AMP Limited (AMP) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to AMP's Half Year Results today. Very pleased to have Blair Vernon with me here today. He's our new CFO as you're aware, but someone who has worked with AMP for many years and is very passionate about making sure we build a future for the company. Before we start today's presentation, I would like to acknowledge the traditional owners of the land on which we hold this meeting today, which for us is the Gadigal people of the Eora Nation, and I'd like to pay my respects to the elders past and present in this important time for First Nations people. So today, we are of course going to do an overview of the first half results. We will then deep dive into the individual business units with a particular focus on costs and capital, which I know is something you're all going to be wanting to hear about, before we summarize the results and turn to questions. So if I look at our results for the half year. We delivered an underlying NPAT of $112 million, which is flat with the same time last year, but up on the second half last year. Pleasingly, the underlying result certainly demonstrates better performance in our operating businesses. I want to remind you we've delivered $610 million of returned capital to our shareholders over the last 12 months. And with the declaration of a $0.025 dividend today franked 20%, that will deliver another $70 million in September and we're committed to completing the second tranche of the buyback by October depending on volumes. So that $750 million of shareholder capital will return by October of this year. We also as part of our capital and liquidity review have paid down $300 million of debt in July, which is important as we deleverage the organization and we're committed to paying further debt down at the end of this year and into next year. Our EPS has improved to $0.038 per share and for us that is a great result and something we want to continue going forward. We have in these results taken a provision for the BOLR class action of $50 million. That $50 million represents our best estimate of the judgment as we sit here today and understand it. There is further work to be done here and of course we reserve our right to appeal. But I want to remind you, we only just put our orders in yesterday and don't have the final orders from the judgment yet. As a result of that uncertainty around the litigation, we have today made a decision to pause the third tranche of the capital return being $350 million. Now I do want to stress the word pause here because our second tranche will continue into October. We will in that period when we're pausing that tranche make a commitment to no material M&A and I say that again, no material M&A. And we'll come back to the market on our position on the capital return by the end of the year -- by no later than the end of the year. Today we also, as we promised, announced a cost review program with $120 million taken out over the next 2 years. That's $60 million in '24 and $60 million in '25 with a oneoff investment of $120 million to $150 million. And we expect those costs out to be in the area of IT, continued focus on Advice, Master Trust replatforming and of course focusing on the group and stranded costs that have come through from the transactions. This result is delivered in a market condition that's interesting. We're still in an environment of higher inflation and interest rates albeit that appears to be abating, but we're well positioned. Our bank is well capitalized, we have a good credit quality in the book and whilst there has been a small uptick in arrears, it's nothing that I remain concerned about and we are well provisioned. Our LVR on a dynamic basis are at 53% as we stand here today. Having said that, we know that some of our customers are experiencing hardship and we're well placed to be able to cater for their needs in the coming months. If I look at our Platform business, it is impacted by some of the environment I just talked about, particularly in relation to our IDPS environment and our cash flows, but we have to remain focused on the longer term around retirement solutions where we're particularly strong. The regulatory environment is as positive as it's been for a company like ours. The government is now committed to implementing parts of the Quality of Advice Review, at least the first stream, which relates to our traditional financial advisers and the second stream, which would allow superannuation to provide further advice to customers. For us with our footprint, that is a definite bonus. On the first stream, it relieves some of that compliance burden for our financial advisers, which should allow them to see new clients again and bring more flows into the industry. And secondly, on the superannuation, we're clearly a company focused on retirement and super and being able to give better advice to our customers to enable them to have a richer retirement will be important. Although unquestionably strong, our capital shares in the bank remain incredibly strong and we're very much playing in that retirement stream that we've heard our regulators talk about recently. If we move to progress on our strategy for the first half of '23 and this strategy is no surprise to you. On reposition, we want to grow our bank and grow our platforms. We have grown the bank at 1.1x system for the first 6 months. I do want to stress that the market remains competitive and we've taken a very prudent approach to growth making sure we deliver return on capital. So while we want to continue to grow, it is important that we make sure we deliver return on capital. In the North platform while the flows have come off from the same half last year, we continue to grow the IFA footprint, which is incredibly important for us, and it's up 48% from the same time last year. And with our new retirement solutions, we continue to push on that front. New Zealand, stable results as they have delivered for several years and they just need to keep delivering on those stable results. And in our Master Trust business while the flows have reduced or the net cash flows out have reduced, it's a point in time where we need to rethink the platform there so we can engage better with customers in terms of digital and education. On the simplify, we have largely dealt with the AMP Capital sales and SuperConcepts in the half and that really gives us free air to be able to focus on the future. We continue to drive efficiency in our Advice businesses making sure we can focus on those services that our advisers want and are willing to pay for. We have committed today to cost reductions and we continue to focus on those costs; the stranded costs on the transactions, the group costs that were fit for an organization of the past; and we're absolutely committed to delivering on that. We have delivered shareholder returns in terms of capital and we'll continue to focus on that making sure though that we are prudent in relation to our capital and liquidity. And we continue to resolve those legacy issues, working through them methodically and rationally. On the explore side, we continue to invest in our digital and customer interactions to make sure we're well positioned for the future. We also continue to build on that leading position in retirement and we've won so many awards in that space that I remain incredibly proud of. And we want to continue to grow those platform businesses and the bank business and examine all propositions for Advice. And as you've heard me say before, we need to consider all propositions for Advice, but they need to be viable propositions not just for AMP, but for our Advice partners who are an incredibly important stakeholder for us. If I look at our stakeholders, shareholders always remain top of mind, but there are other players that we need to make sure are being met in terms of needs. On the customers, we've paid out over $1 billion in retirement. We've delivered over 4,000 new home loans. We're being proactive for those customers who are experiencing hard times at the moment. And our MyNorth solutions in terms of retirement have won many, many innovation awards and we're all very proud of that. On people, we have been going through massive transformation over the last couple of years, but our engagement remains above 70%. Would I like it to be higher? Absolutely. But I think given the changes we've been going through, that is something that should be noticed. And our trust and NPS with our adviser partners is improving and continues to improve. On communities: our AMP Foundation, which is a very large foundation, as part of its 30th year anniversary this year was able to deliver 2 $1 million grants to Global Sisters and the First Australians Capital to do good work in the community. And coming back to our shareholders, we very much listened to your feedback at the full year about making sure there's alignment between executive performance and shareholder outcomes and we've taken a good hard look at our performance framework and at our outcomes and reviewed those to make sure there is that greater alignment and they're included today in our financial pack. So on that note, I will pass it through to Blair to walk through the detailed financial results.

