AMP Limited (AMP) Earnings Call Transcript & Summary

Good morning. Welcome to AMP's full year 2019 Results Briefing. My name is Howard Marks, and I'm Director of Investor Relations. To my left sits CEO, Francesco De Ferrari; and CFO, James Georgeson, who will take us through the results briefing. Thereafter, we will have time for questions. So if we're all ready, let's begin. Thanks, Francesco.

So thank you, Howard, and welcome, everyone, also from me. James and I are very excited to be here to do this '19 results presentation. I'd like to start by congratulating James on his appointment as CFO. Looking forward to partner with you in this exciting journey we have ahead. Before I get started, I just want to kick off with some personal reflections on last year. '19 has really been a year of fundamental reset for AMP. We've taken the necessary actions to address a lot of the legacy issues, and this has resulted in substantial impairments, which we broadly announced at the half. We are also facing increasing regulation and this is impacting our cost base, and continue to see reputational challenges of the Royal Commission impact to our cash flows. So against this challenging landscape, though I'm proud of how the team has really come together in the second half. We've made significant progress towards our ambition of creating a client-led, simpler and growth-oriented business. We now have a clear road map of our strategic priorities. And we're starting to see really good execution momentum. You've heard me say from the beginning, reinventing AMP is not a quick fix. But I think what we've delivered in the second half makes me confident in our ability to deliver our 3-year plan. Now moving on to Slide 3. This would be an easy slide to skip over in the context of year-end results. But I believe that it's an important reminder of what AMP stands for and why we're here. We're committed to helping clients, we are very present in support of our local communities, and our employees are very generous in their volunteering to support of the less fortunate. In terms of today's agenda on Slide 4, we'll cover 4 -- 3 key items. James is going to take you through the '19 results. I'll then provide an update on strategy. And then we'll wrap up with 2020 outlook before we open to Q&A. So James, over to you.

