AMP Limited (AMP) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the AMP. 2021 Half Year Results Analyst Briefing. [Operator Instructions] I would now like to hand the conference over to Jason Bounassif, Group Treasurer and Investor Relations. Please go ahead.

Thank you, Harmony. Good morning, and thank you for joining AMP's first half 2021 results update. My name is Jason Bounassif, and I'm responsible for AMP's Treasury and Investor Relations functions. I would like to thank you all for your attendance and patience as we undertake our first results briefing virtually from our respective homes and offices in light of the current lockdown restrictions. I would also like to welcome Alexis George to AMP. Both Alexis, AMP Limited Chief Executive Officer; and James Georgeson, AMP Limited Chief Financial Officer, will take us through the results presentation. Following this, we will go to Q&A. Lex, over to you.

Thank you very much, Jason, and good morning, everyone. Let me start by paying my respects to our First Australians. I'd like to acknowledge the traditional custodians on the land on which we meet. For me, that is the Cammeraygal people of the Eora Nation. But I'd also like to acknowledge the custodians on the lands on which you are all joining us today. We pay our respects to the elders, both past and present, and extend the same respect to all First Nations peoples. I'm glad to be addressing everyone today, albeit virtually. As Jason said, it's unfortunate we can't meet in person, but we're in unprecedented times with half of Australia in and out of lockdown. I certainly hope everyone stays safe and well, and I look forward to meeting in person when the situation allows. As you all know, today is my ninth day in the new seat, but it's great to be in the door and getting started. As I said to our teams, it's an absolute privilege to be leading this iconic business at such a critical time, and I'm excited to be involved in shaping a new future for AMP. I have worked in wealth and financial services, most of my career and know intimately the huge impact the industry has on our customers across Australia, New Zealand and more broadly. I've used my gardening leave to take time to listen to many stakeholders, to read and to consider the strategic challenges and opportunities that lie ahead. Over the last week, I've also been able to engage widely inside AMP. And so far, what I've seen is an organization that is committed and working hard to simplify, improve efficiency and return to growth. There's no lack of energy or drive, and you'll see that reflected in the progress we highlight today. So if we move to the agenda for today. I'll start with a brief introduction of where we're currently at and what I want to be the focus is for the second half. After 9 days, I'm not going to be laying out a long-term strategy and need a further time to talk and listen to the various stakeholders before I'm able to do this. James will then provide an overview of the first half financials and the progress we've made against our 2021 market commitments. We'll then provide an update on our demerger plans. While it remains one of the top priorities for me and for the company and for our new CEO of AMP Capital, Shawn Johnson, today will be a high-level progress update and a road map for the next 10 or so months. We are targeting demerger in the second quarter next year, and we'll provide detail on the future structure, strategy, operating model and equity story for both companies in an Investor Day later this year. This will enable Shawn and myself to have a more considered approach. So starting with an overview. Overall, the result demonstrates a respectable first half performance compared to the same time last year with a 57% improvement in underlying net profit after tax to $181 million. The favorable economic and market conditions have certainly assisted with mixed performances across our businesses. However, the results reflect the hard work that has taken place, particularly with regards to the simplification agenda where we're seeing an absolute reduction in costs. We remain on target to deliver on our commitment to reduce controllable costs by $300 million on a run rate basis by the end of 2022, an absolute reduction of $40 million in this half. We've also returned close to $200 million to shareholders via the buyback and still maintained a capital surplus at the end of the half. As we approach the demerger and begin to finalize the new strategies, we'll continue to take a prudent and conservative approach to the management of capital. We will review the capital management strategy and payment of dividends once we have completed the demerger. We're also starting to see positive growth signs emerging from the transformation within our businesses, which is extremely promising. Our pension joint venture with China Life, CLPC, also delivered its first cash dividend of $7 million and the future trends appear positive. CLPC grew by approximately 8% in the first half '21 to $280 billion in AUM. I'm also pleased to share that our client remediation program will be largely complete this year. The file reviews are finished, we're fully provisioned and the majority of payments will be made to our customers by the start of Q4. The reshape of advice and simplification of our approach in superannuation both have momentum, although it's early days, and the teams remain focused on delivering further benefits. The investments made in our bank and platform businesses are also starting to deliver growth, and we'll be driving that hard in the second half. In AMP Capital, we've restructured our public markets businesses, announcing the sale of Global Equities and Fixed Income, or GEFI, and started the internalization of the Multi-Asset Group business. This will set up a clear perimeter to the demerger of the Private Markets business in the first half of next year. And our New Zealand business has continued to drive through change to its operating model while maintaining a consistent earnings profile. Culture, rightly, has been a major focus for the Board and all of our leaders. AMP has started the journey to reinvigorating the culture, improving systems and reporting and putting in place a clearer performance framework. More important to me, however, is the way I can see the changes being embraced within the employee base. Shaping the culture is top of mind for our people and will absolutely be so for me. The focus from here would be to become a truly purpose-led business with a culture that's dynamic, inclusive, accountable and customer-centric. While it's a work in progress, it remains a focus for me personally, and I'll be leading it from the front. Finally, the priorities for the second half. Of course, one of the primary focuses will be the AMP Capital separation and demerger preparation, which we'll talk to a little later. I'm also very clear that we have a strategic simplification program in flight, and we need to deliver on our commitments, including costs. Of course, we'll look at the strategy refresh as part of the demerger, including the appropriate cost base and operating model for both our businesses, but that's going to take some time to work through. Before I hand over to James, I wanted to quickly address our broader stakeholder view on Slide 6. I understand we've presented this slide before, calling out highlights of what we've delivered to customers, employees and the broader communities. And I think it's important that we continue this tradition. As we look to reinvigorate our brand, it is important that we remember all of our stakeholders. AMP is on the journey to customer centricity. I've had some experience with customer-led transformations in my previous organizations. And I have to say that I'm impressed with the NPS scores that AMP has been able to achieve in some pretty difficult times. It's also been a year where the company has had to be adaptable, helping our customers affected by natural disasters and, of course, the COVID pandemic. I've mentioned culture, but I do want to call out our people's committed response to COVID and lockdowns and the support we're providing to customers. It's an uncertain time for many, and we can and will continue to play an important role in helping customers throughout this period. Similarly, our commitment to our employees is paramount, and it's wonderful to see the support that is being offered in such difficult times. On that note, I'll hand over to James to talk through the first half performance and progress on our strategic commitments. James, over to you.

