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AMP LIMITED — Interim / Quarterly Report 2017
Aug 9, 2017
64379_rns_2017-08-09_79450b6b-a3af-4b43-bb95-c6540c92d444.pdf
Interim / Quarterly Report
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10 August 2017
Manager ASX Market Announcements Australian Securities Exchange Level 4, 20 Bridge Street Sydney NSW 2000
Client and Market Services Team NZX Limited Level 1, NZX Centre, 11 Cable Street PO Box 2959 Wellington, New Zealand
Announcement No: 26/2017 AMP Limited (ASX/NZX: AMP)
Half Year Financial Results
RESULTS FOR ANNOUNCEMENT TO THE MARKET
Part One: Appendix 4D
Appendix 3A.1
Part Two: AMP reports A$445 million net profit 1H 17; announces new reinsurance agreements
Part Three: Investor Presentation
Part Four: Investor Report
Part Five: Directors‘ Report and Financial Report
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Part Six: Appendix 3D
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Public Affairs T 02 9257 6127 E [email protected] W AMP.com.au/media
AMP Limited 33 Alfred Street, Sydney NSW 2000 Australia ABN 49 079 354 519
AMP_AU
AMP Limited ABN 49 079 354 519
Directors’ report and Financial report for the half year ended 30 June 2017
AMP Limited
DIRECTORS’ REPORT For the half year ended 30 June 2017
Your directors present their report on the consolidated entity consisting of AMP Limited and the entities it controlled at the end of or during the half year ended 30 June 2017.
Directors’ details
The directors of AMP Limited during the half year ended 30 June 2017 and up to the date of this report are shown below. Directors were in office for this entire period except where stated otherwise:
Non-executive:
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Catherine Brenner (Chairman) – BEc, LLB, MBA
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Patricia Akopiantz – BA, MBA
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Andrew Harmos (appointed 1 June 2017) – BCom, LLB (Hons)
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Holly Kramer – BA, MBA
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Trevor Matthews – MA
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Geoff Roberts – BCom, MBA
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Professor Peter Shergold AC (retired 11 May 2017) – BA (Hons), MA, PhD
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Peter Varghese AO – BA (Hons)
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Vanessa Wallace – BCom, MBA
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Mike Wilkins AO – BCom, MBA
Executive:
- Craig Meller (Chief Executive Officer and Managing Director) – BSc (Hons)
Operating and financial review
Principal activities
AMP is Australia and New Zealand’s leading independent wealth management company, with an expanding international investment management business and a growing retail banking business in Australia.
We provide retail customers in Australia and New Zealand with financial advice and superannuation, retirement income and investment products. We also provide superannuation services for businesses, administration, banking and investment services for self-managed superannuation funds (SMSF), income protection, disability and life insurance, and selected banking products. These products and services are delivered directly from AMP and through a network of over 3,300 aligned and employed financial advisers in Australia and New Zealand and extensive relationships with independent financial advisers.
Through AMP Capital, we manage investments across major asset classes including equities, fixed income, infrastructure, real estate, diversified funds, multi-manager and multi-asset funds, for domestic and international customers. AMP Capital also provides commercial, industrial and retail real estate management services.
We have over 5,500 employees, around 770,000 shareholders and manage and administer $247 billion in assets.
AMP Capital has a strategic alliance with leading Japanese bank, Mitsubishi UFJ Trust and Banking Corporation (MUFG: Trust Bank) through which MUFG: Trust Bank holds a 15% minority interest in AMP Capital Holdings Limited. AMP Capital holds a 15% stake in China Life AMP Asset Management Company Limited, a funds management company which offers retail and institutional investors in China access to leading investment solutions. AMP also owns a 19.99% stake in China Life Pension Company.
AMP’s business consists of Australian wealth management, AMP Capital, AMP Bank, Australian wealth protection, New Zealand financial services and Australian mature.
The Australian wealth management business provides customers with superannuation, retirement income, investment, SMSF software and administration and financial advice services (through aligned and owned advice businesses).
i
AMP Limited
DIRECTORS’ REPORT For the half year ended 30 June 2017
AMP Capital is a diversified investment manager, managing investments across major asset classes including equities, fixed interest, infrastructure, real estate, diversified funds, multi-manager and multi-asset funds.
AMP Bank is an Australian retail bank offering residential mortgages, deposits, transaction banking, and SMSF products for around 100,000 customers. It also has a small portfolio of practice finance loans supporting AMP’s adviser network. AMP Bank distributes through brokers, AMP advisers, and direct to retail customers via phone and internet banking.
Australian wealth protection comprises term life, disability and income protection insurance products sold on an individual and group basis. Insurance products can be bundled with a superannuation product or held independently.
New Zealand financial services provides tailored financial products and solutions to New Zealanders both directly and through a network of financial advisers. New Zealand financial services has a leading market position in both wealth protection and wealth management, in addition to being the market leader in advice and in providing support to advisers.
Australian mature is the largest closed life insurance business in Australia. Australian mature assets under management comprises capital guaranteed products (77%) and market linked products (23%). Australian mature products include whole of life, endowment, investment linked, investment account, Retirement Savings Account, Eligible Rollover Fund, annuities, insurance bonds, personal superannuation and guaranteed savings accounts.
Review of operations and results
AMP's profit attributable to shareholders of AMP Limited for the half year ended 30 June 2017 was $445 million (1H 16: $523 million).
AMP’s underlying profit for the half year ended 30 June 2017 was $533 million (1H 16: $513 million) .
Underlying profit is AMP’s key measure of business profitability, as it normalises investment market volatility stemming from shareholder assets invested in investment markets and aims to reflect the trends in the underlying business performance of the AMP group. Underlying profit excludes the impact of market volatility, accounting mismatches and other items.
Basic earnings per share for the half year ended 30 June 2017 on a statutory basis were 15.3 cents per share (1H 16: 17.9 cents per share). On an underlying basis, earnings were 18.1 cents per share (1H 16: 17.3 cents per share).
AMP’s key performance measures were as follows:
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1H 17 underlying profit of $533m increased 4% from $513m in 1H 16, driven by strong operating earnings growth from AMP Capital (+11%), AMP Bank (+10%) and New Zealand financial services (+5%).
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Australian wealth protection earnings increased by 11% on 1H 16 reflective of the steps taken to stabilise the business in 2H 16.
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Australian wealth management earnings declined 1% from 1H 16 largely due to margin compression from MySuper transitions and a reset of the investment management agreement with AMP Capital.
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Underlying investment income decreased $11m to $50m from 1H 16 due to lower shareholder capital resources and a 50 bp reduction in the assumed underlying after-tax rate of return.
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Australian wealth management 1H 17 net cashflows were $1,023m, up 76% from 1H 16. AMP’s retail and corporate super platform net cashflows were positively impacted by recent changes to superannuation contribution limits and large mandate wins.
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AMP Capital external net cash inflows were $2,439m, up from net outflows of $153m in 1H 16. Inflows were driven by strong flows into fixed income and real asset (infrastructure and real estate) capabilities.
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Underlying return on equity rose 2.6 percentage points to 14.5% in 1H 17 from 1H 16, largely reflecting the impact of capital management programs.
ii
AMP Limited
DIRECTORS’ REPORT
For the half year ended 30 June 2017
Capital management
Equity and reserves of the AMP group attributable to shareholders of AMP Limited decreased to $7.2 billion at 30 June 2017 from $7.5 billion at 31 December 2016, mainly driven by the planned on market share buy back and investment in growth businesses.
AMP remains well capitalised, with $1.9 billion in shareholder regulatory capital resources above minimum regulatory requirements at 30 June 2017 ($2.2 billion at 31 December 2016).
