Mike Wilkins

AMP Limited has announced the successful completion of its portfolio review including an agreement to divest its Australian and New Zealand wealth protection and mature businesses (AMP Life) and reinsure New Zealand retail wealth protection for total proceeds of A$3.45 billion.

The outcomes of the portfolio review are as follows:

• AMP will exit its Australian and New Zealand wealth protection and mature businesses via a sale to Resolution Life^[1] for total cash and non-cash consideration of A$3.3 billion; transaction expected to complete in 2H 2019; subject to regulatory approvals.
• Binding agreement with Swiss Re^[2] to reinsure New Zealand retail wealth protection, releasing additional capital of up to A$150 million to AMP prior to completion of sale; subject to regulatory approvals.
• Intention to seek divestment of New Zealand wealth management and advice businesses via initial public offering (IPO) in 2019 subject to market conditions and regulatory approvals, unlocking further value.
• Significant capital release will strengthen AMP’s balance sheet and provide strategic flexibility; all options for use of proceeds to be evaluated and update to be provided following transaction completion.

Mike Wilkins, AMP’s Acting CEO, commented: “The completion of our portfolio review marks a major step forward in reshaping AMP as a simpler, more focused group, that is well positioned to compete in our core markets.

“Delivering the right outcome for customers, shareholders and employees has been our focus throughout the portfolio review.

“For customers, there will be no change to their existing insurance policy terms or conditions. They will benefit from Resolution Life’s deep expertise in managing in-force insurance policies and its commitment to customer service.

“For shareholders, the agreement with Resolution Life and our exit from wealth protection and mature delivers important strategic benefits. It substantially simplifies our portfolio, delivers certainty and frees up capital.

“For employees, it provides certainty of outcome with a business that is culturally aligned with AMP. Our highly-experienced teams supporting insurance and mature customers are expected to largely transfer with the sold businesses, delivering continuity and stability for customers.

“Looking forward, our incoming CEO, Francesco De Ferrari has the mandate to transform AMP. The outcomes from the portfolio review will create greater flexibility as he sets the new strategy for our simplified business portfolio.”

Sir Clive Cowdery, Resolution Founder and Resolution Life Executive Chairman said: “Resolution Life is delighted to be partnering with AMP on this transaction. We have great respect for the long and proud history of AMP’s life insurance business in Australia and New Zealand.

“Over 15 years and the acquisition of 27 life insurance companies, Resolution has developed an operating model which puts delivering policyholder benefits to existing customers at the centre of our business.

“The acquisition of AMP Life is consistent with our strategy to grow the business beyond our traditional markets in Europe and the United States and we see scope for further consolidation in the Australian life market.”

Wealth protection and mature – Resolution Life transaction summary

Under the terms of today’s agreement, AMP will sell its Australian and New Zealand wealth protection and mature businesses (AMP Life) to Resolution Life for a total consideration of A$3.3 billion, which comprises:

• A$1.9 billion in cash.
• A$300 million in AT1 preference shares in AMP Life (issued on transaction completion).
• A$1.1 billion in non-cash consideration:
  • Economic interest in future earnings from the mature business, equivalent to A$600 million; expected to provide steady ongoing earnings to AMP of approximately A$50 million after tax per annum, assuming an annual run-off at 5 per cent.
• A$515 million interest in Resolution Life, focused on the acquisition and management of in-force life insurance books globally.

AMP expects to monetise all non-cash consideration over time.

Together with the New Zealand reinsurance agreement, the total value equates to approximately 0.82x pro forma embedded value of the sold businesses at 30 June 2018, excluding franking credits.

Resolution Life assumes risk and profits of the wealth protection and mature businesses from 1 July 2018^[3], subject to Australian wealth protection risk-sharing arrangements.

A new Relationship Agreement has been established with Resolution Life and AMP Capital will continue to manage wealth protection and mature assets under management. AMP Capital will also join Resolution Life’s global panel of preferred asset managers.

The transaction is subject to regulatory approvals and other conditions precedent and is expected to complete in 2H 2019.

Partnering to ensure smooth transition for customers

Resolution Life is an international insurance and reinsurance group whose management has a 15-year track record in providing quality service to in-force insurance customers.

The transaction has been designed to ensure all existing terms and conditions will be retained. The teams supporting existing AMP customers will largely transfer on completion to maintain continuity of service.

AMP and Resolution Life will work closely together to ensure a smooth transition for customers.

New Zealand wealth protection reinsurance

AMP has entered into a binding reinsurance agreement with Swiss Re for the New Zealand retail wealth protection portfolio which is expected to release up to A$150 million of capital to AMP, subject to regulatory approval. The agreement is expected to be effective from 31 December 2018, and will cover approximately 65 per cent of the New Zealand retail wealth protection portfolio for new claims incurred from that date.