Thank you, Alexis, and good morning all. I will move to the financial results first, and then cover the progress we are making against the strategy before handing back to Alexis to cover the demerger and closing remarks before we head to Q&A. The turnaround in results we're reporting today reflect a recovery in overall profitability of the group, following the impact of COVID across most of our businesses last year. On Slide 8, we show the half year '21 profit summary where underlying NPAT is up 57% to $181 million. The recovery in earnings was largely driven by improvements in the bank from the release of loan loss provisions and improved investment income, including the first half of results from our Resolution Life retained 19% investment. Improved investment markets helped both our Australia and New Zealand wealth businesses. However, performance and transaction fees in AMP Capital remain subdued given the ongoing impacts of COVID on certain infrastructure assets such as airports. Our bottom line result includes a number of nonrecurring items, which are a net loss of $35 million. I will cover the main items shortly. Taking all of these into account, the bottom line statutory result for the half is a profit of $146 million. Turning to Slide 9 which shows the key items reported below underlying profit. The key items of note include: the provision top-up in relation to our 3-year client remediation program; transformation cost outspend, which was $61 million in the first half, this spend relates to the $300 million cost-out program; and other items totaling $71 million in the half. This includes the one-off gain on the sale of the New Zealand precinct property management rights, which we announced earlier in the year, partly offset by costs associated with conducting the portfolio review as well as the initial spend on the demerger. Moving to the summary of business unit performance on Slide 10. Our Australian Wealth Management business has performed resiliently in a period of ongoing change to both our Advice Network and from product simplification. Net profit of $48 million for the half reduced $10 million compared to the same time last year and reflects the following impacts: a $23 million reduction in AUM base revenue, including the impact of the removal of grandfathered remuneration and AMP Life's SFT impacts; it also includes a $40 million impact to advice revenues from impairments to advice practice investments and the network reshape activities. This was mostly offset by a $31 million improvement in variable costs following the phasing out of advice support payments and restructures to the employee plan in network. AUM was up 8%, higher than the first half '20, closing at $131.2 billion, reflecting the strong recovery in investment markets over the last 12 months. The net cash outflows of $2.7 billion for the half compared to a $4 billion net outflow in the same time last year. However, the prior period result included $1.3 billion of outflows from lost corporate super mandates and $900 million from the early release of super payments. So adjusting for these large one-off impacts, underlying cash flow performance is down compared to last half year. We are seeing better inflows into our flagship North platform but have also seen elevated outflows given the level of market competition. At a net cash flow level, AMP's North platform continues to perform well with net inflows of $1.4 billion this half and AUM just shy of $57 billion, up 10% in the half. Total revenue margins declined to 71 basis points, a 4 basis point reduction from the first half of last year that held flat across compared to second half last year. The movement from first half last year primarily reflects the impact of the AMP Life SFT pricing changes as well as the cessation of grandfathered remuneration. We do expect total revenue margins to decrease by approximately 7 basis points across 2021 to approximately 66, reflecting the impact of the MasterTrust repricing and simplification activities. These changes have been delayed a few months, hence, the minimal compression this half compared to the second half of last year. We are continuing to see good traction on the cost-out program with absolute controllable costs in the half in Wealth Management, $13 million lower than the same time last year. This largely reflects the impact of the cost savings achieved as part of the ongoing simplification and efficiency work. As mentioned earlier, we also reduced variable costs in the half off the back of the continuing Advice Network reshape activities. We continue to focus on supporting advice practices to become scalable, profitable and compliant. You can also see from the graph on this slide, the improvements in the practice scale we've achieved over the last 2 years. As we have guided previously, and as you can see in our numbers today, the pricing and margin changes are being offset by cost efficiencies in the business. As we continue to transform the Wealth Management business, the second half net profit for Wealth Management is expected to be at a similar level to the first half as the ongoing margin compression is offset by efficiency savings within the business. This obviously assumes normal investment market conditions. Moving to AMP Bank on Slide 11, which has performed well. Net profit of $88 million was up 76% on the same time last year. This half included the benefit of $12 million of pretax loan loss provisions, reflecting the more favorable macroeconomic outlook, whereas the first half of last year included a $35 million pretax