AMP Investor Report. Half year H10

Transcription

1 AMP Investor Report Half year H10

2 Management and contact details Executive management team Craig Dunn Managing Director and Chief Executive Officer Paul Leaming Chief Financial Officer Craig Meller Managing Director, AMP Financial Services Stephen Dunne Managing Director, AMP Capital Investors Lee Barnett Chief Information Officer Brian Salter General Counsel & Company Secretary Jonathan Deane General Manager, Strategy Matthew Percival General Manager, Public Affairs Fiona Wardlaw General Manager, Human Resources Investor relations and media enquiries Howard Marks Director, Investor Relations Telephone Facsimile howard_marks@amp.com.au Jane Anderson Director, Media and Community Relations Telephone Facsimile jane_anderson@amp.com.au Online reports This investor report is available online at along with other investor relations information. AMP Limited ABN

3 Contents 1 Contents AMP 1H 10 performance summary 2 Financial summary 3 Key performance measures 5 Strategic overview 6 AMP Financial Services (AFS) AMP Financial Services financial summary 8 Australian contemporary wealth management 10 Australian contemporary wealth protection 12 Australian mature 14 New Zealand 16 Cashflows and assets under management (AUM) 18 Market share 21 Embedded value (EV) and value of new business (VNB) 22 EV and VNB sensitivities 25 EV assumptions 26 AMP Capital Investors (AMPCI) AMP Capital Investors financial summary 27 Cashflows and assets under management (AUM) 32 Investment performance 34 Capital structure Capital management 36 Debt overview 39 Additional information Group Office 40 Sensitivities profit and capital 42 Glossary of terms and independent review Accounting treatment and definitions 44 Definitions of business units (BUs) and exchange rates 46 Five year summary 47 1H 10 financial results 48 Independent review statement 49 Information for shareholders 50 Important note This Investor Report provides financial information reflecting 100% shareholder attributable after income tax results from an operational perspective. The principles of life insurance accounting are used in reporting the results of AFS. Information is provided on an operational basis (rather than statutory basis) to reflect a management view of the businesses and existing structures. Content is prepared using external market data and internal management information useful for investors. This Investor Report is not audited. In preparing the Investor Report, management has had its external auditor, Ernst & Young, prepare a review statement in relation to specific matters pertaining to the information presented herein for management s purposes. This statement has been included in the document for the information of readers; however, it has been prepared solely for management and may not be relied upon by any party other than the management of AMP Limited. All results have been prepared in accordance with Australian accounting standards. Forward looking statements in this Investor Report are based on management s current views and assumptions and involve known and unknown risks and uncertainties, many of which are beyond AMP s control and could cause actual results, performance or events to differ materially from those expressed. These forward looking statements are not guarantees or representations of future performance. This Investor Report is not an offer document and therefore has not been the subject of a full due diligence process typically used for an offer document. While AMP has sought to ensure that information in this Investor Report is accurate by undertaking a review process, it makes no representation or warranty as to the accuracy or completeness of any information or statement in this Investor Report. In particular, information and statements in this Investor Report do not constitute investment advice or a recommendation on any matter. AMP also provides prescribed statutory reporting under the Corporations Act Those accounts will be available from AMP s website and reflect policyholder and shareholder interests.

4 2 AMP 1H 10 performance summary Key performance measures Underlying return on equity remains high at 27.4%, with a 4.2% reduction from 31 December 2009 driven by AMP's decision to hold higher capital in response to market volatility and until new regulatory standards become clearer Underlying profit of A$383m, up 4% on 1H 09 Growth measures: AFS net cashflows of A$584m, down from A$865m in 1H 09; AMPCI external net cashflows of A$1.9b, up from A$0.2b in 1H 09 Value of risk new business 1 down A$2m to A$45m 64% of funds met or exceeded benchmark over the twelve months to 30 June 2010 Profit and profit drivers Underlying profit of A$383m, up 4% on 1H 09 Net profit attributable to shareholders of AMP Limited up 17% to A$425m AFS contemporary wealth management operating earnings up 16%, AFS NZ up 39% and AMPCI up 2% AFS contemporary wealth protection down 12% and mature operating earnings down 6% Total investment income up A$18m due to improved investment markets and higher capital resources Cashflows, AUM and revenue margins Group AUM down 1% to A$111b from FY 09, primarily due to lower investment markets 2 AFS AUM decreased 2% to A$74b from FY 09, AMPCI AUM flat at A$95b 2 AFS net cashflows down on 1H 09 to A$584m. Retail superannuation and pensions/annuities fell 39% to A$341m, corporate superannuation decreased 16% to A$407m (excluding mandate wins) and AFS NZ decreased 1% to A$87m AMPCI external net cashflows increased to A$1.9b from A$0.2b in 1H 09 driven by strong inflows into Australian fixed interest and global REITs from Asian clients AFS Australian individual risk API increased 9% to A$616m, group risk API decreased 3% to A$145m, AFS NZ individual risk API increased by 8% to A$120m from 1H 09 Contemporary wealth management investment related revenue to AUM decreased 4 bps from 2H 09 to 180 bps Costs and cost ratios Total costs increased 3% to A$426m from 1H 09, cost to income ratio down 0.2 percentage points to 42.2% AFS controllable costs fell 1% to A$261m, AMPCI costs increased 11% to A$136m Capital management and dividend Excess capital over minimum regulatory requirements was A$1.4b at 1H 10, up from A$1.2b at FY 09 Interest cover (underlying) remains strong at 12.3 times Gearing on an S&P basis is 15% Interim dividend of 15 cps was declared for 1H 10 1 This is a combined value of new business measure for Australian contemporary wealth protection and New Zealand risk insurance. 2 Group AUM and AMPCI AUM restated. See page 32 for details.