Thanks, Lex. It's a pleasure to be here. I'm going to just recap an overview of some of the group numbers as Lex mentioned, then I'm going to focus on the individual operating business units and a bit of a deep dive on each of those and I particularly want to talk about cost and capital. As Lex has mentioned, they were particular focus areas for us based on feedback, but also on the gender of work in the first half of this year. So just turning to the group overview. As Lex mentioned, an NPAT underlying of $112 million, square half-on-half. But pleasingly, the operating business units carried more of the weight during that period as we saw some decline in terms of our sponsor returns and I'll talk to that a little bit later. AUM revenue is obviously a little softer based on the overall mix and particularly margin, but that's an area we continue to focus on. Interest expense did rise during the period. Again as Lex has mentioned, that corporate debt repayment will improve that as we look into the second half. And our focus on controllable costs continues so we are broadly flat in the half. That's after absorbing quite a significant amount of inflation and some of those stranded costs that we've talked about a number of times in terms of the sale activity and that continues to be a focus for us. Broadly speaking though from a half-on-half point of view, I think $112 million is certainly something we're very proud of. If I turn now just to the operating business unit overview at a high level. Importantly, I think we want to focus on making sure we're clear about performance focus across all of these business units. As Lex has mentioned, AMP Bank and Platforms are clearly a key growth area for us. We want to continue to focus on margin management in the bank in terms of NIM, but also margins across our Platform businesses acknowledging that we have got some subdued cash flows. I think importantly for me, the cost-to-income performance in those 2 businesses is really positive and obviously the half-on-half profit uplift is a positive story for us. That performance focus will continue as we absorb cost increases net in those businesses and look to preserve those cost-to-income performances. Again as Lex mentioned, New Zealand Wealth Management flat on the half in an environment of higher inflation in that market and we would look to continue that kind of performance and that kind of cost-to-income outcome that we see in that business unit. For Master Trust and Advice, that is an area of key improvement for us. While the Master Trust cost-to-income starts in this period at 67%, we expect to see improvement in that area as we roll out our cost and simplification program. Again, as Lex mentioned, we have improved the Advice performance, but that continues to be an area of focus for us. And in our new template this year apart from those 5 operating business units, we've obviously now consolidated into a group performance as we take into account our strategic partnerships and the other retained interests from our AMP Capital sales and offset that against other items that we're holding at group and that's principally some of the stranded costs that we see around the property and legacy technology as a result of the substantial changes in the group over the last few years. Just turning to items below NPAT and that does continue to be a significant feature for us in the first half as you would naturally expect given the sale activity and the number of oneoff items. Just picking up a couple of points. Again in terms of litigation and remediation, as Lex has mentioned, we've taken that provision in the first half. You can see that coming through in that cost. Transformation cost-out continues. That's the conclusion of our 3-year program and so that continues this half and I'll talk a little more in terms of our guidance about how we see the second half. But that does represent the completion of a substantial phase of transformation. We'll talk more about the cost-out as we look into future years. Importantly, in other items that largely comprises the gains on our sale activity, a substantial first half for us in terms of both the AMP Capital divestments, 2 separate transactions and also the SuperConcepts transaction, which we've already identified has caused us to rebase our cost position so that we've got a comparable half-on-half. So an NPAT at a statutory level of $261 million overall. Just a couple of further comments in terms of that overall. As I mentioned earlier, that flat position in NPAT I think does talk to the operating business units carrying more of that burden. Pleasingly, bank revenue was up and that offsets sponsor valuation movements, which post tax are down $16 million on the half. And so those 5 operating business units have performed very well through this period. I think an area that we obviously continue to focus on is distributed cash flows and we've highlighted that in our reporting. I'll talk to that a little more in a moment. Importantly, I think as we look into that, the important element for us is to really be mindful of margin management across our AUM businesses and our existing performance in terms of stock. So retention is also a key focus for as much as we continue to focus on improving that net cash flow position. Just turning now then to the operating business units in little more detail. AMP Bank particularly pleasing in terms of an NPAT improvement of nearly 24%. Obviously improved mortgage book growth, as Lex mentioned, slightly above system and appropriately less than we're originally targeting given the intense competition in that market. The cost-to-income ratio continues to improve and we think that's very important. Acknowledging we've got some NIM compression in this period and we see that continuing to be an area of focus. Our strong cost-to-income position gives us a good performance basis to start from in this segment. For me, importantly, the funding is key in this business. Pleasingly, more than half of our customer deposits are acquired by digital channels and that continues to be a significant focus for us. And as Lex mentioned, our view on the book and arrears continues to be an intense focus. We've seen some uplift in 90-day arrears, but we've got a really important focus in terms of curing those situations particularly as they emerge in the 30-day numbers. And just turning to some of those details. You can see that uplift in the 30 and 90-day numbers. Pleasingly, we're seeing