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Edited Transcript of AMP.AX earnings conference call or presentation 14-Feb-19 1:30am GMT

Full Year 2018 AMP Ltd Earnings Call

Sydney Jul 2, 2019 (Thomson StreetEvents) -- Edited Transcript of AMP Ltd earnings conference call or presentation Thursday, February 14, 2019 at 1:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Francesco De Ferrari

AMP Limited - CEO & Executive Director

* Gordon John Lefevre

AMP Limited - CFO

* Howard Marks

AMP Limited - Director of IR

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Conference Call Participants

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* Brendan Carrig

Macquarie Research - Research Analyst

* Brett Le Mesurier

Shaw and Partners Limited, Research Division - Senior Analyst of Banking and Insurance

* Daniel P. Toohey

Morgan Stanley, Research Division - Executive Director

* Ingrid Groer

Goldman Sachs Group Inc., Research Division - Equity Analyst

* James Coghill

UBS Investment Bank, Research Division - Executive Director, Deputy Head of Research of Australia & New Zealand and Insurance Analyst

* Kieren Chidgey

UBS Investment Bank, Research Division - Executive Director & Research Analyst

* Matthew Dunger

BofA Merrill Lynch, Research Division - Research Analyst

* Nigel Pittaway

Citigroup Inc, Research Division - MD of Insurance and Diversified Financials Equity Research and Lead Insurance Analyst

* Ross Curran

Deutsche Bank AG, Research Division - Research Analyst

* Siddharth Parameswaran

JP Morgan Chase & Co, Research Division - Research Analyst

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Presentation

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Howard Marks, AMP Limited - Director of IR [1]

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Welcome, everyone, to AMP's Full Year 2018 Results Briefing. My name is Howard Marks, and I am the Director of Investor Relations.

To my left sits CEO, Francesco De Ferrari; and CFO, Gordon Lefevre, who'll take you through the results. Thereafter, we'll be happy to take Q&A.

If everyone's ready, and it looks like we are, I think we should begin with Francesco. Thank you.

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Francesco De Ferrari, AMP Limited - CEO & Executive Director [2]

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So thanks, Howard, and good afternoon to everyone, and thank you for joining us on what I know is a busy day for all of you with lots of company announcements. I'm very excited to be here presenting our full year results for the first time as the CEO of AMP. We have lots of material to cover, so let's dive right in.

On Slide 2, it'd be easy to skip over this slide, but it's actually a very important reminder for me and for the whole management team that we are a client-focused business and we make a material difference in our clients' lives.

AMP is a great company with a noble purpose. The company holds a special place in Australian society and plays a critical role in helping Australians build and protect their wealth. We hold some very strong assets and market positions. And I believe we are well placed to take advantage for the dislocation that is occurring in the Australian wealth management industry. But we have to recognize that AMP has faced some significant challenges over the last year and uncovered instances where we have let our clients down. We need to fix these issues quickly, stay true to AMP's purpose and keep clients at the front of center of our thinking. In setting the strategy for the future, we're looking at the business with a sense of pride in our past but also a healthy degree of realism about our present situation so we can tackle the challenges and start to be optimistic about our future.

On Slide 3, the agenda for today, we'd like to cover 3 key items. First, Gordon is going to take you through the details of the full year '18 results and the key drivers. Then he'll step through the financial impacts of the Resolution Life transaction, the guidance provided to you last year and a number of other items to help you rebase the future earnings profile of the retained businesses. Finally, I'll pick up from there and share my early thoughts on the future direction of AMP and our immediate priorities for 2019. And then we'll finish up with an opportunity for Q&A. So Gordon, over to you to get this started.

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Gordon John Lefevre, AMP Limited - CFO [3]

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Good afternoon to you all, and thank you, Francesco. So I'm going to start my presentation on Slide #5. So 2018 was a very difficult year for our business. This was reflected in a 35% decline in underlying profit and a significant reduction in profits reported to our shareholders. Given the sale of our Australian and New Zealand wealth protection and mature businesses to Resolution Life, we've separately reported profits for retained and sold businesses.

Retained business earnings were resilient in the face of significant disruption. Declines in wealth management were largely offset by growth in AMP Bank and AMP Capital. For the sold businesses, earnings were down year-on-year due to negative claims experience and capitalized losses, as we had previously announced. Bottom line profits were also impacted by a range of one-off and significant items that are reported below underlying profit. The largest of these is the advice remediation program. So with that, I'll now unpack a little bit of detail for each of the lines of business.

Starting first on Slide 6 with the Australian Wealth Management business. It would be fair to say that this business was hit by a perfect storm in 2018. That said, in the face of significant brand and reputational impacts, operating earnings were reasonably resilient, down 7%. Margins declined at an increased rate in the wake of competition and repricing of our core MySuper offerings. Repricing came into effect midway through the second half, and the full annual effect will flow through into 2019.

In response to these revenue challenges, controllable costs were tightly managed through a combination of lower variable remuneration, lower project costs and due to the full year impact of prior period cost-save initiatives. Net cash outflows totaled more than $3 billion in the second half. Whilst there were Royal Commission impacts that specifically impacted our fund flows, outflows to industry funds were a broader trend for retail funds across the sector. Together with an absence of corporate super mandate wins, this reflected in fund flows substantially down on the prior year.

Looking into 2019, the Australian Wealth Management business faces considerable headwinds. Markets were softer in the fourth quarter of 2018, with closing December AUM balances $7 billion lower than a year earlier. We also expect net outflows to continue into 2019.

On margin compression, including the full year impacts of the MySuper repricing and subject to any further regulatory impacts or management initiatives, we expect compression of up to 8 basis points through financial year 2019. Compounding these revenue pressures, we expect cost growth as we stabilize the business, focused on its separation from the sold businesses and include additional regulatory and compliance costs due to a change in the basis for reporting of significant change programs, will bring those costs from below to above the line. Combining these trends, the outlook for the Australian Wealth Management business is for declining earnings into 2019.

Moving to Slide 7 and New Zealand Wealth Management. This business encompasses our financial advice and general insurance businesses across the Tasman together with a wealth management business. It continues to be a stable contributor to the group, delivering largely steady operating earnings in 2018. Revenues were negatively impacted by margin compression, partly offset by increased income from financial advice. The New Zealand team continues to adopt a disciplined approach to cost management in order to offset these revenue declines. All up, this is a well-managed but small business delivering stable results.