provision increase. Lending conditions in the half remain competitive, with ongoing pressure being placed on mortgage growth and revenue margins. Pleasingly, we have seen growth return to the book. At the same time, we've continued to maintain a prudent approach with a focus on high-quality credit. To that end, importantly, arrears rates continue to perform well and were favorable against the first half of last year across both the 30- and 90-day arrears categories. The NIM increased 8 basis points from the first half of last year to 171 basis points, reflecting the roll-off of expensive excess funding and liquidity held through last year given the uncertain market environment following the initial COVID market shocks. Looking forward for the bank, we are seeing a continuing positive growth outlook into the second half with a strong mortgage pipeline into Q3. However, we are cautious given the recent lockdowns in place across most of the country. From a NIM perspective, we do expect funding costs to provide some offset to the pressure on revenue margins given the competitive backdrop. And the bank continues to target double-digit earnings growth over the medium term, but we don't expect to have the same level of provision releases in the second half. On Slide 12, you can see the New Zealand Wealth Management's net profit, which was $20 million for the half, $2 million higher than the same time last year, reflecting stronger investment markets and tight cost control. AUM was up in the period, benefiting from strong investment markets. However, cash flows in the half were impacted by negative sentiment arising from the loss of our default KiwiSaver status. These funds are yet to transition. Turning to Slide 13. AMP Capital results were down with 1H '21 net profit of $61 million, a reduction of 19% period-on-period. The main impacts were from the following items: firstly, there were lower AUM-based revenues in both real estate and infrastructure equity; secondly, lower non-AUM-based revenues and performance and transaction fees, of which non-AUM-based fees decreased materially in the half, reflecting $15 million of GIF II infrastructure commitment fees, which did not repeat, and performance and transaction fees were impacted by $20 million of carry on our Infrastructure Debt Fund II in the period last year, which did also not repeat this year; and thirdly, there were FX impacts on foreign-denominated revenues given the appreciating Aussie dollar. This period's performance and transaction fees continue to be subdued, reflecting COVID impacts, particularly on airport assets. The lumpiness of the non-AUM-based revenues and performance and transaction fees will remain until we transition to a full series of closed-ended funds. Outside these one-off impacts, AUM-based management fees reduced by only 4% and proved resilient despite the challenging backdrop. Seed and sponsor income was $7 million, up from a $16 million loss in the prior period. This was driven by a recovery in some real asset valuations across the portfolio given the large unrealized valuation impact in the first half of last year. AMP Capital controllable costs were broadly flat year-on-year. Net cash outflows were at $9.4 billion for the half. The outflows were mainly due to the loss of the Australian Diversified Property Fund, representing a $4.2 billion impact and outflows in the public markets business. As a result of the cash outflows in the half, average AUM decreased by approximately $10.4 billion to $187.2 billion at the 30th of June. Second half '21 cash flows in public markets will include the impact of the New Zealand Wealth Management passive mandate transfer to BlackRock. This AUM is predominantly a low-margin business. Whilst this period was impacted by subdued performance fees, AMP Capital is well placed to take advantage of future market opportunities with $1 billion of capital deployed in our infrastructure equity business in the first half of this year and with $5.2 billion of committed capital yet to be deployed across the business. Turning to controlled costs on Slide 14. This chart outlines the controllable cost movements across the half, which shows an overall 6% decrease. This is a good outcome as we begin to see the benefits from our cost-out program flow through. The key movements include a total of $53 million of CPI reinvestment and regulatory and compliance cost increases in the half, which was more than offset by a total of $66 million of reductions from the cost-out program, reflecting both the flow-through of 2020 activities as well as the actions taken. The $10 million of COVID-related cost in the first half of last year did not repeat this year. As part of the 1H '21 controllable cost performance, we have absorbed a more normal level of short-term incentive accruals, following 2 years of low outcomes. We continue to expect overall controllable costs ex AMP Capital to be approximately $775 million in 2021. Over the page on Slide 15, we outlined the cumulative progress on the cost-out program. We continue to remain committed to delivering $300 million of cumulative gross annual cost savings by the end of 2022. The net benefit to flow through is still expected to be $200 million, with approximately $140 million in controllable costs and approximately $60 million variable costs, albeit we may see a slightly higher proportion of variable cost reductions based on our current estimates. We've already made good progress on this front with approximately 40% of the 2021 target already achieved as we head into the second