The reinsurance agreement is expected to reduce New Zealand profit margins by A$20 million on a full-year basis. The reinsurance outcomes are factored into the Resolution Life transaction.

New Zealand wealth management and advice businesses

AMP is today also announcing its intention to seek divestment of its New Zealand wealth management and advice businesses via an IPO in 2019. The decision to proceed with an IPO and its timing remain subject to market conditions and regulatory approvals.

These businesses have FY18 pro forma operating earnings of approximately A$40 million on a standalone basis. The IPO would release capital to AMP and create a standalone New Zealand wealth management and advice business.^[4]

Portfolio review outcomes will release capital, simplify portfolio and create strategic flexibility

The completion of the portfolio review will strengthen AMP’s balance sheet and provide strategic flexibility. All options for use of proceeds will be considered including growth investments and/or capital management activity.

The exit from Australian and New Zealand wealth protection and mature will also significantly simplify AMP and its earnings profile, enabling it to focus on its higher growth businesses of Australian wealth management, AMP Capital and AMP Bank.

The simplification and separation costs related to the Resolution Life sale transaction are expected to be in the order of A$320 million post-tax.

Additional capital from the transaction with Resolution Life will facilitate a reduction in AMP’s corporate debt of up to A$800 million.

The financial impacts of the transaction on AMP post-separation are outlined in the investor presentation.

AMP will exclude the 2H 18 earnings from the discontinued businesses in determining the FY 18 dividend.

AMP continues to target a total FY 18 dividend payout within, but towards the lower end of its dividend guidance range of between 70 – 90 per cent of underlying profit.

Further guidance on use of proceeds will be provided following the completion of the transaction in 2H 2019.

——–

[1] Acquiring entity is Resolution Life Australia Pty Ltd, a wholly owned subsidiary of Resolution Life Group Holdings LP
[2] Swiss Re Life & Health Australia Ltd, New Zealand Branch
[3] AMP is entitled to continue extracting dividends pre-completion, with an adjustment at transaction completion.
[4] The proposed IPO has not yet commenced and no offers of securities are currently being made, nor application monies sought. If the proposed IPO proceeds, it will be made under the Financial Markets Conduct Act 2013 (NZ) and a product disclosure statement will be made available by an AMP group entity that has not yet been determined. Anyone who wants to acquire securities under the proposed IPO will need to complete the application form that will be in or will accompany the product disclosure statement.

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Mike Wilkins

• 1H 18 underlying profit¹ of A$495 million (1H 17: A$533 million) and net profit² of A$115 million (1H 17: A$445 million). Net profit reflects advice remediation provision announced on 27 July.
• Strong growth in AMP Bank with earnings up 20 per cent on 1H 17.
• Continued momentum in AMP Capital; operating earnings up 2 per cent on 1H 17 during period of investment in real assets capability and international expansion.
• Australian wealth management resilient in a challenging environment; operating earnings increased 6 per cent to A$204 million; assets under management increased 6 per cent to A$132 billion.
• Australian wealth protection profit margins of A$46 million (1H 17: A$49 million); operating earnings declined to A$1 million due to higher than expected claims activity and reserve strengthening on a large terminated group plan.
• Strong performance on controllable costs; on track to at least achieve FY 18 cost guidance.
• Surplus capital of A$1.8 billion above minimum regulatory requirements. Interim dividend of 10 cents per share, franked to 50 per cent.

AMP Acting Chief Executive Mike Wilkins said: “Our first half results have demonstrated AMP’s resilience through a difficult period. While there will be further challenges ahead, we have a strong foundation on which to reset the business and restore the confidence of our customers and the wider community.

“AMP Bank and AMP Capital have continued to grow and our Australian wealth management business has again shown its ability to respond to changing market circumstances, broadening its revenue base and managing its controllable costs.

“The events around the Royal Commission into financial services have challenged our reputation, and while we continue to monitor the impacts, we have taken action to stabilise the business and move forward. “Headwinds remain for the second half of the year, but our focus is clear. We’ll continue to prioritise our customers, putting their interests first. We’ll progress the transformation of our advice business, strengthen risk management and accelerate the portfolio review aiming to release further capital from our manage for value businesses.

“We’re driving change right across the business and are dedicated to delivering the services that are critical to our customers and the Australian economy, helping to earn back trust in AMP.

Australian wealth management

Australian wealth management operating earnings increased 5.7 per cent in 1H 18, driven by growth in other revenue from Advice and SMSF businesses and lower controllable costs. This growth has offset the impact of margin compression, which was elevated in 1H 18 due to the final MySuper transitions in Q2 17.