Turning to AMP Bank on Slide 8. The business performed well in 2018, delivering a 6% profit growth in a highly competitive environment. Conservative credit settings were maintained. Together with tougher market conditions and tight liquidity management, this resulted in moderating loan growth in the second half. Retail deposits grew strongly as a funding source for loan growth and, as a result, net interest margins remained flat year-on-year. Controllable costs increased as in prior years with investments in technology and operating capabilities to improve customer service. Overall, considering this backdrop, a good performance.

2019 will project -- present challenges with headwinds in a number of areas. Firstly, slower system loan growth in the market that is already highly competitive and where the big 4 banks are retreating to their core and mortgage competition is intensifying. Secondly, there'll be ongoing pressure on interest margins with further compression expected from the 167 basis points step-off into 2019. Finally, controllable costs will continue to grow as in prior years as we invest in the business, but 2019 costs will also include additional regulatory and compliance costs as we change the basis for reporting significant change programs and we bring these costs above the line.

Combining these trends, the outlook for the bank is for declining earnings into 2019.

Now on to AMP Capital, which is on Slide 9. Another positive result for our asset management business with earnings up 7%. The result again emphasizes our strength and capabilities in real assets and the benefits of continuing to diversify in this area and to grow internationally.

Earnings growth was supported by robust external net cash flows with increases in both AUM and non-AUM-based management fees. This was partially offset by a decrease in performance fees as we transition from opened to closed-end funds. AMP Capital's reputation in real assets resulted in ongoing global investor interest in our infrastructure debt and equity funds. Notable transactions this year on behalf of investors include the acquisition of a 49% share in the London Luton Airport and a 50-50 partnership with Invenergy Clean Power. AMP Capital continues to attract new client in international and institution mandates, with AUM managed on behalf of them up $5 billion to over $17 billion in financial 2018.

Domestically, conditions were more difficult with a significant increase in internal net cash outflows. Controllable costs reflect ongoing investment in growth initiatives, particularly in our real asset business. We've continued building our teams to service the growing client base, including in international markets. As a measure of our success, we have $4.4 billion of uncalled capital in the pipeline for real assets, $1.6 billion of which has been earmarked for committed transactions. Earnings from these activities will show in future years and are likely to be more volatile in the future as we move to more closed-end funds. We continue to view AMP Capital as a growth business and are maintaining guidance for a cost of income ratio for the business of between 60% to 65%. So in summary, another strong result, and we're confident in AMP Capital's future growth prospects.

Slide 10 outlines our sold businesses, the Australia and New Zealand wealth protection and mature businesses. As indicated in our market update in January, second half operating earnings were impacted by negative claims experience in the Australian wealth protection business, very much in line with industry trends. Best estimate assumptions were strengthened in response to negative claims trends in total and permanent disability and income protection products. The latter resulted in capitalized losses. As we've said before, we firmly believe that Resolution Life is better placed to own and manage these businesses going forward. With a lower cost of capital and significant relevant global experience, we have every confidence in them as a partner.

Legal separation of AMP Life is progressing well, and we expect this and transaction settlement to complete toward the end of the third quarter of this year. Physical separation, however, will take longer, and we will continue to provide transitional support services to Resolution for up to 2 years post completion. So with that summary of the business units, I'll now move on to some other financial considerations that include costs and capital as well as details of the financial year '18 earnings rebase.

At Slide 11, we outlined controllable costs ex AMP Capital. At $913 million for 2018, cost came inside of guidance with the following trends continuing from the first half: lower project costs and run rate business efficiencies from 2017 initiatives and lower variable remuneration. This was partially offset by AMP Bank cost growth reflecting ongoing investment in this business. As we move into 2019, controllable costs ex AMP Capital are expected to increase by $100 million. This is explained as follows. We'll report costs for significant regulatory and compliance change programs above the line from 2019 onwards. These costs totaled $60 million in 2018, and there will be a $50 million pretax rebasing increase for costs that we expect in 2019.

Professional indemnity insurance costs will rise reflective of industry-wide trends, and there'll be CPI and wage growth. We remain focused on separating AMP Life and simplifying out our retained businesses. As part of the strategy process underway, we'll set cost targets that respond to revenue growth challenges in those retained businesses. Cost guidance remains unchanged in the following areas: stranded costs relating to sold businesses, which are in the order of $60 million pre and $40 million post tax, will be removed in the first full year post separation, that is 2020; AMP Capital, which is targeting a 60% to 65% cost to income ratio; an update on controllable costs will be provided at the half year.

Slide 12 outlines some key financial items outside of the business unit results. It shows the one-off costs and other significant items I've called out before and that we booked below underlying profit. These include the advice remediation program costs and provisions, Royal Commission preparation and response costs and portfolio review costs, together with separation activities in the second half of 2018. These are all in line with our previous disclosures and guidance.

Moving down the table, other items includes $40 million, which is approximately $60 million pretax for costs relating to significant regulatory and compliance programs. As I have flagged, going forward, those costs or programs of that nature are going to be brought above the line. We anticipate these to be in the order of $50 million into 2019.

At Slide 13, we've set out our regulatory capital calculations for the group. We remain strongly capitalized with $1.65 billion of capital at a Level 3 eligible basis above minimum regulatory requirements. S&P gearing increased to 17%, as at the financial year 2018, reflecting slightly higher debt levels that were timing-related. There was also lower shareholder equity and a reduction in the value of future life company earnings. And that's the basis upon which S&P prescribed in their methodology that you calculate gearing. We've started the process of restructuring our corporate debt in anticipation of the AMP Life sale. This is in line with the plans that we outlined in October last year when we announced the transaction.

Slide 14 provides a bridge between the capital position at the 2017 and 2018 year-ends. This is expressed as Level 3 eligible capital above minimum regulatory requirements. The chart illustrates growth in capital through earnings, which we augmented by reinsurance of the New Zealand retail book. That transaction settled in the fourth quarter of 2018. There was also a significant use of capital as a result of the advice remediation provisions. In addition to that, use of capital from best estimate assumption changes and per our prior guidance, $100 million of that, which relates to the most recent best estimate assumptions, will effectively be recovered from Resolution Life as that transaction settles. There was also business growth and returns to shareholders by way of dividends paid and declared in 2018 and the other items below the line. So with all that, we ended the year with a $1.65 billion surplus above MRR having funded all of those items. The Board declared a final dividend at $0.04 per share franked to 90%. This recognizes the weaker business performance in the second half, the capital impacts of certain of the items highlighted above and the uncertainties in the operating environment.

Following the final dividend, $1.5 billion of the surplus capital above MRR remains. This is our target surplus above MRR and meets the requirements of the Board under its capital management framework. As AMP Capital will remain responsible for the operations, costs and capital management of AMP Life until settlement of the Resolution transaction, this target surplus includes the sold businesses. The Board anticipates maintaining capital at the target surplus levels ahead of the Resolution Life transaction.