half. On Slide 16, we show the latest position of our client remediation program. Really pleasingly, we have completed the file reviews of the remediation program and are now fully provided for the total costs. We are proud of the team's effort to get this outcome given the substantial work undertaken. Stepping back, after 3 years, we have now completed all the file reviews ahead of our internal expectations and with the final cost within 6% of the original estimate we made 3 years ago. During the half, we did recognize a final $33 million post-tax provision adjustment relating to the fee for no service program as well as some minor adjustments to our other remediation activities. As Alex said, the program will look to ramp up payments to customers over the next quarter, with the large majority of payments to be completed. As previously indicated, no insurance recoveries have yet been recognized, and we continue to pursue our insurance recovery options. On Slide 17, we show the capital movements in the first half. Surplus capital is in a strong position at 30 June with $452 million surplus to our target requirements. The previously announced $200 million buyback was completed during Q2, following the conclusion of the portfolio review earlier in the year. The remaining surplus will be used to invest in the transformation strategy, support business growth and to complete the various separation activities to demerge the Private Markets business, including completing the sale of the GEFI business to Macquarie and the transfer of MAG to AMP Australia. Accordingly, the Board has resolved not to declare an interim dividend. A prudent approach has been taken to capital in the lead up to the demerger. Slide 18 highlights the key guidance for the various businesses across the rest of this year. Overall, the first half set of results shows a good recovery in earnings, which was helped by favorable investment and economic conditions. In Australian Wealth Management, we do expect earnings to be broadly flat half-on-half as the impact of the delayed pricing changes and Advice Network reshape is offset by cost-out in the business. We expect approximately 7 bps of revenue margin compression across this year. AMP Bank is performing well in a competitive environment. We will continue to focus on driving stronger mortgage growth in the second half. Earnings are expected to be a little lower in the second half as the one-off provision releases are not expected to be repeated. AMP Capital earnings continued to be impacted by subdued performance and transaction fees as the business continues to transition to closed-ended funds, and we'll see a lower average AUM in the second half given some of the challenges in the business I flagged already. However, AMP Capital is well placed to take advantage of future market opportunities with $5.2 billion of committed capital yet to be deployed across the business. New Zealand is performing well, and we expect earnings to remain at similar levels into the second half. As a result, we do see a more subdued overall second half given some of the one-off benefits in this half won't repeat. From a strategy perspective, we continue to see good momentum across each of our businesses, and I will now touch on these activities. On Slide 20, we outlined the progress on our strategic objectives. The momentum in the delivery of our market commitments has continued into the first half of 2021 off the back of the strong performance in 2020. There is still a lot of heavy lifting required in delivering the strategy, but we are proud of what the teams have delivered to date. As you can see from the progress bars, we are making good headway to deliver each of the commitments. I'll briefly run through some of the highlights from the half on our progress. Starting in Australian Wealth Management on Slide 21. Our advice reshape program is now largely complete as we move to a consolidated adviser network that is more productive, professional and compliant. At approximately 95% complete, the program is tracking in line with project spending capital expectations. Looking to the next stage, we've announced a new contemporary advice service model that gives our remaining aligned network of advisers increased choice and flexibility on how they partner with AMP. As part of this, we will release institutional ownership of clients from AMP Financial Planning to advisers and the buyer of last resort obligations will fall away at the end of this year. The new advice service model and associated fee changes will be progressively introduced from the start of 2022. Turning to Slide 22. In superannuation, we've now completed the first 2 phases of our simplification program, delivering significant benefits to superannuation members. Our product simplification will continue in the second half with a reduction of the number of MasterTrust products from 11 to 3 and rationalizing the number of investment options, making it easier for clients to navigate and understand. This will drive the margin compression I mentioned earlier. The transition of the MAG business from AMP Capital to AMP Australia is well underway, and we plan to complete this work by the end of this year. As you can see, we are taking significant steps forward in superannuation to simplify the offers improve investment performance and deliver more for our members. Moving on to platforms on Slide 23. The repricing of MyNorth in the first half delivered some of the lowest fees in the platforms market. While the industry remains highly competitive, North continues to