Events occurring after reporting date
As at the date of this report, the directors are not aware of any matter or circumstance that has arisen since the reporting date that has significantly affected or may significantly affect the entity’s operations in future years; the results of those operations in future years; or the entity’s state of affairs in future years which is not already reflected in this report, other than the following:
Dividends
AMP’s interim 2017 dividend is 14.5 cents per share, franked to 90%. This represents an interim 2017 dividend payout ratio of 79% of underlying profit. AMP will continue to offer the dividend reinvestment plan (DRP) to eligible shareholders. For the 2017 interim dividend, no discount will apply to the DRP allocation price. AMP intends to neutralise the impact of the DRP by acquiring shares on- market to satisfy any entitlements under the DRP.
Reinsurance program
AMP’s focus has been to reposition the wealth protection business in Australia as significantly less capital intensive. In August 2017, AMP Life executed a comprehensive program of reinsurance arrangements effective 1 November 2017 that is expected to release approximately $500m of capital (subject to regulatory approval) and will result in the AMP Life retail portfolio being effectively 65% reinsured. This substantively completes the reinsurance program to release capital from the Australian WP business.
The new reinsurance arrangements apply to claims incurred from 1 November 2017. AMP will retain its current level of exposure to any claims incurred prior to that date, so the full benefit of the reduction in profit volatility will arise over time as all earlier claims are reported and settled.
Rounding
In accordance with the Australian Securities and Investments Commission Corporations Instrument 2016/191, amounts in this directors’ report and the accompanying financial report have been rounded to the nearest million Australian dollars, unless stated otherwise.
iii
AMP Limited DIRECTORS’ REPORT For the half year ended 30 June 2017
Auditor’s independence declaration to the directors of AMP Limited
The directors have obtained an independence declaration from the company’s auditor, Ernst & Young, for the half year ended 30 June 2017.
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iv
AMP Limited DIRECTORS’ REPORT For the half year ended 30 June 2017
Signed in accordance with a resolution of the directors.
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Catherine Brenner Chairman
Craig Meller Chief Executive Officer and Managing Director
Sydney, 10 August 2017
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AMP LIMITED ABN 49 079 354 519 HALF YEAR FINANCIAL REPORT 30 JUNE 2017
Contents
Financial statements
Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows
Notes to the financial statements
Section 1: About this report
- 1.1 Basis of preparation of the half year financial report 1.2 Understanding the AMP financial report
Section 2: Results for the half year
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2.1 Segment performance
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2.2 Taxes 2.3 Dividends
Section 3: Investments and intangibles
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3.1 Investments in financial instruments
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3.2 Intangibles
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3.3 Fair value information
Section 4: Capital structure
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4.1 Contributed equity
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4.2 Interest-bearing liabilities
Section 5: Other disclosures
- 5.1 Contingent liabilities 5.2 New accounting standards 5.3 Events occurring after reporting date
Directors’ declaration
Independent auditor’s report
AMP Limited, a company limited by shares, is incorporated and domiciled in Australia.
Registered office: 33 Alfred Street Sydney NSW 2000 Australia
1
AMP Limited financial report Consolidated Income Statement
for the half year ended 30 June 2017
| Note | 30 Jun | 30 Jun | |
|---|---|---|---|
| 2017 | 2016 | ||
| $m | $m | ||
| Income and expenses of shareholders, policyholders, external unitholders and | |||
| non-controlling interests1 | |||
| Life insurance contract related revenue | 1,212 | 1,148 | |
| Life insurance claims recovered from reinsurers | 135 | 77 | |
| Fee revenue | 1,577 | 1,506 | |
| Other revenue | 40 | 59 | |
| Interest income, dividends and distributions and net gains on financial assets and liabilities | |||
| at fair value through profit or loss | 4,247 | 2,917 | |
| Interest income on assets not at fair value through profit or loss | 388 | 375 | |
| Share of profit of associates accounted for using the equity method | 11 | 14 | |
| Life insurance contract claims expense | (1,076) | (1,009) | |
| Life insurance premiums ceded to reinsurers | (282) | (92) | |
| Fees and commission expenses | (841) | (825) | |
| Staff and related expenses | (530) | (524) | |
| Other operating expenses | (496) | (518) | |
| Finance costs | (285) | (337) | |
| Movement in external unitholder liabilities | (438) | (313) | |
| Change in policyholder liabilities | |||
| - life insurance contracts | (166) | (510) | |
| - investment contracts | (2,762) | (668) | |
| Income tax expense | 2.2 | (274) | (250) |
| Profit for theperiod | 460 | 1,050 | |
| Profit attributable to shareholders of AMP Limited | 445 | 523 | |
| Profit attributable to non-controlling interests | 15 | 527 | |
| Profit for the period | 460 | 1,050 | |
| Earnings per share | cents | cents | |
| Basic | 15.3 | 17.9 | |
| Diluted | 15.2 | 17.8 | |
| 1 Income and expenses include amounts attributable to shareholders' interests, policyholders' | interests in AMP Life's statutory funds | ||
| and controlled entities of those statutory funds, external unitholders' interests and non-controlling interests. |
2
AMP Limited financial report
Consolidated Statement of Comprehensive Income for the half year ended 30 June 2017
| 30 Jun | 30 Jun | |
|---|---|---|
| 2017 | 2016 | |
| $m | $m | |
| Profit for theperiod | 460 | 1,050 |
| Other comprehensive income | ||
| Items that may be reclassified subsequently to profit or loss | ||
| Available-for-sale financial assets | ||
| - losses in fair value of available-for-sale financial assets | (1) | - |
| - amounts transferred toprofit for theperiod | (2) | - |
| (3) | - | |
| Cash flow hedges | ||
| - losses in fair value of cash flow hedges | - | (10) |
| - income tax credit | - | 3 |
| - losses recognised in previous years transferred to profit for the period | 6 | 9 |
| - income tax expense | (2) | (3) |
| 4 | (1) | |
| Translation of foreign operations and revaluation of hedge of net investments | ||
| - exchange losses on translation of foreign operations and revaluation of | ||
| hedge of net investments | (14) | (20) |
| (14) | (20) | |
| Items that will not be reclassified subsequently to profit or loss | ||
| Defined benefit plans | ||
| - actuarial gains (losses) | 18 | (78) |
| - income tax(expense)credit | (5) | 23 |
| 13 | (55) | |
| Ow ner-occupied property revaluation | ||
| -gains in valuation of ow ner-occupiedproperty | - | 1 |
| - | 1 | |
| Other comprehensive loss for theperiod | - | (75) |
| Total comprehensive income for the period | 460 | 975 |
| Total comprehensive income attributable to shareholders of AMP Limited | 445 | 483 |
| Total comprehensive income attributable to non-controlling interests | 15 | 492 |
| Total comprehensive income for the period | 460 | 975 |
3
AMP Limited financial report Consolidated Statement of Financial Position as at 30 June 2017
| Note | 30 Jun | 31 Dec | |
|---|---|---|---|
| 2017 | 2016 | ||
| $m | $m | ||
| Assets | |||
| Cash and cash equivalents | 3,983 | 3,476 | |
| Receivables | 2,970 | 1,975 | |
| Current tax assets | 9 | 24 | |
| Planner registers held for sale and prepayments | 89 | 123 | |
| Investments in financial assets | 3.1 | 131,355 | 129,419 |
| Investment properties | 130 | 127 | |
| Investments in associates accounted for using the equity method | 514 | 449 | |
| Property, plant and equipment | 64 | 66 | |
| Deferred tax assets | 2.2 | 802 | 656 |