Recently-announced fee reductions to AMP’s flagship MySuper products, benefiting around 700,000 existing customers, have no impact on the 1H 18 result but are expected to reduce investment related revenue to AUM by A$12 million in 2H 18 and by an annualised A$50 million from FY 19. Excluding this impact, investment related revenue to AUM margin compression is expected to average 3 to 4 per cent over the long term but may be volatile from period to period.

Net cash outflows of A$873 million in 1H 18 reflect a period where member contributions were generally more subdued, particularly in comparison to 1H 17 when cashflows were elevated by Corporate Super mandate wins and higher superannuation contributions ahead of changes to non-concessional caps on 1 July 2017. During Q2 18, flows were also impacted by the Royal Commission hearings.

AMP’s award-winning North platform attracted strong net cashflows of A$2.5 billion in 1H 18 (1H 17: A$2.9 billion) despite challenging external conditions. North’s assets under management increased A$2.9 billion to A$37.9 billion in 1H 18.

During the period, AMP paid A$1.2 billion in pensions to support customers in their retirement, which is included in cash outflows.

AMP Capital

AMP Capital operating earnings increased 2.2 per cent on 1H 17 to A$94 million, driven by growth in fee income. Fee growth was partially offset by higher controllable costs related to investment in real asset capabilities and international expansion.

AMP Capital’s external net cashflows of A$1.6 billion in 1H 18 were down on the A$2.4 billion of net cashflows in 1H 17. However, strong momentum remains in global infrastructure and domestic real estate. AMP Capital’s average AUM increased 7 per cent to A$189 billion driven in part by real asset investments during the half and positive investment returns.

During the period, AMP Capital invested more than A$1.5 billion in new real estate and infrastructure assets on behalf of investors, including the 49 per cent acquisition of London Luton Airport. At 30 June, AMP Capital had an additional A$5.2 billion in uncalled committed capital available for deployment.

Controllable costs increased 9 per cent reflecting investment in international growth and the delivery of a real estate development program domestically, notably the landmark Quay Quarter Sydney development at Circular Quay. AMP Capital continues to target a full-year cost to income ratio of 60-65 per cent.

Direct international institutional clients grew to 295 in 1H 18, with AMP Capital managing A$14.2 billion in assets on their behalf, an increase of 18 per cent from FY 17. This growth was driven by strong interest in AMP Capital’s infrastructure platform.

China Life AMP Asset Management³ (CLAMP) continues to grow with AUM increasing 3 per cent to RMB 188.1 billion (A$38.4 billion) in 1H 18, supported by the launch of 12 new products including diversified, equity and fixed income funds.

Total AUM for China Life Pension Company (CLPC), the pensions joint venture in which AMP owns a 19.99 per cent stake, grew 22 per cent to RMB 647.8 billion (A$132.3 billion). CLPC has been selected as a trustee manager for the occupational pension plans for Xinjiang province, Shandong province and the central government, the only three to have tendered to date. China’s occupational pensions roll-out will deliver a compulsory superannuation-like system for around 40 million public sector employees.

AMP Bank

AMP Bank operating earnings increased 20 per cent to A$78 million in 1H 18 (1H 17: A$65 million) driven by an 8 per cent rise in its residential lending book to A$19.7 billion and improved deposit margins. As a result, net interest margin (NIM) was 1.72 per cent for 1H 18, an increase of five basis points from 1H 17.

During the period, AMP Bank’s capital position was strengthened in response to changing regulatory requirements and a securitisation undertaken in June 2018. The Common Equity Tier 1 (CET1) for 1H 18 was 10.3 per cent, up from 8.8 per cent at 1H 17.

Controllable costs increased in 1H 18, reflecting ongoing investment in technology and operating capability to support mortgage growth and customer service improvements.

Australian wealth protection

Australian wealth protection operating earnings decreased by A$51 million to A$1 million in 1H 18, impacted by a deterioration in claims experience and capitalised losses. Negative claims experience was driven by higher than expected claims activity, primarily in total and permanent disability (TPD), which reflects a wider industry challenge. Capitalised losses and other one-off experience of A$29 million was largely due to reserve strengthening on a large group plan, which terminated on 1 July 2018. 3 AMP Capital holds a 15 per cent stake in the China Life AMP Asset Management Company (CLAMP).

Profit margins declined by A$3 million to A$46 million in 1H 18, reflecting the implementation of previously-announced reinsurance agreements, partially offset by cost savings.

The focus remains on running an efficient and competitive business while maintaining high levels of customer service. During the period, AMP paid A$597 million in claims to support customers in their time of need.

New Zealand financial services

New Zealand operating earnings decreased by A$9 million to A$56 million in 1H 18, driven by lower profit margins and reduced experience profits.

AMP New Zealand financial services continues to hold market-leading positions in wealth protection and wealth management, in addition to being one of the largest KiwiSaver providers with approximately 228,000 KiwiSaver customers and NZ$5.2 billion in AUM, an increase of 12 per cent on 1H 17.

