AMP LIMITED — Annual Report 2010

Feb 16, 2011

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ASX Announcement
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17 February 2011

Manager Manager Company Announcements Office Market Information Services Section Australian Securities Exchange New Zealand Stock Exchange Level 4, 20 Bridge Street Level 2, NZX Centre, 11 Cable Street Sydney NSW 2000 Wellington New Zealand

Announcement No: 05/11

AMP Limited (ASX/NZX: AMP)

(Also for cross release to AMP Group Finance Services Limited (ASX: AQNHA; NZX: AQN010))

Part 1: AMP delivers fully ear A$760 million underlying profit AMP reports Q4 2010 cashflows and AUM

Part 2: Investor Presentation

Part 3: Investor Report

Part 4: Appendix 4E

AMP Limited (AMP) ASX Announcement

AMP Limited Level 24, 33 Alfred Street Sydney NSW 2000 Australia ABN 49 079 354 519

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Media release
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AMP Limited

17 February 2011

33 Alfred Street Sydney NSW 2000 Australia

Public Affairs Tel: 02 9257 6127 Email: media@amp.com.au Website: amp.com.au/media AMP media

AMP delivers full year A$760 million underlying profit

AMP Limited has reported an underlying profit of A$760 million for the full year to December 2010, 2 per cent down on 2009, representing a solid result in a subdued market.

Underlying profit is AMP’s preferred measure of profitability as it removes some of the impact of investment market volatility and is the basis on which the Board determines the dividend payment.

Net profit attributable to shareholders was A$775 million, up 5 per cent from A$739 million in 2009.

The final dividend has been set at 15 cents per share, 60 per cent franked with the unfranked amount being declared conduit foreign income. The dividend represents a payout ratio of 83 per cent of underlying profit.

AMP has continued to improve its strong capital position over the year. As at 31 December 2010, its regulatory capital resources were A$1.5 billion above minimum regulatory requirements.

AMP’s performance against key measures was as follows:

Underlying profit: A$760 million, down 2 per cent from 2009. Growth measures: AMP Financial Services net cashflows A$789 million, down from A$1.7 billion; AMP Capital Investors external net cashflows A$2.6 billion, up from A$(1.1) billion; and the value of new risk insurance business increased A$6 million to A$108 million.

Investment performance: 63 per cent of funds under management met or exceeded benchmarks over the 12 months to 31 December 2010.

Underlying return on equity: 26.2 per cent, compared to 31.6 per cent for 2009, reflecting a prudent approach to capital management ahead of changing prudential standards.

AMP Chief Executive Officer Craig Dunn said the company’s result was delivered at the same time as driving an ambitious change program that sees the company well-placed for future growth.

“Over the course of 2010, AMP responded decisively to the changing consumer and regulatory environment. It delivered simpler, more transparent products, and transformed the AMP planner force with a shift to a fee-for-advice model.

“AMP Flexible Super, launched in May 2010, had A$1.4 billion in assets under management at year end and is one of the most attractively priced superannuation products in the market.

AMP Limited ABN 49 079 354 519

AMP delivers full year A$760 million underlying profit …/ 2

“Our continued investment in growth opportunities through the economic cycle has paid dividends, as demonstrated by the strong off-shore cashflows from our investment management business in Asia.

AMP’s cost to income ratio rose to 43.3 per cent, up 1.6 percentage points. While costs increased 6 per cent from 2009, AMP has maintained a disciplined approach to cost control for the business’ operations, choosing to increase discretionary investment in key growth initiatives. Controllable costs as a proportion of assets under management fell by one basis point to 78 basis points, and over the past four years costs have grown at an average compound rate of 2 per cent.

Mr Dunn said the proposed AXA/AMP merger would accelerate the company’s growth and create the largest independent, non-bank wealth management company in Australia and New Zealand.

“The planning for the proposed merger with AXA APH is on track and we’re looking forward to the opportunity to create a new competitive force in financial services, with quality financial advice at its heart.

“We’re confident the merged company will have the scale and capability, along with diversity of brands and distribution, to better meet the needs of more Australians and New Zealanders than ever before,” Mr Dunn said.

The AXA/AMP merger is subject to approval by regulators and AXA APH’s minority shareholders.

Business unit performance

AMP Financial Services (AFS)

AMP Financial Services’ operating earnings fell 1 per cent to A$639 million following a strong performance in Contemporary Wealth Management offset by negative claims experience in the Contemporary Wealth Protection business.

Controllable costs increased 3 per cent to A$545 million in 2010, compared with A$529 million in 2009, resulting in a slight rise in the cost to income ratio from 34.0 per cent in 2009 to 34.7 per cent for 2010.