show its strength, with gross inflows increasing. We'll continue to invest in the platform functionality in the second half, including the launch of the new equity managed portfolio capability and a continuing focus on the EFA channel. Over the page to an update on AMP Bank on Slide 24. Our aim to deliver double-digit earnings in AMP Bank is on track after a strong first half. We've increased the efficiency of the home loan application process and improved our automated credit decisioning. This is resulting in faster and more consistent loan approvals for mortgage brokers and clients. Speed and consistency of approvals will remain important drivers of the bank's growth. And we'll continue to make improvements here in the second half in addition to activity to build brand awareness. We're also continuing to expand our channel reach with the continuing development of more direct-to-client channels. Turning to New Zealand on Slide 25. Larry and the team in New Zealand are in the final stages of embedding a new investment approach underpinned by BlackRock that delivers a clear focus on client ESG expectations in the New Zealand market, particularly around sustainable investing. As part of the change, a new investment philosophy and fee structure has also been developed including a material reduction in fees for customers. We also completed 3 small acquisitions in the half, and the team continue to seek further opportunities through our advice-first business. On AMP Capital on Slide 26. In addition to the good progress that has been made on the demerger in the first half, delivery of AMP Capital's 2021 business priorities has continued. As previously flagged, we've restructured our public markets business announcing the sale of GEFI to Macquarie Asset Management, which is expected to complete in the first quarter of next year. And the transfer of MAG to AMP Australia is progressing well and will complete by the end of this year. These changes are important steps on our demerger pathway and time line. In infrastructure, we have continued to see strong commitments in our infrastructure debt strategies, including a new Asia-focused fund. We'll continue fundraising in the second half, at the same time, exploring new investment opportunities in infrastructure equity. Real estate has continued to deliver strong results for clients, particularly in the AMP Capital Wholesale Office Fund, AWOF, which is Australia's best-performing office fund over the 1-, 2- and 3-year time horizons. The real estate business has faced some challenges over the last 12 months. However, we have not lost focus on delivering for our clients. The successful property development pipeline and investment performance are 2 clear examples of this. We have a long-standing history and strong capabilities in real estate and remain committed to support the business, whether it be through balance sheet or additional resourcing. On to our commitments to creating a simpler, leaner business on Slide 27. As covered earlier, we've made good progress on reshaping our cost base, and we're on track to reach our full year '21 targets. And from a capital perspective, we've also completed our on-market share buyback of $200 million that we committed to after the AMP Life sale. This completes the 2 capital initiatives following the completion of that sale. In the second half, we'll continue to pay down group debt with approximately $700 million of maturities expected. We'll also launch a share sale facility in Q3 to assist shareholders with small holdings to sell their shares. Moving to an update on our culture initiatives on Slide 28. As Alexis has already discussed, the transformation of AMP's culture will continue to be a priority. We've implemented a number of initiatives that have helped accelerate our cultural transformation. In the half, we implemented a new flexible work policy to support an inclusive workplace. We've also commenced the culture diagnostic with employees to identify the values that most matter to AMP. Whilst we've made a lot of progress, we know we have more to do, and we have a clear path to execution in the second half. Stepping back, we have achieved a lot in the first half of 2021. We've made significant progress with the advice reshape and have recently announced our new contemporary advice service model and the cessation of BOLR obligations. We have reduced prices on the North platform and continue to focus on the EFA market and make North the platform of choice for advisers. The transfer of the multi-asset group is well underway, building out the end-to-end superannuation business in AMP Australia. The sale of our GEFI business to Macquarie was announced recently and, in conjunction with the MAG transfer, ticks off a number of material prerequisites for the demerger. In the bank, we are focusing on delivering automation at scale with better automated credit decisioning capabilities and faster turnaround times to deliver a stronger client experience. We're continuing to drive cost out as part of our transformation with good progress being made on our $300 million target. Capital continues to remain in a strong position in the lead up to the demerger, and we continue to optimize the balance sheet with approximately $700 million of debt expected to be repaid in the second half. And all our customer file reviews in our remediation program are now completed, and we are fully provided for. We will focus on getting money back to our clients' hands in quarter 3. And with that, I'll now hand back to Alexis to provide an update on the demerger.