5 AMP 3 Financial summary A$m 1H 10 1H 09 2H 09 FY 09 % 1H/1H Profit and loss Australian contemporary wealth management Australian contemporary wealth protection (12.0) Australian mature (5.6) New Zealand AMP Financial Services AMP Capital Investors BU operating earnings Group Office costs (20) (18) (19) (37) (11.1) Total operating earnings Underlying investment income Interest expense on corporate debt (36) (37) (34) (71) 2.7 AMP Limited tax loss recognition Underlying profit Market adjustment investment income (8) (26) 13 (13) 69.2 Other items 1 (3) 53 (43) 10 n/a Seed pool valuation adjustments 2 - (35) 5 (30) n/a Profit after income tax before timing differences Market adjustment annuity fair value 3 5 (9) n/a Market adjustment risk products 3 10 (16) 2 (14) n/a Loan hedge revaluations 3 8 (4) (1) (5) n/a Accounting mismatches (33) (1) (6.3) Net profit attributable to shareholders of AMP Limited other items principally comprise the release of prior year tax provisions offset by one-off and non-recurring costs. 2 Seed pool valuation adjustments in 1H 09 represent the abnormal writedown of seed pool assets, being primarily Singapore industrial property and an Australian retirement village business. 3 Timing differences relate to accounting gains/losses that do not reflect the underlying profitability of the Group and should reverse over time. Refer to page 41 for more detail. Movement in underlying profit 1H 09 to 1H (10) (4) (2) A$m H 09 underlying profit Contemporary wealth management Contemporary wealth protection Mature New Zealand AMP Capital Investors Group Office costs Interest expense on corporate debt 1H 10 underlying profit

6 4 AMP Financial summary cont d 1H 10 1H 09 2H 09 FY 09 Earnings EPS underlying (cps) EPS actual (cps) RoE underlying 27.4% 31.6% 31.6% 31.6% RoE actual 30.4% 31.2% 29.4% 30.3% Dividend Dividend per share (cps) Dividend payout ratio underlying 81% 77% 80% 78% Ordinary shares on issue (m) 1 2,072 2,014 2,049 2,049 Weighted average number of shares on issue (m) 1 basic 2,059 2,008 2,029 2,016 fully diluted 2,069 2,018 2,038 2,025 Market capitalisation end period (A$m) 10,795 9,827 13,869 13,869 Capital management AMP shareholder equity 2,891 2,357 2,706 2,706 Corporate debt (excluding AMP Bank debt) (A$m) 1,363 1,389 1,189 1,189 S&P gearing 15% 16% 13% 13% Interest cover underlying (times) Interest cover actual (times) EV and VNB Value of risk new business (3% dm) (A$m) EV after transfers AFS (3% dm) (A$m) 2 7,666 7,472 7,909 7,909 Return on EV AFS (3% dm) 3.3% 2.7% 8.6% 11.3% Cashflows and AUM AFS cash inflows (A$m) 6,374 5,935 6,556 12,491 AFS cash outflows (A$m) (5,790) (5,070) (5,760) (10,830) AFS net cashflows (A$m) ,661 AFS persistency 90.7% 90.3% 90.1% 90.1% AFS AUM AMPCI managed (A$b) AFS AUM externally managed (A$b) AMPCI net cashflows external (A$m) 1, (1,269) (1,077) AMPCI net cashflows internal (A$m) 3 (679) (223) (690) (913) AMPCI AUM (A$b) Total AUM (A$b) Investment performance AMPCI Percentage of funds meeting or exceeding benchmark total AUM 4 64% 32% 67% 67% Controllable costs and cost ratios Operating costs (A$m) Project costs (A$m) Total controllable costs (A$m) Cost to income ratio 42.2% 42.4% 41.0% 41.7% Controllable costs to AUM (bps) Number of shares has not been adjusted to remove treasury shares. 2 1H 10 transfers of A$503m (FY 09: A$480m). 3 AMPCI AUM and total AUM restated. See page 32 for details. 4 Performance figures are on a 12 month rolling basis for total AMPCI AUM.

7 AMP 5 Key performance measures Return on equity (RoE) underlying Underlying profit Value of risk new business % A$m A$m H 06 1H 07 1H 08 1H 09 1H 10 1H 06 1H 07 1H 08 1H 09 1H 10 1H 06 1H 07 1H 08 1H 09 1H 10 Underlying RoE decreased to 27.4% in 1H 10 due to higher capital resources Underlying profit was up 4% on 1H 09 to A$383m Value of risk new business fell A$2m to A$45m (Australia up 2% offset by a decline in New Zealand) Net cashflows Percentage of funds meeting or exceeding benchmark A$m 3,000 AFS AMPCI (external) % 100 2,500 2,000 1,500 1, Target 75% H 06 1H 07 1H 08 1H 09 1H 10 1H 06 1H 07 1H 08 1H 09 1H 10 Net cashflows for AFS down to A$584m; AMPCI (external) up to A$1,855m 64% of funds meeting or exceeding benchmark for the twelve months to 30 June 2010