This mainly reflects an increase in expenditure on growth initiatives designed to expand AMP’s distribution capability and enhance planner productivity, while introducing simpler, more transparent, value for money products.

AMP continued to achieve robust planner growth with planner numbers in Australia up 2.5 per cent over the year, giving AMP 1,812 planners across its Australian planner groups. Planner practice numbers were up by 64 to 880.

The AMP Horizons Academy continues to play an important role in attracting planners to AMP and on graduating from the Horizons’ program, planners are 50 per cent more productive than planners who join AMP from other channels. Eighty one planners graduated from the Academy in 2010, and this year places will be made available for up to 140 new recruits.

AMP’s planner productivity has been boosted by an increased investment in a range of initiatives designed to improve both planner productivity and the customer experience.

The paraplanning service, which allows planners to spend more time with customers, is now used regularly by over a third of AMP practices with volumes increasing 68 per cent in 2010.

AMP delivers full year A$760 million underlying profit …/ 3

The introduction of scoped advice has enhanced our advice capability, making it easier for planners to offer quality bite-size advice that targets the specific needs of those customers who may not require full, comprehensive advice.

In Contemporary Wealth Management , which includes the financial planning, superannuation, pensions and banking businesses, operating earnings increased 9 per cent to A$303 million from A$278 million in 2009.

The average AUM of this business rose 14 per cent in 2010 to A$51.9 billion from A$45.7 billion in 2009 reflecting some improvement in investment markets over the course of 2010 and positive net cashflows, of A$1.4 billion.

Controllable costs were A$344 million, up 1 per cent, from A$340 million in 2009, with the cost to income ratio falling to 42.9 per cent from 44.9 per cent.

The return on equity for this business unit was 40.9 per cent, down from 42.9 per cent in 2009, as a result of an increase in capital allocated to support new business growth.

Net cashflows remained subdued compared with previous years, consistent with an industry-wide reduction in discretionary superannuation contributions. AMP’s market share in superannuation grew marginally over the 12 months ending 30 September 2010, to 17.2 per cent.

The launch of AMP Flexible Super has been very well-received by planners and consumers with the product being awarded Canstar Cannex’s and the Heron Partnership’s maximum five star rating in 2010. AMP Flexible Super remains one of the lowest priced superannuation investment options in the industry, and now has assets under management of A$1.4 billion.

AMP Bank contributed operating earnings of A$42 million, up 20 per cent from A$35 million in 2009. Deposits grew strongly at 23 per cent, compared with 2009 levels, and home loans grew 3 per cent. There was strong consumer demand for AMP Bank home loans, with stronger mortgage growth achieved in the last quarter of 2010. The ability to meet this demand was constrained by ongoing limited access to securitisation markets.

In Contemporary Wealth Protection operating earnings were A$138 million, down 16 per cent from A$164 million in 2009, reflecting higher than expected income protection and group risk insurance policy claims.

The strong sales momentum seen in the first half of the year continued with an overall lift in individual risk insurance annualised premium income of 9 per cent for the year. This included a 30 per cent increase in risk insurance sales through independent financial advisers and alliances. Profit margins were up 6 per cent on 2009.

This strong result follows the establishment in late 2009 of a team dedicated to broadening distribution through IFAs and alliance relationships, and a strong focus on making it easier for planners and advisers to write AMP risk insurance business.

Controllable costs increased by A$18 million to A$93 million, largely reflecting an increased investment in product innovation, systems enhancements and new sales initiatives, particularly in the IFA market. As a result, the cost to income ratio rose to 27.7 per cent.

AMP delivers full year A$760 million underlying profit …/ 4

The return on equity for this business unit decreased to 23.2 per cent from 30.1 per cent as a result of lower operating earnings and higher capital to support new business growth.

The Mature business contributed operating earnings of A$140 million, down 7 per cent from A$151 million in 2009 reflecting the run-off nature of this business and lower experience profits.

The Mature business remains one of Australia’s largest closed life insurance businesses. As at 31 December 2010, closing AUM was A$17.3 billion, decreasing in-line with expectations from closing AUM of A$18.1 billion as at 31 December 2009.

Managing customer persistency, controllable costs and capital are the priorities for AMP’s Mature business. In 2010, persistency remained steady at 89.3 per cent while costs fell A$2 million to A$58 million, as expected for a business in run-off.

The return on equity for the Mature business fell to 36.7 per cent from 43.4 per cent in 2009, as a result of a greater capital allocation to capital guaranteed products.

The New Zealand business contributed operating earnings of A$58 million, up 7 per cent on A$54 million in 2009. This increase largely reflects tight cost control and improved experience.

Ongoing disciplined cost management saw controllable costs fall 7 per cent, or 5 per cent in New Zealand dollar terms.

