Presentation on AMP Financial Services

Transcription

1 ASX Announcement 26 November 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: 146/03 Presentation on AMP Financial Services Please find attached a presentation on AMP Financial Services which will be given at a market briefing for analysts and fund managers this afternoon from pm. The briefing will be webcast on AMP Limited (AMP) ASX Announcement AMP Limited Level 24, 33 Alfred Street Sydney NSW 2000 Australia ABN

2 AMP Financial Services Primed for growth 26 November 2003

3 The performance of AMP Financial Services is driven by 2 Sustainable competitive advantage, driven by: Unmatched strength in distribution Scale and focus in product manufacturing Strategic focus and business model Capacity to maintain attractive margins Significant operational and capital leverage all leading to robust earnings growth and improving returns on capital

4 3 Agenda Sustainable competitive advantage Advice-Based Distribution strategy Product Manufacturing strategy Capacity to maintain attractive margins Craig Dunn Managing Director, AMP Financial Services Steven Helmich Director, Advice-Based Distribution Craig Meller Director, Product Manufacturing Craig Dunn Operational and capital leverage Craig Dunn

5 4 AMP business model Investment Management Products & Platforms Distribution - Dealer Groups Distribution - Planners AMP AMP Capital Capital Investors Investors (ACI) (ACI) AFS AFS - - Product Product Manufacturing Manufacturing AFS AFS - - Advice Advice Based Based Distribution Distribution AMP AMP and and aligned aligned planners planners Focused wealth management company Capabilities stretch across the value chain Strong bias to managed / aligned distribution Selective product manufacturer with scale Focus on core business and operational excellence (productivity and quality) Growth bias is organic

6 AMP has strength across the value chain Gross Margins Typical Industry Range Transaction type AMP platform, with ACI investment AMP platform without ACI investment Investment Management Products & Platforms bp bp Net investment mgt margins Net platform margins Share of platform margins Distribution - Dealer groups bp* Share of invest mgt margins Dealer cut Platform partners Third party products Advice only * Margins are before share of platform and investment management margins 5

7 Source: Plan for Life June 2003 ; Amounts represent AUM for AMP Flexible Lifetime Super only and Asgard PortfolioCare platform only * Source AMP 6 AMP s margin power lies with its distribution Assets under Management or Advice ($m) for FLS and PortfolioCare Investment Management Products & Platforms Distribution - Dealer groups Net investment mgt margins Net platform margins Share of platform margins Share of invest mgt margins Dealer cut AMP platform, with ACI investment $8.4bn $8.4bn $8.4bn $8.4bn $8.4bn AMP platform without ACI investment N/A $3.6bn $3.6bn $3.6bn $3.6bn Platform partners (Asgard) $230m* N/A $2.1bn $2.1bn $2.1bn

8 7 The big winners in retail wealth management Winners will have strong, closely aligned distribution: Pricing power is greatest for scale players who operate across the value chain, but have real strength in distribution Dealer groups with scale can claim margin share from both platform providers and asset managers Dealer group value is optimised through a strong value proposition for planners, aligning interests to ensure value is maximised across the value chain Winners will compete across the value chain: Margin share is optimised for entities that go across the value chain Open architecture and segment specialists, require those operating across the value chain to rethink their organisational structures There are different drivers of success in each segment of the value chain with different bases of competition

9 AMP Financial Services business model Investment Management Products & Platforms Distribution - Dealer Groups Distribution - Planners AMP Owned or Partnered: AMP Capital Investors (ACI) AFS - Product Manufacturing AFS - Advice Based Distribution AMP and aligned planners Savings & Retirement AMP Financial Planning Corporate Super Risk Insurance Banking Mature Hillross Arrive Magnify General Ins Platform partners Third Parties: Third party asset managers Third party product providers Third party dealer & broker groups Third party planners & brokers 8

10 9 Simple, focused, disciplined strategy Advice-Based Distribution to be the partner of choice for financial planners and lead the market space for quality advice Product Manufacturing to deliver market competitive products at the lowest unit cost