| Reinsurance asset - ceded life insurance contracts | 608 | 546 | |
| Intangibles | 3.2 | 3,186 | 3,199 |
| Total assets of shareholders of AMP Limited, policyholders, external unitholders | |||
| and non-controlling interests | 143,710 | 140,060 | |
| Liabilities | |||
| Payables | 2,504 | 1,952 | |
| Current tax liabilities | 615 | 55 | |
| Provisions | 182 | 205 | |
| Employee benefits | 252 | 271 | |
| Other financial liabilities | 3.1 | 714 | 1,242 |
| Interest-bearing liabilities | 4.2 | 19,402 | 17,218 |
| Deferred tax liabilities | 2.2 | 1,581 | 1,946 |
| External unitholder liabilities | 13,435 | 13,252 | |
| Life insurance contract liabilities | 24,090 | 24,225 | |
| Investment contract liabilities | 73,102 | 71,579 | |
| Reinsurance liabilitiy - ceded life insurance contracts | 523 | 530 | |
| Defined benefitplan liabilities | 22 | 44 | |
| Total liabilities of shareholders of AMP Limited, policyholders, external unitholders | |||
| and non-controlling interests | 136,422 | 132,519 | |
| Net assets of shareholders of AMP Limited and non-controlling interests | 7,288 | 7,541 | |
| Equity | |||
| Contributed equity | 4.1 | 9,341 | 9,619 |
| Reserves | (1,994) | (1,972) | |
| Retained earnings | (142) | (185) | |
| Total equity of shareholders of AMP Limited | 7,205 | 7,462 | |
| Non-controllinginterests | 83 | 79 | |
| Total equity of shareholders of AMP Limited and non-controlling interests | 7,288 | 7,541 |
4
AMP Limited financial report Consolidated Statement of Changes in Equity
for the half year ended 30 June 2017
| Foreign currency Owner- Share- translation and occupied based Capital Cash flow hedge of net property T o tal N o n- C o ntributed Demerger payment profits hedge investments revaluation T o tal R etained shareho lder co ntro lling T o tal equity reserve1 reserve2 reserve3 reserve reserves reserve reserves earnings equity interest equity $ m $m $m $m $m $m $m $m $ m $ m $ m $ m $ m Equity attributable to shareho lders o f A M P Limited Available-for- sale financial assets reserve |
|
|---|---|
| 30 June 2017 Balance at 1 January 2017 Profit Other comprehensive income |
9 ,619 (2,566) 93 329 8 16 148 - (1,972) (185) 7,462 79 7,541 - - - - - - - - - 445 445 15 4 60 - - - - (3) 4 (14) - (13) 13 - - - |
| Total comprehensive income Share- based payment expense Share purchases Net purchase of treasury shares Dividends paid4 Dividends paid on treasury shares4 Sales and acquisitions of non- controlling interests |
- - - - (3) 4 (14) - (13) 458 445 15 4 60 - - 10 - - - - - 10 - 10 1 11 (200) - (19) - - - - - (19) - (219) (2) (221) (78) - - - - - - - - (5) (83) - (83) - - - - - - - - - (414) (414) (8) (4 22) - - - - - - - - - 4 4 - 4 - - - - - - - - - - - (2) (2) |
| Bala nce a t 30 June 20 17 | 9,34 1 (2,566) 84 329 5 20 134 - (1,994) (142) 7,205 83 7,2 88 |
| 30 June 2016 Balance at 1 January 2016 |
9,566 (2,566) 93 329 8 12 136 122 (1,866) 819 8,519 376 8,8 95 |
| Profit Other comprehensive income |
- - - - - - - - - 523 523 527 1,0 50 - - - - - (1) 15 1 15 (55) (40) (35) (75) |
| Total comprehensive income Share- based payment expense |
- - - - - (1) 15 1 15 468 483 492 9 75 - - 17 - - - - - 17 - 17 1 18 |
| Share purchases Net sale of treasury shares Dividends paid4 Dividends paid on treasury shares4 |
- - (26) - - - - - (26) - (26) (2) (28) 24 - - - - - - - - 5 29 - 29 - - - - - - - - - (414) (414) (5 01) (915) - - - - - - - - - 5 5 - 5 |
| Sales and acquisitions of non- controlling interests |
- - - - - - - - - - - 239 2 39 |
| Bala nce a t 30 June 20 16 | 9,590 (2,566) 84 329 8 11 151 123 (1,860) 883 8,613 605 9,218 |
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1 Reserve to recognise the additional loss and subsequent transfer from shareholders' retained earnings on the demerger of AMP’s UK operations in December 2003. The loss w as the difference betw een the pro-forma loss on demerger and the market-based fair value of the UK operations.
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2 The Share-based payment reserve represents the cumulative expense recognised in relation to equity-settled share-based payments less the cost of shares purchased on market in respect of entitlements.
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3 The Capital profits reserve represents gains attributable to shareholders of AMP on the sale of minority interests in controlled entities to entities outside the AMP group.
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4 Dividends paid include dividends paid on treasury shares. Dividends paid on treasury shares are required to be excluded from the consolidated financial statements by adjusting retained earnings.
5
AMP Limited financial report Consolidated Statement of Cash Flows
for the half year ended 30 June 2017
| 30 Jun | 30 Jun | |
|---|---|---|
| 2017 | 2016 | |
| $m | $m | |
| Cash flows from operating activities1 | ||
| Cash receipts in the course of operations | 9,413 | 8,586 |
| Interest and other items of a similar nature received | 998 | 1,044 |
| Dividends and distributions received2 | 554 | 367 |
| Cash payments in the course of operations | (11,155) | (9,863) |
| Finance costs | (273) | (322) |
| Income taxpaid | (216) | (280) |
| Cash flows used in operating activities | (679) | (468) |
| Cash flows from investing activities1 | ||
| Net proceeds from sale of (payments to acquire): | ||
| - investment property | - | 147 |
| - investments in financial assets3 | (1,409) | 2,409 |
| - operating and intangible assets | - | (66) |
| Payments to acquire operating controlled entities and investments in associates accounted for | ||
| usingthe equitymethod | (68) | (28) |
| Cash flows(used in) from investing activities | (1,477) | 2,462 |
| Cash flows from financing activities | ||
| Net movement in deposits from customers | 927 | 1,112 |
| Proceeds from borrow ings - non-banking operations1 | 163 | 384 |
| Repayment of borrow ings - non-banking operations1 | - | (884) |
| Net movement in borrow ings - banking operations | 1,088 | (226) |
| On-market share buy-back | (200) | - |
| Dividendspaid4 | (410) | (409) |
| Cash flows from(used in) financing activities | 1,568 | (23) |
| Net (decrease) increase in cash and cash equivalents | (588) | 1,971 |
| Cash and cash equivalents at the beginning of the half year | 8,810 | 6,601 |
| Effect of exchange rate changes on cash and cash equivalents | (4) | 2 |
| Cash and cash equivalents at the end of the halfyear1 | 8,218 | 8,574 |
1 Cash flow s and cash and cash equivalents include amounts attributable to shareholders' interests, policyholders' interests in AMP Life's statutory funds and controlled entities of those statutory funds, external unitholders' interests and non-controlling interests. Cash equivalents for the purpose of the Consolidated Statement of Cash Flow s includes short-term bills and notes.
2 Dividends and distributions received are amounts of cash received mainly from investments held by AMP Life's statutory funds and controlled entities of those statutory funds. Dividends and distributions reinvested have been treated as non-cash items.
3 Net proceeds from sale of (payments to acquire) investments in financial assets also includes loans and advances made (net of payments) and purchases of financial assets (net of maturities) during the period by AMP Bank.
4 The Dividends paid amount is presented net of dividends on treasury shares.
6
AMP Limited financial report Notes to the financial statements for the half year ended 30 June 2017
Section 1: About this report
This section outlines the structure of the AMP group, information useful to understanding the AMP group’s financial report and the basis on which the half year financial report has been prepared.
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1.1 Basis of preparation of the half year financial report
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1.2 Understanding the AMP financial report
1.1 Basis of preparation of the half year financial report
The consolidated economic entity (the AMP group or AMP) comprises AMP Limited (the parent entity), a company limited by shares, and incorporated and domiciled in Australia, and all the entities it controlled during the period (subsidiaries).