Profit margins fell by A$7 million largely as a result of an increase in risk lapse rate assumptions and a A$3 million impact on the profit share arrangement between AMP and its general insurance product provider, following the Christchurch earthquake in September 2010.

The return on equity of this business unit was 22.2 per cent, up from 20.0 per cent for the year as a result of higher operating earnings.

AMP Capital Investors

AMP Capital Investors contributed operating earnings of A$87 million, down 4 per cent from A$91 million in 2009. Fee income increased by 5 per cent to A$398 million, which was offset by higher controllable costs as the business continued to invest in growth initiatives through the cycle.

Total AUM increased 3 per cent to A$98 billion from A$95 billion in 2009 as a result of some improvement in investment markets along with positive net cashflow.

External net cashflows were A$2.6 billion for the year with over A$1.7 billion originating from Japan, where AMP Capital has grown a successful distribution business focussed primarily on fixed income and global listed property investment products.

Asian based clients now account for A$8 billion AUM demonstrating the growing success of AMP’s strategy of growing in Asia through its funds management business.

Net cash inflows from domestic institutions also grew strongly in 2010, reflecting improved flows into property, infrastructure and fixed income.

AMP delivers full year A$760 million underlying profit …/ 5

Controllable costs increased 10 per cent to A$281 million from A$255 million in 2009. This increase in costs largely reflects the rollout of AMP Capital’s Asian strategy and the investment in AMP Capital’s operating platform, which is necessary to enhance efficiency and deliver the benefits of scale as the business delivers on its off shore growth strategy. The new operating platform will allow increased volumes of multi-currency transactions and enhance the risk profile of the business.

Growth in employment costs was limited to 2 per cent in 2010.

Sixty three per cent of funds met or exceeded their benchmark performance in 2010 and improving investment performance remains a key focus for this business.

The return on equity for AMP Capital Investors for 2010 was 45.8 per cent, down from 60.8 per cent in 2009, due to higher capital and lower operating earnings.

AMP Capital’s priorities are to continue to strengthen its core investment capabilities, expand in targeted off shore markets and participate selectively in M&A to accelerate the delivery of its strategy.

Capital management

AMP’s dividend policy remains to target a dividend payout ratio of between 75 to 85 per cent of underlying profits. The final dividend of 15 cents will be 60 per cent franked.

The future franking rate will be determined by the franking capacity of the company. In the event the proposed merger with AXA APH proceeds, the franking capacity of the merged company is expected to be less than AMP’s current franking level in the near term given AXA APH’s current franking position.

For this dividend shareholders will be invited to participate in a dividend reinvestment plan which will be offered at a 1.5 per cent discount with new shares to be issued.

AMP takes a dynamic and prudent approach to capital management and has a continued bias towards holding more capital rather than less until the outcome of a number of regulatory capital reviews is known and the proposed merger with AXA APH is effected.

At 31 December 2010, AMP’s regulatory capital resources were A$2.6 billion and were A$1.5 billion above minimum regulatory requirements (MRR), up from $1.2 billion above MRR at the end of December 2009.

Group gearing remains low having reduced further to 10 per cent on an S&P basis, while underlying interest cover remained strong at 11.6 times.

Outlook

Mr Dunn said that while the global economic recovery is continuing, high levels of public debt in some western economies and monetary tightening in emerging markets are likely to result in ongoing bouts of uncertainty and market volatility.

AMP delivers full year A$760 million underlying profit …/ 6

While the recent spate of natural disasters is likely to be a drag on Australia’s economic growth in the short term, AMP continues to be very positive about the medium and long term outlook for Australia.

“Australia remains one of the largest and fastest growing wealth management markets in the world and over the medium term the dynamics underpinning wealth management in Australia and investment management in Asia will remain highly attractive,” Mr Dunn said.

Mr Dunn said that AMP has worked hard to position itself ahead of the regulatory curve in product, distribution and capital management, while investing in targeted growth initiatives including the expansion of its Australian distribution footprint and the rollout of its investment management business into Asia.

These growth initiatives, along with the proposed merger with AXA’s Australian and New Zealand business, place AMP in a very strong competitive position for the future.

Note:

Shareholders are invited to join a live webcast of the investment analyst briefing at 12.30pm today by visiting www.amp.com.au/shareholdercentre/webcasts.

A replay of the presentation will also be available shortly after the briefing has concluded.

Attached below are AMP Limited’s Q4 cashflows and AUM for the quarter ending 31 December 2010.