Australian mature

In line with expectations, Australian mature operating earnings of A$70 million in 1H 18 reflect the impact of expected portfolio run-off offset by lower controllable costs.

Costs, capital and dividend

Strong performance on controllable costs reflects run rate benefits from 2017 business efficiency and restructure activities. FY 18 controllable costs (ex AMP Capital) are expected to at least achieve FY 18 guidance.

AMP’s level 3 eligible capital surplus was A$1,810 million above minimum regulatory requirements at 30 June 2018 (FY 17: A$2,338 million). The decrease includes impacts from the A$290 million (posttax) advice remediation provision and changes to best estimate assumptions in Australian wealth protection.

The interim dividend is 10 cents per share, franked at 50 per cent. As flagged to the market on 27 July, this is outside AMP’s 70-90 per cent guidance range, enabling AMP to retain capital and strategic flexibility over the coming period. AMP is targeting a total FY 18 dividend payout within, but at the lower end of, its 70-90 per cent guidance range.

Clear 2H 18 priorities

AMP has clear priorities for the second half of the year. It is continuing its actions to prioritise customers and restore confidence. The transformation of advice is underway, including the acceleration of advice remediation and reshaping of AMP’s advice network. Investment is being made to further strengthen risk management and controls across the business. As previously announced, AMP has also reprioritised the portfolio review of its manage for value businesses. AMP is also focused on maintaining momentum in its growth businesses.

More detailed information on the 1H 18 result is available in the 1H 18 investor report and presentation, both accessible at amp.com.au/shares.

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Mike Wilkins

AMP Limited has provided an update on its expected 2018 interim results and announced a series of actions being taken to reset the business, prioritise customers and strengthen risk management systems and controls.

Summary

Actions to reset the business

• Accelerating advice remediation: to ensure impacted advice customers are appropriately compensated. 1H 18 results are expected to include a provision of A$290 million (post-tax) for potential advice remediation in relation to ASIC reports 499 and 515, which require an industry-wide ‘look back’ of advice provided from 1 July 2008 and 1 January 2009, respectively.
• Delivering improved value for around 700,000 super customers: through fee reductions to AMP’s flagship MySuper products in 3Q 18.
• Investing to strengthen risk management systems and controls: increased investment of approximately A$35 million (post-tax) per annum to upgrade risk management controls and strengthen compliance systems across the business over the next two years.
• Reprioritising the portfolio review: to realise capital from the manage for value businesses. AMP remains in active discussions with a number of interested parties.

1H 18 results expectations

• AMP 1H 18 underlying profit: estimated to be in the range of A$490–500 million. Result to benefit from growth across AMP’s core growth businesses, offset by recent deterioration in experience and capitalised losses in Australian wealth protection. As outlined above, 1H 18 net profit attributable to shareholders is expected to include a provision of A$290 million (post-tax) for potential advice remediation.
• Strong capital position: AMP remains well capitalised with an expected capital surplus above minimum regulatory requirements (MRR) in the order of A$1.8 billion at 1H 18, including the impacts of the advice remediation provision.
• Dividend expectations: AMP is targeting a total FY 18 dividend payout at the lower end of the 70-90% guidance range. To retain capital and strategic flexibility over the coming period, it is expected that the interim dividend may be outside this range.

Commenting, Acting CEO Mike Wilkins said: “Today’s announcement reflects our commitment to take decisive action to reset AMP and establish a platform from which the business can recover rapidly. We’re facing squarely into the issues that have impacted our reputation and the community’s confidence in AMP.

“Our remediation provision responds to industry-wide issues raised by ASIC in its reports 499 and 515 and reflects a conscious business response to increased community expectations. This remediation program is complex as it will address both employed and aligned advisers, and we understand it is one of the first programs to do so. We are working on the program with our advisers, the vast majority of whom are dedicated, professional and committed to meeting the advice needs of their clients.”

“Customer needs are our immediate priority, as we firmly believe this will also best serve the longterm interests of shareholders. We know it will take time to earn back trust, however today is an important milestone in that process.”

Action taken to reset the business

AMP outlined a series of actions being taken to reset the business, prioritise customers and strengthen risk management systems and controls.

These actions include:

Accelerating advice remediation

ASIC reports 499 and 515 require an industry-wide review of the delivery of ongoing service arrangements and the appropriateness of advice recommendations going back 10 years to 1 July 2008 and 1 January 2009 respectively.

ASIC has also publicly outlined its expectations of the industry with regard to the review and remediation approach to be applied through this ‘look back’ period.