The consolidated entity prepares a general purpose financial report. This general purpose financial report has been prepared in accordance with the Corporations Act 2001 and AASB134 Interim Financial Reporting . AMP group is a for-profit entity for the purposes of preparing financial statements.
This half year financial report does not include all notes of the type normally included within the annual financial report and therefore cannot be expected to provide as full an understanding of the financial position and financial performance of the AMP group as that given by the annual financial report. As a result, this report should be read in conjunction with the 2016 annual financial report of the AMP group and any public announcements made in the period by the AMP group in accordance with the continuous disclosure requirements of the Corporations Act 2001 and the ASX Listing Rules.
The principal accounting policies and methods of computation adopted in the preparation of the 2017 half year financial report are consistent with the accounting policies and methods of computation adopted in the preparation of the 2016 annual financial report. Comparative information has been reclassified where required for consistency with the half year’s presentation.
1.2 Understanding the AMP financial report
The consolidated financial statements of AMP Limited include the financial information of its controlled entities.
AMP business operations are carried out by a number of these controlled entities including AMP Life Limited (AMP Life) - a registered life insurance entity and its related controlled entities, AMP Bank Limited (AMP Bank) and AMP Capital investment management companies.
AMP Life’s business is conducted through statutory funds and relates to the provision of wealth management and life insurance products to investors, referred to as policyholders. The investment assets of the statutory funds represent the majority of the assets of the AMP group, a large proportion of which is held on behalf of policyholders. The corresponding liabilities to policyholders are classified as either life investment or life insurance contract liabilities. Under Australian Accounting Standards, some assets held on behalf of policyholders (and the related tax balances) are included in the financial statements at different values to those used in the calculation of the liability to policyholders in respect of the same assets. The impact of these differences flows through to shareholder profit and they are referred to as accounting mismatches in the segment disclosures in Note 2.1(b).
AMP Capital operates a large number of registered managed investment schemes and other pooled investment vehicles. AMP Life makes significant policyholder investments into these vehicles. In many cases, this results in the vehicle being controlled and therefore consolidated in its entirety into the AMP group financial statements, including the portion that represents the shareholdings of external parties, known as non-controlling interests.
As a consequence, these consolidated financial statements include not only the assets and liabilities, income and expenses and cash flows attributable to AMP Limited’s shareholders but also the assets and liabilities, income and expenses and cash flows of the statutory funds attributable to policyholders and non-controlling interests.
7
AMP Limited financial report Notes to the financial statements
for the half year ended 30 June 2017
Section 2: Results for the half year
This section provides insights into how the AMP group has performed in the current period and provides additional information about those individual line items in the financial statements that the directors consider most relevant in the context of the operations of the AMP group.
Statutory measures of performance disclosed in this report are:
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Interim dividend; and
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Profit after tax attributable to the shareholders of AMP
Underlying profit is AMP’s key measure of business performance. This performance measure is disclosed and reconciled to statutory profit in the Segment performance note.
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2.1 Segment performance
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2.2 Taxes
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2.3 Dividends
2.1 Segment performance
The AMP group identifies its operating segments based on separate financial information that is regularly reviewed by the chief executive officer and his immediate team in assessing performance and determining the allocation of resources. The operating segments are identified according to the nature of profit generated and services provided, and their performance is evaluated based on a post-tax operating earnings basis.
| Reportable segment | Segment description |
|---|---|
| Australian wealth management (WM) |
Financial advice services (through aligned and owned advice businesses), platform administration (including SMSF), unit-linked superannuation, retirement income and managed investment products business. Superannuation products include personal and employer sponsored plans. |
| AMP Capital | A diversified investment manager with a growing international presence, providing investment services for domestic and international customers. AMP Capital manages investments across major asset classes including equities, fixed interest, real estate, infrastructure and multi-manager and multi-asset funds. AMP Capital also provides commercial, industrial and retail real estate management services. AMP Capital and Mitsubishi UFJ Trust and Banking Corporation (MUFG: Trust Bank) have a strategic business and capital alliance, with MUFG: Trust Bank holding a 15% ownership interest in AMP Capital. In November 2013, AMP Capital established a funds management company in China with China Life called China Life AMP Asset Management Company Limited (CLAMP). AMP Capital is a founding shareholder, holding a 15% stake, with the balance held by China Life Asset Management Company, a subsidiary ofChinaLife. |
| Australian wealth protection (WP) |
Includes individual and group term, disability and income protection insurance products. Products can be bundled with a superannuation product or held independently of superannuation. |
| AMP Bank | Australian retail bank offering residential mortgages, deposits, transaction banking and SMSF products. It also has a portfolio of practice finance loans. AMP Bank distributes through AMP’s aligned distribution network as well as third party brokers, and direct to retail customers via phone and online. |
| New Zealand financial services (NZFS) |
Risk insurance, wealth management and mature book (traditional participating business), with growth in wealth management driven by KiwiSaver. |
| Australian mature (Mature) |
A business comprising products which are largely closed to new business and are in run-off. Products within Australian mature include whole of life, endowment, investment-linked, investment account, Retirement Savings Account, Eligible Rollover Fund, annuities, insurance bonds, personal superannuation and guaranteed savings accounts. |
Segment information is not reported for activities of the AMP group office companies as it is not the function of these companies to earn revenue and any revenues earned are only incidental to the activities of the AMP group.
8
AMP Limited financial report Notes to the financial statements for the half year ended 30 June 2017
Section 2: Results for the half year
2.1 Segment performance (continued)
(a) Segment profit
| (a) Segment profit | |||||||
|---|---|---|---|---|---|---|---|
| Total | |||||||
| AMP | AMP | operating | |||||
| WM | Capital1 | WP2 | Bank | NZFS2 | Mature2 | segments | |
| 30 June 2017 | $m | $m | $m | $m | $m | $m | $m |
| Segmentprofit after income tax | 193 | 92 | 52 | 65 | 65 | 75 | 542 |
| External customer revenue | 736 | 228 | 52 | 172 | 65 | 75 | 1,328 |
| Intersegment revenue4 | 57 | 120 | - | - | - | - | 177 |
| Segment revenue3 | 793 | 348 | 52 | 172 | 65 | 75 | 1,505 |
| 30 June 2016 | |||||||
| Segmentprofit after income tax | 195 | 83 | 47 | 59 | 62 | 69 | 515 |
| External customer revenue | 730 | 209 | 47 | 153 | 62 | 69 | 1,270 |
| Intersegment revenue4 | 59 | 114 | - | - | - | - | 173 |
| Segment revenue3 | 789 | 323 | 47 | 153 | 62 | 69 | 1,443 |
- 1 AMP Capital segment revenue is reported net of external investment manager fees. Segment profit after income tax is reported net of 15% minority interest attributable to MUFG: Trust Bank.
2 Segment revenue is reported as Segment profit after income tax for WP, NZFS and Mature. This represents gross revenue less claims, expenses, movement in insurance contract liabilities and tax.
3 Segment revenue and other segment information excludes revenue, expenses and tax relating to assets backing policyholder liabilities.
4 Intersegment revenue represents operating revenue betw een segments priced on an arm’s-length basis and is eliminated on consolidation.