Media enquiries Investor enquiries Jane Anderson Howard Marks +61 2 9257 9870 +61 2 9257 7109 +61 402 967 791 +61 402 438 019 Amanda Wallace Stuart Kingham +61 2 9257 6168 +61 2 9257 5207 +61 422 379 964 +61 401 139 067

AMP delivers full year A$760 million underlying profit …/ 7

AMP Financial Services Q4 10 Cashflows

	Cash inflows	Cash inflows			Cash outflows			Net cashflows
Cashflows by product (A$m)	Q4 10	Q4 09	% Q4/Q4	Q4 10	Q4 09	% Q4/Q4	Q4 10	Q4 09	% Q4/Q4
Retail superannuation1	1,171	984	19.0	1,138	895	(27.2)	33	89	(62.9)
Allocatedpensions2	556	407	36.6	450	316	(42.4)	106	91	16.5
Total retail superannuation and pensions	1,727	1,391	24.2	1,588	1,211	(31.1)	139	180	(22.8)
Retail investment	99	114	(13.2)	101	71	(42.3)	(2)	43	n/a
Externalplatforms3	366	602	(39.2)	401	363	(10.5)	(35)	239	n/a
Total retail	2,192	2,107	4.0	2,090	1,645	(27.1)	102	462	(77.9)
Corporate superannuation and pensions	808	740	9.2	632	541	(16.8)	176	199	(11.5)
Corporate superannuation mandate wins4	78	182	(57.1)	-	-	n/a	78	182	(57.1)
Total Australian contemporary wealth
management	3,078	3,029	1.6	2,722	2,186	(24.5)	356	843	(57.8)
Total Australian contemporary wealth
protection	193	183	5.5	81	69	(16.7)	112	114	(2.1)
Total Australian contemporary	3,271	3,212	1.8	2,803	2,255	(24.3)	468	957	(51.1)
Australian mature	123	167	(26.3)	459	482	4.8	(336)	(315)	(6.7)
Total Australia	3,394	3,379	0.4	3,262	2,737	(19.2)	132	642	(79.4)
New Zealand	143	161	(11.2)	119	110	(8.2)	24	51	(52.9)
Total AFS cashflows	3,537	3,540	(0.1)	3,381	2,847	(18.8)	156	693	(77.5)
AMP Banking~~–~~ mortgages	718	496	44.7	455	469	(2.9)	263	27	865.3
AMP Banking~~–~~ deposits							254	(135)	n/a
Cashflows by distribution channel (A$m)
AMP Financial Planning	2,104	1,826	15.2	2,025	1,609	(25.9)	79	217	(63.6)
Hillross	394	638	(38.2)	419	415	(1.0)	(25)	223	n/a
Corporate Superannuation - direct sales force	477	580	(17.8)	280	238	(17.6)	197	342	(42.4)
Centrally managed clients and other	200	157	27.4	277	242	(14.5)	(77)	(85)	9.4
3rd party distributors	219	178	23.0	261	233	(12.0)	(42)	(55)	23.6
Total Australia	3,394	3,379	0.4	3,262	2,737	(19.2)	132	642	(79.4)
New Zealand	143	161	(11.2)	119	110	(8.2)	24	51	(52.9)
Total AFS cashflows	3,537	3,540	(0.1)	3,381	2,847	(18.8)	156	693	(77.5)
Australian contemporary wealth management cash inflows (A$m)
Member contributions	246	227	8.2
Employer contributions	703	728	(3.4)
Total contributions	949	955	(0.7)
Transfers and rollovers in5	1,983	1846	7.4
Other cash inflows	146	228	(35.8)
Total	3,078	3,029	1.6

AMP Financial Services and AMPCI - Q4 10 AUM

AUM (A$b)	Q4 10	Q4 09	% Q4/Q4
Australian contemporary wealth management
Closing AUM (including capital)	54.2	51.6	5.2
Average AUM(includingcapital)	53.1	49.9	6.3
AMPCI6
Closing AUM (including capital)	98.0	95.1	3.1
Average AUM(includingcapital)	97.6	94.3	3.6

1 Retail superannuation includes the product Flexible Lifetime - Super (FLS) and AMP Flexible Super - Superannuation, a component of which is small corporate superannuation schemes.

2 Allocated pensions/annuities includes AMP Flexible Super - Retirement.

• 3 Externally manufactured products that earn platform fees (superannuation, pensions and investments).

• 4 Cashflows from the transfer of accumulated member benefits as a result of SignatureSuper mandate wins.

• 5 Transfers and rollovers in include transfer of accumulated member balances into AMP from both internal (eg retail superannuation to allocated pensions/annuities) and external products.

• 6 As previously advised, AMPCI AUM (both closing and average) has been restated. The restatement reduces closing AUM as NZ AUM which is invested in Australian products, was previously included in both the NZ and Australia numbers, which are aggregated to form total AMPCI AUM.