We are reaffirming today our commitment to returning majority of net cash proceeds received from Resolution Life on settlement of the transaction, subject, of course, to unforeseen circumstances.

Moving finally to Slide 16 where we set out an earnings rebase. I'm going to step you through this as it pulls together the various strands and elements of items disclosed through this presentation and other materials that we've released today. Starting as a baseline with the underlying profit of $680 million that we report for financial year 2018, we make a series of adjustments. Firstly, in relation to sold businesses, given the profit impacts and risks less any share that we take passed to Resolution Life from the 1st of July 2018, we exclude those earnings fully.

Any share of risk which relate primarily to claims experience losses above $20 million from the 1st of July until settlement will be reflected in the gain or loss that we book when the sale finally completes. It's therefore not shown here on the slide. Next, we adjust for the pro forma full year impacts of the transaction. These adjustments reflect the following: loss distribution fee income in Australia, together with product revenues transferring with the sale and tax synergies in Australia of $85 million and New Zealand, $12 million; stranded costs of $40 million and the benefits from a residual retained interest in mature of $50 million, given that the earnings from the sold businesses have previously been backed up fully. These amounts are all in line with our previous disclosures and reflect consistently the sale agreement with Resolution Life and the requirement to make adjustments from the 1st of July 2018.

Finally, we include other adjustments which reflect the following: declining margins for Australian Wealth Management, both as announced in relation to MySuper and ongoing compression, overall, an adjustment of $60 million post tax, assuming compression of up to 8 basis points in financial year 2019; a $50 million pretax, $35 million post tax impact from the regulatory and compliance change programs that we'll book above the line in 2019, this impacts the Australian Wealth Management business by $15 million, AMP Bank by $10 million and group office by $10 million; professional indemnity cost increases that are absorbed fully in group office costs and incremental earnings from the income-generating investments received as part consideration from Resolution Life, together with reduced interest costs as we restructure our corporate debt. The impact for the last 2 of the items is based on 1 quarter, assuming that the transaction settles towards the end of the third quarter of 2019.

So factoring all these adjustments, the financial year '18 earnings rebase reflects underlying profit of $461 million, with the Australian Wealth Management earnings in the order of $200 million. We regard this as a more representative base of which to set earnings expectations for the retained businesses in 2019.

With that, I'll hand back to Francesco. He's going to complete the presentation, and then we'd be delighted to take your questions.

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Francesco De Ferrari, AMP Limited - CEO & Executive Director [4]

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So thanks, Gordon. And let me turn now to the future and share my early thinking about the AMP of tomorrow. So starting with some context on Slide 18. '18 was a challenging year for AMP and, indeed, for the entire financial services sector in Australia. The Royal Commission was a confronting but valuable experience for the industry. AMP responded by embracing it as a catalyst for change maybe more than any other financial institution, and it has provided impetus for a fundamental reset. We've driven extensive change on many fronts, from Board renewal and management change, to improving governance, accelerating client remediation and sharpening our offer to clients through repricing. Arguably, though, the most significant change last year was the transformational decision to divest our wealth protection and mature businesses to Resolution Life.

In selling these businesses, I'm acutely aware that we're moving away from AMP's historic core as a life insurance company. This is a significant shift, but a very necessary one, given the capital intensity and volatility of these wealth protection businesses. And as a specialized player, as you've heard from Gordon, Resolution is a much better manager and owner of these assets. Interestingly, one of the criticisms that I've heard in my short time here is that AMP is slow to change. That could have been true in the past, but, in '18, my observation is that AMP has done radical change and taken major decisions that are setting it on a very different path for the future.

So on Slide 19, what is this path for reinventing AMP? Well, as you can see on this slide, post separation, we will have 4 core operating businesses: a Wealth Management business in Australia and New Zealand, AMP Bank and AMP Capital. Taking each of these in turn. Wealth Management in Australia has foundational assets and strong market positions. We're a market leader in advice and superannuation, and our North platform is performing strongly, growing at an annual rate of 24% over the past 5 years. However, the Wealth Management business model is challenged, and we need to fundamentally reshape it and make it fit for purpose in the future environment. The regulatory landscape in this space is complex and evolving. While we have greater clarity post the release of the Royal Commission report last week, we will need to see how these recommendations are translated into effective legislation.

Irrespective of the progress of the legislation, one thing that worries me though as a newcomer to the market is a question around the affordability of the advice. Given the complexity of the taxation and retirement systems, there is a very real need for advice in this country. Yet the proposed additions to existing regulation have the potential to make face-to-face advice increasingly unaffordable for the average Australian who needs it most. The strategic challenge for AMP, true to its purpose, is to reinvent its role as an advice-led wealth manager. But the reality is that we do not currently generate an acceptable level of return for the operating risk where we take an advice. And the model of advice delivery requires a major rethink.

That said, our network remains the largest in Australia, and there's a significant opportunity to commercialize our distribution footprint by sharpening our client value proposition and rethinking the economic model. Our ultimate goal is to deliver appropriate and compliant advice to the right client at the right time throughout their life cycle. With the proposed regulatory changes, traditional face-to-face advice will need to move upmarket. We will need to partner with our financial advisers to reshape our existing advice network and enhance our focus on productivity, professionalism and compliance. And for the broader markets who cannot afford face-to-face advice, the solution will need to be a technology-enabled tiered service offering. There's a lot of value if we get the formula right, not just domestically, but also internationally.

In products and platforms, there is a significant opportunity to sharpen our value proposition and simplify our product set to improve client outcomes. The disruption of the industry and the exit of many of the major players creates a unique opportunity for AMP in the space.

Now turning to our New Zealand Wealth Management business. The business has delivered a resilient earnings profile and demonstrated tight cost control in recent years. We have a strong advice network and are one of the top providers of KiwiSaver in the country. Though it is a smaller market, there is a real opportunity for us to grow New Zealand Wealth Management as a standalone business unit. Given the focus on separation and current marketing conditions, we've decided to defer consideration of an IPO for the time being.

Moving on to the bank. Our bank is a niche but successful player in a highly competitive market dominated by the big 4. It is a low-cost business with a competitive core offering and has delivered an annual growth rate in residential mortgages of 9% over the past 5 years. With less than 1% market share, there is significant room for growth. The bank has historically relied heavily on the broker channel for distribution, but given the recommendations of the Royal Commission, the future of this channel is expected to evolve.