Thanks, James. I've called out earlier that getting the demerger completed will be one of my and the new CEO of AMP Capital's key priorities. I chaired my first demerger steering committee last week, and I was pleased to see that we're well in train with a good sense of what's necessary to get to this key milestone. We've talked to the strategic rationale and benefits before, but in short, this demerger will create 2 independent businesses that can focus on growth opportunities in their respective and very different markets. Secondly, it will enable further efficiencies and the removal of corporate overhead with more focused management teams. And thirdly, it will enable both businesses to accelerate their growth agendas, including the ability to access capital markets to fund them. The Private Markets business is already a leading player in the asset classes of infrastructure equity, infrastructure debt and real estate. The investment teams have a strong track record of performance in these capabilities, delivering consistent returns for clients around the world. I believe we've hired an exceptional leader in Shawn Johnson to take Private Markets through the demerger and into the future. Shawn, as you know, is based in the U.S. at the moment where he's meeting with our clients and teams in the region and elsewhere before making his way to Australia later this year, COVID restrictions permitting, of course. His clear feedback from the clients and to me is that they support the demerger and want us to press ahead with haste. And AMP Limited will also benefit from the narrow focus and the extra agility. We'll be a retail wealth player comprising super retirement, investments and banking, and we start from a position of scale and market leadership in Australia and New Zealand. We'll also hold AMP's strategic nonoperating investments, including the China Life-AMP Asset Management joint venture. And at this point, we're also considering holding a minority stake up to 20% in the Private Markets business to provide flexibility for the group and to ensure stability through the transition period. However, it would not be our intention to hold that long term. Now if we talk to the demerger progress. As I've said, we have a well-developed road map in place and work streams established to deliver critical components of this work. The demerger will be delivered in the second quarter of next year. However, by the end of this year, we're committed to having the businesses operationally separated. We're turning our focus towards operating models for both businesses and have made good progress on the management equity plans in Private Markets. We're also working on a new brand as well as investing in the AMP brand itself and, as I've called out earlier, working on the post-demerger strategies. Separating businesses that have been together for such a long time is no small task. But I'm assured we have strong expertise within the team from the separation and sale of AMP Life in 2020, which came with huge complexity. Finally, the time line on Page 32. As I've called out, we've taken steps already and we have a clear set of deliverables taking us through the full demerger. As mentioned, we intend to hold an Investor Day later this year where we'll provide further detail on the strategies for the 2 businesses, allowing Shawn and me to consider and debate the right way forward. We'll be continuing to engage with our investors, clients and people in the lead up to demerger, including seeking approval from our shareholders around May next year. So to conclude, I want to acknowledge the progress that's been made in simplifying the business and delivering on the commitments the team made at the start of the year. Amid the change, which is ongoing, we've been able to deliver an improvement in earnings in the first half '21, and we're seeing some positive signs for growth. Our capital position remains strong, enabling us to invest in our transformation and deliver the separation. The completion of client remediation reviews and being fully provisioned is also a significant achievement. Looking forward, we have a clear set of priorities to finalize the demerger, continue our transformation and focus on reinvigorating the brand and culture. The shape of AMP is changing, and we're taking it forward for our customers, shareholders and our people. I'm only 8 and a bit days in the job and know there is more hard work and challenges ahead, but I'm optimistic about what I've seen so far. So on that note, I'll hand over to you, Harmony, for Q&A.

