AMP Group Finance Services Limited ABN

Transcription

1 ABN Directors report and Financial report for the half year ended 30 June 2018

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3 Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: Fax: ey.com/au Auditor s Independence Declaration to the Directors of AMP Group Finance Services Limited As lead auditor for the review of for the half-year ended 30 June 2018, I declare to the best of my knowledge and belief, there have been: a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the review; and b) no contraventions of any applicable code of professional conduct in relation to the review. Ernst & Young Clare Sporle Partner 13 September 2018 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation

4 ABN Financial report Contents STATEMENT OF COMPREHENSIVE INCOME... 1 STATEMENT OF FINANCIAL POSITION... 2 STATEMENT OF CHANGES IN EQUITY... 3 STATEMENT OF CASH FLOWS... 4 NOTES TO THE FINANCIAL STATEMENTS BASIS OF PREPARATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES NET INTEREST INCOME INCOME TAX RECEIVABLES PAYABLES BORROWINGS AND SUBORDINATED DEBT ISSUED CAPITAL FAIR VALUE INFORMATION TRANSACTIONS WITH RELATED PARTIES NEW ACCOUNTING STANDARDS EVENTS OCCURRING AFTER THE REPORTING DATE DIRECTORS DECLARATION INDEPENDENT AUDITOR S REPORT TO THE MEMBER OF AMP GROUP FINANCE SERVICES LIMITED Registered Office: 33 Alfred Street Sydney NSW 2000 Australia is a company limited by shares and is incorporated and domiciled in Australia.

5 Statement of comprehensive income 30 Jun 30 Jun Note $m $m Interest income Interest expense 2 (31.6) (21.5) Net interest expense (17.7) (3.6) Foreign exchange (losses) gains on borrowings and subordinated debt (5.7) 3.9 Derivatives gains (losses) - related - (0.2) Derivatives gains (losses) - other 11.0 (14.8) Share of profit of associates accounted for using the equity method Other income Operating expenses (0.2) (0.4) Loss for the period before income tax (10.0) (13.6) Income tax credit Loss for the period (7.0) (9.5) Other comprehensive income Items that may be reclassified subsequently to profit or loss Cash flow hedges - net loss on cash flow hedge (4.0) - - tax effect on cash flow hedge loss (2.8) - Other comprehensive loss for the year (2.8) - Total comprehensive loss for the period (9.8) (9.5) 1

6 Statement of financial position as at 30 June 2018 Current assets 30 Jun 31 Dec Note $m $m Cash and cash equivalents Negotiable certificates of deposit Receivables Investments in associates accounted for using the equity method Derivative financial assets - other Intercompany tax receivable from head entity Total current assets 1, ,116.4 Non-current assets Receivables Total non-current assets Total assets 1, ,274.7 Current liabilities Payables Collateral deposits held Borrowings and subordinated debt Derivative financial liabilities - other Total current liabilities ,062.0 Non-current liabilities Borrowings and subordinated debt Total non-current liabilities Total liabilities 1, ,622.0 Net assets (liabilities) 53.3 (347.3) Equity Issued capital One dollar Reserves (2.8) - Accumulated losses Total equity (343.9) (347.3) 53.3 (347.3) 1 The Company holds 31% of the outstanding units in the AMP Capital Shareholders Cash Fund. Given the size of the holding, the Company is considered to have significant influence over the fund. Accordingly, this investment is classified as an investment in an associate accounted for using the equity method. 2

7 Statement of changes in equity 30 June 2018 Issued capital Cash flow hedge reserve Retained earnings (accumulated losses) Total shareholder equity $m $m $m $m Balance at 31 December 2017 One dollar - (347.3) (347.3) Impact of adoption of new accounting standards Balance at 1 January 2018 One dollar (336.9) (336.9) Ordinary share capital issued Loss for the period - - (7.0) (7.0) Other comprehensive loss - (2.8) - (2.8) Total comprehensive loss - (2.8) (7.0) (9.8) Balance at 30 June (2.8) (343.9) June 2017 Balance at 1 January 2017 One dollar - (330.1) (330.1) Loss for the period - - (9.5) (9.5) Total comprehensive loss - - (9.5) (9.5) Balance at 30 June 2017 One dollar - (339.6) (339.6) 3