11 AMP Financial Services basis for competition Primary basis of competition Comparative advantage Strategic priorities Advice-Based Distribution Customer intimacy Planner network and institutionalised (self-employed) model Leverage distribution scale Consistent, quality advice Best in class support Productivity Alignment of reward & recognition Product Manufacturing Cost leadership Lowest unit cost provider (scale and focus) Simple & evolving products Best in class wholesale distribution Focus on persistency Scale benefits Cost efficiency & quality programs Customer relationship Rigorous capital focus 10

12 11 Agenda Sustainable competitive advantage Advice-Based Distribution strategy Product Manufacturing strategy Capacity to maintain attractive margins Craig Dunn Managing Director, AMP Financial Services Steven Helmich Director, Advice-Based Distribution Craig Meller Director, Product Manufacturing Craig Dunn Operational and capital leverage Craig Dunn

13 Advice-Based Distribution strategy Purpose To be the partner of choice for financial planners and lead the market space for quality advice Comparative advantages Planner network (reach & scale) + Institutionalised (self employed) model Strategic priorities Leverage distribution scale Consistent, quality advice Best in class support Productivity Alignment of reward and recognition Customer relationship 12

14 13 Leverage distribution scale Consistency, quality advice Alignment of reward Best in class support Productivity Customer relationship and recognition AMPFP Hillross Arrive Magnify Planner Nos (June 2003) Aus 1,450 NZ Launched August 2003 Customer focus Mass / Mass Affluent Mass Affluent High Net Worth Chartered Accountant Clients Growth from Productivity / succession New planners / geographic growth PwC link Greenfields Efficiency Common back office for dealer groups

15 Leverage distribution scale Consistency, quality advice Alignment of reward Best in class support Productivity Customer relationship and recognition 1,702 Number of Australian Planners October ,369 1,309 Leveraging scale to enhance share of margin 1,121 1,112 1, Leveraging scale to deliver cost efficiency Common back office Supply chain management Bolt-on dealer groups AMP NAB PIS Count AXA CBA WBC ING/ANZ Source: Money Management. October

16 Source: Money Management October 2003 n/d=not disclosed 15 Leverage distribution scale Consistent, quality advice Alignment of reward Best in class support Productivity Customer relationship and recognition 554 Number of Certified Financial Planners (CFPs) 477 Quality of advice industry issue: Consistent reliable advice appropriate for individual circumstances n/d n/d n/d AMP NAB PIS Count AXA CBA WBC Proportion of CFPs: 33% 35% 11% 22% 8% ING/ANZ AMP approach to improving consistency and quality of advice: Standardised advice processes Investment in education / training Customer charter Link to reward & recognition Compliance and audit

17 Leverage distribution scale Consistent, quality advice Best in class support Productivity Alignment of reward and recognition Customer relationship Stage 1 - New Planner One of few with capability to recruit greenfield planners in SEP model new planners recruited each year* Orphan customers, immediate client base for planner $50k pa investment in planners first 4 years resulting in a 4yr retention rate of 84%* Planner Lifecycle Stage 2 - Ongoing Support Training centre at Epping (RTO) 1:30 Infield management to planners* 100% of planners audited p.a. Technology, eg Planner portal, CSA CCC low cost # 1 in Technical support 2 years in a row (ASSIRT) Paraplanning low cost centralised model Stage 4 - Succession Remuneration provides incentives for practices to encourage succession plans Mentoring program BOLR enables institutional ownership In-house capability to efficiently manage customers and match with new planners (CCC) Reward Stage 3 - Expansion Support planner practice growth Dedicated business practice managers Corporate super members to retail relationship Practice finance Remuneration incentives *example from AMPFP SEP=Self-employed planner; CCC=Customer Communication Centre; CSA=Customer service automation: BOLR=Buyer of last resort; RTO=Registered Training Organisation 16