[Operator Instructions] Your first question comes from Matt Dunger from Bank of America.

If I could just ask, firstly, on the performance fees in the first half, obviously, pretty subdued. You've been talking for a while about the shift to closed-ended funds. Just wondering if you could give us an indication of the timing for realization for some of those closed-ended funds.

Thanks very much, Matt. And I might let James answer that question because I'm sure he has more detail than me.

Yes. Thanks, Alexis. Thanks, Matt. So you're absolutely right, we are transitioning to a series of closed-ended funds. So the first of those was obviously the GIF I and GIF II funds, which are in the infrastructure equity business. And then we've got now 5 -- actually, 6 funds in our infrastructure debt range. So that's the first -- 5 were in our core range, and we've got our new Asia fund, which we're just launching now. So we have seen, in the first half of last year, the first of the performance fees come through on Infrastructure Debt II. That was a $20 million performance fee, or carry as it's known, last half. And we haven't had a closure of or the end of a period or an end of a fund result in this half. I think we're probably 2, 3, 4 years away to having a full, I guess, series where you have funds that are coming to the end each year, with new funds launching. So it's probably going to take us that time period to get to that full transition. The other thing that's happened in the half and literally really the trend over the last 12 months is we had historically been generating some really good performance fees out of our airport assets. And clearly, with COVID, airport assets have continually -- have been much lower in value and so haven't hit the thresholds for outperformance. So that has been sort of the other impact that is probably more extreme these last 12 months, which is making that transition a little more obvious.

If I could just ask a follow-up also on the demerger and separation costs, $100 million you've flagged. Do you also anticipate any further transformation-related costs for AMP Capital, noting that was originally excluded from the $1 billion to $1.3 billion transformation program?

So Matt, the $100 million is, I guess, a post-tax figure representing both the demerger, the MAG transfer and the GEFI work. And that's a second half number. We will obviously have some costs into the first half of next year. I guess we will probably -- when we come back to the market in November with our Investor Day, we'll have Shawn and Alexis sort of provide some more guidance and direction around where they would do from a transformation spend. I think the areas where we obviously need to do is continue to reshape the cost bases of both those businesses. But in the end, the AMP Capital Private Markets business is very much a people business, lot less in systems and technology and much more is about the quality of the investment professionals and the investing and managing of the assets. So we wouldn't envisage material big spend, but I guess we'd come back in November later this year to give more insight in relation to that.

Your next question comes from Andrew Buncombe from Macquarie.

Just the first one in relation to the Wealth Management business. You've mentioned in the investor report that you think AUM-based revenue will drop below 70 bps in '22. Should we be thinking that that's the bottom? Or do you think, over the medium term, that will continue to grind down?

Thanks for the question, Andrew, and I'll perhaps talk at a high level and then ask James to comment. I think in terms of the AUM-based revenue, as we already highlighted, we're expecting to make some further reductions in the third quarter this year. And that includes simplification of the funds and we're also continuing to focus on some cost reductions. So while we see some margin decrease, I think they'll be offset by costs. I mean, clearly, we're still seeing outflows and that is a real concern to me and something we want to focus on. I don't think that's just about service and price. It is about some reputation issues which we need to improve, and we're all focused on doing that. As we look into the future, post '22, I think there's going to be continued pressure in that space. And we need to make sure that we become efficient to offset that. But James, do you want to provide any further color on that?