9
AMP Limited financial report Notes to the financial statements for the half year ended 30 June 2017
Section 2: Results for the half year
2.1 Segment performance (continued)
(b) Reconciliations
Segment profit after income tax differs from Profit attributable to shareholders of AMP Limited due to the exclusion of the following items:
| items: | ||
|---|---|---|
| 30 Jun | 30 Jun | |
| 2017 | 2016 | |
| $m | $m | |
| Segment profit after income tax | 542 | 515 |
| Groupoffice costs | (33) | (30) |
| Total operating earnings | 509 | 485 |
| Underlying investment income1 | 50 | 61 |
| Interest expense on corporate debt | (26) | (33) |
| Underlying profit | 533 | 513 |
| Other items2 | (9) | (6) |
| Business efficiency program costs | - | (12) |
| Amortisation of AMP AAPH acquired intangible assets | (43) | (39) |
| Profit before market adjustments and accounting mismatches | 481 | 456 |
| Market adjustment - investment income1 | (23) | 56 |
| Market adjustment - annuity fair value3 | 1 | (18) |
| Market adjustment - risk products4 | (8) | 25 |
| Accountingmismatches | (6) | 4 |
| Profit attributable to shareholders of AMP Limited | 445 | 523 |
| Profit attributable to non-controlling interests | 15 | 527 |
| Profit for theperiod | 460 | 1,050 |
1 Underlying investment income consists of investment income on shareholder assets invested in income producing investment
assets normalised in order to bring greater clarity to the results by eliminating the impact of short-term market volatility on underlying performance. Underlying returns are set based on long-term expected returns for each asset class, except for a short-term return, equivalent to a one-year government bond, set annually for the implicit deferred acquisition costs component of shareholder assets. Market adjustment - investment income is the excess (shortfall) betw een the underlying investment income and the actual return on shareholder assets invested in income producing investment assets.
2 Other items largely comprise the net of one-off and non-recurring revenues and costs, including the cost of implementing significant regulatory changes.
- 3 Market adjustment - annuity fair value relates to the net impact of investment markets on AMP's annuity portfolio.
4 Market adjustment - risk products relates to the net impact of changes in market economic assumptions (bond yields and CPI) on the valuation of risk insurance liabilities.
(c) Segment assets
Asset segment information has not been disclosed because the balances are not provided to the chief executive officer or his immediate team for the purpose of evaluating segment performance, or in allocating resources to segments.
10
AMP Limited financial report Notes to the financial statements for the half year ended 30 June 2017
Section 2: Results for the half year
2.2 Taxes
This sub-section outlines the impact of income taxes on the results and financial position of AMP. In particular:
-
the impact of tax on the reported result;
-
amounts owed to/receivable from the tax authorities;
-
deferred tax balances that arise due to differences in the tax and accounting treatment of balances recorded in the financial report; and
-
discussion of the impacts of life insurance policyholder tax.
These financial statements include the disclosures relating to tax required under accounting standards. Further information on AMP’s tax matters can be found in the AMP Tax Report at www.amp.com.au.
(a) Income tax expense
The income tax expense amount reflects the impact of both income tax attributable to shareholders as well as income tax attributable to policyholders. In respect of income tax expense attributable to shareholders, the tax rate which applies is 30% in Australia and 28% in New Zealand.
Income tax attributable to policyholders is based on investment income allocated to policyholders less expenses deductible against that investment income. The impact of the tax is charged against policyholder liabilities. A number of different tax rate regimes apply to policyholders. In Australia, certain classes of policyholder life insurance income and superannuation earnings are taxed at 15%, and certain classes of income on some annuity business are tax-exempt. The rate applicable to New Zealand life insurance business is 28%.
The following table provides a reconciliation of differences between prima facie tax calculated as 30% of the profit before income tax for the half year and the income tax expense recognised in the Income statement for the half year.
| 30 Jun | 30 Jun | |
|---|---|---|
| 2017 | 2016 | |
| $m | $m | |
| Profit before income tax | 734 | 1,300 |
| Policyholder tax expense recognised as part of the change in policyholder liabilities in determining | ||
| profit before tax | (141) | (39) |
| Profit before income tax attributable to shareholders and non-controlling interest | 593 | 1,261 |
| Tax at the Australian tax rate of 30% (2016: 30%) | (178) | (378) |
| Shareholder impact of life insurance tax treatment | (11) | (26) |
| Tax concessions including research and development and offshore banking unit | 3 | 4 |
| Non-deductible expenses | (19) | (11) |
| Non-taxable income | 34 | 4 |
| Other items | (14) | 1 |
| Non-controlling interests | - | 154 |
| (Under) over provided in previous years | (3) | 5 |
| Utilisation of previously unrecognised tax losses | 49 | 31 |
| Differences in overseas tax rates | 6 | 5 |
| Income tax expense attributable to shareholders and non-controlling interest | (133) | (211) |
| Income tax expense attributable topolicyholders | (141) | (39) |
| Income tax expenseper Income Statement | (274) | (250) |
11
AMP Limited financial report Notes to the financial statements for the half year ended 30 June 2017
Section 2: Results for the half year
2.2 Taxes (continued)
(b) Analysis of income tax expense
| (b) Analysis of income tax expense | ||
|---|---|---|
| 30 Jun | 30 Jun | |
| 2017 | 2016 | |
| $m | $m | |
| Current tax expense | (832) | (417) |
| Increase in deferred tax assets | 202 | 34 |
| Decrease in deferred tax liabilities | 360 | 106 |
| (Under)overprovided inpreviousyears includingamounts attributable topolicyholders | (4) | 27 |
| Income tax expense | (274) | (250) |
(c) Analysis of deferred tax balances
| (c) Analysis of deferred tax balances | ||
|---|---|---|
| 30 Jun | 31 Dec | |
| 2017 | 2016 | |
| $m | $m | |
| Analysis of deferred tax assets | ||
| Expenses deductible and income recognisable in future years | 631 | 491 |
| Unrealised movements on borrow ings and derivatives | 29 | 40 |
| Unrealised investment losses | 39 | 27 |
| Losses available for offset against future taxable income | 47 | 49 |
| Other | 56 | 49 |
| Total deferred tax assets | 802 | 656 |
| Analysis of deferred tax liabilities | ||
| Unrealised investment gains | 1,170 | 1,498 |
| Unrealised movements on borrow ings and derivatives | - | 1 |
| Other | 411 | 447 |
| Total deferred tax liabilities | 1,581 | 1,946 |
| (d) Amounts recognised directly in equity | ||
| 30 Jun | 30 Jun | |
| 2017 | 2016 | |
| $m | $m | |
| Deferred income tax(expense)credit related to items taken directlyto equityduringtheperiod | (7) | 23 |
12
AMP Limited financial report Notes to the financial statements for the half year ended 30 June 2017
Section 2: Results for the half year
2.3 Dividends
Dividends paid and proposed during the half year are shown in the table below:
| 2017 | 2016 | 2016 | 2015 | |
|---|---|---|---|---|
| Interim | Final | Interim | Final | |
| Dividend per share (cents) | 14.5 | 14.0 | 14.0 | 14.0 |
| Franking percentage | 90% | 90% | 90% | 90% |
| Cost (in $m) | 423 | 414 | 414 | 414 |
| Payment date | 29 September 2017 |
31 March 2017 |
7 October 2016 |
8 April 2016 |
| 30 Jun | 30 Jun | |||
| 2017 | 2016 | |||
| $m | $m | |||
| Dividends paid | ||||
| Previousyear final dividend on ordinaryshares | 414 | 414 | ||
| Total dividendspaid1 | 414 | 414 | ||
| Interim dividendsproposed but not recognised | 423 | 414 |
1 Total dividends paid includes dividends paid on treasury shares $4m (30 June 2016: $5m).
13
AMP Limited financial report Notes to the financial statements for the half year ended 30 June 2017
Section 3: Investments and intangibles
This section highlights the AMP group’s assets used to support the AMP group’s activities.