an improvement in those 30-day numbers as we look through and particular focus on helping customers in that early stage of the intervention. As I mentioned, the cost-to-income we think certainly compares favorably to our regional peers. And a big focus for us is obviously balancing that growth focus with our return on capital mindful of meeting those expected benchmarks and continuing to focus on that. Just turning to Platforms. As I mentioned, NPAT up 25% or just a little over. That's largely a result of improvement in the North Guarantee so that's a pleasing feature this half offset obviously by subdued cash flows. $741 million ex of the pension payments and when we include pension payments, a slight negative in the half. That will continue to be a focus for us, but I think reflects some of the wider industry dynamic around subdued cash flows as well. Pleasingly, again as Lex mentioned, we're really focused on extending our footprint not just from our very valued relationship with our line advisers, but extending that North platform offer into the IFA market. And obviously our income product has been significant in that, but also our managed portfolios, which now are exceeding $10 billion through this half, which is very pleasing. Just on Platforms in a little more detail. The mix we see in terms of our business is more weighted towards superannuation and pension. We think that gives us some positive momentum going forward as we think about the momentum of flows and particularly the more investment orientated product flows, which may not be coming on to Platforms more generally and we're certainly seeing that in our case. Overall, that push into IFAs continues to be improving half-on-half as I mentioned and that will continue to be a focus for us as we open up more IFA opportunities through our North offer, which the team are very focused on. Just turning to New Zealand briefly. Main focus in New Zealand this half has been the continued diversification of revenue streams. That's important in that market given the focus on looking to extend beyond just the KiwiSaver footprint. The core KiwiSaver product though has started to see some positive cash flow and importantly, positive member movement, which has been important. The acquisition we completed in this half of a business called enable.me allows us to extend that fee-based coaching revenue model which is very positive and that's a key opportunity for us in the New Zealand business. And we've also continued to simplify the New Zealand business as we move forward. So we divested a small legacy book. That has some margin impact on us, but we think it significantly derisks the portfolio as we look forward. Turning to Master Trust, a very pleasing performance in this half. NPAT improved slightly and margins while they were impacted by some of our simplification, we think that continues to reflect our focus on improving and simplifying our offer to customers. We think that that will be a key feature going forward and that obviously features in our cost-out program, which we look forward so we'll talk about that in a little moment. Importantly, net cash flows are continuing to improve in terms of outflows. It's important to recognize though that the previously announced mandate loss has now concluded and so this past weekend $4.3 billion of outflow will obviously reflect in our second half results. Pleasingly, that cost-to-income has improved and that will be a key area of focus for us, as I said, in terms of our drive for performance in this business as we not only replatform, but look at our offer overall. Now turning to Advice, an area that we've again been focused on in the last few years. You'll see we've continued to improve our NPAT performance obviously posting a loss still, but the team remains very focused on balancing our improving cost position by making sure we deliver services that are valued by our advisers as well as looking to support our advice network as they go through and continue to go through substantial change. Pleasingly, our revenue per practice continues to be very strong. And our position in terms of scaled practices relative to the market we think positioned us very strongly in terms of the upcoming changes in the advice market, as Lex mentioned, and a really strong adviser franchise that we continue to work very closely with. At a group level, as I mentioned earlier, we've obviously made substantial changes to the way we report here. Our strategic partnerships did see a reduction in this half based on sponsor movements. That was $20 million pretax, $16 million post tax, as I mentioned. Pleasingly, our partnerships from China, CLPC and CLAMP, continue to deliver in line with expectations. The important thing for me in terms of this group position has really opened the jaws between that impact from the partnerships and continuing to reduce the costs and that's both in terms of tax expense, but mostly in terms of the stranded costs. And that's principally around technology, but also some of the property-related costs that we've naturally seen stranded as we are starting to complete now and finish the separation of the AMP Capital businesses. So just turning to costs, particularly given that's been a significant area of focus for us in the first half. In terms of FY '23, we have closed the half at $362 million. That's comparable to the prior half and naturally we've rebased the '22 numbers to account for that SuperConcepts exit. We're forecasting for the second half a landing zone somewhere in the region of $380 million to $390 million. So that's an improvement on the second half last year. That would see us landing in a range of $745 million to $755 million of controllable cost, which is slightly better than the comparable last year and certainly in line with how we've guided the market, and we'll continue to focus on improving that right through the second half. Importantly, for '24 and '25, we're announcing today a further program of business simplification. We expect that we'll deliver $120 million of cost-out over the FY '24 and '25 years. Broadly we see that being roughly equal across those years so $60 million out across each of them. We see ourselves delivering that inside the envelope of absorbing cost uplift as well and so we think that's a significant improvement. Broadly speaking if we look at our forecast, that would see us improving our cost-to-income ratio into the low 60s, which we think is a good position to be in. As we