The final results for the last financial year are due to be released on 14 February, but AMP has provided an update to shareholders regarding the expected earnings and final dividend for the year ended 31 December 2018 ahead of next month’s announcement.
While the official results for FY18 are still being finalised and are subject to audit review, AMP has revealed that it took a huge hit to profits in the calendar last year.
In the update on expected earnings and final dividend for the year, AMP said it expects to report an underlying profit of around $680 million. This is markedly down on the previous year, when the group reported a profit of $1.04 billion.
Similarly, profit attributable to shareholders has plunged to $30 million, down from more than $840 million last year.
The announcement follows on from similar announcements last year. In August 2018, AMP reported an underlying net profit of $495 million for H1 FY18, a decrease of 7.1 per cent from $533 million in H1 FY17.
Given that the group expects to report a full-year profit of around $680 million, this suggests that the profit for the second half of the year equated to just $185 million.
“Total profit attributable to shareholders in 2H 18 has been impacted by a range of previously advised items reported below underlying profit,” the update reads.
“These include the costs arising from the royal commission response, portfolio review, increased investment in risk, governance and controls, and advice remediation.
“An additional provision for advice remediation of $200 million (pre-tax) is now expected to be recognised at 31 December 2018,” it added.
According to AMP, the additional provision contains two items that have previously been disclosed as estimates:
- Program running costs: $186 million pre-tax ($130 million post-tax). Together with the costs incurred in 2H 18, this equates to the previously disclosed estimate of $210 million (pre-tax), AMP said.
- Customer lost earnings: $14 million pre-tax ($10 million post-tax) for the six months to December 2018. “As advised, compensation for lost earnings will be recognised as paid or accrued every half year,” the wealth group said.
“AMP continues to prioritise its advice remediation program to ensure all customers are appropriately compensated and will provide updates in future reporting periods,” it added.
The update to shareholders also revealed that total business unit operating earnings in the second half of 2018 are expected to be approximately $220 million.
This comprises around $325 million from the Australian wealth management, AMP Capital, AMP Bank and New Zealand wealth management and advice, and a net operating loss of around $105 million from the Australia and New Zealand wealth protection and mature businesses subject to a sale agreement with Resolution Life.
While Resolution Life assumes the risks and profit impacts from 1 July 2018 under the terms of the sale agreement, AMP will remain responsible for the operations and capital management of these businesses until the sale completes.
The $105 million operating loss for the sold businesses in 2H 18 reflects approximately $180 million of capitalised losses from AMP’s “best estimate assumption changes” and approximately $50 million of “experience losses”.
AMP said it was therefore required to reserve approximately $100 million of capital until completion.
“AMP reaffirms its commitment to returning the majority of the net cash proceeds received on settlement of the transaction with Resolution Life to shareholders, subject to unforeseen circumstances,” the update reads.
The transaction remains on track to complete in 2H 19.
“Recognising the 2H 18 performance of the business, the related capital impacts and the uncertainties in the operating environment, the board anticipates declaring a final dividend of 4 cents per share,” the update reads.
This is down by almost $14 on last year, when the final dividend was $14.5 cents per share.
While the full details of the FY18 results will be released on 14 February, along with an “overview of the key focus areas for 2019”, AMP has said that the earnings of the retained businesses are expected to be impacted by “external market conditions, the regulatory environment, implications of the future strategy and a number of previously advised factors”.
The factors include full year impacts of the MySuper pricing changes to Australian wealth management of $35 million (post-tax), “unwinding” the internal distribution arrangements and adjustments for tax and products transferring on sale to Resolution Life with an annual impact of approximately $85 million (post-tax) and “stranded group office costs of approximately $40 million (post-tax)”.
Annie Kane is the editor of The Adviser and Mortgage Business.
As well as writing about the Australian broking industry, the mortgage market, financial regulation, fintechs and the wider lending landscape – Annie is also the host of the Elite Broker and In Focus podcasts and The Adviser Live webcasts.