8 6 AMP Strategic overview Overview AMP is a leading wealth management company operating in Australia and New Zealand, with selected investment management activities in Asia and a growing banking business in Australia. Its ambition is to become the region s pre-eminent wealth manager and investment house. The company is one of Australia s largest superannuation providers and one of the country s top investment managers with A$111b in assets under management. AMP s financial planner network ranks amongst the largest in Australia and New Zealand. AMP s competitive advantage is its resilient business model, which is characterised by: a pre-eminent brand; a low cost and scalable manufacturing platform; a large aligned planner channel; a broad-based asset management and packaging business; and cost and capital efficiency. AMP s two core businesses are AMP Financial Services (AFS) and AMP Capital Investors (AMPCI). Capital management At 30 June 2010 the regulatory capital resources above MRR were A$1,413m (A$1,242m at 31 December 2009). Regulatory capital resources were 2.4 times MRR (2.2 times at 31 December 2009). The regulatory capital resources above MRR will vary throughout the year due to a range of factors including investment market movements, dividend payments and statutory profits (see page 37 for details). AMP continues to take a prudent approach to capital management and has a bias towards holding more capital rather than less in light of continued market volatility and until APRA's new regulatory capital proposals become clearer (see page 36 for details). AMP s interim 2010 dividend is 15 cents per share franked to 60%. AMP s dividend payout ratio for 1H 10 is 81% of underlying profit, with future dividends likely to be in the range of 75% to 85% of underlying profit. AMP will offer a discount of 1.5% to DRP participants. The DRP will not be underwritten and new shares will be issued. Strategy AMP has reshaped its business for the future. Following two years of significant investment across its business operations, today's AMP has a: reinvigorated product set with choices that meet different needs and budgets repositioned advice business, with a transformed, more productive planner force strengthened set of investment capabilities and improving investment performance growing funds management presence in Asia, with A$7b in AUM. To achieve this, the company committed to five key principles to guide decision making about its strategy at the onset of the financial crisis. These principles are: strengthening its financial base, lowering unit costs, moving ahead of the regulatory change curve, investing through the economic cycle and participating in selective mergers and acquisitions (M&A). These principles continue to guide AMP s strategy, which is to grow by: renovating its core business to ensure continuing strength and relevance expanding into adjacent markets and geographies reshaping the business portfolio through targeted M&A. Renovating the core business In 1H 10, AMP made significant progress renovating its core operations, and is aggressively pursuing revenue and profit growth from these changes. AMP today is a competitive, contemporary wealth manager and investment house with: No commissions on new superannuation, pension and investment business: AMP was the country s first wealth manager to remove in-built commissions from new superannuation, investment and pensions business across all its product and advice businesses. This was achieved two years ahead of the deadline set by industry bodies. Fee-for-service business models across its 1,760-strong Australian planner network: AMP s change program to facilitate the transition to fee-for-service involved almost 1,300 hours of training programs and more than 5,200 hours of coaching sessions for planners. A transformed planner network: The Horizons Academy is helping to change the face of financial planning, attracting a younger, more diverse and productive planner base. Planner productivity is on the rise as a result of increased usage of back-office services and new technology. Strengthened investment capabilities: Selective recruitment and retention of investment talent, combined with market-leading operating systems and processes has enabled AMP to steadily improve its investment performance across a broad range of asset classes. A growing presence in Asia: AMP now sources around 7% of its AUM from Asia and is generating encouraging cashflows from the region, particularly Japan. Expanding to adjacent markets and geographies AMP is also investing in selective new markets and new geographies to drive growth. Initial results from these medium and long-term investments are encouraging. For example, in the high net worth (HNW) market, AFS s boutique financial planning arm Private Wealth Management now has A$112m under advice. AFS is also attracting cashflows through its Separately Managed Account platform (Personalised Portfolio) for HNW investors. Personalised Portfolio now has A$166m under management. The company is expanding to new geographic markets through AMPCI, where it is focusing on Japan, Singapore, India and China. A combination of organic growth and selective M&A and alliances is underpinning this expansion.

9 AMP 7 Strategic overview cont d Reshaping the business portfolio through targeted M&A AMP pursues inorganic growth opportunities, like M&A, that are strategic, economic and within the company s risk appetite. During 1H 10, AMP focused on successfully bedding down a number of acquisitions and alliances formed in 2009, including its acquisitions of Gemini Advisors Securities in Japan and Rabo Financial Advisers in Australia; growing its global infrastructure capability by opening a New York office; its listed REIT in Singapore and its joint venture with Brookfield Investment Management in global listed real estate and infrastructure. Regulatory environment AMP has used the flexibility created by its disciplined cost control and strong capital base to respond quickly and pro-actively to a changing market environment. Changes to both the Australian and New Zealand businesses have been driven by shifting consumer preferences, evolving industry practices and regulatory reform. AMP has initiated a number of significant changes to position the business to maximise the opportunities flowing from these changes. In Australia, these include the removal of in-built commissions from new superannuation, pension and investment business (effective 1 July), a shift to fee-for-service across its planner network, and the development of a new superannuation and retirement offering that meets consumer needs and fits with the Federal Government s proposals for MySuper. AMP has been an active participant and driver of the debate around the future direction of Australia s superannuation industry, and will continue to push for change that delivers better retirement outcomes for Australians. AMP s executive remuneration is aligned with its growth strategy Remuneration includes both short and long-term incentives, which are aligned to the company s performance and value growth for shareholders. Short-term incentives are based on progress against AMP s four key performance measures: underlying return on equity; underlying profit; growth measures including AFS and AMPCI net cashflows and the value of risk new business; and investment performance. Long-term incentives are based on progress in generating total shareholder returns (TSR) in the top quartile of the market. AMP s over-arching goal is to deliver first quartile TSR performance to shareholders. This means that AMP aims to be in the top 25% of the major 50 Australian industrial companies (on the S&P/ASX 100 Index) in terms of TSR. AMP is making changes to its remuneration framework to ensure that it is effective for the business, meets changing stakeholder expectations and reflects the requirements of the new APRA standard.