Good morning all, and thank you, Francesco. Starting on Slide 6, which shows the group P&L. As Francesco said, 2019 was a year of reset for AMP. At our half year results in August, we took steps to reset the business with the announcement of the new strategy, the capital raise and the revised AMP Life sale. Across 2019, business unit earnings were down 25% to $544 million, and underlying profit is down 32% to $464 million. This was largely driven by the impacts of the AMP Life transaction, structural cost increases and margin compression as previously flagged. And our bottom line result included a $2.4 billion, mainly noncash impairment charge, which we largely announced at the half year. And consequently, today, we are reporting a very significant accounting loss. I'll now provide an overview of our 2019 business unit performance on Slide 7. Starting with AMP Capital, which produced an outstanding result across the board, with earnings up 19% year-on-year. In particular, strong performance in real assets, successfully raising more than USD 12 billion in support of our infrastructure strategies. Strong investment markets helped support AUM with growth closing up 8.5% to $203 billion. Non-AUM based fees increased significantly year-on-year, reflecting infrastructure commitment fees of which $14 million is not expected to repeat in 2020. Performance and transaction fees were supported by the one-off sale of management rights in one of our investment trusts. Controllable costs were up 16% year-on-year, reflecting higher staff numbers as we grow the geographic spread of the business and higher variable remuneration outcomes given the strong earnings performance. The cost-to-income ratio remained within our guidance of 60% to 65%. So a strong year in 2019, and we continue to target double-digit growth in AMP Capital earnings through the cycle. AMP Bank has again shown strength in a competitive but slow housing market. Operating earnings were stable half-on-half, but 5% down year-on-year, primarily due to the inclusion of major regulatory and compliance project costs in business unit results. Adjusting for these costs, operating earnings would have increased 2%. Pleasingly, mortgage lending growth in the second half of '19 grew despite a slowing housing market, and our residential book went to more than $20 billion. Deposits continued to grow, increasing $1.1 billion in the year, and margins were stable despite increasing funding pressures. We continue to target double-digit growth in AMP Bank over the medium term. In Australian Wealth Management, we continue to focus on delivering better client outcomes and in improving our competitiveness, whilst adapting to changing industry dynamics and regulatory conditions. As guided, operating earnings were reduced substantially year-on-year. This is largely due to 3 items: the removal of product revenues transferring with AMP Life, an $85 million impact; repricing and PYS impacts, a $45 million impact; and costs for major regulatory and compliance projects now reporting controllable costs of $15 million impact. These 3 items account for approximately 3/4 of the reduction in earnings year-on-year. Pleasingly, AUM balances were up over 9% from full year '18, reflecting strong investment markets, more than offsetting the cash outflows. AMP's flagship North platform continues to attract new funds with net cash inflows of $3.9 billion for the year. As we ramped up our focus on external financial advisers, we had strong inflows of $1.2 billion from this channel. At a total level, net cash outflows were $3.2 billion in the second half, bringing net outflows to $6.3 billion for the full year. Outflows have stabilized, with second half '19 performing in line with first half '19 and second half '18. We do expect cash flows again at this level in 2020 given the competitive and reputational pressures and as we continue to reshape the advice network. Total revenue margins declined 82 basis points, as we have previously guided. The reduction reflects normal mix effects and pricing to ensure we remain competitive in the market to deliver improved client outcomes. The margin decline also includes a 3 basis point impact from the AMP Life sale. As previously guided, the turnaround of Wealth Management business will take 3 years, with earnings likely to reduce initially before recovering. New Zealand Wealth Management's performance was resilient with earnings stable half-on-half. Adjusting for the effect of product revenues transferring with AMP Life, operating performance would have improved 7% otherwise. AMP Life's performance continues to remain challenged. As previously announced, under the sale agreement, Resolution Life will assume the profits and losses of AMP Life from 1 July 2018 until completion. In 2019, the business recorded experience and capitalized losses of $243 million, which produced an overall loss of $21 million for this business in the year. This includes the impact of strengthening best estimate assumptions in relation to PYS and ongoing issues with claims and lapses. If we move to Slide 8 on controllable costs. This chart outlines the cost movements in 2018 to 2019, which shows an 11% increase in controllable costs ex AMP Capital. This is broadly in line with our guidance, which reflected a number of structural changes in our cost base. These include: the first is a reporting change I've already touched on, up to $50 million of project costs for major regulatory and compliance change programs are now including controllable costs for the first time. Secondly, professional and general insurance costs increased sharply as changes are occurring across the sector. Thirdly, CPI and wage growth was approximately 2.5%, and we've also seen extra costs from regulatory and compliance-related activities. The first savings from the cost-out program have started to emerge with $19 million realized in 2019. The amortization benefits from the capitalized cost write-downs we announced at the half year have been offset by the first implementation costs of the new strategy. Turning to Slide 9, which shows the key items outside business unit results. Overall, we are making good progress on the various programs we have underway. Separation of AMP Life continues to progress with $183 million spent on the program in 2019. Legal separation remains on track for completion by 30th of June 2020. Given the extended settlement date and the accelerated simplification activity we're undertaking, we now expect the program costs to increase from the previously $320 million to $400 million post tax. The risk management governance and controls program is progressing well, with $33 million incurred in 2019. It remains on track and on budget to the previously announced $100 million pretax, and we complete that