As flagged at the 1Q 18 update and at the AGM in May, AMP has been undertaking a detailed review of advice delivered and fees charged across its entire advice network including its aligned adviser base. The company is moving to accelerate its remediation program to ensure all impacted customers are appropriately compensated.

1H 18 net profit attributable to shareholders is expected to include a provision of A$290 million (post-tax) for potential advice remediation. A significant portion of the provision relates to compensation for potential lost earnings. As one of the first instances of applying the ‘look back’ to an aligned adviser network, discussions with ASIC remain ongoing in relation to the detailed scope and methodology.

The program is estimated to cost approximately A$50 million (post-tax) per annum over the next three years and this cost will be expensed as incurred.

AMP has a number of potential recovery options to partially offset these remediation costs in the medium term. These options will be actively pursued. Updates on the delivery and cost of the program will be provided in future financial reporting periods.

Delivering better value for super customers through fee reductions

As part of its continuing commitment to customers and reflecting plans for the simplification of its superannuation product offering, AMP has today announced fee reductions to its flagship MySuper products. These reductions will improve member outcomes, reducing fees for around 700,000 existing customers, and enhance the competitiveness of AMP’s MySuper product suite.

Pricing reductions will be implemented in 3Q 18. AMP continues to work towards rationalising the number of products offered, reducing operational complexity and enabling greater product scale to compete more effectively.

The customer-focused fee reductions announced today will have no impact on the 1H 18 result but are expected to lower Australian wealth management investment related revenue (IRR) by an annualised A$50 million from FY 19. 2H 18 Australian wealth management IRR is expected to be reduced by A$12 million.

Excluding these pricing reductions, and subject to any further management initiatives, guidance for underlying margin compression is expected to average 3-4% over the long term but may be volatile from period to period.

Strengthening risk management and controls

AMP will also invest in significant enhancements to the company’s risk management controls and compliance systems. This is expected to result in approximately A$35 million (post-tax) per annum of one-off costs over the next two years. These costs will be reported below underlying profit.

Reprioritising the portfolio review

Following stabilisation of the business, the portfolio review of the manage for value businesses has been reprioritised. AMP is committed to releasing further value from these business lines and remains in active discussions with a number of interested parties.

1H 18 results expectations

AMP expects to deliver a 1H 18 underlying profit in the range of A$490–500 million. The results demonstrate growth across AMP’s core growth businesses, Australian wealth management, AMP Capital and AMP Bank, offset by a recent deterioration in experience and one-off capitalised losses in Australian wealth protection.

Australian wealth protection 1H 18 profit margins were higher than anticipated, but offset by negative experience and capitalised losses. This will result in negligible operating earnings during the period. The largest impact was a A$20 million one-off negative experience loss associated with reserve strengthening on a large Group plan, terminated on 1 July 2018. The loss of this plan was disclosed at AMP’s FY 17 results.

AMP also expects changes to best estimate assumptions at the half year mainly, for Total & Permanent Disability. These changes are not expected to have a material impact on previous profit margin guidance for Australian wealth protection.

Reported profit attributable to shareholders is expected to be impacted by the A$290 million (posttax) provision for advice remediation and an additional A$55 million (post-tax) of other one-off costs incurred in 1H 18, relating to the Royal Commission, portfolio review and costs of accelerating the advice remediation program in the first half. These items will be booked below underlying profit.

Capital and dividend expectations

AMP remains well capitalised and expects to report Level 3 eligible capital surplus above MRR in the order of A$1.8 billion at 30 June 2018. This includes impacts from the anticipated advice remediation provision, changes to best estimate assumptions in Australian wealth protection and other one-off costs.

AMP is targeting a total FY 18 dividend payout at the lower end of its 70-90% guidance range. To retain capital and strategic flexibility over the coming period, it is expected that the interim dividend may be outside this range. Additionally, the 1H 18 dividend reinvestment plan is not expected to be neutralised.

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Mr Murray agreed to accept the chairmanship on 4 May 2018.  Following the completion of required appointment processes and the finalisation of some prior commitments, he has now joined the Board.

As previously announced, Mike Wilkins, AMP’s interim Executive Chairman, will return to the role of acting Chief Executive Officer.  Mr Wilkins will remain in this position until the transition to a new CEO at which time he will return to his role as a Non-Executive Director of the Board.

Mr Murray said: “I am pleased to today begin the task of rebuilding AMP as Chairman, working with the Board and management to restore trust in the company.

“AMP plays an important role in the Australian financial system, serving more than 3.8 million customers with products and services that are vital to the functioning of our economy.  Our business has undoubtedly been challenged by recent events but the Board will set the tone from the top as we drive change across the business.

“My immediate focus will be on renewing the Board and strengthening our governance framework.  Remediation of customers and rebuilding relationships with regulators will also be priorities.