18 17 Leverage distribution scale Consistent, quality advice Best in class support Alignment of reward and recognition Customer relationship Productivity Significant opportunity to grow advice share through enhancing productivity in AMPFP channel Driving planner productivity through: - Quality advice offering across all segments - Segmented service offering - Customer Call Centre (CCC) as low cost servicing option - Technology to enable planners to build a model practice - Strong in-field management - Planner focused CRM and service automation technology - Process efficiency in back office - Open architecture approach

19 18 Leverage distribution scale Consistent, quality advice Best in class support Alignment of reward and recognition Customer relationship Productivity Industry leading planner technology and coaching supports planner productivity and delivery of consistent, quality advice AMP AMP technology investment significantly improved planner ratings: 78% regard offering as excellent, very good, good 85% rate AMP technology support as excellent, very good, good Planner Interface - Gateway Client Information: Online access to over 2 million AMP & non AMP client holdings, including Super, Investments, Life/General Insurance & Banking Financial Planning: software is customized around standardised advice process Customer Relationship Management: provides complete picture of client interaction with AMP. Supports planner s client management and marketing capabilities. Electronic Commerce: Tight integration into workflow management which gives planners visibility of where processing/request is at in the back office

20 Leverage distribution scale Consistent, quality advice Best in class support Productivity Customer relationship Alignment of reward and recognition The AMPFP Value proposition: Self-employed model is key to resilience of model Planners meeting model characteristics pay a lower dealer cut (and similar impact on BOLR) aligning interests of self employed planner and profitability with AMP Model characteristics can be updated annually to ensure planners continue to deliver high performance Model characteristics: Advisory (qualifications) Business development (linked to net business flows) Business structure (premises procedures, business & marketing plans, etc) Compliance / quality of advice Dealer Cut Percentages Applied to Gross Revenue E 12.5% 10% 7.5% 5% 3.5% D 15% 12.5% 10% 7.5% 5% C 17.5% 15% 12.5% 10% 7.5% B 22.5% 17.5% 15% 12.5% 10% A 25% 22.5% 17.5% 15% 12.5% Revenue 19

21 20 Leverage distribution scale Consistency, quality advice Best in class support Productivity Alignment of reward and recognition Customer relationship Community based Broad geographical reach Generations of planners and customers have relationship with AMP Self employed model and customer intimacy are key drivers of the strength to the model Institutional ownership protects the client by providing security around ongoing standards and service Open architecture allows planner to become one stop shop for clients (ie can get most solutions from AMP Financial Planner)

22 21 Advice-Based Distribution summary AMP has strong, closely aligned distribution with Leading share of advice market, and with unmatched presence Channels strongly positioned across all market segments Model difficult to emulate Growth options (organic, productivity and selected acquisition) designed to deliver sustainable competitive advantage and ongoing growth

23 22 Agenda Sustainable competitive advantage Advice-Based Distribution strategy Product Manufacturing strategy Capacity to maintain attractive margins Craig Dunn Managing Director, AMP Financial Services Steven Helmich Director, Advice-Based Distribution Craig Meller Director, Product Manufacturing Craig Dunn Operational and capital leverage Craig Dunn

24 Product Manufacturing strategy Purpose To deliver market competitive products at the lowest unit cost Comparative advantages Scale + Focus Strategic priorities Simple & evolving products Best in class wholesale distribution Focus on persistency Scale benefits Cost efficiency & quality programs Rigorous capital focus 23

25 24 Simple & evolving products Best in class wholesale distribution Cost efficiency & Focus on persistency Scale benefits Rigorous capital focus quality programs Savings & Retirement Corporate Super Risk Insurance Banking Mature Flagship product Flexible Lifetime Range Custom Super Signature Super Flexible Lifetime Firstcare Executive Club Mortgage CMA Conventional Key focus Growth Cost efficiency Persistency Growth Cost efficiency Growth Claims experience Persistency Growth (Deposits & Mortgages) Cost efficiency Persistency Capital mgt Growth from Allocated Pensions FLI (Unit trusts) Transfer from Individual deeds to Master trusts Greater penetration into AMPFP Greater penetration into AMPFP; Expand geographic reach Higher persistency Efficiency Eliminate, Innovate, Perform