Yes. Thanks, Lex, and thanks for the question, Andrew. So the 70 bps you referred to is obviously the superannuation products, a margin compression, because if you go roll that back to the total wealth level that we reported, 73 for full year '21, if you take the 7 basis points guidance, we'd be at 66 when we get to the end of this year. And we will see, obviously, a step-down into 2022 given the large portion of the MasterTrust repricing that's happening in Q3. So we'll get the full run rate of that not to come through into 2022. But you're right, the commentary, as we said, is the heading towards below 70. We think it's sort of in the mid-60s. It'd be where it will probably settle from what we can see at the moment. And that's much more on our retail super business, which is where that reduction is coming because we think the corporate super book is probably priced reasonably competitively at the moment given that you have to price the large schemes in there pretty aggressively to win them given their size of AUM and the scale benefits that the clients expect.

Okay. That's super helpful. Then maybe just for my second question, a little bit related. Just as you've been dropping those fees in Wealth Management, have you been seeing any positive impacts on volumes? Or is it still too early?

Look, I think we're definitely seeing the benefits come through in volumes. Probably North is the one where it's most obvious where the fees are, we would argue, at the very sharp end of everywhere. And so you've seen how we continue to drive net inflow, a little bit lower than where it was first half last year, but definitely where we've got prices to be at the very competitive -- at the competitive level, we've definitely seen good inflows. I think given the MasterTrust repricing will happen much more in Q3, that will start to help. And look, we've also had a really strong period of investment performance. Obviously, the rising investor markets have helped all boats lift higher. But our funds have particularly done well and have beat a lot of the benchmarks over the last 12 months, which has really lifted the multiyear performance. So look, we think it's both price, it's about investment performance and it's also about the service offering. We are starting to see some green shoots, but I think we just want to see how these pricing changes land in Q3. But if we look forward to cash flows, I think Francesco and I have always said previously we thought that the wealth transition and recovery post Royal Commission is always a 3-year exercise. We're probably 2 years through that. And we would be looking to hopefully report net positive cash flows for the full year '22 year. That's our hope, and we're trying to do the changes to support that.

And if I can just add to that, look, that's definitely where my hope is at. I think we've got a really good strong team there. And that's exactly what we need to do in terms of getting the business back on track. And I mentioned before, also, we have to address the reputational issues. So I'd like to think we're close to the bottom. We just got some hard work ahead.

Fantastic. And just my final one on the cost-to-income ratio and the capital business, please. It's obviously stepped up this half. Apologies, I missed the start of the call, so apologies if you've covered this already. But just can you give us a bit of an idea of whether that was cost- or revenue-driven and how easy that will be to rectify in '22?

Well, I think it was revenue-driven. But James, do you want to add anything to that?

Yes, Lex, that's right. It was revenue driven. We held -- costs were $2 million lower half-on-half, Andrew. So look, it is much more a revenue story. I think in the short term, we would see, with the subdued performance and transaction fees given the items I just referred to earlier around sort of airport assets and the moving towards the closed-ended funds over the next couple of years, we would sort of see that cost-to-income ratio staying sort of a little higher than our guidance or our historic guidance. Look, it's definitely a focus for Shawn and the team, particularly as we approach the demerger, around looking at the cost base and continuing to get it to a -- I guess, continuing to target a lower level and lower cost-to-income ratio than it is today. And I think as we come back to the market later this year, he'll have a chance to really outlay the plans that he wants to do to take that business forward and to get the cost-to-income ratio to a lower perspective than where it is today, absolutely.

Your next question comes from Kieren Chidgey from Jarden.

A couple of questions, if I could. I might just start off just recircling back on some of that Wealth Management margin discussion. James, just to be clear sort of on what you're saying, you're at 71 basis points of AUM sort of related revenue this half. Full year, are you saying the exit rate is 66? Or are you saying full year will be 66? I'm just sort of not clear on that because it kind of suggests that if that's the case, FY '20 could have ended up sort of being around 60 basis points or below.