mentioned, we think that's going to require a oneoff investment spend in the region of $120 million to $150 million again over those 2 years. We see that really landing in 3 core areas and we're going to very tightly focus in terms of that spend. The first is what I would call core basics so there's ongoing simplification that we continue to drive through the business and a particular focus on project spend and investment driving outcomes. The second is what I would broadly call solutions. As Lex mentioned, we're now at a point where we can turn our mind to the sort of central replatforming of the Master Trust business, particularly the technology which is tying up significant complexity and cost for us. Equally we know that the Advice business continues to have a cost base that doesn't match the revenue profile self-evident in terms of the results over the last few years. Certainly not a reflection of the work we've done because we're continuing to improve their performance, but we're looking for further step change as we look forward to that breakeven position by FY '24 and consider what are the future positions in terms of advice models so that will require investment. Thirdly, the area of stranded costs. We clearly have a group technology platform that is configured for a much more complex business than we are today and so that requires rightsizing, but it will require investment. And similarly, property and corporate contracts, that will be continued work on for us as we look to compress all of those costs to better match the organization that we are today and the simplicity of what we expect going forward. Turning now to capital. We have laid out here our position in terms of target capital as we finish the half and broadly speaking, that target capital position has decreased and that's a reflection of some uplift in minimum regulatory requirements as you would expect relative to growth in those businesses particularly bank, but also regulatory requirements. We've seen a Board buffer decline as we've continued to simplify our business and the Board becomes more comfortable about the buffer required to deal with unknowns. That's come down as a result of the AMP Capital sales significantly. That leaves us with a surplus capital position and I just want to step through exactly where that surplus capital bridges from where we got to at FY '22 and where we are now. So we closed FY '22 at $923 million. You can see the stat NPAT uplift. We've obviously, as Lex has mentioned, been conducting buybacks, dividends. We've got some net business activity movements. That reduction in Board target you can see leaves us with $988 million at the half. But importantly, we've already flagged today our dividend and also remaining share buybacks, which would give us a pro forma position of around $848 million. Importantly our view, as Lex again has mentioned, is to take a very cautious and careful approach to that position hence the pausing of the capital return, but we stress the point pause, and that will be a focus for us as we look into H2. Just turning to H2 and activity we've already got underway. We mentioned and committed to our capital review during the half. That's been completed and engaged with stakeholders. That's already seen us take action and that particularly relates to the paydown of corporate debt, which we mentioned at the outset. That's $302 million of reduction so that's obviously come off that cash position at 1H '23. The important thing for us is continuing to make sure that capital is all available. So we've got a lot of work ongoing as we continue to simplify the legal entity structure and the operational kind of footprint of the business and obviously we'll continue to review the right time in terms of the approach there. Just to recap that capital return program. By the time we complete that dividend and the remaining tranche 2, that will bring us to that $750 million of commitment. We expect that to be October based on volumes around the buyback. And as Lex has mentioned, we'll be back to the market before the end of the year to update on Tranche 3. Now just turning to a view on guidance for the remainder of the year. Just want to step through the key elements. In terms of bank, we continue to target above system growth although we would expect given the competitive environment, that would be similar to our position in H1. Our view on NIM is that there will be some slight compression based on where we finish the half and so we're expecting a landing range somewhere in the 130 basis point to 135 basis point range. On Platforms, we do see continued subdued cash flows. We would expect cash flows to be similar to H1. A big focus for us though is margin management and we do expect that to be broadly in line with our position to around the 48 basis points. On Master Trust, similarly we're expecting steady margins so around that 63 basis point level. As I mentioned earlier, we have seen that outflow of that substantial mandate that's now complete and we are seeing and we have an expectation there will be some slightly higher cost in Master Trust. There was some timing differences in terms of the way our technology spend for required technology upgrades occurred in Master Trust and so there will be a little more uplift in the second half. For Advice, the focus continues in terms of that cost-out activity and continuing our operational improvement and delivering services that advisers value. So we would expect to see some continued efficiency improvements in Advice. On controllable costs, setting aside our forecast for '24 and '25. Just for '23 we will expect to see that landing zone $745 million to $755 million as I mentioned. That compares favorably with our rebased FY '22. We will see some below the line costs come through as we previously noted. That's the completion of that transformation program I talked about as well as the finalization of the separation activity of the range of transactions that were in the concluding stages of separating. So we expect that to be in the region of $45 million post tax. And just on strategic partnerships now that we've reset the way we report on that, we would expect the strategic partnerships component to deliver us in the region of 10% per annum return on investment. That's our anticipation. The balance of retained interest that we have in that portfolio ex of the AMP Capital business obviously will be subject to market movements. With that, I'll hand back to Lex for summary.