program in 2020. Transformation spend of $28 million relates to realizing cost improvements and program-related costs. As announced at the half year, we expect to report the $350 million to $450 million pretax cost of the investment program here over the next 3 years. Other items comprise a number of one-off and nonrecurring items, including the recognition of prior year tax losses. On Slide 10, I'd like to now provide you with an update on where we are with our customer remediation program. By the end of 2020, we expect to be 80% complete, and we are confident we can conclude the overall program by the end of 2021. Our key priority here is to get money back to clients as quickly as possible. As a result, you will have seen a large increase in the payments to clients in the second half of the year, with $190 million of payments made in the second half, a significant increase on the first half of '19. At the half year, we updated the provision for active advisers and inappropriate advice to reflect our experience to date. However, our provision for inactive advisers was still to be finalized. During the second half, we have both agreed all the major policies with ASIC and completed a pilot on inactive advisers. Accordingly, we have now updated our provisions in relation to inactive advisers, recognizing $150 million pretax at the year-end. The provision level now reflects the significant progress made over the last 18 months on the program. This entails 50% of our progress -- or 50% progress on inappropriate advice; approximately 20% progress on our fee for no service program in relation to active advisers; and the finalization of our approach for inactive advisers, including the major -- agreeing major policies with ASIC. The total cost of the remediation program is now only slightly above our original estimates made more than 12 months ago. Overall, the fee for no service component comprises just under 1/2 the $652 million provision at the year-end. This represents an overall refund rate of approximately 17% of total fees, or up to 29% when lost earnings are included. As previously disclosed, no insurance recoveries have yet been recognized and we are continuing to progress all recovery options. Turning to Slide 11, where we set out a summary of the significant impairments we recognized during 2019. As Francesco said, the impairments are mainly noncash and were predominantly taken at the half year. They principally comprise goodwill write-downs of $2 billion, reflecting the full impairment of the Australian Wealth Management goodwill and the AMP Life goodwill as well as write-downs of previously capitalized project costs and advice-related assets. In the second half, we recognized an additional $55 million post-tax of impairments, primarily from new BOLR notices, as these are only recognized when received, and a small component of additional practice finance loan provisions. These additional impairments were expected and were included within our guidance at the half year of the total expected advice network reshape costs of $550 million. In 2020, we continue to expect to see some further impairments as we continue to reshape network activities. On Slide 12, we set out our key capital adequacy measures. Eligible 3 capital is in a strong position following the capital raise completed in August. As we flagged at the time, we raised capital to fund the continued growth of our core businesses of AMP Capital and AMP Bank, and to accelerate new strategy prior to the receipt of the proceeds from the sale of AMP Life. As at 31 December, the group is holding $2.5 billion of capital above MRR. The key movements in the second half reflect the proceeds from the capital raise of $770 million, offset by capital to fund business unit growth and the first steps of the new strategy. Today, we've announced the Board will not declare a final 2019 dividend and have chosen to maintain a prudent approach to capital management ahead of the sale of -- ahead of the completion of the Life sale. Corporate debt increased during the year following the recent AMP Capital notes 2 issuance in anticipation of redeeming and existing the equivalent notes in March of this year. During the year, we took deliberate actions to extend the term of the group's funding profile and reduce our reliance on short-term borrowings. On Slide 13, we show the capital position as at 31 December, pro forma-ed for the AMP Life sale. As at 31 December, in line with the capital management framework we've agreed with the Board, capital above our target surplus is approximately $529 million. Adjusting for the expected net proceeds on the settlement of the AMP Life sale will add a further $1.1 billion to surplus capital. This is slightly lower than at the half year, reflecting the additional $80 million in separation costs, partly offset by lower capital dissynergies. The actual reported capital surplus at the completion of the Life sale will reflect the profitability and capital usage of the business and investments in the new strategy through the first half of 2020. As we've guided previously, we will assess all capital management options with the intent of returning the excess above target surplus to shareholders, subject to unforeseen circumstances. The quantum and timing of any capital return will be assessed following the completion of the sale of AMP Life and in consideration of the progress on delivering strategy. So recapping on 2019, there was very strong performance in AMP Capital with double-digit earnings growth and record fundraisings in both our infrastructure debt and infrastructure equity funds. Underlying trends in AMP Bank and New Zealand Wealth Management were also good despite flat headline earnings. We are continuing to address the challenges in Australian Wealth Management with good initial progress made on reshaping the advice network and product simplification, whilst also continuing to focus on delivering better client outcomes. Our client remediation program has now reached scale, and we made significant client payments in the second half of the year. By the end of 2020, we expect to be 80% complete and are confident we can conclude the overall program on time by the end of 2021. We have made good progress, early good -- early progress on our $300 million cost-out program with $19 million delivered in 2019 and 50% of our full year target for 2020 already actioned and a clear investment road map for delivering the strategy. The capital position remains strong with more than $500 million surplus above our target levels. And the AMP Life sale remains on track for completion by 30 June, which will produce significant additional surplus capital. With that, I'll hand back to Francesco, who will take you through progress on delivering the new strategy.

