase in underlying profit, partially offset by higher average capital.
“These results demonstrate the real strength of AMP’s business franchise, scale and operating leverage, when both investment markets and investor confidence are more positive,” Mr Meller said.
In wealth management, operating earnings for 1H 14 were up 16 per cent compared with 1H 13, reflecting increased investment related income from higher customer account balances, a strong rebound in net cashflows and good cost control in a growing business.
In wealth protection, operating earnings were A$91 million compared with A$64 million half on half reflecting the impact of management actions. The volatile environment, claims and lapse experience were broadly in line with best estimate assumptions.
The life insurance sector continues to face both structural and cyclical change and a range of initiatives are underway to address these factors. These include improved customer retention campaigns and additional resources to handle customer claims more effectively and to help income protection customers get back to work more quickly.
“Improving the performance of the insurance business remains a key area of focus as we introduce a series of actions to improve the management of claims and customer retention in order to deliver benefits to both our customers and shareholders,” Mr Meller said.
Other key highlights
- AMP Capital performed well: Operating earnings increased 12 per cent reflecting good fee growth, and a A$3.7 billion turnaround in external net cashflows[5] from strong offshore partnerships. The cost to income ratio of 62.4 per cent was well within the target range of 60-65 per cent.
- Fifth quarter of more than A$1 billion net cashflows on North platform: With net cashflows improving 27 per cent to A$2.4 billion for 1H 14, compared with A$1.9 billion for 1H 13. North AUM increased A$2.6 billion to A$12.2 billion, up 27 per cent since December 2013. Almost 20,000 new customers as a result of more AMP advisers choosing to recommend the North platform to their customers.
- AMP a market leading provider in wealth management: Number one market share in retail superannuation and pensions with 20 per cent, individual risk insurance with 18 per cent and in financial advice with 22 per cent of the market.
- Robust AMP Bank performance: The bank delivered A$42 million operating earnings, up 11 per cent compared with 1H 13, reflecting an increase in residential mortgages with AMP aligned advisers contributing almost a quarter of new business in a period of intense competition. Lending growth was supported by continued deposit inflows which were up 6 per cent on 1H 13.
- New Zealand achieved strong growth in profit margins: Operating earnings of A$55 million, up 20 per cent compared with 1H 13, reflects solid business growth, a currency benefit and good cost control. Cashflows reflect the continued success of KiwiSaver, driving KiwiSaver AUM up 9 per cent to A$2.9 billion.
- Corporate Super wins: 16 new SME and large corporate mandates in 1H 14 to transition over the next 6-12 months
- Adviser numbers stable in a changing regulatory environment: AMP’s adviser network remains the largest adviser network in Australia with 3,860 financial advisers, up 2 per cent on FY 13.
Capital management
AMP continues to hold an appropriate capital surplus, with A$1.9 billion capital above minimum regulatory requirements at 30 June 2014, down from A$2.1 billion at 31 December 2013. The decrease was largely driven by the redemption of AMP Notes.
AMP maintains a strong balance sheet, with little change to gearing and interest cover, and has access to significant liquidity.
AMP continues to offer a DRP to eligible shareholders, no discount will apply to the allocation price. Shares will again be bought on market and the dividend will be 70 per cent franked with the unfranked amount being declared as conduit foreign income.