“On behalf of the Board, I would like to thank Mike Wilkins for his leadership and his commitment to the company in stepping in as Executive Chairman over the past two months.  I’m looking forward to working with Mike as we take up the challenge of reinvigorating AMP.”

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Mr O’Sullivan has extensive experience in leadership and senior executive roles within financial services and legal and regulatory risk as well as deep M&A and capital markets experience. He was most recently Executive Chairman, Investment Banking and Capital Markets, of Credit Suisse Australia. Prior to that, he was General Counsel of the Commonwealth Bank of Australia after a long career at Herbert Smith Freehills including as a partner of the firm.

Interim Executive Chairman Mike Wilkins said: “We’re committed to Board renewal and John’s appointment is part of the reset that is necessary to rebuild AMP as a stronger organisation. John will lead the Board Committee work around regulatory and legal matters.

“John has significant financial services and governance experience and has, at the highest level, determined and implemented strategy, driven financial, operational and key people decisions and led legal and regulatory risk functions.

“We’re pleased to be welcoming John to the Board. We continue to work towards appointing further non-executive directors as we strengthen and renew the AMP Limited board.”

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Mike Wilkins

• Cashflows subdued in Australian wealth management (AWM); continued strength in AMP Capital and AMP Bank.
• AWM assets under management of A$128.3 billion at Q1 18, down 2 per cent from Q4 17, largely due to weaker investment markets.
• AWM net cash outflow of A$200 million, in line with Q1 17, reflects subdued period of activity in superannuation following non-concessional contribution cap changes in 2017.
• Strong net cashflows on AMP’s North platform at A$1.2 billion, up 14 per cent on Q1 17.
• AMP Capital net external cashflows of A$1.6 billion driven by strong cashflows in real assets.
• AMP Bank’s total loan book up 2 per cent to A$19.8 billion during the quarter.
• Portfolio review of manage for value businesses continues.
• In response to ASIC industry reports 499 and 515, AMP continues to review adviser conduct, customer fees, the quality of advice, and the monitoring and supervision of its advisers. We anticipate that this review will lead to further customer remediation costs and associated expenses. We will provide a further update at or before the 1H 18 results.

AMP interim Executive Chairman Mike Wilkins said: “The past month has been exceptionally difficult for our customers, shareholders, employees and advisers. We recognise there is a lot to be done to restore the public’s confidence in the company, which is a priority for the Board.

“AMP is a well-capitalised company with areas of our business delivering strong growth. AMP Capital saw strong external fund net flows particularly in real assets and AMP Bank continued its loan growth, despite a tighter market. Australian wealth management experienced cashflows in line with Q1 in 2017, as well as a small reduction in AUM following weaker investment markets.

“AMP stands behind its advice business, and the value it creates for customers. However, we have been very disappointed that, in some instances, our customers have not received appropriate levels of service for the fees they have paid. We are working hard to accelerate the remediation for our customers.

“We continue to progress the portfolio review, however we are currently prioritising the performance of the business, board renewal and the appointment of a new CEO.”

Commentary

Australian wealth management

• Net cash outflows of A$200 million in Q1 18 in line with Q1 17. Inflows and outflows in Q1 18 were subdued due to reduced activity in superannuation following 2017 non-concessional contribution cap changes and volatile investment markets in the quarter.
• AMP’s wrap platform, North, continued to perform strongly with cashflows growing 14 per cent to A$1,181 million in Q1 18.
• Total Australian wealth management AUM at the end of Q1 18 was A$128.3 billion, down 2 per cent from Q4 17 reflecting negative investment markets during the quarter.
• AMP’s SMSF business, SuperConcepts, added approximately 5,500 funds across administration and software services during Q1 18, supported by the acquisition of MORE Superannuation. The business now supports more than 64,600 SMSFs.

AMP Capital

• AMP Capital external net cashflows were A$1.6 billion in Q1 18, an increase from A$228 million in Q1 17, driven by flows into real assets (real estate and infrastructure investments), and strong performance by China Life AMP Asset Management (CLAMP).
• AUM increased from A$187.7 billion at the end of Q4 17 to A$188.1 billion in Q1 18. AUM now includes AMP Capital’s 24.9 per cent share of US-based real estate investment manager PCCP’s AUM.
• AMP’s partnership with China Life continues to grow; AMP Capital’s share of CLAMP contributed net cashflows of A$462 million in Q1 18.
• AMP Capital has A$4.5 billion of committed real asset capital available for investment.

AMP Bank

• Total loan book grew to A$19.8 billion during Q1 18, up 2 per cent on Q4 17, supported by continued growth in loan books for both aligned adviser and mortgage broker channels.
• Retail deposit book increased by A$321 million in Q1 18 relative to Q4 17.