Thank you very much, Blair. Let's move to the second half focus and as you would expect, no surprises here. If I talk about our reposition pillar, we want to focus on growing the bank in a disciplined manner. It's a very competitive market at the moment both for funding and for mortgages and we need to remain focused on that return on capital. In our Platforms business, we want to continue to grow our managed portfolios and continue to leverage off the innovation awards we run in our retirement solutions and grow that IFA network as well as respecting our line network. And of course we've got to focus on those Advice costs that don't deliver value for our adviser partners. We've been doing that for some time now, but that work will continue in the second half of this year. If I look at simplify, we've talked about the cost base today. As we move through the second half, we need to set ourselves up for those cost reductions we've committed to today through '24 and '25 and we have a good plan there to achieve that. I want to make sure we continue to deleverage the balance sheet. As Blair has mentioned before, we've already paid that $300 million. There's more to come in the second half and into the first quarter of next year in these higher interest rate environments. We've talked about preservation of capital and I'll say it again, it is important that we preserve capital. We manage it prudently and we'll continue to do that and make sure we come back to our shareholders no later than the end of the year about that third tranche of capital. If I look at our explore function, again no surprises. Continue to develop in these solutions in that retirement space where we have a natural advantage. We are going to continue to work on those proposals for Advice and we're working with our advice partners now and discussing with them some different ideas. But as I've said, it needs to be viable from a financial perspective not just for AMP, but for our advice partners as well. So if I just take a minute to summarize the results as I see them. I think we're making progress against the commitments we've made to our shareholders. We have largely dealt with the sale of AMP Capital and SuperConcepts. We've delivered shareholder return of capital of $610 million with a further commitment of $140 million by October in terms of the dividend and remaining buyback. We've commenced delivering the outcomes of the capital and cost review; deleveraging, making sure we can deal with the liquidity and the many legal entities we have and looking at the opportunity to pay down for further debt. We are dealing with our legacy issues and we have had legacy issues to deal with, but we work through them methodically and rationally. There's certainly headwinds as we move through '23 and '24, but I think we've laid down a good strategy today to deal with those headwinds in terms of cost, in terms of capital and in terms of liquidity. So if I stand here today and look forward, I think our core businesses are much better positioned. We have largely a portfolio that we want to take into the future. We're dealing with those historical issues. And we certainly, as an executive, are very much focused on performance into the next generation. So thank you and I'll now turn to the operator for questions.