The strategic opportunity is for us to better leverage the bank through our Wealth Management business, providing clients with a comprehensive financial offer. In AMP Capital, we have real strength and globally competitive capabilities in a number of asset classes. Real assets which are infrastructure and property are performing well and attracting strong external flows, helping to expand our international client base. The growth trajectory is impressive. We have seen an annual growth rate of 20% in real asset's external AUM over the past 5 years. We will see further growth potential in this area, and we will continue to invest to unlock it. We also know that we need to deliver consistent investment performance in all asset classes to win across the value chain, particularly given the global trend towards passive management. This is a clear area of focus moving into '19.

In AMP Capital, our strategic opportunity lies in doubling down on the areas where we have investment expertise and drive the continued international expansion and to better leverage our strategic partnerships in both Asia and in the U.S. At a group level, the success of these 4 operating businesses will be underpinned by cost discipline and capital optimization. The separation of our Life Insurance and mature businesses provides a once-in-a-lifetime opportunity to simplify and rightsize the business. While there is clearly an imperative to address stranded costs and replace lost earnings from the unwinding of the distribution arrangements, in the longer term, I see significant opportunity to realize cost efficiencies as we move to a simpler, more agile business going forward.

Similarly, separation will provide an opportunity for us to rethink our capital management framework to optimize usage and returns. Our ability to pull these levers is, however, limited until the separation of AMP Life is complete. These options though will be top of mind for us as we consider the new AMP.

If we move then to Slide 20 on the '19 priorities. So as we embark on this journey, what are our immediate priorities and the deliverables that you can hold us accountable for in '19. '19 will be a transitional year for AMP where we do the heavy lifting necessary to reposition our business for the future. There are 3 critical priorities we must deliver and must get right. The first is the separation of our wealth protection and mature businesses. Separating out the life insurance company that has been operating as the core of the group for 170 years is an incredibly complex undertaking. The work that we're doing is challenging but will help simplify and reduce the capital intensity of our business portfolio and create the basis for a new streamlined and more agile AMP. The second key priority is the delivery of an advice remediation program. Our objective here is to remediate clients as quickly as possible so we can turn the page and start focusing on building the future. The third priority is about getting our risk, governance and control settings right. This includes placing ethics and risk at the core of our culture, and it's a nonnegotiable item. We've committed to invest $100 million over 2 years and recognize, like the rest of the industry, that we must lift our game in this area, building compliance into our processes, systems and conduct and making risk management a key responsibility for all.

As noted on the right hand of the slide, you'll see the immediate actions to win across all our core businesses. But I would urge you to consider '19 as a transitional year, focused on the delivery of the 3 priorities previously outlined. Delivering each one of these projects individually would be challenging in and of itself. Delivering all 3 at once will require the whole organization to be fully focused and execute with relentless prioritization and discipline.

So to conclude my observations, one of the things that has energized me the most has been the extent of the underlying support for AMP. AMP remains an iconic Australian company. It actually turned 170 years old last month, and despite the reputational impact we've faced last year, significant goodwill remains towards the brand. As a Board and as an executive team, we are acutely aware of the responsibility this places upon us, and we're all committed in succeeding in this transformation. Now we undoubtedly have challenges ahead. But we also have a clear set of strengths and assets to build upon. Our immediate priorities in '19 are critical to reset AMP and will put our business on a solid foundation from which to grow. Post separation, I see substantial opportunity to rightsize our cost base and optimize our capital management. And over the longer term, I firmly believe that AMP is uniquely placed to redefine the delivery of advice-led Wealth Management in a way that complements our strong investment management and banking businesses. I strongly believe that this will be relevant not only for Australia, but also in other markets.

However, our view is that the uncertainty in the final legislative outcomes of the Royal Commission requires us to take a prudent approach before finalizing our multiyear strategy and the related financial implications. As such, our plan is to update you on the progress made on our '19 priorities and our longer-term outlook at the half year results. With that, I'm going to hand it over to Howard, and we'll open the floor to Q&A. Thank you. Howard?

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Questions and Answers

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Howard Marks, AMP Limited - Director of IR [1]

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Thanks, Francesco. As you would all know, we webcast live, so please be accounting for that. If you have any questions, please wait for the microphone, state your name and company clearly, and we can get to you then. In terms of protocol, I think we'll take questions from the floor first, and then we'll go to phones thereafter. In that case, James.

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James Coghill, UBS Investment Bank, Research Division - Executive Director, Deputy Head of Research of Australia & New Zealand and Insurance Analyst [2]

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James Coghill, UBS. Francesco, just reflecting on what you said there on those 2 slides about strategy. I interpreted that as very little change in the bank and AMP Capital, which is understandable. But the words that you used were fundamentally reshape the wealth business, which we understand. And the vision that you laid out there, I think, is certainly a good one, and it covers all the right issues that people worry about. The only concern I have is that it's not -- hasn't really been prioritized in 2009 -- 2019. There's so much that AMP has to focus on, and you said prudently, that's how AMP has to direct its energies this year. It just feels to me like the world is moving quite quickly on that front. And if AMP is leaving the reshaping of Wealth Management to 2020 and beyond, you're going to fall behind the curve. So do you not think that the issues in Wealth Management should be prioritized as well as all the other issues that you have to deal with in 2019?

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Francesco De Ferrari, AMP Limited - CEO & Executive Director [3]

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Well, thank you, James. That's a good question. In delivering a strategy, I think there are a number of things that we consider. The first is do we have final legislative certainty on some of the key elements? And we really welcome the Royal Commission report. It is though a set of recommendations. And my experience has been, from recommendations to effective legislation, there can be a number of things that change. So I think there are a number of items in the Royal Commission report which are fundamentally in the best outcome of clients, those we're looking to tackle now. But we will need to have better line of sight on effective legislation before we arrive at a finalized view on the advice piece.

And the second, as you pointed out, is our capability to execute. We do have a very full agenda. And the separation of the life business, especially for the products and platform piece, will be instrumental to be able to simplify our offering. And so as much as we would like to tackle everything at the same time, there are some things that are necessarily preconditioned to be able to get there. It doesn't mean we will try to accelerate as much as possible, and we look forward to updating you in August as to how much progress we have effectively been able to make.

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James Coghill, UBS Investment Bank, Research Division - Executive Director, Deputy Head of Research of Australia & New Zealand and Insurance Analyst [4]

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Okay. And perhaps just a question on detail and controllable costs. So that's a very good progress, moving $35 million from below the line to above the line. And still in that other category, there's still some lumpy items. I mean is it your intention to stall -- put certain items below the line? And perhaps, you can just give us a little bit more color -- sorry, if this is detailed. I mean Gordon perhaps could address it. But just the nonadvice remediation, what exactly was that in over the year? And I mean, there's an additional $14 million there as well. So it's really only half of the other that you're actually putting up into controllable costs.