8 Statement of cash flows Cash flows from operating activities 30 Jun 30 Jun $m $m Interest and other items of a similar nature received Interest and other finance costs paid (25.3) (18.3) Other items Cash flows from operating activities before changes in operating assets and liabilities (10.6) (0.8) Changes in operating assets and liabilities arising from cashflow movements Decrease (increase) in receivables - related 42.5 (62.1) (Decrease) increase in payables - related (26.2) Net receipt (repayment) of collateral deposits 0.1 (11.0) Net movement in derivative financial assets and liabilities Net decrease in other payables (0.1) (0.1) Cash flows from operating activities Cash flows from investing activities Net proceeds from sale of financial assets measured at fair value through profit or loss - related Net payments to acquire investments in associates accounted for using the equity method (324.9) - Net purchase of negotiable certificate of deposit (445.9) (154.9) Cash flows used in investing activities (770.8) (135.0) Cash flows from financing activities Proceeds from borrowing - sydicated loan facility Net (redemption) proceeds from issuance of commercial paper (82.8) 56.1 Proceeds from issue of share capital Proceeds from borrowing - Medium-term notes Cash flows from financing activities Net increase in cash and cash equivalents (42.6) Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period

9 Notes to the financial statements (continued) 1. Basis of preparation and summary of significant accounting policies ( the Company or AMPGFS ) is an unlisted public company limited by shares, incorporated and domiciled in Australia. The Company conducts business in Australia. The parent entity of the Company is AMP Group Services Limited. The ultimate parent entity is AMP Limited. The Company operated wholly in one segment. The principal activities of the Company are described in the Directors report. This general purpose financial report has been prepared in accordance with the Corporations Act 2001 and AASB134 Interim Financial Reporting. The Company is a for-profit entity for the purposes of preparing financial statements. This half year financial report does not include all notes of the type normally included within the annual financial statements and therefore cannot be expected to provide as full an understanding of the financial position and financial performance of the Company as that given by the annual financial report. As a result, this report should be read in conjunction with the 2017 annual financial report of the Company. Comparative information has been reclassified where required for consistency with the current half year s presentation. The principal accounting policies and methods of computation adopted in the preparation of the 2018 half year financial report are consistent with the accounting policies and methods of computation adopted in the preparation of the 2017 annual financial report; except for the following accounting policies. Investments in associates Investments in associates accounted for using the equity method Investments in entities, over which the Company has the ability to exercise significant influence, but not control, are accounted for using the equity method of accounting. The investment is measured at cost plus post-acquisition changes in the Company s share of the associates net assets, less any impairment in value. The Company s share of profit or loss of associates is included in the Statement of comprehensive income. Any dividend or distribution received from associates is accounted for as a reduction in carrying value of the associates. Any impairment is recognised in the Statement of comprehensive income when there is objective evidence a loss has been incurred. It is measure as the amount by which the carrying amount of the investment in entities exceeds its recoverable amount. AASB 9 Financial instruments AASB 9 Financial Instruments (AASB 9) replaces AASB 139 Financial Instruments: Recognition and Measurement (AASB 139) for annual periods beginning on or after 1 January AASB 9 makes changes to the classification and measurement of financial instruments, introduces a new expected loss model when recognising expected credit losses (ECL) on financial assets, and also introduces new general hedge accounting requirements. The Company has applied AASB 9 retrospectively without restating the comparative information for 2017 as permitted by the transitional provisions of the standard. The difference between the previous carrying amount of financial instruments and the carrying amount of those instruments at 1 January 2018 measured in accordance with AASB 9 has been recorded as an adjustment to retained earnings at 1 January As permitted by AASB 9 the Company has chosen to continue to apply the hedge accounting requirements of AASB 139. (a) Classification and measurement Under AASB 9, the Company initially measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs. Debt financial instruments are subsequently measured at fair value through profit or loss (FVPL) or amortised cost, or fair value through other comprehensive income (FVOCI). The classification is based on two criteria: the Company s business model for managing the assets; and whether the instruments contractual cash flows represent solely payments of principal and interest on the principal amount outstanding (the SPPI criterion ). The new classification and measurement of the Company s financial assets are, as follows: Debt instruments at amortised cost for financial assets that are held in order to collect contractual cash flows that meet the SPPI criterion. This category includes the Company s loan and other receivables, and negotiable certificates of deposit. Financial assets at FVPL comprise derivative instruments, quoted equity instruments and investments in managed investment schemes. This category would also include debt instruments whose cash flow characteristics fail the SPPI criterion or are not held within a business model whose objective is either to collect contractual cash flows, or to both collect contractual cash flows and sell. 5