So thank you, James. As James said, now the progress on the strategy. If you start on Slide 15, for those of you that are on the phone, let me start with a portfolio slide from the half year results. On this slide, we highlighted how we're going to build a more focused, higher growth and higher returning AMP. Now 2 key drivers. We've made key portfolio decisions on 2 businesses at the book ends of the slide, and we're committed to a more focused portfolio centered around 2 core businesses in the middle of the slide. These businesses are our retail business in Australia and our global asset management franchise. So how are we going to deliver this? Moving on Slide 16. At the half year, I presented the reinvention and the transformation of AMP as a 3-year journey with the necessary foundational priorities to be delivered in sequence. Now to help track progress, we've structured the deliverables into 4 main drivers of value: simplifying the portfolio structure, reinventing wealth management in Australia, continuing to grow our successful global asset management franchise and creating a simpler and leaner business. Within these 4 buckets, we've identified 10 strategic priorities that you see on this slide. I'm now going to take you through them one-by-one, highlighting the progress we've made in the second half of last year and what are going to be our commitments for 2020. So starting with the 2 priorities to simplify our portfolio on Slide 18. First, on the sale of AMP Life. James already covered a number of the items. So just a few key messages from me. Overall, I'm really happy with the progress and the execution momentum that we're starting to see on this program, and we're on track for completion in June. This is an extremely complex book of work involving hundreds of employees across the business and touching a lot of elements of our group. We made strong progress in the second half. We've established AMP Life as a stand-alone business unit, and we have positive momentum on regulatory approvals. If we move on to the divestment of our New Zealand Wealth Management business. In the second half, we've largely completed the localization of this business. And this year, we've kicked off the divestment process and are currently in discussion with a number of interested parties. In both these critical and foundational portfolio decisions, they will land in the first half of this year. Now moving to reinventing our wealth management business in Australia. This comprises 4 main strategic priorities. On Slide 20, the first priority is reinventing advice. Now given the complexity of the retirement and tax systems in Australia, I fundamentally believe that the need for advice has never been greater. And at the same time, the affordability of advice has never been more at risk. There is significant industry disruption causing a lot of the large players to exit, and this is a really interesting opportunity for AMP, but not if we keep doing the business the same way we've done. We need to change to rebalance the risk return profile of our business. And so in the second half, you would have seen us take bold steps to reshape the network by resetting commercial terms, by accompanying advisers through this difficult industry disruption, while at the same time ensuring that clients are cared for. We've also taken the first steps in building our direct-to-client channels. The consequence of this you would see is our assets per adviser has increased 28% year-on-year. Our focus for 2020 will be to continue to reshape the network, and we're focusing on 3 criteria: professionalism, productivity and compliance. We are codesigning with our top practices the future licensee offer, and we're rolling out our clientHUB across the network. Our second element is building the best-in-class retail super business on Slide 21. Here again, I'm really pleased with the momentum in the second half. We've made significant strides in improving client outcomes and reducing fees to around 600,000 clients. We've significantly upgraded our trustee operating model and governance and completed the heavy lifting on product rationalization. In 2020, we're committing to complete Phase 1 of this product simplification, which will see us, as you see on the bar charts, reducing the number of funds from 6 to 1, the number of product admin systems from 9 to 2 and the number of products from 70 to 11. This will further improve client outcomes on top of the removal of the majority of the grandfathered commissions that will happen in the first half. If -- moving to Slide 22, a lot of the headlines in our Australia retail business have really been captured by advice and super. And so I really haven't talked about our successful North platform. Now this is a very strong business. Assets are up 26% year-on-year, just shy of $50 billion, and external EFA inflows are up 44%. In 2020, we are going to remain focused on continuing to enhance our EFA proposition, strengthening our investment offers and platform features to continue to ensure our top market positioning. Moving on to Slide 23 and talking about the bank. Now this is an interesting element of our business model. We are truly in a unique position in the market, which enables us to win through what we believe is going to be a successful, differentiated strategy by integrating bank and wealth management. Maintaining the growth in the bank has 2 key drivers. The first is better tech and more automation. And the second, as I've said before, is the successful integration with wealth. In '19, our bank continued to grow ahead of the system, although, as James said, in a very competitive and challenged environment. Now in the second half, we've made substantial progress in re-platforming our legacy bank systems, and we aim to complete our platform modernization and our automation in 2020, and this will allow us to accelerate growth and improve client experience. And this year, we're launching our whole evolved proposition to our corporate super clients. Moving on to our successful asset management franchise on Slide 25. Pleasingly, in asset management, we've made strong progress against each one of our strategic objectives. In real assets, we've had truly exceptional performance. Our infrastructure funds were presented 2 out of the top 10 global fund raises last year, and our focus on 2020 is going to be on deploying the capital we've raised and prepare for the next series of fundraisings. In public markets, a while back, we restructured some of the teams, and we're now pleasingly building track record. In 2020, we're going to focus on these high alpha offerings, improving our OP model and working with our Australia business to simplify our product set. In terms of the international growth opportunities, we've been building really strong relationships with some of the most sophisticated international institutional clients, and the number of clients grew 19% year-on-year. Our China Life JVs grew well. And in particular, let me call out the China Life Pension Company, which showed an impressive 49% growth on assets year-on-year on the back of strong occupational pensions. We're really proud at AMP to be a partner of China Life, who the Financial Times recently predicted is going to become one of the largest pension funds in the world over the next couple of years. Now allow me a couple of slides outside of this format to highlight what some of our differentiated capabilities are in asset management. On Slide 26, our impressive numbers and compound annual growth rates in real assets really speak for themselves. International direct institutional client assets over the period grew 32%; infrastructure assets, 25%; and our real estate assets achieved a 9% annual compounded growth rate. So truly exceptional performance across all 3 of these criteria. On Slide 27, let me talk about through the less talked about differentiated capabilities in our public market space. Now Adam and the team made a few hard choices, and now they're starting to pay off. In listed infrastructure, our global property securities fund ranked #1 and delivered 38% performance last year for our clients. In listed real estate, our property securities fund and our listed property trust both ranked second and third, returning 27% and 24%, respectively, last year. In equities, our new global companies fund delivered 28% of annual growth since inception and is pleasingly arriving at the end of its 3-year track record. And our ESG strength is showcased in the sustainable fund being ranked second and returning 29% last year. And finally, in fixed income, we've had a number of bond funds winning a number of awards. So all in all, really very good momentum, not just in real assets, but also in public markets. Now to the last block of priorities relating to our group-wide initiatives on Slide 29. Our ability to execute on our strategy requires a simpler and leaner operating model. There are 2 core areas of strategic focus for us here. The first is the need to establish end-to-end businesses with discrete P&Ls. Now we've made good progress in the second half. As I said before, we're successfully establishing a stand-alone AMP Life and New Zealand Wealth Management business, and we've taken our first step in our Australia business by integrating bank and wealth. In 2020, our commitment is to continue to simplify the op model and create clear accountabilities and improved risk management in anticipation of FAR. The second priority is to reshape our cost base. Now we remain committed to delivering the cost-out and have decided now to uplift our original guidance. We're maintaining the $300 million gross savings target, but are now excluding AMP Capital, given, as James said, we manage this more on a cost income basis. We estimate the split of the $300 million to be 80% controllable, 20% variable, and expect over the cycle to have roughly 1/3 of it reinvested back in growing the business by 2022. Now if you heard James say, we've made some initial progress against this goal, delivering $19 million of in-year savings last year, but more importantly, the actions we've taken means we're more than 50% towards delivering our $140 million cumulative target for 2020. Now finally, on Slide 30, our last 2 strategic priorities. On risk management, we've launched a 2-year, $100 million uplift program across '19 and '20 to strengthen risk management and governance and controls. This is a nonnegotiable priority for the future sustainability of our business, and we aim to complete this program in 2020. Now on culture. Culture plays a major role in our strategy, and creating a high-performance culture is integral to delivering for our shareholders. Last year, we've taken the first steps towards defining and embedding our values and desired behaviors within the business. And our key focus in 2020 is on execution and accountability. Talking about accountability. On Slide 31, we've put on a page what you can hold the executive team and I accountable for delivering across each 1 of our 10 strategic priorities for this year, and we'll use this framework to track progress going forward. So now let me hand back to James to take us through our 2020 outlook.