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Francesco De Ferrari, AMP Limited - CEO & Executive Director [5]

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So in terms of above and below the line, there are clearly some items that we've put below the line, which are one-offs. What we did in bringing a lot of the regulatory requirements above the line is recognize that that's the new normal now. There's lot of new legislation coming up all the time, and that's the new cost of doing business. And so that's the logic we will apply going forward in terms of, if this is recurring, we will show it in operating income.

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Gordon John Lefevre, AMP Limited - CFO [6]

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And James, just to follow on. There were a few items in other items that related to matters from prior years that we rectified. The intent is absolute that there will be no operating expense style matters that are booked below the line.

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Howard Marks, AMP Limited - Director of IR [7]

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Dan?

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Daniel P. Toohey, Morgan Stanley, Research Division - Executive Director [8]

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Dan Toohey from Morgan Stanley. Just a quick one, straight off the bat, the dividend policy. Can you confirm the dividend policy is unchanged going forward?

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Francesco De Ferrari, AMP Limited - CEO & Executive Director [9]

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So we've had very intense discussion, as you can imagine, in the Board on dividend policies since it's so relevant to shareholders. Howard confirmed the dividend policy is unchanged. We though have also looked at capital and the necessity to keep a very strong capital base since we are a client-facing business. And we are convinced that keeping a strong capital base is in the long interest of shareholders as well.

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Daniel P. Toohey, Morgan Stanley, Research Division - Executive Director [10]

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Just on the -- you talked about the opportunity particularly around the getting the advice proposition right for those who can't afford face-to-face advice. I guess through the course of '18, there was continuing and ongoing investment, as I understand it, in the projects around the closed-space advice engine and the Salesforce program, compliant by design sort of set-up, that you're executing on. Have they continued to track through the course of '18 to plan? Or has there been any disruption to those initiatives?

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Francesco De Ferrari, AMP Limited - CEO & Executive Director [11]

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No, the 2 initiatives have continued to track to plan. Salesforce is an effective tool to help our advice practices improve productivity and better manage the whole CRM piece. And so that will be very relevant for face-to-face. Goals 360 has also -- it's a fantastic technology. I don't know how many of you have seen it and had the opportunity to see some of the demonstrations. It's unique because AMP is one of the few companies that has actually invested in the front-end piece of advice. Most of them just invest in the robo back-end piece. And so getting the front-end piece is critical. We feel this has enormous potential in helping us build a direct-to-client advice digital offering.

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Daniel P. Toohey, Morgan Stanley, Research Division - Executive Director [12]

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Okay. And just finally, the up to 8 basis points, can you provide, I guess, how you got to that? I mean you had 4 -- almost $4 billion net inflow, I think, into North, so that transitionary or churn, if you like, has been quite high. So do you think that, that churn remains elevated in that assumption? Obviously, it captures the repricing which you'd know about then.

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Gordon John Lefevre, AMP Limited - CFO [13]

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Yes, yes. So Dan, about half of the 8 basis points relates to the full year impact of the MySuper repricing, with the balance recognizing both mix issues and ongoing response that we would have in the marketplace just to the competitive impacts.

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Howard Marks, AMP Limited - Director of IR [14]

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Questions from the floor? Brett?

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Brett Le Mesurier, Shaw and Partners Limited, Research Division - Senior Analyst of Banking and Insurance [15]

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Brett Le Mesurier from Shaw and Partners. Corporate Super, you said there were no outflows from the loss of large Corporate Super mandates. But it looks like you lost a few based on the comments later in that paragraph on Page 9. Does that mean we've got outflows coming in 2019 based on mandates lost in 2018?

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Gordon John Lefevre, AMP Limited - CFO [16]

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I'll start, Brett. No, we certainly didn't experience any outflows in these cash flows that you see on pages 8 and 9 of the investor report from the loss of any mandates. We've had a series of inquiries and potential reviews on those corporate mandates. Majority of them have ended up staying with us. And so we experienced -- continued to experience strong support from the very large majority of all of our Corporate Super mandates.

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Brett Le Mesurier, Shaw and Partners Limited, Research Division - Senior Analyst of Banking and Insurance [17]

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Right. So you did lose some mandates during 2018, but the outflows haven't occurred yet. That's the correct interpretation, isn't it?

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Gordon John Lefevre, AMP Limited - CFO [18]

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Well, there certainly was no outflows from any loss of any mandates in '18, that's right. There is one mandate that I'm aware of that we have lost, which will have an impact on '19.

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Brett Le Mesurier, Shaw and Partners Limited, Research Division - Senior Analyst of Banking and Insurance [19]

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And the -- just going back to the advice remediation costs. What's your level of comfort that there won't be further costs in 2019? In other words, the 2018 provisions that you've put in, is that your best estimate? Or does it build in some buffer as well?

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Gordon John Lefevre, AMP Limited - CFO [20]

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Well, it's certainly an estimate based on reliable information. It's based on a very solid set of assumptions that we have in relation to what we know today. We've consistently said, Brett, that we won't know whether these provisions are, we won't know what the actual amount is until we pay the last rectification dollar. What we do know is that we've got $656 million in a provision. And as we stand today, the way in which we've presented our accounts that they are true and fair is as it relates to that provision.

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Brett Le Mesurier, Shaw and Partners Limited, Research Division - Senior Analyst of Banking and Insurance [21]

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And what was the revenue margin on North in the second half? You've commented on 57 basis points for the year. If I remember correctly, was it 59 in the first half, so it implied 55 for the second?

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Gordon John Lefevre, AMP Limited - CFO [22]

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Yes, so it was 59 in the -- on an average basis in the first half and 57 in the second. So some sort of -- some decline. MyNorth has a well-placed and competitive pricing point in the marketplace that is a bit below the 57. And so as we actually move new clients into MyNorth, you'll see that, that average margin does come down. But overall, the actual -- the flows into there are strong, as you can see, and the pricing is very competitive. So it's not a huge back to front book issue that we face in North.

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Howard Marks, AMP Limited - Director of IR [23]

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Ross?

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Ross Curran, Deutsche Bank AG, Research Division - Research Analyst [24]

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Ross Curran from Deutsche Bank. Francesco, just as a new executive into AMP, I appreciate your thoughts on the group over the last 2 decades since listing. Notwithstanding the bad FY '18, AMP has been consistently a terrible company. It's the worst-performing large cap company based on any time frame, 1, 3, 5, 7, 10, 15, 20 years. Is that -- do you view that as poor strategy? Or is it poor execution? What explained the past 20 years post listing?