Australian wealth protection

• Australian wealth protection annual premium in-force (API) was down 1 per cent in Q1 18 to A$1,890 million. The small decline was primarily driven by a 1 per cent fall in API for individual lump sum.

New Zealand financial services

• AMP New Zealand financial services’ net cashflows were A$54 million in Q1 18, up from A$23 million in Q1 17. The increase was mainly driven by lower cash outflows in retail investments.
• AMP remains one of New Zealand’s largest KiwiSaver providers with net cashflows of A$47 million in Q1 18.

Australian mature

• Australian mature net cash outflows in Q1 18 were A$323 million, compared to A$335 million in Q1 17, reflecting the run-off nature of the book. AUM declined 2 per cent to A$20.4 billion during the quarter.

Update on industry and regulatory compliance investigations

• There are a number of reviews being undertaken by ASIC. These include industry reports 499 and 515 on financial advice. AMP is continuing its program of work to review the nature of ongoing service arrangements between its advisers and customers, and the incidence of inappropriate fees and advice, since 1 July 2008.
• This program is ongoing, however we anticipate that the outcomes will lead to higher customer remediation costs and related expenses, as previously set out in our 2017 annual report. We also expect that enhancements to AMP’s control frameworks, governance and systems will be required.
• We expect to provide further clarification at or before the 1H 18 results.

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Ms Wallace has also resigned as Chairman of AMP Capital Holdings Limited.  The effective date will be confirmed following a brief period of transition to allow the effective transfer of the chairmanship.

AMP Interim Executive Chairman Mike Wilkins said: “Our shareholders are demanding board accountability and need to know that meaningful change is underway.  I’d like to thank Patty, Vanessa and Holly for their service to AMP.  They are extremely capable directors who have all made valuable contributions and brought great diversity of thought and experience to the Board.  They have listened to and acted on the feedback from our investors.”

AMP confirms the resolution for the election of Andrew Harmos as a non-executive director remains in place and will be voted at the AGM.

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Current Executive Chairman Mike Wilkins will return to the position of acting Chief Executive Officer on that date.

Mr Murray will lead the redevelopment of governance processes at AMP including a process of considered Board renewal and the appointment of an additional Non-Executive Director in the near term.

He will also work with Mr Wilkins in leading the search process for a Chief Executive Officer for AMP.  Following the appointment of a new CEO, Mr Wilkins will return to his role as a Non-Executive Director.

Mike Wilkins said: “We’re delighted to welcome a person of David Murray’s outstanding calibre to the Chairman’s role.  His appointment brings strong and experienced leadership to the company, strengthening our governance and our commitment to change.

“David has deep experience of financial services, particularly banking and wealth management, as well as the industry’s regulatory environment through his leadership of the Financial System Inquiry.  He brings a strong risk mindset and a clear appreciation of community expectations for AMP as well as the wider financial services industry.  This is part of the reset that is necessary for the company and I look forward to working with David, the Board and management to rebuild public confidence in the company and to restore shareholder value.”

David Murray said: “AMP employs almost 6,000 people many of whom are Australians serving its customers across wealth management, superannuation, financial advice, life insurance, asset management and banking.  It is a significant financial institution and needs to play a role within the Australian financial system which supports the building of trust and confidence in that system in the community. I look forward to working with the Board and executive management to support AMP’s people in achieving that outcome.

“As part of this, I am committed to meaningful board renewal but recognise the process must be measured so as to maintain the stability of AMP in the immediate future.  Restoring trust and confidence is not easy and does not happen overnight, but I am confident this can be achieved.”

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Catherine Brenner

AMP today announces Catherine Brenner has resigned as Chairman and will step down from the Board. Mike Wilkins has been appointed as Executive Chairman, effective immediately.

Mr Wilkins will lead the company as Executive Chairman for an interim period while the process for selecting a Chairman, and appointment of an additional new non-executive director, is conducted. This will further strengthen governance and ensure stability while a measured process of board renewal is undertaken.  Mr Wilkins will now lead the selection process for a new Chief Executive Officer, which is in progress.

AMP also announces that Group General Counsel and Company Secretary Brian Salter will leave the company.  His outstanding deferred remuneration will be forfeited as a result of the Board exercising its discretion.

The Board has received advice from Philip Crutchfield QC, Tamieka Spencer Bruce of Counsel, and Tim Bednall of King & Wood Mallesons in relation to certain issues raised in the Royal Commission concerning the preparation of the Clayton Utz report on AMP’s fee for no service issue.  The advice follows the establishment of the Board Committee chaired by Mr Wilkins to examine the issues relating to AMP’s advice business that have been raised in the Royal Commission.

Having considered and assessed the matters, the Board is satisfied that the former Chairman Catherine Brenner, former Chief Executive Officer Craig Meller and the other directors did not act inappropriately in relation to the preparation of the Clayton Utz report.