10 8 AMP Financial Services AMP Financial Services financial summary Business overview AMP Financial Services (AFS) is a wealth management business operating in Australia and New Zealand. It is one of Australia s leading retail and corporate superannuation providers and is the third largest provider of retirement incomes (based on AUM market share). AFS also ranks as amongst the largest aligned planner force in Australia and New Zealand. Strategy AFS is repositioning its business for the future. During the past two years, it has significantly invested in a series of major change and growth initiatives that respond to extensive industry reform, driven by new consumer attitudes and potential regulation. By 30 June, it successfully completed its most significant change initiatives, launching a reshaped business model with: no commissions on new superannuation, pension and investment business fee-for-service business models across its Australian planner network a competitive new product range designed to meet consumer and planner needs, and regulatory requirements a broader range of distribution channels a transformed planner network. AFS s strategy is to continue evolving through a series of ongoing growth initiatives that fall into two areas: building greater distribution capacity creating compelling customer offers. Growth initiatives building greater distribution capacity Growing planner numbers: In the year to March 2010, AMPFP was ranked as the largest dealer group by adviser numbers 1. Growth in planner numbers of the combined top 10 financial planning groups was 1.9%, well below that of both AMPFP and the total Australian aligned planner force growth of 5.6% and 3.8% respectively 1. AFS planner numbers in Australia fell by 7 from 2H 09 to 1,760 in 1H 10. There were 136 new recruits offset by withdrawals of 143. In New Zealand, planner numbers fell by 16 from 2H 09 to 345 in 1H 10. Planner numbers were impacted by increased retirements due to changes in the regulatory environment. New Zealand planner numbers were impacted by the changing regulatory and challenging operating environment. The Horizons Academy continues to boost AMPFP planner numbers, with 24 new planners joining the network in 1H 10 and a further 32 graduating in July. The 2010 intake is expected to increase by 50% to 130 in response to ongoing demand. Total AMPFP practice numbers increased 18 to 713 while the number of Hillross practices fell 2 to 114. More productive planners: Compared to the industry median, AFS planners are more productive 2. In addition, Horizons Academytrained planners are 50% more productive than AFS planners who join from other channels. Ongoing initiatives continue to drive productivity across the network: Paraplanning: volumes rose 77% on 1H 09 for central paraplanning services, while the number of practices using the service increased 44% on 1H 09; monthly paraplanner productivity (Statements of Advice written) increased 33%. Coin planner software: fully operational, and end-to-end process efficiency gains of up to 60% have been achieved. Tailored customer offers: planners utilising offers continue to generate more sales than non-participating planners. Scoped advice: pilot program underway to help planners provide transactional advice. Broader distribution: At the end of 1H 10, AFS had further expanded its distribution network to drive revenue: Private Wealth Management: The financial planning business for high net worth investors has attracted 144 clients and funds under advice of A$112m. AMP Bank: Increased deposits by A$354m. IFA and alliances: Risk sales through these channels increased 17% in 1H 10. In mid July, AFS launched an AMP branded walk-in financial planning centre based in Sydney s Parramatta. The centre caters for 20 financial planners. Growth initiatives creating compelling customer offers In 1H 10, AFS launched improved products and advice offers that respond to regulatory change, address consumer preferences and equip planners with a more contemporary, competitive product set. The product changes also deliver efficiencies across the business. Superannuation and pensions: AFS has cut this product range from six to two products, introducing the new AMP Flexible Super and retaining SignatureSuper as the principle superannuation product for large employers. AMP Flexible Super, which was launched in May 2010 and attracted A$91m in net cashflows in 1H 10, is an all-in-one superannuation and retirement product for the broad retail and small-to-medium enterprise markets. It is a modular, lifetime offer, allowing customers to change investment options and features as their needs change. The product s Core option is one of the lowest priced in the industry. AFS s products for the HNW market continue to gain momentum, with AMP s Personalised Portfolio increasing net cashflows by A$29m to A$51m in 1H 10. Flows increased following the relaunch of the product with improved functionality. Risk insurance: AFS renovated its risk offer in 1H 10, introducing product and service improvements. Retail risk products have been added to the approved lists of two major Australian dealer groups. Australian individual risk API increased 9% on 1H Money Management August Comparator 2009 Annual Quantitative Report investment and insurance sales per adviser.

11 AMP Financial Services 9 AMP Financial Services financial summary cont d A$m 1H 10 1H 09 2H 09 FY 09 % 1H/1H Profit and loss Profit margins Experience profits (66.6) Operating earnings Underlying investment income Underlying operating profit after income tax Controllable costs and cost ratios Operating costs (0.8) Project costs (3.7) Total controllable costs (1.1) Cost to income ratio 33.6% 35.0% 33.0% 34.0% n/a Controllable costs to AUM (bps) n/a Return on capital RoBUE 32.5% 36.3% 35.7% 36.1% n/a End period tangible capital resources after transfers (A$m) 2,164 1,907 2,193 2, Cashflows, AUM and persistency AFS cash inflows (A$m) 6,374 5,935 6,556 12, AFS cash outflows (A$m) (5,790) (5,070) (5,760) (10,830) (14.2) AFS net cashflows (A$m) ,661 (32.5) AUM (pre-capital) (A$b) Persistency 90.7% 90.3% 90.1% 90.1% n/a VNB risk insurance and risk annual premium in-force (API) Value of risk new business (3% dm) (A$m) (4.3) Australian individual risk API (A$m) New Zealand individual risk API (A$m) Movement in operating earnings 1H 09 to 1H (10) (4) 323 A$m H 09 operating earnings Contemporary wealth management Contemporary wealth protection Mature New Zealand 1H 10 operating earnings