-
3.1 Investments in financial instruments
-
3.2 Intangibles
-
3.3 Fair value information
3.1 Investments in financial instruments
| 30 Jun | 31 Dec | |
|---|---|---|
| 2017 | 2016 | |
| $m | $m | |
| Financial assets measured at fair value through profit or loss1 | ||
| Equity securities and listed managed investment schemes | 53,259 | 53,520 |
| Debt securities2 | 33,324 | 34,512 |
| Investments in unlisted managed investment schemes | 22,554 | 21,359 |
| Derivative financial assets | 1,129 | 1,195 |
| Other financial assets | 4 | 5 |
| Total financial assets measured at fair value through profit or loss | 110,270 | 110,591 |
| Available-for-sale financial assets | ||
| Equitysecurities and managed investment schemes | 63 | 67 |
| Total available-for-sale financial assets | 63 | 67 |
| Financial assets measured at amortised cost3 | ||
| Loans and advances | 18,865 | 17,204 |
| Debt securities - held to maturity | 2,157 | 1,557 |
| Total financial assets measured at amortised cost | 21,022 | 18,761 |
| Total financial assets | 131,355 | 129,419 |
| Other financial liabilities | ||
| Derivative financial liabilities | 651 | 1,150 |
| Collateral deposits held2 | 63 | 92 |
| Total other financial liabilities | 714 | 1,242 |
1 Financial assets measured at fair value through profit or loss are mainly assets of AMP Life's statutory funds and controlled entities of those statutory funds.
2 Included w ithin debt securities are assets held to back the liability for collateral deposits for debt security repurchase
- arrangements entered into by AMP Life's statutory funds and controlled entities of those statutory funds. Collateral deposits held are mostly in respect of the obligation to repay collateral for the debt security repurchase arrangements.
3 Financial assets measured at amortised cost are mainly assets of AMP Bank.
14
AMP Limited financial report Notes to the financial statements for the half year ended 30 June 2017
Section 3: Investments and intangibles
3.2 Intangibles
| 3.2 Intangibles | ||||||
|---|---|---|---|---|---|---|
| Value of | ||||||
| Capitalised | in-force | Distribution | Other | |||
| Goodwill1 | costs | business | networks | intangibles | Total | |
| $m | $m | $m | $m | $m | $m | |
| 30 June 2017 | ||||||
| Balance at 1 January 2017 | 2,117 | 382 | 600 | 99 | 1 | 3,199 |
| Additions through acquisitions of controlled | ||||||
| entities | 4 | - | - | - | - | 4 |
| Additions through internal development | - | 77 | - | - | - | 77 |
| Transferred from inventories | - | - | - | 46 | - | 46 |
| Amortisation expense | - | (74) | (51) | (14) | - | (139) |
| Impairment loss | - | (1) | - | - | - | (1) |
| Balance at 30 June 2017 | 2,121 | 384 | 549 | 131 | 1 | 3,186 |
| Cost | 2,897 | 1,343 | 1,191 | 310 | 95 | 5,836 |
| Accumulated amortisation and impairment | (776) | (959) | (642) | (179) | (94) | (2,650) |
| 31 December 2016 | ||||||
| Balance at 1 January 2016 | 2,782 | 374 | 703 | 123 | 1 | 3,983 |
| Additions through acquisitions of controlled | ||||||
| entities | 3 | 4 | - | 4 | - | 11 |
| Additions through internal development | - | 133 | - | - | - | 133 |
| Transferred from inventories | - | - | - | 9 | - | 9 |
| Amortisation expense | - | (129) | (103) | (37) | - | (269) |
| Impairment loss | (668) | - | - | - | - | (668) |
| Balance at 31 December 2016 | 2,117 | 382 | 600 | 99 | 1 | 3,199 |
| Cost | 2,893 | 1,266 | 1,191 | 264 | 95 | 5,709 |
| Accumulated amortisation and impairment | (776) | (884) | (591) | (165) | (94) | (2,510) |
1 Total goodw ill comprises amounts attributable to shareholders of $2,106m (2016: $2,102m) and amounts attributable to policyholders of $15m (2016: $15m).
15
AMP Limited financial report Notes to the financial statements for the half year ended 30 June 2017
Section 3: Investments and intangibles
3.3 Fair value information
The following table shows the carrying amount and estimated fair values of financial instruments and investment properties, including their levels in the fair value hierarchy.
| levels in the fair value hierarchy. | |||||
|---|---|---|---|---|---|
| Carrying | Total fair | ||||
| amount | Level 1 | Level 2 | Level 3 | value | |
| 30 June 2017 | $m | $m | $m | $m | $m |
| Financial assets measured at fair value | |||||
| Equity securities and listed managed investment schemes | 53,322 | 51,144 | 19 | 2,159 | 53,322 |
| Debt securities | 33,324 | 63 | 33,246 | 15 | 33,324 |
| Investments in unlisted managed investment schemes | 22,554 | - | 20,700 | 1,854 | 22,554 |
| Derivative financial assets | 1,129 | 168 | 961 | - | 1,129 |
| Investment properties | 130 | - | - | 130 | 130 |
| Other financial assets | 4 | - | - | 4 | 4 |
| Total financial assets measured at fair value | 110,463 | 51,375 | 54,926 | 4,162 | 110,463 |
| Financial assets not measured at fair value | |||||
| Loans and advances | 18,865 | - | 18,865 | - | 18,865 |
| Debt securities - held to maturity | 2,157 | - | 2,157 | - | 2,157 |
| Total financial assets not measured at fair value | 21,022 | - | 21,022 | - | 21,022 |
| Financial liabilities measured at fair value | |||||
| Derivative financial liabilities | 651 | 170 | 481 | - | 651 |
| Collateral deposits held | 63 | - | 63 | - | 63 |
| Investment contract liabilities | 73,102 | - | 2,205 | 70,897 | 73,102 |
| Total financial liabilities measured at fair value | 73,816 | 170 | 2,749 | 70,897 | 73,816 |
| Financial liabilities not measured at fair value | |||||
| AMP Bank | |||||
| - Deposits | 9,580 | - | 9,579 | - | 9,579 |
| - Other | 7,752 | - | 7,778 | - | 7,778 |
| AMP Corporate entities - bonds and notes | 1,617 | 679 | 967 | - | 1,646 |
| AMP Life and investment entities controlled byAMP Life | 453 | - | 453 | - | 453 |
| Total financial liabilities not measured at fair value | 19,402 | 679 | 18,777 | - | 19,456 |
| 31 December 2016 | |||||
| Financial assets measured at fair value | |||||
| Equity securities and listed managed investment schemes | 53,587 | 51,066 | 22 | 2,499 | 53,587 |
| Debt securities | 34,512 | 68 | 34,425 | 19 | 34,512 |
| Investments in unlisted managed investment schemes | 21,359 | - | 20,417 | 942 | 21,359 |
| Derivative financial assets | 1,195 | 219 | 976 | - | 1,195 |
| Investment properties | 127 | - | - | 127 | 127 |
| Other financial assets | 5 | - | - | 5 | 5 |
| Total financial assets measured at fair value | 110,785 | 51,353 | 55,840 | 3,592 | 110,785 |
| Financial assets not measured at fair value | |||||
| Loans and advances | 17,204 | - | 17,205 | - | 17,205 |
| Debt securities - held to maturity | 1,557 | - | 1,560 | - | 1,560 |
| Total financial assets not measured at fair value | 18,761 | - | 18,765 | - | 18,765 |
| Financial liabilities measured at fair value | |||||
| Derivative financial liabilities | 1,150 | 97 | 1,053 | - | 1,150 |
| Collateral deposits held | 92 | - | 92 | - | 92 |
| Investment contract liabilities | 71,579 | - | 2,252 | 69,327 | 71,579 |
| Total financial liabilities measured at fair value | 72,821 | 97 | 3,397 | 69,327 | 72,821 |
| Financial liabilities not measured at fair value | |||||
| AMP Bank | |||||
| - Deposits | 8,652 | - | 8,683 | - | 8,683 |
| - Other | 6,661 | - | 6,676 | - | 6,676 |
| AMP Corporate entities - bonds and notes | 1,552 | 618 | 977 | - | 1,595 |
| AMP Life and investment entities controlled byAMP Life | 353 | - | 353 | - | 353 |
| Total financial liabilities not measured at fair value | 17,218 | 618 | 16,689 | - | 17,307 |
16
AMP Limited financial report Notes to the financial statements for the half year ended 30 June 2017
Section 3: Investments and intangibles
3.3 Fair value information (continued)
AMP’s methodology and assumptions used to estimate the fair value of financial instruments are described below:
| Equity securities and | The fair value of equity securities traded in an active market and listed managed investment schemes |
|---|---|
| listed managed | reflects the quoted bid price at the reporting date. In the case of equity securities and listed managed |
| investment schemes | investment schemes where there is no active market, fair value is established using valuation techniques |
| including the use of recent arm’s length transactions, references to other instruments that are substantially | |
| the same, discounted cash flow analysis and option pricing models. | |