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Francesco De Ferrari, AMP Limited - CEO & Executive Director [25]

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I am more focused on the future. And if that's the track record of the past, that's a good place to start from. Listen, I think it's a company that has great assets. It's got a fantastic brand name. I was really surprised when I arrived here by the level of widespread support there is for the company. I think that, generally, if you look at it today, AMP is still a mutual in its DNA. And I think there is clearly the opportunity with this very painful but transformational transaction to change that and become more of a capital-light wealth banking and investment management-based, performance-focused organization. And that is a transition which, as much as I appreciate, we like to do everything together, is going to take some time. But I really see very, very interesting potential as we come out the other end.

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Ross Curran, Deutsche Bank AG, Research Division - Research Analyst [26]

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I'll be interested in your view on 2 issues that emerged through the Royal Commission as well. So the first is the issue of fee for no service. And philosophically, you can view that as an administrative oversight, or the very sinister interpretation of it is it's institutionalized theft of client money. Where do you sit in that spectrum? And how do you view that?

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Francesco De Ferrari, AMP Limited - CEO & Executive Director [27]

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Well, clearly, charging clients for a service that is not provided is unacceptable. And then the devil lies in the detail as to what were the cases -- the Royal Commission was only a case on misconduct as far as I understood. And so it really portrayed the worst possible behavior of all self-reported instances that the organization brought forward to the commission. And so clearly, in a large organization, you will have some failings, and we need to do better undoubtedly.

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Ross Curran, Deutsche Bank AG, Research Division - Research Analyst [28]

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Would you go as far to say that it was -- do you take the sinister approach to it that it was a theft? Or do you view it more as an error?

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Francesco De Ferrari, AMP Limited - CEO & Executive Director [29]

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Listen, from what I've seen of the culture of AMP, the DNA of this company is to help clients. So I do not believe this was intentional.

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Ross Curran, Deutsche Bank AG, Research Division - Research Analyst [30]

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And the second issue was around the report that went to the regulators on explaining that issue and the consultation that went backwards and forwards with your legal advisers that looked into it. Do you view that as a standard approach? Or is that an attempt to -- do you think AMP was attempting to actively mislead regulators and the market?

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Francesco De Ferrari, AMP Limited - CEO & Executive Director [31]

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You're getting me to comment on facts that occurred in the past, very hard for me to express an opinion. I can tell you from having met both ASIC and APRA extensively, we are going to partner with the regulators because we need to come up with legislation that is fit for purpose and fit for customers, and the regulators are under as much pressure as we are. So only by working together are we going to find a solution that makes sense for end clients.

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Ross Curran, Deutsche Bank AG, Research Division - Research Analyst [32]

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Sure. The reason I'm asking is it seems to be cultural issues within AMP, and I'm just wondering if you're bringing a series break to how AMP approaches its dealings with regulators and customers and stakeholders or if it's the continuation of the existing team and approach.

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Francesco De Ferrari, AMP Limited - CEO & Executive Director [33]

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What I can tell you as an Italian managing an Australian company, this is a clean break.

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Ross Curran, Deutsche Bank AG, Research Division - Research Analyst [34]

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And on that then, your senior management team, all of your direct reports and reporting structure, it's largely unchanged. You made one change to the senior management team and all the reporting lines are essentially the same as before. That doesn't really feel like a series break, it feels like more of a continuation.

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Francesco De Ferrari, AMP Limited - CEO & Executive Director [35]

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We have very important immediate priorities we need to deliver in '19. Let me be very clear, if we do not separate the Life Insurance business, if we don't make progress on remediating clients and on changing our risk and controls, these are all mission-critical for what we need to achieve. Now the appointment of Megan as head of the Life business and CEO of Resolution Life is critical for us to start designing the 2 separate organizations that we're going to split into. The combination of all the project management staff under Craig Ryman, critical to improve our capability to execute in a year where we have a full book of work. And Alex with whom I've worked 8 years at CS, I think, brings the future model for Wealth Management in Australia to the table. These were the 3 most important things I needed to fix today.

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Howard Marks, AMP Limited - Director of IR [36]

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Nigel?

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Nigel Pittaway, Citigroup Inc, Research Division - MD of Insurance and Diversified Financials Equity Research and Lead Insurance Analyst [37]

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It's Nigel Pittaway from Citi. The 8 basis point margin squeeze remains sort of dependent on management initiatives. I've just heard what Gordon said about MyNorth being competitively priced. But generally, across the platform book, do you think that your pricing is appropriate?

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Gordon John Lefevre, AMP Limited - CFO [38]

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It's certainly, in the areas where we're attracting flows, Nigel, North and then in the superannuation area, competitive. So SignatureSuper is appropriate into the programs and schemes that we're selling into. There are a range of other areas where people continue to have products that are slightly higher margin. They have features that, overall, are in the best interest of those clients. Over time, they may find that they withdraw those in retirement or that they move to other products.

The balance of the book to the majority is now beginning to move much closer to our front book pricing. And so these front and back book issues are certainly much less present than was the case in the past, the consequence of that is that if you take the 50% of what I talked about as MySuper, which was a clear and intentional reprice in a very important part, $20 billion of the book, I think that the balance, other 4 basis points, reflects the fact that we want to remain competitive, will be competitive, and there'll be some competitive pressure that comes into that and some minor rebalancing of pricing, plus there'll be some mix issues that [wasn't] on the book.

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Nigel Pittaway, Citigroup Inc, Research Division - MD of Insurance and Diversified Financials Equity Research and Lead Insurance Analyst [39]

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Just another question. I mean the 4 businesses that you have remaining, how well do you think they fit together? And do you see material synergies between -- for keeping them together?

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Francesco De Ferrari, AMP Limited - CEO & Executive Director [40]

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Yes, I would. My experience is being that integrated players across the value chain are able to deliver better client outcomes than fully disintegrated value chain. Today, if anything, the bank, for example, operates very standalone through external mortgage brokers and through its own distribution efforts. I think there is a real opportunity, as I quickly highlighted, to effectively grow the bank also by leveraging existing and group distribution. So yes, I think the business models fit very well together, notwithstanding that I think the Royal Commission has pointed out that the industry as a whole needs to be better at managing the conflict of interest within that model. And so we're obviously working very hard on that as well.

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Nigel Pittaway, Citigroup Inc, Research Division - MD of Insurance and Diversified Financials Equity Research and Lead Insurance Analyst [41]

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And maybe just finally, yes, I mean, obviously, the rebase slide is helpful. But given you got to reposition the advice business at some stage, it sounds like it might be a bit foolish to presume this is the lowest rebase. Is there any help you can provide on that front?