12 10 AMP Financial Services Australian contemporary wealth management A$m 1H 10 1H 09 2H 09 FY 09 % 1H/1H Profit and loss 1 Revenue Investment related Bank related (6.7) Other (11.9) Total revenue , Planner payments Investment management expense Bank variable costs (25.9) Other variable costs Total variable costs Controllable costs (3.6) Tax expense Operating earnings Underlying investment income Underlying operating profit after income tax RoBUE 40.8% 42.0% 43.4% 42.9% n/a End period tangible capital resources after transfers (A$m) Net cashflows (A$m) 855 1,131 1,058 2,189 (24.4) AUM (pre-capital) (A$b) Average AUM (including capital) (A$b) Persistency 90.7% 90.3% 90.1% 90.0% n/a Cost to income ratio 41.7% 46.5% 43.3% 44.9% n/a Investment related revenue to AUM (bps) 2,5, n/a Variable costs to AUM (bps) 5,6, n/a Controllable costs to AUM (bps) 5,6, n/a Operating earnings to AUM (bps) 5,7, n/a 1 Contemporary wealth management business comprises: retail superannuation, corporate superannuation, retail investment, allocated pensions/annuities, external platforms, AMP Bank and Financial Planning, Advice and Services. 2 Investment related refers to revenue on superannuation and allocated pension and investment products. 3 Other revenue includes product and platform fees received by Financial Planning, Advice and Services from AFS contemporary wealth protection and movements in the value of client registers purchased from financial planners. 4 Planner payments represent payments by AMP customers to planners. 5 Based on monthly average AUM including capital. 6 Costs in this ratio exclude AMP Bank costs. 7 Operating earnings in this ratio exclude AMP Bank. 8 Ratio based on 181 days in 1H 10 and 1H Contemporary wealth management EV and VNB are detailed on page 22. Movement in operating earnings 1H 09 to 1H A$m (10) (23) 6 (9) H 09 operating earnings Higher investment related revenue Lower Bank related and other revenue Higher variable costs Lower controllable costs HIgher tax expense 1H 10 operating earnings

13 AMP Financial Services 11 Australian contemporary wealth management cont d Business overview The contemporary wealth management (CWM) business is focused on optimising customer opportunities for financial planning services, superannuation, retirement income, managed investment and banking products. CWM s key priorities continue to be: positioning AFS for a changing regulatory environment, including renovating its product offering improving the quality of the advice experience and developing complementary advice channels driving AUM and revenue growth while remaining vigilant on cost control and pursuing opportunities to lower unit costs improving planner productivity and growing planner numbers. In 1H 10, CWM increased operating earnings by 16%, with strong revenue growth, tight cost control and resilient cashflows. Operating earnings Operating earnings increased by A$21m (16%) to A$150m over 1H 09 due to higher investment related revenue from higher average AUM following the increase in investment markets in 2009, and lower controllable costs. Investment related revenue to AUM Investment related revenue to AUM fell 4 bps from 2H 09 to 180 bps in 1H 10. The reduction in basis points was due to lower corporate superannuation participating profits (SuperLeader product) from lower closing 30 June 2010 markets (2 bps) and lower member fees (1 bps). Other revenue Other revenue fell A$5m from 1H 09 to A$37m in 1H 10, driven mainly by negative valuation movements on purchased client registers from financial planners due to the decline in equity markets. Variable costs to AUM Variable costs to AUM increased 1 bps from 2H 09 to 66 bps in 1H 10, primarily due to higher investment management expenses offset by lower planner payments. Net revenue margins Net revenue margins (investment related revenue less variable cost to AUM ratio) fell 5 bps from 2H 09 to 114 bps in 1H 10, as a result of lower investment related revenue to AUM. AMP Bank AMP Bank is an important part of the AMP Group, focused on broadening the group s customer base and channel access, offering a range of products and diversifying its revenue base. At the end of June 2010, AMP Bank had over 100,000 customers with a mortgage portfolio of A$9.8b and retail deposits of A$4.3b. AMP Bank s strategy is to: provide competitively priced mortgage and deposit offers and other services as part of a complete financial offering to AMP customers be a distributor focused direct bank, providing high quality service and operational excellence provide home loans and deposits as introductory products that can lead to a deeper relationship with the AMP Group. AMP Bank remains well positioned, with a capital adequacy ratio of 12.2% and a 90+ days loan arrears of 0.34% at 30 June Loan portfolio volumes were stable at A$9.8b, with growth constrained by lower growth in Australian new lending volumes, uncertainty in the securitisation market and increased cost of funding. AMP Bank contributed A$21m to CWM operating earnings, up from A$18m in 1H 09. While revenue fell 7%, driven by higher funding costs and lower mortgage sales, variable costs fell at a faster rate of 26%. Lower variable costs were partly driven by upfront acquisition costs being amortised over a longer period to reflect the current profile of the mortgage book (A$3m). The return on capital increased to 14.3% in 1H 10 from 13.9% in 1H 09. AMP Bank mortgages at 30 June 2010 were funded by a combination of on-balance sheet (61% being retail, superannuation and wholesale deposits) and off-balance sheet (39% being securitisation) funding. Going forward, AMP Bank expects to manage its funding, liquidity and capital requirements through diversified funding sources including increased securitisation issues and bank warehousing facilities as these markets continue to recover. AMP Bank completed a A$1b securitisation in January 2010 and expects to complete further transactions later in the year. Assuming the securitisation market remains open, AMP Bank expects to be able to grow lending volumes during the remainder of For further details on AMP Bank funding, refer to page 39. Controllable costs Total controllable costs fell 4% (A$6m) from 1H 09 to A$163m in 1H 10. This includes AMP Bank s controllable costs, which were A$20m in 1H 10. Absolute cost reductions in parts of CWM, including lower employment costs, were partially offset by funding a number of distribution and product initiatives, including the development of AMP Flexible Super, the Horizons Academy and AFS s change program, Advice These initiatives are expected to improve CWM s growth profile over the medium-term. The cost to income ratio decreased by 4.8 percentage points from 1H 09 to 41.7% in 1H 10 as a result of higher overall revenue and lower controllable costs. Controllable costs to AUM fell 14 bps to 56 bps in 1H 10 due to average AUM rising 21% and a fall of 4% in controllable costs. Return on capital RoBUE for 1H 10 was 40.8%, down from 42.0% in 1H 09, largely reflecting higher capital allocated to the capital guaranteed SuperLeader product and higher AUM.

