AMP Limited (ASX: AMP; ADR: AMLYY) has reported a net profit of A$523 million for the half year to 30 June 20161, up 3 per cent on A$507 million for 1H 15.

Underlying profit2 was A$513 million compared with A$570 million for 1H 15, down 10 per cent year on year, impacted by higher claims in Australian wealth protection and volatile investment market conditions.

The Board has declared an interim dividend of 14 cents per share, in line with the 2015 interim dividend. This represents a payout ratio of 81 per cent of underlying profit.

“AMP Capital, AMP Bank and our New Zealand business have performed strongly, while Australian wealth management has demonstrated resilient performance in a difficult market environment,” said AMP Chief Executive Craig Meller.

“While first half claims experience was poor, we continue to focus on improving the outcomes for customers and shareholders in our wealth protection business, with actions underway to improve capital efficiency and reduce volatility.

“More broadly, AMP has made substantial progress on the implementation of our growth strategy, which will release the long-term potential of our business, deliver better outcomes for our customers while improving overall financial performance for shareholders.”

Key performance measures

  • Underlying profit: A$513 million in 1H 16, down 10 per cent on 1H 15.
  • Cost to income: Group cost to income ratio increased 2.4 percentage points from 1H 15 to 45.5 per cent in 1H 16. Total controllable costs increased A$6 million on 1H 15 to A$663 million as underlying cost growth and increased investment
  • Cashflows:
    • Australian wealth management net cashflows were A$582 million in 1H 16, down from A$1,152 million in 1H 15. Retail and corporate super platform net cashflows were subdued reflecting investment market volatility and weaker investor confidence given uncertainty around proposed changes to superannuation.
    • AMP Capital external net cash outflows were A$153 million in 1H 16, down from net cash inflows of A$3,025 million in 1H 15. Challenging domestic market conditions offset strong flows into infrastructure and property asset classes.
  • Underlying return on equity: Reduced 1.6 percentage points to 11.9 per cent in 1H 16 from 1H 15, largely reflecting the decline in underlying profit.

Australian wealth management operating earnings for 1H 16 were A$195 million, down 6 per cent compared with 1H 15, driven by challenging investment market conditions but partially offset by disciplined cost control.

Australian wealth protection operating earnings were A$47 million in 1H 16 compared with A$99 million in 1H 15. The performance was impacted by poor claims experience across income protection, lump sum and group insurance.

“To address performance in the insurance business AMP is strengthening income protection assumptions, repricing, continuing the transformation of claims management and accelerating our capital management initiatives,” said Mr Meller.

Key highlights

  • AMP Capital: A 15 per cent increase in operating earnings reflects the growth in fee income over the half, with the international expansion strategy driving growth from a more attractive asset mix. Cashflows show a shift into property and infrastructure. These real assets now represent over 50 per cent of externally managed assets under management (AUM) and continue to perform well.
  • AMP Bank: The bank’s strong growth momentum continues with operating earnings increasing by 18 per cent to A$59 million in 1H 16 from an expanded net interest margin and above system growth in the loan book.
  • New Zealand: Operating earnings in New Zealand were up 2 per cent, reflecting higher profit margins and good experience. Excluding the effect of the tax relief reduction, operating earnings increased by 19 per cent.
  • North AUM grew 26 per cent to A$23.4 billion: The launch of an expanded North offering supported the strong growth of assets under management to A$23.4 billion during the half.
  • Business efficiency program: The successful delivery of the business efficiency program is largely complete. Overall the program will contribute A$200 million in pre-tax run rate savings by the end of 2016, which more than offsets the investment in growth initiatives.

Capital management

AMP continues to actively manage capital with Level 3 eligible capital resources at 30 June 2016 A$1,917 million above minimum regulatory requirements, down from A$2,542 million at 31 December 2015. The decrease mainly reflects the redemption of the A$600 million of Subordinated Notes in March.

AMP maintains a strong balance sheet, with little change to gearing and access to significant liquidity.

The 1H 16 interim dividend will be franked at 90 per cent in line with the FY 15 final dividend. AMP’s dividend policy target range is 70 to 90 per cent of underlying profit.

A dividend reinvestment plan (DRP) will continue to be offered to eligible AMP shareholders. A discount will not apply to the allocation price and shares will be bought on market to satisfy DRP allocations.

   

1AMP’s profit measures exclude MUTB’s 15 per cent share of AMP Capital’s earnings.
2Underlying profit is the basis on which the AMP Board determines the dividend payment and reflects the business performance of AMP. It is AMP’s preferred measure of profitability as it removes one-off costs, the impact of some investment market volatility and accounting mismatches.