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Francesco De Ferrari, AMP Limited - CEO & Executive Director [42]

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On forward guidance. Now listen, the way -- I think the rebasing slide, we felt, was important to bring transparency because the Resolution Life is very complicated, and there's lots of moving parts. And so we just wanted to be very transparent as to what the baseline is. If you take a step back and you look at these numbers, we are effectively ending up with a business which is less earnings volatile and less capital intense, roughly with 2/3 of the underlying earnings potential and probably around half the capital. And so in that combination, there's got to be an opportunity for us to have a better capital management.

Where then these numbers finally end up? I think we need to have -- it's not that I don't want to commit. We really need to have legislative certainty because I'm learning about Australian politics, but I've seen a lot of in principle agreements. And as a business leader, it's hard to take definitive decision on stuff that may end up very different.

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Matthew Dunger, BofA Merrill Lynch, Research Division - Research Analyst [43]

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Matt Dunger from Bank of America Merrill Lynch. The outflows were higher again in the fourth quarter. Are these entrenched? What action can you take on outflows?

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Francesco De Ferrari, AMP Limited - CEO & Executive Director [44]

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So maybe Gordon and I can take that. So if you look on Slide 9, $4 billion of net cash outflow is, I guess, from Australian Wealth Management. Sorry, I'm on the investor report, not on -- but generally, $4 billion of outflows. 2 of these $1 billion relate -- $2 billion relate to pension payments. That's structural service to clients. We have been operating 170 years. Clients, we pay pension to them. So -- and we have the other $2 billion, which are clearly an issue and not a satisfactory result. My experience has been that these negative cash flows -- or at least turning this around is going to require 3 things. One, trust in AMP and strength of the brand. The second is good products and services. And the third is sales intensity.

Now the first, in terms of the brand, clearly damaged by the Royal Commission, but underlying a very strong brand. So it's a question of time, and you can look at other companies that have gone through similar things and draw your own conclusion as to how quickly it will take. On products and services, I think we have a very good contemporary product. The insurance separation gives us the opportunity to further consolidate and have fewer products that we invest in, and so I think we can be very competitive in all the spaces. Our big challenge today is sales intensity because our financial advisers have been focused on retention and on customer remediation. And so we need to get through the customer remediation program quickly so we can free up time to focus on sourcing new business.

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Matthew Dunger, BofA Merrill Lynch, Research Division - Research Analyst [45]

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In your observations, you're talking about product. On the retirement incomes framework, how appropriate are the current suite of products for the pension space?

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Francesco De Ferrari, AMP Limited - CEO & Executive Director [46]

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That's a good question I don't have a detailed answer to. I have been here 2.5 months. Let me look into it. But clearly, I see companies.

(technical difficulty)

We do have a number of products currently in our suite which are doing well. But to have a more complete answer, I need to get back to you on that.

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Matthew Dunger, BofA Merrill Lynch, Research Division - Research Analyst [47]

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Okay. And then just finally, on the $130 billion sitting on the platform with $9 billion on external platforms, do you see any mix shift in that mix? Are you likely to move to more of an open infrastructure -- open architecture platform?

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Francesco De Ferrari, AMP Limited - CEO & Executive Director [48]

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So that's a good question. That's something that, for me, for example, on North, we have -- it's an open product platform so you can source any type of product on the market of North. So I'm struggling to understand how that can be -- we do have open platform, we do source the best of breed in products on North already, and we will continue to enhance and broaden the offering. But definitely, being an advice-led wealth manager means that you need to offer the best of breed to clients.

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Howard Marks, AMP Limited - Director of IR [49]

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Kieren?

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Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [50]

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Kieren Chidgey, UBS. Just a follow-up question on the -- it does relate back to the 8 basis points of fee margin pressure guidance. To what degree does that incorporate potential budget impacts that were outlined in May last year? And can you provide an estimate of what that would be if they legislated this as was originally proposed?

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Gordon John Lefevre, AMP Limited - CFO [51]

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Yes, thank you, Kieren. It does not. And as we've been clear, it is absent to any further regulatory changes. As for the position already put by Francesco, we really need to see what the final legislation is. That particular legislation seems to be going around like a football in Canberra. Let's see where it lands. And where it lands -- and once we know it's legislated, then we can actually give as we should an appropriate response to the marketplace.

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Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [52]

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I mean just we know in months passed sort of that budget announcement. We've seen estimates given by a number of your peers link [out of] life. And given the reduced earnings base of the group, that impact looks like it could be more material on a go-forward basis. Is it not possible to provide an estimate under what was originally proposed with obviously the caveat that, that may change?

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Gordon John Lefevre, AMP Limited - CFO [53]

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It's possible to, we don't believe it's appropriate to. We honestly have consistently, and believe now, held the view that things must be legislated first and for us to know what the legislation is. It's the only way for us to then give you guidance that will be something that we can stand behind and that you can actually stand behind.

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Howard Marks, AMP Limited - Director of IR [54]

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Question from the phone. So I think let's go to Siddharth.

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Siddharth Parameswaran, JP Morgan Chase & Co, Research Division - Research Analyst [55]

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Gentlemen, can you hear me?

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Gordon John Lefevre, AMP Limited - CFO [56]

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Yes.

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Siddharth Parameswaran, JP Morgan Chase & Co, Research Division - Research Analyst [57]

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Okay. Great. Okay. I just had a question, firstly just around the comments you made earlier, Francesco, around some of the concerns you had around legislation. Could you just comment on exactly what you think of some of the comments made around the best interest duty and where -- and how that should play out and particularly for both the trustees as well as for advisers and some of the implications for your business based on what was recommended in the Royal Commission?

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Francesco De Ferrari, AMP Limited - CEO & Executive Director [58]

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Yes, thank you for the question. So on the adviser front, my interpretation is that the Royal Commission just reinforced a lot of the cornerstones of FoFa, which I believe came out in 2013 in Australia. And so definitely for us with a large aligned financial adviser network already operating under that regime, clearly important, we focus on strengthening some of those things, but largely, they are on the trustees. Clearly, this for us is an important area that we're working on together with APRA. And we are one of the largest players in superannuation, so we will adapt to whatever regulation comes out to ensure we're best-in-class on the independence of trustees. These are both very important parts that we get right to ensuring that we keep the integrated and vertically integrated value chain. And so we feel we're already doing well on one. We can improve the trustees set-up, and we're working with our trustees to get there.

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Siddharth Parameswaran, JP Morgan Chase & Co, Research Division - Research Analyst [59]

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Just a clarification on that. I mean I think with the Report 515 from ASIC, I think that they had quite a bit of concern around just the quality of the advice and the way I think the institutions thought they were meeting the best interest duty in terms of funneling clients into a line of products. Do you not think that some of the changes that were mooted in the Royal Commission might well change some of the economics of the way your planners have actually been directing business?