14 12 AMP Financial Services Australian contemporary wealth protection A$m 1H 10 1H 09 2H 09 FY 09 % 1H/1H Profit and loss 1 Profit margins Experience profits (3) n/a Operating earnings (12.0) Underlying investment income (6.3) Underlying operating profit after income tax (11.1) RoBUE 24.7% 31.7% 28.5% 30.1% n/a End period tangible capital resources after transfers (A$m) VNB (3% dm) (A$m) EV after transfers (3% dm) (A$m) 1,883 1,658 1,781 1, Return on EV (3% dm) 2 9.5% 1.1% 11.7% 12.4% n/a Individual risk API (A$m) Group risk API (A$m) (3.3) Individual risk lapse rate 10.4% 10.1% 12.3% 11.1% n/a Profit margins/annual premium % 20.1% 19.5% 19.8% (2.5) Operating earnings/annual premium % 23.4% 21.6% 22.5% n/a Controllable costs (A$m) Cost to income ratio 26.8% 21.9% 20.7% 21.3% n/a Controllable costs/annual premium % 11.2% 9.5% 10.3% n/a 1 Contemporary wealth protection comprises individual risk and group risk. 2 Return on EV is not annualised for half year periods. 3 Based on average annual premium in-force. Movement in operating earnings 1H 09 to 1H A$m 60 (16) (5) H 09 operating earnings Growth in business volumes Changes in mortality and morbidity assumptions Lower experience profits Higher controllable costs 1H 10 operating earnings

15 AMP Financial Services 13 Australian contemporary wealth protection cont d Business overview Contemporary wealth protection (CWP) comprises individual risk and group risk products. Holding a risk insurance product within a superannuation policy continues to be an attractive option for superannuation members. In the individual risk business, 51% of in-force and 70% of new business is written within a superannuation contract. Group risk is a key component of the corporate superannuation offer. CWP s key priorities are to: grow market share while only writing profitable business increase the proportion of superannuation customers who have adequate risk insurance coverage ensure AMP product and service propositions remain competitive improve ease and profitability of writing AMP risk for planners grow distribution through independent financial advisers and alliance channels improve operational leverage. Operating earnings Operating earnings fell 12% in 1H 10 to A$73m. CWP profit margins increased A$6m to A$76m due to higher API and improvements in mortality and morbidity assumptions (recognised in 2H 09), offset by higher controllable costs. Profit margins as a percentage of average API of 19.6% were in line with 2H 09. Experience profits fell A$16m to a loss of A$3m in 1H 10. The experience loss was driven by a continuation of higher individual risk income protection claims, consistent with the current economic environment and experience losses on group risk salary continuance and stand alone group risk business. Individual risk lump sum and group risk packaged with superannuation continued to generate positive claims experience, albeit closer to long-term best estimate assumptions than in previous periods. Annual premium in-force (API) Individual risk API increased A$53m (9%) over 1H 09 and A$9m (1%) over 2H 09. 2H 09 includes the annual benefit from CPI and age premium increases on risk policies held within superannuation. The growth in 1H 10 was driven by: Lapse rates Lapse rate management is a critical driver of individual risk profitability. AMP continues to have lapse rates that are among the lowest in the industry. In 1H 10, lapse rates were 10.4%, 0.3 percentage points higher than 1H 09 but 1.9 percentage points lower than 2H 09. Lapse rates in the second half are typically higher than in the first half due to annual age and inflation (CPI) increases that come into effect on 1 July each year for policies held within superannuation. 1H 10 lapse rates increased over 1H 09 due to a higher number of customers transitioning to retirement and cancelling their insurance policy. Controllable costs Controllable costs increased A$7m to A$46m in 1H 10, primarily due to investment in product development and channel distribution and increased staff costs, predominantly in claims and underwriting. The cost to income ratio increased 4.9 percentage points to 26.8% in 1H 10 as controllable costs increased and operating earnings declined, due to experience losses. Controllable costs as a percentage of average API was 12.0% in 1H 10, up from 11.2% in 1H 09. Return on capital RoBUE for 1H 10 was 24.7%, down from 31.7% in 1H 09, reflecting the turnaround in experience profits. The total amount of capital allocated to the CWP business increased due to capital allocated for new business growth. Embedded value (EV) and value of new business (VNB) EV increased 9.5% at the 3% discount margin in 1H 10 before transfers. The increase was driven by new business and the impact of investment markets and bond yields. VNB increased 2.4% to A$42m in 1H 10 as a result of lower bond yields and premium increases, offset by higher unit costs. For further details on EV and VNB, refer to pages 22 to 26. increased planner activity as difficult investment market and economic conditions led to an increased demand for risk products sales growth through the independent financial advisers and alliances channel (up 17%). AFS has continued to benefit from increased investment in its business development capability, strong brand and competitive product and service offering to win new business in this channel. Group risk API fell A$5m (3%) over 1H 09 and A$20m (12%) over 2H 09. Increased competition in this segment of the market has intensified, with 1H 10 group risk API impacted by the loss of two corporate superannuation plans. 1H 10 individual risk API comprised lump sum insurance (78%) and disability, including income protection (22%). The composition of API was largely unchanged over the past year.