Thank you, Francesco. I'll pick up on Slide 33, where we show the investments required to build the new AMP. As announced at the half year, underpinning the new strategy was a 3-year, $1 billion to $1.3 billion investment program. The program comprises the 3 components being, firstly, investing in growth. This is expected to cost between $350 million and $450 million pretax and really reflects our normal level of annual investment in the business. We will report this spend in controllable costs and is incorporated in our overall cost guidance. Secondly, realizing cost improvements. This is expected to cost between $350 million and $450 million pretax to achieve gross recurring savings of $300 million per annum. We will report this spend below underlying profit. And finally, derisking the business. This is expected to cost between $300 million and $400 million pretax and reflects both project investments included within controllable costs and capital outlays to reshape the advice network. The slide shows the approximate spend in full year '20 and over the life of the program. Just under half of the program is incremental spend to our normal investments. Turning to the next slide on the guidance on controllable costs ex AMP Capital. As I discussed earlier today, we've reported full year 2019 controllable cost ex AMP Capital of $1.017 billion. We continue to expect $300 million of gross savings from the cost-out program. And as Francesco said, we've revised this to exclude AMP Capital, given its growth trajectory, and we manage the business on a 60% to 65% cost-to-income ratio. This is effectively an upgrade of our prior guidance. These cost savings are expected to emerge 80% in controllable and 20% in variable. In full year 2020, we expect controllable costs of approximately $810 million ex AMP Capital. This reflects the removal of AMP Life, which reduces by about $170 million. The P&L savings from our cost-out program of approximately $90 million, which will predominantly emerge in wealth management. And partly offsetting this is the $50 million of cost increases which reflect 2 key items: the inflation and wage growth, including the rebasing of variable remuneration after 2 earlier -- after 2 weaker years, this is approximately half the increase; and the reclassification of items not previously included in controllable costs, and this is the other half of the increase. On the next slide, we outlined a number of guidance statements for full year '20. Adjusting for the sale of AMP Life, full year '20 underlying profit is expected to be broadly flat on full year '19 as we restructure Australian Wealth Management and we continue to grow AMP Bank and AMP Capital. In Australian Wealth Management, cash flows are expected to be at a similar level to 2019 and margin compression is also expected to be at similar levels. Some of this compression is expected to be recouped by lower investment management experience. Controllable cost savings are expected to offset some of these reductions. However, we expect earnings for the Australian Wealth Management will reduce by approximately 20% next year under normal market conditions. In AMP Bank, we're targeting above system loan growth. However, net interest margin is under pressure from both competition and funding costs. In AMP Capital, the transition to closed-end funds and the one-off fees in 2019 mean earnings are likely to be flat year-on-year, assuming normal investment markets. I'll now hand back to Francesco to make a few closing remarks before we turn to Q&A.