10 Notes to the financial statements (continued) The accounting for the Company s financial liabilities remains largely the same as it was under AASB 139, however AASB 9 clarifies that any modification to a financial liability that does not result in derecognition adjusts the carrying value of the financial liability with a corresponding amount recognised in profit or loss. (b) Impairment The adoption of AASB 9 has fundamentally changed the Company s accounting for impairment losses for financial assets by replacing AASB 139 s incurred loss approach with a forward-looking expected credit loss (ECL) approach. AASB 9 requires the Company to record an allowance for ECLs for all loans and other debt financial assets not held at FVPL. ECLs are based on the difference between the contractual cash flows due in accordance with the contract and all the cash flows that the Company expects to receive. The shortfall is then discounted at an approximation to the asset s original effective interest rate. For trade and other receivables, the Company has applied the AASB 9 s simplified approach and has calculated ECLs based on lifetime expected credit losses. For other debt financial assets (i.e., loans), the ECL is based on the 12-month ECL. The 12-month ECL is the portion of lifetime ECLs that results from default events on a financial instrument that are possible within 12 months after the reporting date. However, when there has been a significant increase in credit risk since origination, the allowance will be based on the lifetime ECL. The impact of the adoption of AASB 9 is disclosed in note Net interest income Interest Income 30 Jun 30 Jun $m $m Interest received - related Interest received - other Derivative interest received - other Total interest income Interest expense on borrowings and subordinated debt Interest expense - related (5.2) (5.2) Interest expense - other (16.8) (11.9) Derivative interest expense - other (9.6) (4.4) Total interest expense (31.6) (21.5) 3. Income tax Relationship between income tax and accounting profit Loss from continuing operations before income tax 30 Jun 30 Jun $m $m (10.0) (13.6) Prima facie tax credit at 30% (2017: 30%) Income tax credit per Statement of comprehensive income

11 Notes to the financial statements (continued) 4. Receivables 30 Jun 31 Dec $m $m Intercompany receivables Receivables - other Total receivables The intercompany receivables is net of expected credit losses of $0.1m (2017:$nil) 5. Payables 30 Jun 31 Dec $m $m Intercompany payables Payables - other Total receivables Borrowings and subordinated debt 30 Jun 31 Dec $m $m 6.875% GBP Subordinated Guaranteed Bonds (maturity 2022) Syndicated loan facility Medium Term Notes Commercial paper Total borrowings and subordinated debt 1, The facility was renegotiated effective 14 December 2017 and includes tranches of $300m, $300m and $150m, maturing 22 March 2020, 22 March 2022 and 22 March 2023 respectively. On adoption of AASB 9 Financial Instruments, a gain on modification of $15.0m was recognised as an adjustment to 1 January 2018 retained earnings, as a result of the change in the terms negotiated in This gain is also recognised as an offset to the carrying value of the syndicated loan facility and will amortise over the life of the facility. The amortisation of the gain is recognised as an increase to Interest expense on the Income Statement. During the six months ended 30 June 2018, $2.7m of interest expense was attributed to the amortisation of the gain on the modification of the syndicated loan facility. 2. CHF110.0m Senior Unsecured Fixed Rate Bonds were issued on 19 June 2018 and mature 19 December Issued capital Total issued capital 30 Jun 31 Dec $m 2 (2017: 1) fully paid ordinary share One dollar Balance at the end of the period One dollar The Company issued 1 share to its parent, AMP Group Services Limited on 31 May 2018 for $400.0m. Holders of ordinary shares have the right to receive dividends as declared and, in the event of winding up the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of shares held. Ordinary shares entitle their holder to one vote per share, either in person or by proxy, at a meeting of the Company. 7

12 Notes to the financial statements (continued) 8. Fair value information The following table shows the carrying amount and estimated fair values of financial instruments, including the levels in the fair value hierarchy. Carrying amount Level 1 Level 2 Level 3 Total fair value 30 June 2018 $m $m $m $m $m Financial assets measured at fair value Financial assets measured at fair value through profit and loss Derivative financial assets Total financial assets measured at fair value Financial assets not measured at fair value Financial assets measured at amortised cost Negotiable certificates of deposit Receivables Total financial assets not measured at fair value 1, , ,434.5 Financial liabilities measured at fair value Financial liabilities measured at fair alue through profit and loss Derivative financial liabilities Total financial liabilities measured at fair value Financial liabilities not measured at fair value Financial liabilities measured at amortised cost Borrowings and subordinated debt 1, , ,108.8 Collateral deposits held Payables Total financial liabilities not measured at fair value 1, , , December 2017 Financial assets measured at fair value Derivative financial assets Total financial assets measured at fair value Financial assets not measured at fair value Negotiable certificates of deposit Receivables Total financial assets not measured at fair value 1, , ,023.9 Financial liabilities measured at fair value Derivative financial liabilities- other Total financial liabilities measured at fair value Financial liabilities not measured at fair value Borrowings and subordinated debt Collateral deposits held Payables Total financial liabilities not measured at fair value 1, , ,