16 14 AMP Financial Services Australian mature A$m 1H 10 1H 09 2H 09 FY 09 % 1H/1H Profit and loss Profit margins (8.2) Experience profits/(losses) 1 (1) 7 6 n/a Operating earnings (5.6) Underlying investment income Underlying operating profit after income tax (3.7) RoBUE 35.5% 45.5% 41.2% 43.4% n/a End period tangible capital resources after transfers (A$m) VNB (3% dm) (A$m) (33.3) EV after transfers (3% dm) (A$m) 1 1,524 1,575 1,715 1,715 (3.2) Return on EV (3% dm) (1.7%) 6.5% 10.4% 17.1% n/a Net cashflows (A$m) (588) (576) (625) (1,201) (2.1) AUM (pre-capital) (A$b) (1.7) Profit margins to AUM (bps) n/a Persistency 89.4% 89.5% 89.0% 89.5% n/a Controllable costs (A$m) (3.4) Cost to income ratio 20.2% 20.0% 19.6% 19.8% n/a Controllable costs to AUM (bps) n/a 1 Return on EV is not annualised for half year periods. 2 Based on monthly average AUM including capital. Movement in operating earnings 1H 09 to 1H (4) (2) 68 A$m H 09 operating earnings Mature run-off Market movements Higher experience profits 1H 10 operating earnings

17 AMP Financial Services 15 Australian mature cont d Business overview AMP s mature business remains one of the largest closed life insurance businesses in Australia, with AUM (pre-capital) of A$17.6b at 1H 10. AUM decreased 3% over the half year, largely as a result of the natural run-off of the business. Key priorities for management are to: maintain capital efficiency improve persistency achieve greater cost efficiency. Persistency remained steady in 1H 10 at 89.4%. Operating earnings Operating earnings fell A$4m (6%) to A$68m in 1H 10, due to: business run-off (-A$4m) investment markets and bond yields (-A$2m), offset by higher experience profits (A$2m). 2H 09 experience profits included improved annuity experience profits which did not repeat in 1H 10. Controllable costs Controllable costs fell A$1m to A$28m in 1H 10 primarily due to the natural run-off of the book. Controllable costs to AUM was unchanged from 1H 09 at 31 bps. Return on capital RoBUE fell to 35.5% in 1H 10 from 45.5% in 1H 09 as higher capital was allocated to capital guaranteed products in 2H 09. This was transferred out during 1H 10 and the capital held in the mature business has returned to more normal levels. The capital position of this business remains strong. Refer to page 36 for regulatory capital resources above MRR. Embedded value (EV) and value of new business (VNB) EV fell 1.7% in 1H 10 (before transfers), driven by lower bond yields. VNB decreased 33% to A$10m due to lower cash inflows on open products. The mature business remains in slow decline but will remain profitable for many years, running off between 4% and 6% per annum. In volatile investment markets, this rate of run-off can vary substantially. The run-off of AUM mirrors policy liabilities, although there is potential for operating margins to be impacted differently. The run-off of mature AUM is anticipated to have an average duration of approximately 15 years but will be impacted by investment markets. Managing mature for investment market movements Mature AUM supports capital guaranteed products (86%) and market linked products (14%). AMP s capital guaranteed products are held within the AMP Life Statutory Fund No. 1 (SF1). Asset allocation for SF1 is struck prudently over the long-term and has a bias of income over growth assets. The long-term asset mix for the Australian participating business portion of SF1 is set out on page 26. AMP actively manages its SF1 equity exposure, including the use of derivative strategies to provide protection from equity market declines. As at 30 June 2010, the equity exposure in SF1 was A$4.4b and comprised the following positions: A long-term derivative strategy, using options and futures, that provides a variable level of protection depending on market conditions. This strategy provides market protection assuming a significant fall in markets. A tactical equity strategy, comprised mainly of put options, protecting A$1.4b of equities against market falls in excess of 15%. These replaced the equity collars that were in place at 31 December Within SF1, AMP also employs strategies designed to protect against changes in bond yields. The average duration of the SF1 bond portfolios remained around six and a half years throughout 1H 10. Product characteristics and run-off profile The RSA/ERF products have approximately 1.5 million customers and AUM of A$4.4b. The other mature products service around 525,000 customers and AUM of A$13.2b. RSA was closed to new business from 1 July 2010.

18 16 AMP Financial Services New Zealand A$m 1H 10 1H 09 2H 09 FY 09 % 1H/1H Profit and loss Profit margins (3.4) Experience profits/(losses) 4 (6) (5) (11) n/a Operating earnings Underlying investment income Underlying operating profit after income tax RoBUE 25.1% 20.5% 22.0% 20.0% n/a End period tangible capital resources after transfers (A$m) VNB (3% dm) (A$m) (27.3) EV after transfers (3% dm) (A$m) (13.0) Return on EV (3% dm) (A$m) 2,3 4.8% 0.8% (11.4%) (10.1%) n/a Net cashflows (A$m) (1.1) AUM (pre-capital) (A$b) Individual risk API (A$m) Individual risk API (NZ$m) Lapse rates 10.1% 11.0% 12.2% 11.6% n/a Controllable costs (A$m) (11.1) Cost to income ratio 31.8% 40.7% 35.5% 37.9% n/a Controllable costs/annual premium % 48.4% 48.2% 48.3% n/a 1 In NZ dollar terms, VNB has decreased by 28.6% on 1H In NZ dollar terms, EV has increased by 4.2%. 3 Return on EV is not annualised for half year periods. 4 Based on monthly individual risk API. Movement in operating earnings 1H 09 to 1H A$m (3) H 09 operating earnings Changes in lapse assumptions Higher experience profits Lower controllable costs 1H 10 operating earnings