| Debt securities | The fair value of listed debt securities reflects the bid price at the reporting date. Listed debt securities that |
| are not frequently traded are valued by discounting estimated recoverable amounts. The fair value of | |
| unlisted debt securities is estimated using interest rate yields obtainable on comparable listed | |
| investments. | |
| Loans | The fair value of loans represents the discounted amount of estimated future cash flows expected to be |
| received, based on the maturity profile of the loans. As the loans are unlisted, the discount rates applied | |
| are based on the yield curves appropriate to the remaining term of the loans. The loans may be measured | |
| at an amount in excess of fair value due to fluctuations on fixed rate loans. As the fluctuations in fair value | |
| do not represent a permanent diminution and the carrying amounts of the loans are recorded at | |
| recoverable amounts after assessing impairment, it is not appropriate to restate their carrying amount. | |
| Unlisted managed | The fair value of investments in unlisted managed investment schemes is determined on the basis of |
| investment schemes | published redemption prices of those managed investment schemes at the reporting date. |
| Derivative financial | The fair value of financial instruments traded in active markets (such as publicly traded derivatives) is |
| assets and liabilities | based on quoted market prices (current bid price or current offer price) at the reporting date. The fair value |
| of financial instruments not traded in an active market (eg over-the-counter derivatives) is determined | |
| using valuation techniques. Valuation techniques include net present value techniques, option pricing | |
| models, discounted cash flow methods and comparison to quoted market prices or dealer quotes for | |
| similar instruments. | |
| Subordinated debt | The fair value of subordinated debt is determined with reference to quoted market prices at the reporting |
| date. |
The financial assets and liabilities measured at fair value are categorised using the fair value hierarchy which reflects the significance of inputs into the determination of fair value as follows:
-
Level 1: the fair value is valued by reference to quoted prices and active markets for identical assets;
-
Level 2: the fair value is estimated using inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (derived from prices);
-
Level 3: the fair value is estimated using inputs for the asset or liability that are not based on observable market data.
There have been no significant transfers between Level 1 and Level 2 during the 2017 financial half year. Transfers to and from Level 3 are shown in the Reconciliation of Level 3 values table later in this note.
17
AMP Limited financial report Notes to the financial statements for the half year ended 30 June 2017
Section 3: Investments and intangibles
3.3 Fair value information (continued)
Level 3 fair values
The following table shows the valuation techniques used in measuring Level 3 fair values, as well as the significant unobservable inputs used.
| Type | Valuation technique | Significant unobservable inputs |
|---|---|---|
| Equity securities and listed managed investment schemes |
Discounted cash flow approach utilising cost of equity as the discount rate. |
Discount rate. Terminal value growth rate. Cash flow forecasts. |
| Debt securities | Discounted cash flow approach. | Discount rate. Cash flow forecasts. |
| Investments in unlisted managed investment schemes |
Published redemption prices. | Judgement made in determining unit prices |
| Investment contract liabilities | Valuation model based on published unit prices and the fair value of backing assets. Fixed retirement income policies - discounted cash flow. |
Fair value of financial instruments. Cash flow forecasts. Credit risk. |
Sensitivity analysis
Reasonably possible alternative assumptions could have been used in determining the fair values of financial instruments categorised as Level 3. The following table shows the sensitivity to changes in key assumptions, calculated by changing one or more of the significant unobservable inputs for individual assets. This included assumptions such as credit risk and discount rates for determining the valuation range on an individual estimate.
| (+) $m (-) $m (+) $m (-) $m 30 June 2017 31 December 2016 |
|
|---|---|
| Financial assets Equity securities and listed managed investment schemes Financial liabilities Investment contract liabilities |
88 (87) 146 (153) 5 (5) 6 (5) |
Financial assets valuation process
For financial assets categorised within Level 3 of the fair value hierarchy, the valuation processes applied in valuing such assets is governed by the AMP Capital asset valuation policy. This policy outlines the asset valuation methodologies and processes applied to measure non-exchange traded assets which have no regular market price, including investment property, infrastructure, private equity, alternative assets, and illiquid debt securities. All significant Level 3 assets are referred to the appropriate AMP Capital valuation committee who meet at least every six months, or more frequently if required.
18
AMP Limited financial report Notes to the financial statements
for the half year ended 30 June 2017
Section 3: Investments and intangibles
3.3 Fair value information (continued)
Level 3 fair values (continued)
Reconciliation of Level 3 values
The following table shows movements in the fair values of financial instruments categorised as Level 3 in the fair value hierarchy:
| Total gains and | ||||||||
|---|---|---|---|---|---|---|---|---|
| losses on | ||||||||
| Balance at | Net | Balance at | assets and | |||||
| the beginning | FX gains | Total gains/ | Purchases/ | Sales/ | transfers | the end of | liabilities held at | |
| of the period | or losses1 | losses1 | deposits | withdrawals | in/(out)2 | the period | reporting date | |
| $m | $m | $m | $m | $m | $m | $m | $m | |
| 30 June 2017 | ||||||||
| Assets classified as Level 3 | ||||||||
| Equity securities and listed managed investment schemes | 2,499 | - | 175 | 69 | (322) | (262) | 2,159 | 179 |
| Debt securities | 19 | - | - | - | (4) | - | 15 | - |
| Investments in unlisted managed investment schemes | 942 | - | 53 | 55 | (25) | 829 | 1,854 | 50 |
| Investment properties | 127 | - | 2 | 1 | - | - | 130 | - |
| Other financial assets | 5 | - | (1) | - | - | - | 4 | (1) |
| Liabilities classified as Level 3 | ||||||||
| Investment contract liabilities | 69,327 | (3) | 2,176 | 5,686 | (6,289) | - | 70,897 | 2,089 |
| 31 December 2016 | ||||||||
| Assets classified as Level 3 | ||||||||
| Equity securities and listed managed investment schemes | 3,410 | - | 191 | 271 | (1,580) | 207 | 2,499 | 190 |
| Debt securities | 1,534 | - | (3) | 2 | (1,329) | (185) | 19 | (2) |
| Investments in unlisted managed investment schemes | 1,130 | 3 | 10 | 96 | (25) | (272) | 942 | 8 |
| Investment properties | 386 | - | 105 | 6 | (370) | - | 127 | 105 |
| Other financial assets | 8 | - | (1) | - | (2) | - | 5 | (1) |
| Liabilities classified as Level 3 | ||||||||
| Investment contract liabilities | 67,484 | 7 | 3,413 | 10,785 | (12,362) | - | 69,327 | 3,333 |
- 1 Gains and losses are classified in investment gains and losses or change in policyholder liabilities in the Income statement.
2 The AMP group recognises transfers as at the end of the reporting period during w hich the transfer has occurred. Transfers are recognised w hen there are changes in the observability of the pricing of the relevant securities or w here the AMP group cease to consolidate a controlled entity.
19
AMP Limited financial report Notes to the financial statements
for the half year ended 30 June 2017
Section 4: Capital structure
This section provides information relating to AMP group’s capital management and equity and debt structure.
The capital structure of the AMP group consists of equity and debt. AMP determines the appropriate capital structure in order to finance the current and future activities of the AMP group and satisfy the requirements of the regulator. The directors review the group’s capital structure and dividend policy regularly and do so in the context of the group’s ability to satisfy minimum and target capital requirements, and to protect and meet the needs of the policyholders.