26 RSA=Retirement Savings account ERF=Eligible Rollover Fund 25 Simple & evolving products Best in class wholesale distribution Cost efficiency & Focus on persistency Scale benefits Rigorous capital focus quality programs Selective manufacturing philosophy AFS only manufactures product where it makes economic sense Savings & Retirement Corporate Super Risk Insurance Banking Mature Personal Super SME Corporate Term/Trauma Mortgages Conventional Core product offerings Allocated Pensions Investments Larger Corporate Group Risk Temporary & Permanent Disability Income Protection Deposits Credit Cards RSA / ERF Wrap Property Finance Key: Main focus Offered but not primary focus Main focus, partner manufactured Outsourced / closed

27 26 Simple & evolving products Best in class wholesale distribution Cost efficiency & Focus on persistency Scale benefits Rigorous capital focus quality programs Wholesale distribution capability is important for the success of manufacturing Focus on internal channels delivers superior value: Easy to focus on profitable activity Superior access Superior retention Exploit third party distribution where opportunities exist

28 Simple & evolving products Best in class wholesale distribution Scale benefits Cost efficiency & quality programs Rigorous capital focus Focus on persistency Strong bias to AMP managed / aligned distribution maximises persistency, significantly improving returns to shareholders NAB/MLC AMP Tower ING/ANZ Annual Premium Life Office Products Discontinuance Rates (1) (Year ending June 2003) 8.4% 9.7% 10.2% 13.5% Risk VNB as % of 1H03 Risk VNB (2) Sensitivity of Decrease in Risk Lapse Rates on Value of New Business (Illustrative example) Westpac 15.3% 40 AXA 19.1% 0 CBA/CFS 20.8% 11% 10% 9% 8% Lapse Rates (1) Source: Plan for Life, NAB/MLC, ING/ANZ, CBA/CFS have been combined (2) VNB=Value of New Business 27

29 28 Simple & evolving products Best in class wholesale distribution Focus on persistency Scale benefits Cost efficiency & quality programs Rigorous capital focus Life event connectivity - product linking and packaging Corporate Super Job Change Personal Super Super Retirement Allocated Pension Death benefit Life event Beneficiary s allocated pension Home Loan / Super Wealth event Risk Products

30 Simple & evolving products Best in class wholesale distribution Focus on persistency Cost efficiency & quality programs Rigorous capital focus Scale benefits Total Market Market Market Share Size Position $m (rank) % Funds Under Management: Superannuation including rollovers (a) 130, % Retirement Income (a) 45, % Unit trusts (excluding Cash Management Trusts) (a) 82, % Total Retail Managed Funds (a) 297, % Master funds (a) 166, % Mature products (b) 37, % Mortgages (c) 380,697 n/a 1% Deposits (c) 242,874 n/a 1% Total Annual Inflows : Individual Risk (b) 2, % Group Risk (b) % Source: (a) Plan for Life June 2003 (b) Plan for Life March 2003 (c) ABA June

31 Simple & evolving products Best in class wholesale distribution Focus on persistency Scale benefits Cost efficiency & quality programs Rigorous capital focus Efficiency and unit cost initiatives: Business model, SLAs Elimination of non-value add Customer service automation Property rationalisation Straight through processing System decommissioning Supply chain management Working capital management Homogenous business system Note: (1) 2003 Cost guidance from Explanatory Memorandum, page 101 (2) 2003 Cost to Income Ratio as at 30 June 2003 Z $730m 46% AMP Financial Services Controllable Costs (excluding Bank) $664m $611m 43% 43% <$520m (1) 40% (2) Costs Cost to Income Ratio 30

32 31 Simple & evolving products Best in class wholesale distribution Focus on persistency Scale benefits Cost efficiency & quality programs Rigorous capital focus ELIMINATE Remove activities that do not add value INNOVATE Find better ways to do what has to be done PERFORM Deliver operational excellence in execution Strategic Process re-engineering Listening to what planners/customers want Investment Solutions to e- wrap Process automation; workflow / imaging & planner information Management Operating System (MOS) Tactical Review services provided from internal support functions - Service Level Agreements (SLA) Process Automation macros Automated underwriting Business rules review Variance identification, measurement + root cause analysis Make infrastructure assets sweat Cultural Discretionary cost review (catering, mobile phones, travel) Continuous improvement driven as the way we do business Drive leadership alignment to organisational goals

