AMP announces demerger and capital raising

Transcription

1 ASX Announcement 1 May 2003 Manager Company Announcements Office Australian Stock Exchange Level 4, 20 Bridge Street Sydney NSW 2000 Manager Market Information Services Section New Zealand Stock Exchange Level 9, ASB Tower, 2 Hunter Street Wellington New Zealand Announcement No: 36/03 Part One: Part Two: AMP announces demerger and capital raising Presentation - Demerger Proposal AMP Limited (AMP) ASX Announcement 1 AMP Limited

2 Not for release or distribution in the US 1 May 2003 AMP announces demerger and capital raising AMP Limited has today announced a major strategic initiative to set the company on a new path to long-term shareholder value through the creation of two separate, regionally-focused listed entities. The strategic initiative has three elements: A demerger of AMP s businesses along geographic lines Australasia and the United Kingdom; Reducing the equity market risks in the UK Life Services (UKLS) business through the sale of equities, protecting policyholder benefits and shareholder equity in the UK; and An equity raising to facilitate the demerger combining a A$1 billion institutional placement and a A$500 million share purchase plan for Australian and New Zealand retail shareholders. As part of the demerger process, and particularly the reduction of risk in UKLS, book writedowns of approximately 1 billion (A$2.6 billion) are expected. These writedowns have no regulatory solvency impact or impact on cashflow (other than 100 million of expenses). AMP Chairman Peter Willcox said the sweeping changes being announced today were the culmination of the strategic review commenced six months ago by Chief Executive Officer Andrew Mohl. These changes address the outstanding issues facing the company and are in the best interests for shareholders, customers, planners and employees, Mr Willcox said. These issues were four-fold: Establishing solid platforms for growth for Australian Financial Services and Henderson; Providing a permanent solution to the equity market risks in our UK life and pensions business; Protecting and enhancing our quality businesses in the Australian and UK markets; and Optimising the value from AMP s existing portfolio of assets and providing investors with a clear choice about investing in those businesses. One of the key findings of the strategic review was that there was no longer a compelling reason to keep AMP s current mix of businesses together, but powerful reasons to separate them. AMP Limited (AMP) ASX Announcement 2 AMP Limited

3 While this represents a major shift in strategic direction, this is the right step at the right time for AMP. The proposal has followed an exhaustive review by management and advisors and has the full support of the Board. The demerger proposal The proposed demerger will create two new regionally-focused listed companies. The Australian-based company will be named AMP and: Comprises Australian Financial Services (which includes New Zealand), Henderson s Australian and New Zealand operations and Gordian/Cobalt; Will be a regionally focused wealth management company. It will be well capitalised, targeting a strong A financial strength rating, have strong market positions and robust growth potential focused on Australasian markets; and The Chairman will be Peter Willcox with Andrew Mohl as CEO. The UK-based business will be named Henderson and: Comprises Henderson s northern hemisphere asset management operations, UK Life Services, UK Contemporary Financial Services, and AMP s 50 per cent stake in Virgin Money; It will be a wealth management business, with a disciplined run-off life business focused on cost management and future capital releases. Henderson is a highly regarded brand in the UK, well positioned to participate in the benefits of future industry consolidation. It will have a conservative capital structure and target a BBB financial strength rating, consistent with its run-off business; and The Chairman will be current AMP Director Pat Handley and the CEO will be current AMP Director and Henderson Managing Director Roger Yates. Following the demerger, shareholders will hold shares in both companies. Both companies will be listed on the Australian Stock Exchange, with the possibility of a future listing of Henderson on the London Stock Exchange to broaden its investor base. The demerger will most likely be effected by way of a distribution of shares to AMP shareholders. Full details of the demerger proposal will be provided to shareholders for their approval in the fourth quarter of The transaction is also subject to regulatory approval. The two companies will have simpler, more transparent corporate structures, with different business strategies, risk profiles, customer bases and growth prospects, AMP CEO Andrew Mohl said. AMP is being advised on the demerger by Caliburn Partnership and UBS Warburg. AMP Limited (AMP) ASX Announcement 3 AMP Limited

4 Capital raising To facilitate the demerger, AMP is undertaking a A$1.5 billion capital raising, comprising a A$1 billion institutional placement and a A$500 million Share Purchase Plan for Australian and New Zealand retail investors. The capital raising has been fully underwritten by UBS Warburg. The capital raised will be used to: Repay internal debt between the de-merged entities and reduce the level of external debt. This will eliminate the financial interdependencies between the Australian and UK businesses; Establish the UK-based business on a standalone basis, consistent with a BBB rating; and Establish the Australian-based business on a standalone basis, consistent with a strong A rating. No further equity capital raising is required to facilitate the demerger. AMP has requested a trading halt in its shares, Reset Preferred Securities and Income Securities to enable the capital raising to take place. All securities are expected to re-commence trading on Monday 5 May 2003, following the announcement of the outcome of the institutional capital raising. A Share Purchase Plan (SPP) will allow AMP s Australian and New Zealand retail shareholders to participate in the capital raising, providing them the opportunity to subscribe for up to A$5,000 of shares in AMP. The SPP will be priced at the lower of: the institutional placement price; or a 5 per cent discount to the average market price during a 15 day period after the close of the offer. The offer period is expected to commence 21 May 2003 and will close 13 June The record date will be Monday 5 May Further details on the SPP will be sent to shareholders. In addition, the Board has resolved that shares that were allocated to participants and institutional sub-underwriters under the Dividend Reinvestment Plan (DRP) on 28 April 2003 will be repriced at the lower of the DRP pricing and the institutional bookbuild price. Any adjustment will be made through the issue of additional DRP shares to participating shareholders. Operational update On 26 February 2003 AMP said that if global markets, particularly in the UK, weakened further or remained at current levels, the group s profitability would be adversely affected. AMP Limited (AMP) ASX Announcement 4 AMP Limited