So thank you, James. I promise this is going to be the last slide, and then we'll open for questions. So to summarize, and this was, again, a slide from August. In August, we set out our ambition to create a higher growth and higher return AMP that will allow us to deliver value to our clients and to our shareholders. We also said that this transformation will not happen overnight. And 6 months into what is a multiyear strategy, today we have a clear road map of our strategic priorities and what we need to do. In the second half of last year, we were starting to see good momentum and execution. And this leaves me confident in our ability to deliver on our long list of 2020 commitments that we've outlined today, but more importantly, in the future of AMP. So Howard, I think that ends our presentation. Over to you to moderate the Q&A. Thank you.

Thanks, Francesco. Just before we begin, I'd like to remind you that today, we've been webcast live. So if you do have a question, please wait to be called and then state your name and company clearly. In terms of protocol, I think what we'll do is we'll start from the floor first, and then we'll move to the phones. So ready to go. Let's go.

Kieren Chidgey, UBS. Just like to start with a question around the platform simplification strategy, just your updated thoughts around sort of the timing of the success of fund transfers and the repricing, I guess, of some of the more legacy products through the remainder of FY '20, when we can expect that to actually occur. Just wondering sort of what sort of impact that is having on the fee margin outlook guidance that you've given in the '20 year and sort of how much rolls through to the '21 year in terms of what we should be thinking about as the new base fee level for that business going forward?

Yes. So thank you for the question. So one, doing the SFT is an integral part of completing the Life transaction. We weren't specific on the exact date, but this will happen in the first half of the year. And that's also a driver for the cessation of the majority of the grandfathered commissions, which is happening in the first half. I think you see on the chart that actually our product rationalization and simplification will happen in 2 stages. But a lot of the benefit occurs in the first half linked to the SFT of the Life business. And James, do you want to talk to the margin compression?

Yes. So look, I think we normally see 3 or 4 basis points of normal squeeze and mix impacts. I think we're still going to see a similar 3 to 4 basis points from that SFT simplification work that is going to hit in 2020, I think we'll see a similar number in 2021.

Okay. But beyond that sort of squeeze, which historically has been more mixed or churn based as legacies moving to sort of lower front book margins, are you taking a more proactive move to reprice the legacy back book as you go through that SFT process?

So yes, there is some absolute repricing of the back book, some of the legacy products. Some of that will come through on the SFT date as you're sort of flagging and then some will come in some further activities as we move to Phase 2 of the simplification, which was on that chart. So we'll get it over a couple of years.

And will those legacy products be repriced down to something comparable to where, say, your North platform is at a contemporary price point?

I think the thing to remember about North is, and -- versus some of the retailers, the North is probably more just a platform fee, whereas in the legacy products, it's got the platform and the asset management fee embedded. So they naturally sort of have a high level. Look, we're seeing most of the new flow go to North. I don't think the retail legacy super will go quite as low as the platform fee because of that gross up that goes on. But fundamentally, we had [ tools on ] the same level.

They are very distinct type of fees. One is for a whole product and the other is just for a platform. When you then buy funds on the platform, there are different fees linked to it. So they're not apples and oranges.