33 Simple & evolving products Best in class wholesale distribution Focus on persistency Scale benefits Cost efficiency & quality programs Rigorous capital focus Administration Transactions meeting Quality Standard (%) Focused on delivering quality improvements AND cost efficiency 80 Jan Mar May Jul Sep Nov Advisor & Personal Assistant ratings Good or better Planners Personal Assistants May-00 May-01 May-02 May-03 Percentage defect free Feb02 4Mar02 Variability of Quality Outcomes New Business Completions 4May02 3Jun02 6Aug02 17Sep02 29Nov02 15Jan03 27Feb03 10Apr03 27May03 9Jul03 5Sep03 7Nov03 Quality measures recalibrated July

34 Simple & evolving products Best in class wholesale distribution Focus on persistency Scale benefits Cost efficiency & quality programs Rigorous capital focus Changes over past 18 months Reduced equity backing for most capital guaranteed products Switched from fixed interest to cash for RSA Fixed interest lengthened bond duration (1) International shares - now 70% indexed (1) Private capital reduced major asset holdings Bank securitisation and asset sale program Future opportunities Review of fund structure post Ralph tax changes Ongoing improvements in risk management disciplines & product design Capital released from mature product offset in part by growth in contemporary products Note: (1) Statutory Fund 1 33

35 34 Product Manufacturing summary AMP has strong focused manufacturing business with Significant share in core product areas Strategy focused to deliver to AMP distribution Business model leveraged to growth designed to deliver sustainable competitive advantage and ongoing growth

36 35 Agenda Sustainable competitive advantage Advice-Based Distribution strategy Product Manufacturing strategy Capacity to maintain attractive margins Craig Dunn Managing Director, AMP Financial Services Steven Helmich Director, Advice-Based Distribution Craig Meller Director, Product Manufacturing Craig Dunn Operational and capital leverage Craig Dunn

37 36 Continuing opportunities are considerable Top line growth: Planner productivity (esp. in AMP Financial Planning) Planner growth in aligned channels (Hillross, Arrive and Magnify) Planner quality advice and practice management AMP product share of planner sales through improving quality of manufacturing Contemporary products Risk, Banking, Retail and Corporate Super, Pensions Life event connectivity between products (esp. transfer from accumulation to pensions) Cost and Capital efficiency: Quality & efficiency programs to lower unit costs Leveraging scale across the value chain More efficient use of capital

38 Capacity to maintain attractive margins Products & Platforms Distribution - Dealer Groups Distribution - Planners Net margin drivers: Gross margin drivers: Unit costs Planner productivity Customer intimacy Persistency Buying power (re asset mgrs) Share of platform margin (buying power) Quality of advice Brand Claims ratio Capital efficiency Opportunity Amongst industry best 37

39 Run down of mature book not impacting growth Growth in contemporary book and strong cost management have more than offset mature book run-off Mature Book v Operating Margins $368m Operating Margins $342m Contemporary Book AUM Mature Book AUM $254m $14.6b $20.1b $27.9b $29.2b $32.0b $22.3b $22.2b $22.7b $23.1b $23.1b $122m $91m $329m $30.7b $20.2b (2) $383m $347m 1H03 $30.8b 1H03 $19.4b Operating Margins CAGR % pa Contemporary AUM (1) CAGR % pa Mature AUM (1) CAGR % pa Note: data restated (1) AUM includes policyholder liabilities, shareholder and policyholder capital (2) Fall in AUM in 2002 due to investment markets; product changes (closure of secure growth capital guaranteed products); release of shareholder capital of $0.5b 38