[Operator Instructions] Your first question today comes from Kieren Chidgey from Jarden.

Couple of questions starting on capital. The $850 million surplus is obviously post this additional follow-up provision you put in place. So just wondering if you can sort of talk to a greater extent why you felt the need to pause that $350 million tranche and what gives you confidence that you will be in the position by December to have greater clarity on potentially resuming that?

Thanks for the question, Kieran. If I can just come back to where we're at in terms of the litigation at the moment. In fact just yesterday, we put in our orders in relation to the BOLR class action and that was in response to the plaintiff's orders. We expect that the judge may make some final orders by the end of this month and then of course we'll make a decision about whether we're going to appeal that or not. And similarly, we have further litigations coming with the shareholder class action. So we felt it was prudent at this time to pause that third tranche of capital until we get greater clarity around those litigations. Why do I expect that we'll get something this year? For all the reasons I just said, we'll have a better picture on whether we will or won't appeal, we'll have the judge's orders and we'll have largely gone through the shareholder class action. I just want to come back to the point that the second tranche of capital will take till the end of October we think on current volumes as well. So we're only talking about a 2-month period.

And Alexis, I think sort of around the AGM you flagged the prospect of potential increases to the $1.1 billion capital return program, which would mean going more heavily into that surplus capital position. Is that still on the cards over the medium term?

Kieran, we'll have another look at that at the full year because you've rightly pointed out we have $850 million surplus as we stand today. I want to stress we've also kind of made a commitment to continuing dividend payments subject to the Board approval of course, but that's going to round out at about $70 a half as well if we continue on the current trajectory. But we'll have another good look at that at the full year.

Okay. And second question on the cost-out program announced today, which is sort of $120 million or 16% of your cost base. Can you give us just clarity around the timing of that? So you're saying in the year FY '25, you'll have the full benefit of that and so we don't need to worry about BAU inflation. That's just sort of your controllable cost base in the year is $120 million lower than what it is in '23. Is that the way to think about it?

That's the way we're looking at it. So it would be $60 million out through the '24 year and $60 million out through the '25 year net so that is net of inflation. Clearly we have had to be working on the '24 already to ensure that we can deliver that in that period.

Okay. And which divisions does that sit across?

As we said, there's a combination here. That's really tackling those stranded costs that we've earned from the AMP Capital transactions. It's focused on the group costs that don't add value to any of our customers and then it's a combination of continuing in Advice and the Master Trust replatforming that we've talked about today. Any other comments, Blair?

Yes. Look at that slide I tabled in terms of grow and continue to improve, Kieran, and the improve is clearly where we see that. And the big lockup there is really the technology componentry and so that's a key one. But naturally other things like property so evidently are opportunities for us as well. So that's the big area of focus. And the other area is in banking platforms, the desire would be to hold costs flat Certainly through next year that's our focus, but that sees them absorbing substantial inflation impacts and also driving their investment program. So that's no mean feat considering the inflation environment.

So I just had 1 quick last question on clarification. So the bank NIM guidance for the full year given you had 1.39% in first half seems to imply second half between 1.20%, 1.30% which is quite a sharp reduction relative to what you've done this half and would imply an ROE maybe at 8% or even below. So just wondering is that correct and if it is correct, why are you aiming to grow above the system at that sort of ROE?

Do you want to comment on that?

Yes. So your view on the spots is right and clear. That's an area of focus and improvement for us, Kieran. So we'll balance that aspiration for growth with a sensible balance of return on capital and preserving NIM. So while our goal is to grow above system, if that doesn't make sense from a return on capital and margin point of view, then clearly we'll manage accordingly focusing on return on capital and preserving them and delivering performance in the bank is critical for Sean and the team. So they're managing that on a daily basis.

Yes, I would stress that. I mean obviously we'd like to grow above system, but it doesn't make sense from a return on capital. We won't be doing it. And I think it's an incredibly competitive market on both sides of the balance sheet both on the mortgage side, which has been for some time, but the funding side particularly at the moment.

Your next question comes from Lafitani Sotiriou from MST.

Few questions from me, if I may. Kicking off with a follow-up on the cost-out program. Could you clarify is achieving the $120 million cost-out contingent on finding a solution for the proposals you're receiving in relation to Advice or if you do have a solution for a viable option in Advice, would there be a further net benefit to the $120 million that's on the table?

Yes. Getting to the $120 million does mean that we need to get to a breakeven position for Advice, which we've made commitments to many [ times ] and we've always said that that's a challenging environment so it does require us to get to that, Laf. Regardless of the proposal, that would be included within the $120 million. I don't really see that there would be much upside on that.

Got it. And can I just circle to the excess capital position, $850 million odd net of charge 2 and net of the provision taken for BOLR. Can you just clarify does that number include the pending payments for things such as the Dexus $50 million that's deferred or I believe previously there was some seed capital that was not included in that figure and also some carried interest amount? So can you just clarify what else may be in the background that may realize in the next year or so?

I'll ask Blair to comment on that, but those amounts are excluded largely.

Yes. Consistent with our conservative view, Laf, we haven't included the $50 million subsequent payment in terms of the Dexus transaction or the carry components. And so again we would aim for continued upside so we think it's a positive, but it's not factored into those numbers at the moment.

I do want to stress the carry, whether it's seed and sponsor or investments, does depend on the market movement. So it is quite volatile, as you know, which is why we don't typically include it in any of our projections.

I understand. I just wanted to make sure how we should factor that in. But I think there's also 1 thing that was potential -- there's still 1 performance earnout you could still realistically get with this [indiscernible]. I think that was up to $180 million for the global infrastructure equity. Can you provide an update on how that's tracking or whether there's any realistic prospect of getting any of that?