Yes. And just a second question around this guidance for underlying profit for FY '20. Can you just unpack in a little bit more detail exactly what you mean by broadly flat on FY '19 just given -- as you sell AMP Life, you're picking up some resolution Life assets. So there's investment income on those as well. So is there a number you can actually wrap around what you're talking about there?

So the way to think about it, Kieren, is if you take out AMP Life, both earnings and underlying investment income from the 2019 numbers, and there was -- we're guiding broadly flat off that base, you're right that we will -- settling the transaction in the middle of the year means there will be some investment earnings from the 20% return stake. So when you take all of those into account, we're saying broadly flat in 2020.

Okay. Including that resolutions day?

Yes.

Andrei?

Andrei Stadnik from Morgan Stanley. Yes. Just had another question on the outlook. A broadly flat FY '20 earnings ex Life. Are you talking about AMP Capital being flat, which has been the strongest performer? You're also talking about very substantial margin compression in wealth. So that is -- will do pretty well to get to flat. So is this an AMP Bank, all the banks are struggling to grow earnings. So where is, I guess, the margin for error here, if AMP Capital is not expected to grow earnings, kind of where is your margin for error in this guidance?

So I think when we looked at the guidance for 2020, we've looked at each of the businesses. So as we -- as I said in some of my commentary, AMP Capital has got some one-off fees in 2019 that won't repeat. Taking those into account, I think that the growth in AUM will kind of broadly sort of offset those one-off fees and is including, as we deploy the capital, the uncalled capital, committed capital in the infrastructure funds. We are seeing wealth management margins compress sort of -- again, we're going to see circa 10 basis points again in 2020 as we have done this year. The cost-out that we're doing is helping to underpin the earnings. We have said wealth management will be down probably 20% year-on-year. And in terms of the bank, we had reasonably flat growth in 2018 in the bank. It started to pick up in 2019 and into the second half. So some of the mortgage growth we're expecting to recover. One of the advantages we have in our mortgage book and our funding cost is we really don't have those 0% interest rate deposits. We don't have a lot of transaction accounts. And so we're able to absorb some of that lower interest rate environment, which is different to some of the other providers. So all in all, that's where we sort of get to a broadly guidance -- a broadly flat guidance for earnings in 2020.

My second question. In slightly left field, but thinking about AMP Capital, is AMP Capital's growth constrained by being part of AMP? I mean it is performing well. But when you think about some of your best-in-class peers, they've got much bigger balance sheet to do co-investment in the structure and real asset space. You can also develop own assets, which is becoming a differentiator, given there's a lot of money on infrastructure and building your assets is a key way to actually deploy the capital that otherwise would be sitting there. So just thinking of what are the benefits to AMP Capital being part of AMP Group which have been actually constrained.

So I think that's a very good question. So we went through a strategic review of our portfolio before we came out with the strategy last year, and we've come out with a pretty clear strategy on August 8. We feel that AMP Capital is a really important part of the group, and it's actually performed well. Now it can always do better. I think from my perspective, having 2 of the top 10 global infrastructure fund raises, given our size, and I think that's an amazing result. And so our focus now is on deploying these assets, making sure we invest them properly for clients, and the sooner we can do that, the sooner we can build the next wave of funds, and that's going to underpin some of the one-off fees. So we're actually pretty happy with the performance.

[ Chris? ] Let's go to Dan first.

Dan Toohey. Just a follow-up question. In terms of the reset of the business, and then sort of pull forward the pricing and competitiveness and positioning your wealth, is FY '20 in your, so I guess, how you're looking at the sort of trajectory? I guess the flow in the earnings, report it forward so that we can be comfortable that FY '20, we reached the rebase, the reset is done.

Yes, I think you would have heard me say, this is going to be a 3-year journey in terms of resetting. So if mathematically, you take '20 to '22, probably it's the middle of '21. Just in mathematical terms, we will see the revenues come down, and we are trying to offset that through cost reductions, although we do need to simplify and separate from Life before we can lean heavily into this program. So I mean would be interesting to see, but I think it probably will go slightly beyond '20.

Brett?

Brett Le Mesurier from Shaw and Partners. James, just following up on the question about the earnings from AMP Life next year, and Resolution Life. So obviously, this year and last year, maybe Life made well, pretty much nothing. And so you're assuming post the sale and your 20% interest in that guidance, you're assuming pretty much nothing as well for the second half?