19 AMP Financial Services 17 New Zealand cont d Business overview AFS NZ is principally a risk insurance business with growing wealth management operations. Its key priorities are to increase shareholder value by: enhancing products and services to customers building strong distribution relationships proactively preparing for regulatory change investing in its people, and maximising cost efficiency. Operating earnings Operating earnings increased A$9m (39%) to A$32m in 1H 10 in a challenging business environment. The increase in earnings reflects better experience offset by lower planned margins. Profit margins decreased A$1m to A$28m, driven by increases in lapse rate assumptions on risk products at FY 09 and lower margins on new business owing to life tax changes offset by lower controllable costs. The improvement in experience profits of A$10m from 1H 09 largely reflects risk lapse experience being closer to best estimate assumptions, improved claims experience and the recognition of a reduction in deferred tax arising from the change in the New Zealand corporate tax rate from 30% to 28% (A$6m) announced in the May 2010 Budget. Recent changes in the New Zealand tax regime have resulted in some volatility in period-on-period operating earnings comparisons. Controllable costs Controllable costs fell A$3m (11%) to A$24m for 1H 10. In NZ dollar terms, controllable costs declined 7%. The reduction in controllable costs resulted from disciplined cost control across the NZ business, including lower employment costs and occupancy costs as a result of ongoing consolidation of the Wellington and Auckland offices. The cost to income ratio fell 8.9 percentage points to 31.8% in 1H 10 due to the combination of higher operating earnings from higher experience profits and lower controllable costs. Lapse rates 1H 10 lapse rates fell 0.9 percentage points to 10.1%, as the impending life tax changes led to price increases from competitors, along with AFS NZ repricing initiatives in 2008 having a reduced impact. AFS NZ s lapse rates are 2.7 percentage points better than the New Zealand industry average. Return on capital RoBUE increased to 25.1% for 1H 10, reflecting higher operating earnings from higher experience profits. Embedded value (EV) and value of new business (VNB) EV increased 4.8% to A$653m (before transfers) primarily due to the expected return. VNB decreased 27% to A$8m in 1H 10, driven by changes to persistency assumptions and NZ life tax changes recognised in 2H 09. Advisers In 1H 10, total aligned intermediaries in AFS NZ decreased by 16 to 345. The decrease was primarily due to the changing regulatory and challenging operating environment. Total aligned intermediaries included 24 mortgage and insurance advisers for Roost, operating from 15 franchises. The New Zealand Financial Advisers Act aims to promote the sound and efficient delivery of financial advice and improve confidence in financial advisers. It is expected to be implemented from December AFS NZ s program for implementation is well progressed. KiwiSaver AFS NZ is continuing to position itself to achieve scale in the KiwiSaver market through a number of customer-focused initiatives. The total KiwiSaver market size in New Zealand has grown strongly from NZ$2.3b in March 2009 to NZ$5.1b in March At 30 June 2010, AFS NZ had approximately 130,000 KiwiSaver members and was ranked third, with a 13% market share (based on AUM). Annual premium in-force (API) Individual risk API grew A$9m (8%) over 1H 09 and A$3m (3%) over 2H 09. In NZ dollar terms, API increased by 6% to NZ$148m in 1H 10 over 1H 09. Growth was driven by increased risk sales that primarily reflected activity in advance of the life tax changes that took effect from 1 July Higher sales were underpinned by improved processing and aligned intermediary support.

20 18 AMP Financial Services Cashflows and assets under management (AUM) Cash inflows Cash outflows Net cashflows Cashflows by product (A$m) 1H 10 1H 09 % 1H/1H 1H 10 1H 09 % 1H/1H 1H 10 1H 09 % 1H/1H Australian contemporary wealth management Retail superannuation 1 2,041 1, ,838 1,381 (33.1) (61.3) Allocated pensions/annuities (18.1) Total retail superannuation and pensions/annuities 2,903 2, ,562 1,994 (28.5) (38.6) Retail investment (12) (36) 66.7 External platforms (19.4) (35.3) Total retail 3,828 3, ,477 2,795 (24.4) (36.5) Corporate superannuation and pensions/annuities 1,443 1,451 (0.6) 1, (7.4) (16.3) Corporate superannuation mandate wins Total Australian contemporary wealth management 5,368 4, ,513 3,760 (20.0) 855 1,131 (24.4) Australian contemporary wealth protection Group risk (1.4) (28.6) (28.9) Individual risk (8.4) Total Australian contemporary wealth protection (13.8) Total Australian contemporary 5,746 5, ,661 3,890 (19.8) 1,085 1,353 (19.8) Australian mature (9.8) (588) (576) (2.1) Total Australia 6,078 5, ,581 4,834 (15.5) (36.0) New Zealand (8.6) (1.1) Total AFS cashflows 6,374 5, ,790 5,070 (14.2) (32.5) AMP Bank mortgages (22.8) (94.5) AMP Bank deposits (38.6) Cashflows by distribution channel AMP Financial Planning 3,691 3, ,413 2,881 (18.5) (37.0) Hillross (20.0) (88.6) Corporate superannuation direct sales force (4.3) Centrally managed clients and other (9.0) (130) (111) (17.1) 3rd party distributors (11.4) (5.7) (94) (25) (276.0) Total Australia 6,078 5, ,581 4,834 (15.5) (36.0) New Zealand (8.6) (1.1) Total AFS cashflows 6,374 5, ,790 5,070 (14.2) (32.5) Australian contemporary wealth management cash inflows (A$m) Member contributions (3.3) Employer contributions 1,619 1,675 (3.3) Total contributions 2,199 2,275 (3.3) Transfers and rollovers in 4 2,908 2, Other cash inflows Total 5,368 4, Retail superannuation includes Flexible Lifetime Super and AMP Flexible Super, a component of which is small corporate superannuation schemes. 2 Externally manufactured products that earn platform fees (superannuation, pensions and investments). 3 Cashflows from the transfer of accumulated member benefits as a result of SignatureSuper mandate wins. 4 Transfers and rollovers in include the transfer of accumulated member balances into AMP from both internal (eg retail superannuation to allocated pensions/ annuities) and external products.