-
4.1 Contributed equity
-
4.2 Interest-bearing liabilities
4.1 Contributed equity
| 4.1 Contributed equity | ||
|---|---|---|
| 30 Jun | 31 Dec | |
| 2017 | 2016 | |
| $m | $m | |
| Issued capital1,3 | ||
| 2,918,469,137 (2016: 2,957,737,964) ordinary shares fully paid | 9,547 | 9,747 |
| Treasury shares2 | ||
| 39,634,574(2016: 23,539,463)treasuryshares | (206) | (128) |
| Total contributed equity | ||
| 2,878,834,563(2016: 2,934,198,501) ordinary shares fully paid | 9,341 | 9,619 |
| Issued capital | ||
| Balance at the beginning of the period | 9,747 | 9,747 |
| 39,268,827 (2016: nil) on-market share buy-back | (200) | - |
| Balance at the end of theperiod | 9,547 | 9,747 |
| Treasury shares | ||
| Balance at the beginning of the period | (128) | (181) |
| Net(purchases)sales duringtheperiod | (78) | 53 |
| Balance at the end of theperiod | (206) | (128) |
Holders of ordinary shares have the right to receive dividends as declared and, in the event of the w inding up of the company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held. Fully paid ordinary shares carry the right to one vote per share. Ordinary shares have no par value.
1 Under the terms of the dividend reinvestment plan (DRP), shareholders may elect to have all or part of their dividend entitlements satisfied in shares rather than being paid cash. The DRP applied for the 2016 final dividend (paid in March 2017) at 14.0 cents per share. AMP settled the DRP for the 2016 final dividend by acquiring shares on market and, accordingly, no new shares w ere issued.
-
2 Of the AMP Limited ordinary shares on issue 37,508,187 (2016: 21,413,076) are held by AMP Life's statutory funds and controlled entities of those statutory funds on behalf of policyholders. ASIC has granted relief from restrictions in the Corporations Act 2001 to allow AMP Life's statutory funds and controlled entities of those statutory funds to hold and trade
-
shares in AMP Limited as part of the policyholder funds' investment activities. The cost of the investment in these treasury shares is reflected as a deduction from total contributed equity. The remaining balance is held by AMP Foundation Limited as trustee for the AMP Foundation.
-
3 Mitsubishi UFJ Trust and Banking Corporation (MUFG: Trust Bank) has an option to require AMP Limited to purchase MUFG: Trust Bank's interest in AMP Capital Holdings Limited (AMPCH) in certain circumstances. As consideration for the acquisition of AMPCH shares, AMP w ould be required to issue ordinary shares in AMP Limited to MUFG: Trust Bank (or its nominee).
20
AMP Limited financial report Notes to the financial statements
for the half year ended 30 June 2017
Section 4: Capital structure
4.2 Interest-bearing liabilities
| 30 Jun | 31 Dec | |
|---|---|---|
| 2017 | 2016 | |
| $m | $m | |
| Interest-bearing liabilities | ||
| AMP Bank | ||
| - Deposits1 | 9,580 | 8,652 |
| - Other2 | 7,752 | 6,661 |
| AMP Corporate entities | ||
| - 6.875% GBP Subordinated Guaranteed Bonds | ||
| (maturity 2022) | 71 | 71 |
| - AMP Subordinated Notes 2 (first call 2018, maturity | ||
| 2023)3 | 323 | 322 |
| - AMP Wholesale Capital Notes4 | 276 | 276 |
| - AMP Capital Notes4 | 263 | 263 |
| - Syndicated loan facility5 | 500 | 500 |
| - Commercial paper | 166 | 114 |
| - Other | 18 | 6 |
| AMP Life and investment entities controlled by AMP Life | 453 | 353 |
| Total interest-bearing liabilities | 19,402 | 17,218 |
1 Deposits comprise at call retail cash on deposit and retail term deposits at variable interest rates w ithin the AMP Bank.
2 Includes $150m (2016: $150m) Floating Rate Subordinated Unsecured Notes to fund AMP Bank's capital requirements (first call date 2017, maturity 2022).
3 Issued on 18 December 2013 and are listed on the ASX. In certain circumstances, AMP may be required to convert some or all of AMP Subordinated Notes 2 into AMP ordinary shares.
4 AMP Wholesale Capital Notes and AMP Capital Notes w ere issued on 27 March and 30 November 2015, respectively. They are perpetual notes w ith no maturity date. In certain circumstances, AMP may be required to convert some or all of the Notes into AMP ordinary shares.
5 Includes tw o tranches of $250m (maturity 2018 and 2020 respectively).
21
AMP Limited financial report Notes to the financial statements for the half year ended 30 June 2017
Section 5: Other disclosures
This section includes disclosures other than those covered in the previous sections, required for the AMP group to comply with the accounting standards and pronouncements.
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5.1 Contingent liabilities
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5.2 New accounting standards
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5.3 Events occurring after reporting date
5.1 Contingent liabilities
As at the date of this report, there have been no material changes in contingent liabilities since those reported in the 2016 annual financial report.
22
AMP Limited financial report Notes to the financial statements
for the half year ended 30 June 2017
Section 5: Other disclosures
5.2 New accounting standards
a) New and amended accounting standards adopted by the AMP group
There are no new standards or amendments to standards which apply for the first time in 2017 which would have a material impact on the financial reports of the AMP group.
b) New accounting standards issued but not yet effective
A number of new accounting standards and amendments have been issued but are not yet effective, none of which have been early adopted by the AMP group in this financial report.
AASB 15 Revenue from Contracts with Customers (AASB 15) and AASB 9 Financial Instruments (AASB 9) are effective for periods beginning on 1 January 2018. Implementation projects for these standards are well-progressed. Based on the current status of the implementation projects, no material impact on the AMP group is expected upon adoption of AASB 15 and AASB 9.
AASB 17 Insurance Contracts
AASB 17 Insurance Contracts (AASB 17) is effective for periods beginning on 1 January 2021. The new standard will introduce significant change to the accounting for life insurance contracts and the reporting and disclosures in relation to those contracts.
The new standard, of itself, does not change the underlying economics or cash flows of the life insurance business. However, it is anticipated that there will be an impact on profit emergence profiles from life insurance contracts. Subject to any changes to regulation or legislation which may be made in response to the new standard, there may also be an impact on the determination of capital requirements and income tax.
The detailed requirements of the standard are complex and, in some cases, the final impact of these requirements will not be determined until interpretations and regulatory responses to the new standard are developed. The AMP group is currently undertaking an assessment of the potential impact of this standard.
5.3 Events occurring after reporting date
In August 2017, AMP Life executed a comprehensive program of reinsurance arrangements effective 1 November 2017 that is expected to release approximately $500m of capital (subject to regulatory approval) and will result in the AMP Life retail portfolio being effectively 65% reinsured.
Other than this matter, as at the date of this report, the directors are not aware of any matters or circumstances that have arisen since the end of the financial half year that have significantly affected, or may significantly affect:
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the AMP group’s operations in future years;
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the results of those operations in future years; or
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AMP group’s state of affairs in future financial years.
23
AMP Limited financial report Directors’ declaration for the half year ended 30 June 2017
In accordance with a resolution of the directors of AMP Limited, we state for the purposes of section 303(4) of the Corporations Act 2001 that, in the opinion of the directors:
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(a) there are reasonable grounds to believe that AMP Limited will be able to pay its debts as and when they become due and payable; and
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(b) the financial statements and the notes of AMP Limited and the consolidated entity for the financial half year ended 30 June 2017 are in accordance with the Corporations Act 2001 , including section 304 (compliance with accounting standards) and section 305 (true and fair view).
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Catherine Brenner Chairman
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Craig Meller
Chief Executive Officer and Managing Director
Sydney, 10 August 2017
24
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