Look, Brett, thanks for the question. We hope the business starts to return to some level of profitability. I mean there were some one-off impacts in 2019, particularly from PYS. And as well as we separate and stand the business up as a stand-alone, there's some -- been some of the impacts on separating that business. I think we've seen some disruption in our advisers with sort of some claims and lapses experience. So look, we would hope that -- and the leadership of the business and resolution all hope that the earnings start to recover. I mean the planned margins in that business are generally annually over $200 million. It just happens to be in the last year or 2, we've sort of wiped some of that out through best estimates assumptions. So our guidance takes into account a more normal conditions for the Life company in 2020.

The other question I had was the margins on North, the 52 basis points on average for this year. As I recall, is 54 points in the first half, which would imply 50 in the second half, which is a pretty heavy reduction from one half to the next. So you've got 2 sorts of margin compression, haven't you? You've got the averaging down as it translates to North, and then you've got North margins continuing to fall. Presumably, those North margins fall into 2020 as well, you'd be experiencing that now. Can you comment on the outlook for that? And obviously, it depends on competitive forces.

Sure. So the reduction we're talking about is that within North, we have a couple of pricing series. Given the platform has been around, obviously, AXA was the creator of the platform in the late -- certainly in the early 2000s. The front book is slightly below the 50 basis points that you're talking about. So we are getting a small mix impact that's going on with the North. That's obviously embedded -- well that is embedded within our full year '19 compression and is also embedded in the guidance that I gave earlier this morning that the similar guide -- the similar compression in 2020 includes a little bit further of what you're talking about in relation to North. And we see the front book of North being pretty competitively priced against the other platforms in the market.

Ultimately, if I can -- on the platform business, when we look at each one of our sort of individual businesses, we're asking ourselves, do we have the possibility to win in this segment. Now the platform one is an interesting one because there are interesting new competitors. But ultimately, it's a game of scale. And a lot of them are making margin on cash and interest. And with rates falling, that's going to create stress in the system. We feel we have a very sizable platform with $50 billion. We feel it is competitively priced, but also has really good features. We feel that one of the things that is really going to differentiate us is the ability to effectively integrate it into an ecosystem of technology, which we call sort of clientHUB, and you would see a slide in the appendix, where that's going to be a unique value proposition for advisers to not just manage the investments on a platform, but to ensure compliance throughout the whole value chain. And we think once we've completed that, that can be a differentiating element that will allow us to compete just beyond price.

Questions from the phone.

[ Andrew Duncan ], Macquarie Securities. Just a couple of questions to clarify some numbers, please. Just in terms of Slide 29, the $140 million of gross cost savings in FY '20. Can you just confirm that's an actual number and not a run rate like one of the other numbers in that chart, please?

Correct, that's an actual number.

Yes. Perfect. And then the other question I had was just on Slide 10, where you've said you put aside an additional $150 million for inactive advisers. But at the same time, you've said that the total number remains broadly in line with your original estimate. Can you just give us a bit of an idea of where you're provisioned to balance off the overs and unders?

So the program comprises -- and the provisions comprised 3 elements, the fee for no service program and where we've got provided -- adviser providing inappropriate advice and the program costs. So the offset that we're seeing is coming from a lower program estimate as well as lower expenses on the fee for no servicing on inactive advisers as well as on inappropriate advice. So the other 3 buckets are coming down as a response.

But if I can clarify, on -- I think well, not I think, from the 28th of November, we came out of 2018, we came out with a release of how much we think the program was going to cost. It was $778 million, not all of it was provided in the financial statements because certain elements, we said this is just an estimate. It's not robust enough to meet the accounting criteria to be able to effectively book it on the financial statements. And active advisers was one of those. So when I think James referred to broadly in line with our original guidance, it is this number that he's referring to, right?

This was from the floor. Now let's go to the phones.

Your first question comes from Simon Fitzgerald with Evans & Partners.

I've got a question here on capital management. I remember in previous communications, the company had mentioned that returning excess above the target surplus would be around about what the remaining net cash proceeds was in regards to the sale, which is $1.150 billion. Out of the $1.63 billion, was just wanting to know if your shareholders can still rely on that amount in terms of those net cash proceeds. But also noting today, you've mentioned that excess capital will firstly be used to fund the delivery of the new AMP strategy. And then quickly on a timing question, should we also think about that given it's a 3-year program, that we won't see any sort of capital management until at least 2022 up, which is probably the year after completion?