13 Notes to the financial statements (continued) 8. Fair value information (continued) The company s methodology and assumptions used to estimate the fair value of financial instruments are described below: Negotiable certificates of deposit (NCD) Receivables and payables Derivative financial assets and liabilities Borrowings The fair value of NCDs represents the discounted amount of estimated future cash flows expected to be received, based on the maturity profile of the NCDs. For short term NCDs, the fair value is the par value plus any accrued interest. All NCDs held at 30 June 2018 were short term. Receivables/payables primarily represents loans to/from entities within the AMP Limited Group. For balances receivable/payable on demand, the fair value is the outstanding balance. For balances not receivable/payable on demand, fair value is estimated with reference to a discounted cash flow model using discount rates appropriate for the respective counterparties and the terms to maturity. The fair value of financial instruments traded in active markets (such a publicly traded derivatives) is based on quoted market prices (current bid price or current offer price) at the reporting date. The fair value of financial instruments not traded in an active market (e.g. over-the-counter derivatives) is determined using valuation techniques. Valuation techniques include net present value techniques, option pricing models, forward pricing, swap models, discounted cash flow method and comparison to quoted market prices or dealer quotes for similar instruments. The models use a number of inputs, including the credit quality of counterparties, foreign exchange spot and forward rates, yield curves of the respective currencies, currency basis spreads between the respective currencies, interest rate curves and forward rate curves of the underlying commodity. Some derivative contracts are significantly cash collateralised, thereby minimising both counterparty risk and the Group s own non-performed risk. Borrowings comprise commercial paper, drawn liquidity facilities and various floating-rate, medium-term notes and subordinated debt. The estimated fair value of borrowings is determined with reference to quoted market prices. For borrowings where quoted market prices are not available, a discounted cash flow model is used, based on a current yield curve appropriate for the remaining term to maturity. For short term borrowings, the par value is considered a reasonable approximation of the fair value. The financial assets and liabilities measured at fair value are categorised using the fair value hierarchy which reflects the significance of inputs into the determination of fair value as follows: Level 1: the fair value is valued by reference to quoted prices and active markets for identical assets; Level 2: the fair value is estimated using inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices); Level 3: the fair value is estimated using inputs for the asset or liability that are not based on observable market data. For assets and liabilities that are recognised in the financial statements at fair value on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. There have been no significant transfers between Level 1 and Level 2 during the 2018 financial half year. 9

14 Notes to the financial statements (continued) 9. Transactions with related parties The company has transactions with related parties including controlled entities and associated entities. Most of those related party activities are provision of inter-company loans to companies within the AMP group. Other related party transactions are in respect of administrative services provided by fellow controlled entities in the AMP group. a) Incomes and expenses transactions with related parties 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun 30 Jun Interest income from Other income from related Share of profit from investment Interest expense Derivatives gains (losses) from related parties parties at associate to related parties related parties Fellow subsidiaries of AMP Limited $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 $'000 AMP Limited ,951 3, AMP Finance Services Limited AMP Advice Holdings Pty Limited AMP Capital Holdings Limited 2, (241) AMP Capital Finance Limited 4,472 1, AMP AAPH Limited ,271 1, AMP Capital Shareholders' Cash Fund , Total 6,643 2, ,512 1,767-5,222 5,213 - (241) b) Investments and balances with related parties 30 Jun 31 Dec 30 Jun 31 Dec 30 Jun 31 Dec Amounts owed by Amounts owed to related parties related parties Investments at associate Fellow subsidiaries of AMP Limited $'000 $'000 $'000 $'000 $'000 $'000 AMP Limited , , AMP Group Holdings Limited 410, AMP Finance Services Limited 5,099 7, AMP Services Limited - 472,548 26, AMP Financial Services Holding Limited 176, , AMP Advice Holdings Pty Limited 85,140 88, AMP Life Limited AMP Capital Holdings Limited 100, , AMP Capital Finance Limited 176, , AMP Capital Investors Limited AMP Bank Limited - 1, AMP AAPH Limited , , AMP Capital Shareholds' Cash Fund ,767 - Total 953, , , , ,767-1 At 30 June 2018, the Company held 31% of the outstanding units in the AMP Capital Shareholders' Cash Fund, an unlisted unit trust wholly owned by entities in the AMP Group. Due to the size of the holding, the Company is considered to have significant influence over the fund. Accordingly, this investment is classified as Investment in an associate accounted for using the equity method on the Statement of financial position. Given the nature of the investment, the Company's share of the outstanding units will fluctuate as the Company and other AMP Group entities purchase or redeem_units in the Fund. During the period, the Company held up to 40% of the outstanding units. 10