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Francesco De Ferrari, AMP Limited - CEO & Executive Director [60]

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I fundamentally don't think so. So for example, let's take North, and this is an interesting debate, I think, that has to be had with the regulator. North is a multi-open product platform. And so is putting a client on North a conflict of interest when then he or she can access all the products? Or is the funneling then from North into captive products a conflict? And so I think there are complexities in how effectively this ends up playing out. And that's why I'm saying we need to work, and it's our commitment to work very closely with the regulator, with the government and with all the stakeholders to make sure that how these recommendations are translated into the legislation effectively end up in good customer outcomes.

I can tell you personally for having gone through MiFID in Europe, there were very well-intended recommendations. Customers ended up on the short end of the stick of the lot of that legislation. And I think in Australia, we should absolutely try to learn from that and avoid unintended consequences.

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Operator [61]

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Your next question comes from Brendan Carrig from Macquarie.

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Brendan Carrig, Macquarie Research - Research Analyst [62]

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Just 2 questions, if I may. The comments around returning the majority of the net cash proceeds following the sale of the Life business and other assets, I'm just interested to understand if you had any preliminary discussions with the regulator and sort of their appetites for allowing capital returns during an ongoing advice remediation program.

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Gordon John Lefevre, AMP Limited - CFO [63]

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Brendan, I'll take that. We have ongoing discussions with the regulators about our capital position and also our capital forecasts. Those discussions with the regulators include exactly where we're at with our remediation, obviously, conversations with ASIC in relation to the conduct and the progress of that and then with APRA in relation just to prudentially where we stand. The situation as it is in the forecast certainly provides for the majority of that, as we had said previously and we sort of reconfirmed today, to be returned on completion of the sale. And so, at this stage, with both our interactions and forecasts provided, no red flags from the regulators.

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Brendan Carrig, Macquarie Research - Research Analyst [64]

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Okay. Cool. And then just a second one. You touched on it briefly in terms of just the replacement of the $85 million of lost profits from distribution agreement unwind. Can you maybe provide a little bit more color as to how you've arrived at the $65 million number that you intend to replace given the early stage and sort of the, I guess, the minimal commitment in terms of the processes or the ways in which you're going to recoup that money?

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Gordon John Lefevre, AMP Limited - CFO [65]

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Yes. To the extent, certainly, I can in relation to its derivation. The $65 million, Brendan, derives from what was a distribution fee where we were absolutely sure of where it came from. The balance of $20 million comes from the, what we call, the product perimeter and then the tax dissynergies. So our obligation was to look at ways in which to replace the distribution fees that we've lost by way of either revenue uplift or by cost outcomes. And so that's where it's derived from. We are working still at coming up with ways in which to replace that $65 million which was our obligation to the market and which we still stand by. The timing in relation to it was more open than the timing we've given in relation to recovering the stranded costs.

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Operator [66]

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Your next question comes from Ingrid Groer from Goldman Sachs.

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Ingrid Groer, Goldman Sachs Group Inc., Research Division - Equity Analyst [67]

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I just wanted to ask quickly just on grandfathered commissions, ongoing fees, if there's any update you can provide in terms of how much that revenue -- those types of revenues contribute to the various planning groups currently. And then I have a second question.

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Francesco De Ferrari, AMP Limited - CEO & Executive Director [68]

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So maybe I'd take that. On grandfathered commissions, the position of AMP has been clear from the beginning. We support a stage transition away from grandfathered commissions. We have partnered with our financial adviser network to transform our business to more FoFa-compliant fee for service, and a large part of our network has already migrated the fees. The remaining grandfathered commissions -- grandfathered commissions, in general, are a distribution fee paid by the product manufacturer to the financial adviser. And as such, there is very little direct impact on the P&L of AMP from grandfathered commissions. Clearly, it is an issue for our financial advice practices, and we've been engaging them.

The Royal Commission and the response from the government in terms of date has drawn a line in the sand. Alex and the advice team are working very heavily with all our financial adviser practices to support them in a plan to migrate the remaining small percentage of business that's still grandfathered in more contemporary fees.

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Ingrid Groer, Goldman Sachs Group Inc., Research Division - Equity Analyst [69]

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And so just to clarify that. I think during the Royal Commission, there were some comments. Maybe it was 20% or so of some of the revenue pools, and that would be dropping over time as the transformation happens. So would you say it's in the teens currently?

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Francesco De Ferrari, AMP Limited - CEO & Executive Director [70]

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I don't -- I wouldn't know what it is.

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Gordon John Lefevre, AMP Limited - CFO [71]

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For us, it would -- yes, it would be in the teens, Ingrid. It's certainly less than 20% now and dropping as each of the advisers and the advice practices look to replace those with more sustainable revenue streams.

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Ingrid Groer, Goldman Sachs Group Inc., Research Division - Equity Analyst [72]

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Okay. And then my second question was just on the buyer of last resort. I saw an update in the accounts in terms of how much you will need to pay in the upcoming 12 months. I just wanted to clarify when you have this potential for legislation to change, to what degree perhaps the contracts of buyer of last resort can be changed to reflect that.

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Francesco De Ferrari, AMP Limited - CEO & Executive Director [73]

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So maybe I can take that, although I'm not an expert in these things. The buyer of last resort is the possibility for advisers to sell the client registers to AMP. It's a process that takes 6 to 18 months. We go through a full due diligence of the business. We look at the quality of the revenues, we look at the compliance, and we do a full audit. The valuation of the businesses depends on a number of variables, including the outcome of compliance, including the quality of the recurring fees and including the latest market conditions. And so we arrive at a valuation only after taking all these elements into consideration. So what you see in the notes of the financial statement on the pipeline is not what we'll end up eventually paying for those registers if we do decide to buy them. And they pass all the tests, so there is a safety mechanism.

We're obviously working in strong partnership with our financial advisers through this process because as we have addressed them this week, the best way for them to ensure if they want to retire is just pass us a high-quality contemporary book, obviously.

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Gordon John Lefevre, AMP Limited - CFO [74]

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And you can see an evidence of that in that same note that you're referring to, Ingrid, that shows the equivalent amount for 2018 as it was at the beginning of the year and then the amounts paid for those registers.

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Howard Marks, AMP Limited - Director of IR [75]

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Okay. So any further questions from the floor? No. From the phones? No.

In that case, I'd like to thank everyone for coming today and to close today's briefing. If you do have any further questions as the afternoon wears on, please feel free to call either myself or Michael Vercoe, and we'll be happy to help. Thank you.