The Board, including the former Chairman, were unaware of and disappointed about the number of drafts and the extent of the Group General Counsel’s interaction with Clayton Utz during the preparation of the report.  The Board commissioned and received the report.  It was not a matter for the Board’s approval.

The Board announces the following further actions:

• Recognising collective governance accountability for the issues raised in the Royal Commission and for their impact on the reputation of AMP, the Board is reducing fees for all AMP Limited Board Directors by 25 per cent for the remainder of the 2018 calendar year; and
• The employment and remuneration consequences for the individuals within the business responsible for the fee for no service issue will be determined on finalisation of an ongoing external employment review, which is expected to complete shortly

Catherine Brenner said: “I am honoured to have been Chairman of AMP. I am deeply disappointed by the issues at hand and am particularly concerned for the impact they have had on our customers, employees, advisers and shareholders.

“As Chairman, I am accountable for governance. I have always sought to act in the best interests of the company and have been in discussions with the Board about the most appropriate course of action, including my resignation. The Board has now accepted my resignation as Chairman as a step towards restoring the trust and confidence in AMP.”

Mike Wilkins, Executive Chairman, AMP Limited said: “The Board acknowledges Catherine’s leadership and thanks her for her professionalism, integrity and dedication to the company over the past eight years. We will now begin a process of board renewal, including fast-tracking selection of a Chairman, and a new director. This process will help ensure stability and further strengthen governance.

“AMP respects the Royal Commission process. I can assure you that the evidence and submissions presented by Counsel Assisting are being treated extremely seriously by the Board. Appropriate steps are being taken to address the issues raised, and remediating our customers is being given utmost priority. On behalf of the Board, I reiterate our sincerest apology to our customers, and know we have significant work to do to rebuild their trust.”

AMP will be making a formal submission to the Royal Commission by Friday 4 May in response to the matters raised in closing submissions by Counsel Assisting the Royal Commission.

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Craig Meller

AMP apologises unreservedly for the misconduct and failures in regulatory disclosures in the advice business.

The AMP Limited Board today announces the following actions to accelerate the necessary change within the organisation:

• The Board and the Chief Executive Officer, Craig Meller, have agreed that he will step down from his role with immediate effect.
• Mike Wilkins, a Non-Executive Director on the AMP Limited Board since September 2016 and a former CEO of IAG Limited, has been appointed as acting Chief Executive Officer until the search for the new CEO is completed.
• An immediate, comprehensive review of AMP’s regulatory reporting and governance processes will be undertaken. This work will be overseen by a retired judge or equivalent independent expert who will be appointed imminently.
• A Board Committee has been established to review the issues related to the advice business raised in the Royal Commission. The Committee is chaired by Mike Wilkins and will act with the assistance of external counsel, King & Wood Mallesons.
• The Group General Counsel, Brian Salter, has agreed to take leave while the review is undertaken. David Cullen, AMP General Counsel, Governance has been appointed as acting Group General Counsel.

AMP will be making a submission to the Royal Commission to respond to the issues raised. The submission will, among other matters, address the issue of the independence of the Clayton Utz report.

The Board will withdraw resolution four from its Notice of Meeting to the 2018 Annual General Meeting, which relates to an equity grant for the Chief Executive Officer.

The actions announced today build upon the existing program of work, instigated in 2017. The work underway includes:

• Customer remediation, with the program well progressed and 15,712 customers identified and $4.7 million fees refunded to date.
• An external review to ensure all fee for no service business practices have ceased. This review is now complete and has confirmed that the practices ceased in November 2016.
• An independent investigation into employee conduct. Based on the review’s findings, the Board will determine the employment and remuneration implications for any relevant individuals around the fee for no service matter.
• A review and complete overhaul of governance, systems and processes in the advice business.
• An enterprise-wide cultural audit conducted by an external consultant.
• An enterprise-wide review of risk governance, controls and culture also conducted by an external consultant.

AMP Chairman Catherine Brenner said: “AMP apologises unreservedly for the misconduct and failures in regulatory disclosures in our advice business. The Board is determined that we will meet these challenges head on, accelerating changes in both culture and performance at AMP.

“We have been driving much-needed change and improvement in our advice business, which has undergone significant leadership and governance renewal over the past year but we know we have much more to do to.”

Craig Meller said: “I am honoured to have been the CEO of AMP. I am personally devastated by the issues which have been raised publicly this week, particularly by the impact they have had on our customers, employees, planners and shareholders. This is not the AMP I know and these are not the actions our customers should expect from the company.

“I do not condone them or the misleading statements made to ASIC. However, as they occurred during my tenure as CEO, I believe that stepping down as CEO is an appropriate measure to begin the work that needs to be done to restore public and regulatory trust in AMP.”

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