15 Notes to the financial statements (continued) 10. New accounting standards a) New and amended accounting standards adopted by the AMP Group A number of new accounting standards and amendments have been adopted effective 1 January Except for the changes resulting from the adoption of AASB 9 Financial Instruments, these have not had a material effect on the financial position or performance of the Company. AASB 9 Financial Instruments AASB 9 Financial Instruments (AASB 9) became effective for periods beginning on 1 January AASB 9 makes changes to the classification and measurement of financial instruments, introduces a new expected loss model when recognising expected credit losses (ECL) on financial assets, and also introduces new general hedge accounting requirements. AMP GFS has applied AASB 9 retrospectively without restating the comparative information for 2017 as permitted by the transitional provisions of the standard. The difference between the previous carrying amount of financial instruments and the carrying amount of those instruments at 1 January 2018 measured in accordance with AASB 9 has been recorded as an adjustment to retained earnings at 1 January As permitted by AASB 9 the group has chosen to continue to apply the hedge accounting requirements of AASB 139 Financial Instruments: Recognition and Measurements. From a classification perspective, the impact to the Company was minimal. However, we note that financial instruments which were previously classified as loans and receivables are now classified as amortised cost. The Company has completed an assessment of ECL s on its financial assets, considering a number of factors including credit risk, counterparty liquidity and financial position, and availability of any credit enhancements. As a result of this assessment, and ECL of $0.1m was recognised as an adjustment to retained earnings as at 1 January There has been no deterioration or improvement in the ECL position during the six months ended 30 June AASB 9 requires entities to recognise a gain or loss from modifications of financial liabilities. This was inconsistent with the Company s accounting policy under AASB 139. As the terms of the Company s syndicated loan facility was modified during 2017, an adjustment has been made to reflect the treatment required under AASB 9. This resulted in a $15.0m gain, recognised as adjustment to retained earnings as at 1 January The following table identifies the impacts the adoption of AASB 9 on the retained earnings and total equity balances at 1 January 2018: Retained earnings Balance at 31 December 2017 (347.3) Expected credit losses (0.1) Gain on modification of syndicated loan 15.0 Tax impact (4.5) Balance at 1 January 2018 (336.9) $m 11. Events occurring after the reporting date As at the date of this report, the directors are not aware of any matter or circumstance that has arisen since the reporting date that has significantly affected or may significantly affect the Company s operations in future years, the results of its operations in future years, or the Company s state of affairs in future years which is not already reflected in this report. 11

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17 Ernst & Young 200 George Street Sydney NSW 2000 Australia GPO Box 2646 Sydney NSW 2001 Tel: Fax: ey.com/au To the member of Report on the Half-Year Financial Report We have reviewed the accompanying half-year financial report of which comprises the statement of financial position as at 30 June 2018, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the half-year ended on that date, notes comprising a summary of significant accounting policies and other explanatory information, and the directors declaration. Directors Responsibility for the Half-Year Financial Report The directors of the company are responsible for the preparation of the half-year financial report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001 and for such internal controls as the directors determine are necessary to enable the preparation of the half-year financial report that is free from material misstatement, whether due to fraud or error. Auditor s Responsibility Our responsibility is to express a conclusion on the half-year financial report based on our review. We conducted our review in accordance with Auditing Standard on Review Engagements ASRE 2410 Review of a Financial Report Performed by the Independent Auditor of the Entity, in order to state whether, on the basis of the procedures described, we have become aware of any matter that makes us believe that the financial report is not in accordance with the Corporations Act 2001 including: giving a true and fair view of the company s financial position as at 30 June 2018 and its performance for the half-year ended on that date; and complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations As the auditor of AMP Group Finance Services Limited, ASRE 2410 requires that we comply with the ethical requirements relevant to the audit of the annual financial report. A review of a half-year financial report consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Australian Auditing Standards and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Independence In conducting our review, we have complied with the independence requirements of the Corporations Act We have given to the directors of the company a written Auditor s Independence Declaration, a copy of which is included in the Directors Report. A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation

18 Page 2 Conclusion Based on our review, which is not an audit, we have not become aware of any matter that makes us believe that the half-year financial report of is not in accordance with the Corporations Act 2001, including: a) giving a true and fair view of the company s financial position as at 30 June 2018 and of its performance for the half-year ended on that date; and b) complying with Accounting Standard AASB 134 Interim Financial Reporting and the Corporations Regulations Ernst & Young Clare Sporle Partner Sydney 13 September 2018 A member firm of Ernst & Young Global Limited Liability limited by a scheme approved under Professional Standards Legislation