5 While markets have recovered in recent weeks, equity markets ended the first quarter of 2003 at lower levels than the final quarter of Market volatility also continues to impact investor sentiment. These two factors, combined with traditional first quarter seasonal weakness in Australia, have contributed to lower year-to-date results for all business units. Business Unit operating margins in the 2003 first quarter totalled A$109 million. Results for UK Life Services and UK Contemporary Financial Services were particularly hard hit in the quarter by a combination of factors, including the loss of Service Company fee from with-profits funds (A$147 million in 2002 year), temporary cost overhang from the closure of the Direct Sales Force, lower equity markets and actions to reduce equity exposure. While tough markets are impacting AMP, both the Australian Financial Services and Henderson businesses remain strong, resilient businesses that will benefit from an improvement in market conditions. AMP continues to manage its business closely to reflect difficult market conditions. Reducing the equity risk in UK Life Services Another outcome of the strategic review was to seek a solution to the protection of long-term policyholder benefits and shareholder capital in the UK by reducing the equity market risks in the UK Life Services (UKLS) businesses. While the derivative strategy put in place continues to provide protection from market volatility, this does not provide a long-term solution. There was a clear decision to be made either improve the ability of UKLS to manage the equity market risks of its business by increasing its capital base, or reduce the market risk itself by minimising its exposure to equities and more closely matching asset and liability profiles. A key driver of this decision was the obligation to ensure that the financial health of the life funds and the associated policyholder benefits are protected. Another driver of the decision was the fact that the risk for shareholders of providing capital so the with-profits fund can stay in equities is unacceptably weighted to the downside. In the absence of a significant policyholder surplus, if equity markets fall, shareholders bear a high proportion of the fall (up to 100 per cent). If equity markets rise, shareholders receive a return that is disproportionately small compared with the risk they are bearing, because a large proportion of the rise goes to policyholders. This makes further investment a high risk, low return use of shareholder capital. AMP Limited (AMP) ASX Announcement 5 AMP Limited

6 AMP has been progressively selling equities for some time. A strategic decision has now been made to permanently reduce the size of the equity component of the UK investment portfolios supporting with-profits funds. Funds will be reinvested in lower risk portfolios, with corresponding lower volatility and more security for policyholders and shareholders. Overall, this is a prudent move to protect the long-term interests of both policyholders and shareholders. It creates a more stable asset for the new UKbased company, which will release significant amounts of capital over the medium to long term, Mr Mohl said. Writedowns As a result of the strategic initiatives and reduction of risk in UKLS, writedowns of approximately 1 billion (A$2.6 billion) are expected, subject to audit and actuarial review. Mr Mohl said the writedowns were a result of: Risk reduction initiatives: - reducing equity exposure in with-profits funds, leading to writeoff of contingent loans to London Life and National Provident Life ( 300 million/a$800 million); and - provisioning for potential future losses arising from a range of operating risks within UKLS ( 200 million/a$520 million). Strategic initiatives: - writing off most of Towry Law and NPI/Service Company goodwill in response to AMP s new strategy ( 400 million/a$1,050 million); and - provisioning for UK demerger and transaction costs ( 100 million/a$260 million). These writedowns eliminate essentially all of the goodwill/intangibles relating to the UK Life business and provide a robust balance sheet going forward. The embedded value of the UK Life and Contemporary Financial Services business has been revalued post the strategic initiatives and writedowns at around 1.54 billion. The corresponding figure at the end of 2002 was 1.98 billion. While the embedded value of the UK business has been reduced, this is a direct result of the significant reduction in portfolio risk, Mr Mohl said. In terms of the writedowns, they will reduce uncertainty and volatility in the future earnings capacity of the UK business. AMP Limited (AMP) ASX Announcement 6 AMP Limited

7 Shareholder information The AMP Board will ensure that shareholders are kept fully informed about the proposed demerger as further information is available. All shareholders will receive a letter from the Chairman outlining today s announcements, and advertisements will run in Australian and New Zealand daily newspapers over the next few days to explain the changes. In the interim, shareholders with questions can contact: Shareholder information line: Australia: New Zealand: United Kingdom: Shareholders can also access information about this initiative via AMP s website at Conclusion Mr Mohl said that until the proposal is put to shareholders and the demerger complete, AMP would continue to be managed as one company. It will be business as usual, with a small, dedicated team working on the demerger proposal and transition issues. While the proposed changes are complex, our strategic review has culminated in an initiative that will return AMP in Australasia to its roots, and provide the UKbased company with a more logical set of assets and the ability to focus on its already strong asset management business, Mr Mohl said. The last year has been an extremely difficult one but this solution represents a turning point in the fortunes of AMP. It is a fresh start for AMP and will create a new, more certain path to delivering better returns. The new strategy for AMP will unlock the real value of the company and is the best outcome for our shareholders, our customers, our planners and our employees. Media inquiries Investor inquiries Karyn Munsie Mark O Brien Ph: Ph: Matthew Coleman Ph: AMP Limited (AMP) ASX Announcement 7 AMP Limited

8 The shares offered in the placement and the SPP have not been, and will not be, registered under the US Securities Act of 1933, as amended, and may not be offered or sold in the United States absent registration or an exemption from registration. This announcement is not an offer of securities for sale in the United States. Securities may not be offered or sold in the United States without registration under the Securities Act of 1933, as amended, or an exemption from registration. This announcement is not for distribution or release in the United States. AMP Limited (AMP) ASX Announcement 8 AMP Limited