40 39 Agenda Sustainable competitive advantage Advice-Based Distribution strategy Product Manufacturing strategy Capacity to maintain attractive margins Craig Dunn Managing Director, AMP Financial Services Steven Helmich Director, Advice-Based Distribution Craig Meller Director, Product Manufacturing Craig Dunn Operational and capital leverage Craig Dunn

41 History of profit & capital releases from AFS Underlying AFS Operating Profit (1) $m AFS Shareholder Underlying Transfer Capital Reduction (2) from AFS (3) $m $m (381) ,252 TOTAL 1, ,234 Note: (1) Underlying Operating Profit (page 83 of Explanatory Memorandum) - uses normalised investment income on capital rather than actual investment income on capital. It includes Bank earnings and contribution to the service company. (2) Shareholder Capital Reduction excludes intangibles (page 83 of Explanatory Memorandum). (3) Figures are based on page 83 of the Explanatory Memorandum, and illustrate the underlying capacity of the business to release capital from AMP Financial Services, excluding the impact of fluctuations in investment markets. 40

42 AMP s operational leverage has never been better AMP Financial Services Controllable Costs (excluding Bank) $730m $664m $611m 46% <$520m (1) 43% 43% Z 40% (2) Costs Cost to Income Ratio Note: (1) 2003 Cost guidance from Explanatory Memorandum, page 101 (2) 2003 Cost to Income Ratio as at 30 June

43 Industry cycle has bottomed and is recovering Net Flows $m 9,000 8,000 All Ordinaries Share Index and Net Cash flows into the Wealth Management Industry All Ords Index 4,000 3,800 7,000 6,000 5,000 4,000 3,000 2,000 Net Flows All Ords 3,600 3,400 3,200 3,000 2,800 2,600 2,400 1,000 2,200-2, Sep-03 Jun-03 Mar-03 Dec-02 Sep-02 Jun-02 Mar-02 Dec-01 Sep-01 Jun-01 Mar-01 Dec-00 Sep-00 Jun-00 Mar-00 Dec-99 Sep-99 Jun-99 Mar-99 Dec-98 Sep-98 Jun-98 Mar-98 Dec-97 Sep-97 Jun-97 Mar-97 Dec-96 Sep-96 Jun-96 Mar-96 Dec-95 Source: Plan for Life (Preliminary Sept 03 Results)

44 AMP s cash flows have been resilient in a difficult climate 164 Quarterly Net Cash Flows ($m) of Five Largest Participants by AUM (Preliminary Results) March Jun-03 Sep Commonwealth Bank of Australia National Australia Bank AMP ING Australia Westpac Source: Plan for Life (Preliminary Sept 03 Results) 43

45 Value of New Business and Profit Margins Value of New Business ($m VNB) and Profit Margin (VNB / New Business) 2.5% 2.7% 2.0% 1.9% 2.1% 2.2% Tillinghast H03 Value of New Business VNB/New Business Tillinghast Market Consistent Note: 3% Discount Margin. Tillinghast Market Consistent Embedded Value excludes allowance for Agency costs and earlier years are restated for consistency with 1H03 basis for material items. 44

46 Embedded Value and Value of New Business FY02 (1) 1H03 FY03 (2) $m $m $m Embedded Value 3% discount margin 5,995 6,050 (3) 6,480 (4) Value of New Business 3% discount margin Note: (1) Restated for revised expense reallocation (2) Estimate for FY03 based on October 2003 YTD experience and investment markets at 31 October, 2003 (3) Post transfer of $294m in 1H03 (4) Pre-transfers of dividends in 2H03 but post transfer of $294m in 1H03 (5) All values apply the traditional approach to embedded values 45

47 Operating Margins Operating Margins $m to H LE Note: data excludes discontinued Bank businesses, Australian Administration Services and AMP Consulting 46

48 AMP Financial Services a powerhouse business Achievements in 2003 Held distribution franchise together Largely maintained market share Significantly lowered unit costs Improved capital strength Restructured business lines Outlook in 2004 With improving markets, we expect strong new business flows Lower unit costs Stable persistency along with sustainable advantage, attractive margins and significant operational gearing 47