Yes, Laf, you're right. That hasn't been included. And I think given the volatility of the market at the moment, I think that's the right thing to do as well. I would expect we might get some of that back, but whether it's right to that value would be questionable and it's still years out.

I think that's the key thing. There's a fair timeline to work there and obviously dependent on the way those funds close. So we'll continue to work closely with those parties. We've obviously got a keen interest in it, but we're taking a cautious view.

So the $850 million is really a pretty conservative base case and given there's these other items in the background. So would you just elaborate a little bit more on the pause. $850 million is a significant bucket. And could you add a little bit more color I guess to -- was it a Board decision and any confidence around why you only said as a pause and have confidence that it will resume I guess later in the year.

Of course any decision like this goes to the Board, but it's a decision that the whole executive will support as well. I think given the uncertainty around those litigations that we've talked about, we really think it was the prudent thing to do to preserve capital at this point. And given that we had that share buyback going through to October, it really does deliver on the commitments that we've continued. So we are comfortable to be able to come back to the market by the end of the year. As you heard me say, we've made commitment to no major M&A during that time because the preservation of capital is absolutely critical, but we'll come back to the market by the end of the year. We just think it was the prudent thing to do given we don't have a lot of clarity around those litigations.

Okay. Got it. And just 1 final question for me. Can I just clarify the debt repayment of $302 million? I think at the last result you talked to repaying a hybrid, but it looks like this is separate to the hybrid repayment and you've also put on the table further debt repayments. Could you just reconcile these moving pieces so I'm not double counting or is it really net new $302 million debt payment?

Do you want to go through that, Blair?

Laf, that's separate and so that repayment is separate to the hybrid. We're continuing to look at what else we should be thinking about in terms of debt repayment over the next 6 to 12 months. We've obviously got some items coming due. But equally, as Lex mentioned, that broader deleveraging was an element that was confirmed in our capital review, that's why we've taken immediate action. Obviously makes sense from a P&L point of view as well because it will substantially reduce our debt costs in the second half, which I think is a positive as well.

Yes. But then I think you've got $251 million due. Is that what you're referring to as you still have further intentions to repay debt?

That's right, Laf.

[Operator Instructions] Your next question comes from Simon Fitzgerald from Jefferies.

Just the first bit around the $50 million that you're putting aside for the BOLR facility class action. Just interested to know whether that's been a top-down or bottom-up approach. And I'm sorry but if you've had that number audited, I know you only just recently came up with it today.

Thanks for the question. Yes, we have had it audited and that $50 million provision is based on the best estimate of the judgment as we understand it today. And it's a very complex process to go through from an accounting standard perspective, which we've done with our auditors. So it's been audited, it's been verified by them and that's how we got to the number. I'm not sure if I'd call it top-down or bottom-up, but it certainly was based on an estimate of the judgment.

Okay. Very helpful. Then just on the cost savings, interested to know just in terms of your level of retention. I know that there's obviously some oneoff costs that go against that, you mentioned it's net of inflation. But interested to know in terms of how much might be preserved for pricing changes. So I guess I'm trying to think about how much of that should work its way to net debt.

I mean that number that we're talking about there is net controllable costs. I mean there's been some pressure on margin across the businesses, particularly the wealth businesses, but we've been able to offset a lot of that margin decline with variable cost decline at the same time by working harder with our investment managers. So I'd expect to see most of that controllable cost drop through to the bottom line.

Yes, I'd just echo that. That jaw is key for us. Margin management will be a key focus for us as well retention and just driving revenue. We want that $120 million to hit the controllable cost line over that period so by the end of FY '25 and fundamentally drive that continued improvement in performance.

That's helpful. And then my final question just relates to the margin in the Master Trust business. I know that you've mentioned that it's going to be stable. The [ lowest ] mandate that goes out to $4.3 billion, that would have been on a quite low margin. I'm just trying to understand a little bit about the impact of that mandate and the stability of that margin.

Yes, you are correct. That was on -- given the size of the mandate, that was a lower margin business and we have been planning for that mandate to exit for some time now. So we've been able to offset it with some cost reductions that will come through at the same time. I do want to stress that we expect our Master Trust business because of projects and because of variable spend to be a higher cost environment in the second half. But I don't think there will be largely any impact on the margin.

I mean there's always some movement in terms of mix and so forth. So even in the first half you can see we simplified some investment menus that drove some mix change and slight compression, but certainly our view is steady in the second half. A big focus for us obviously is matching that cost save to match that mandate outflow and we've been doing work proactively on that. But there's also a point where you can only recover some of that cost and simplify once the actual SFP is complete and obviously that was last weekend.

And sorry, just 1 further question on the bank if I could. Obviously arrears are starting to pick up in both buckets there. Just interested to know if there's any trends that you've been able to isolate there or anything that sort of draws your attention?

Yes. I'll make a few comments. Firstly, the 30-day trend has abated in the last couple of months in that we're seeing some early curing of the customers mainly due to early intervention. So that line has abated. I think when we look at our 90-day arrears, it's about where the market's at. And interestingly, the reasons for the 90-day arrears aren't typically any different to the normal reasons. It's just a different economic environment so it's loss of job, family circumstances, same kind of situation. But clearly there are some hardships out there, but I don't think there's anything abnormal in that.

Your next question comes from Nigel Pittaway from Citi.

First of all, just a question on the breakeven target for Advice, does that now effectively envisage that some of those opportunities that you're exploring to accelerate the pathway to profitability that you mentioned on Slide 33 are actually successful or do you still think you can make a go of it even in the sort of current structure?

Yes. I mean we're not walking away from that target to get to breakeven by the end of '24. We've made that commitment for some time now and Matt Lawler and the team and I are working very hard on that. I've always said the last few million of that will be quite challenging and that's no different today, but that commitment stands.

Right. So I mean I guess in the context of one of your competitors sort of changing the structure. Obviously you've had the issues with the BOLR case and the like. I mean do you still feel that not changing the structure you can still make that breakeven target?

Yes. As I said that I'm certainly not walking away from that commitment. We need to have a business that's viable for AMP as well as for our advice partners. But I do want to stress looking at alternative proposals has been on the agenda for us for some time. We want to make sure if we were to go down that road, it was a business that was financially viable for the advisers not just for AMP and I think that's critical. You can't create a business that's not viable for our partners either and that means that it needs to be profitable or breakeven at a minimum.

Okay. Secondly, just on the sort of obviously you've put resolved legacy issues in the sort of 23% to 25% column. But in the comments you've made about being able to sort of come back on the capital sort of availability, you've obviously flagged that you've got some big ones in terms of the BOLR and the class actions hopefully sort of more resolved by the end of the year. And once you've got to that end of the year, do you think there's sort of some big ones left or is that basically at the end of the major ones? What else is it in other words between '24 and '25?

We do, as you're aware, have 4 class actions out there. The BOLR class action that we're in the first throes of those judgments. We have the shareholder class action, which is due to commence in a couple of weeks. And then there's 2 further class actions, which to be honest Nigel, are so far away, I don't even understand the boundaries of them at this point.

Okay. So those are the main things that have got to be resolved.

Yes.

Next question just on the sort of growth in the North platform amongst IFAs. I mean can you maybe comment on how successful you've been in targeting other than ex AMP advisers in that sort of growth? Has that now sort of broadened there to reach sort of advisers outside those that used to be in the network or is it still pretty concentrated in those that used to be part of AMP that moved away?

I mean if I look at our flows today, about 30% is coming from the external IFA market. And maybe if I can just recap, I mean last year we launched our retirement solutions. We took something that's unique to AMP and really gave us the opportunity to get back out into that open market and to talk to those advice groups that hadn't or wouldn't talk to us for many years. And now they've really opened the doors, allowed us back onto their APL in terms of having North platform there and we're really running a huge number of education campaigns around the retirement solutions. So I think there is a genuine opportunity for us there in the non-ex AMP space. Would I like it to go quicker? Obviously. But I think we are moving forward; the doors are opening, the education is happening and we're starting to see some traction through that retirement solutions and obviously that's beneficial for North broadly.

Okay. That's helpful. And then maybe just finally, I mean strategic investments disclosures are still a little bit hard to sort of completely get the picture of what's going on. But can I maybe just ask, first of all, is PCCP performing in line with expectations? And secondly, when you're sort of calculating the 10% return, what number is the base that you're using for that 10% calculation?

So the PCCP performance is 1 of the impacts obviously in the first half, not necessarily a huge surprise given the nature of the business and the property impacts particularly in the U.S. where we've got those holdings. But that's obviously something that's occurred in this half. When we think about the strategic investments in that 10%, that's across those 3 investments that we hold and disclose in our reporting, Nigel. So that's CLPC, CLAMP and PPCP. So I sort of distinguish those as the strategic holdings and so that's where we're targeting the 10%. The balance of what falls into that line is, as we mentioned before, all of those other retained interests and carry items which clearly are much harder to forecast and we'll have a much longer run in terms of in some cases the realization. And so we just look at to [ series order ] separate those. So it's the 3 key holdings that we disclose that we're basing that 10% position on. And again that's obviously subject to conditions. They're operating in 2 markets offshore, China and the U.S. But if we look through the cycles, we see that being broadly a forecastable view.

And that's the balance sheet items of those almost $700 million, Nigel. But as Blair said, I would exclude the savings sponsor, the investments in the underlying funds, that's the joint venture assets. Operator, is there any further questions?

There are no further questions at this time.

Well, on that note, I thank you all for your attention today. Thank you, Blair. And look forward to speaking to you later.