AMP Limited (AMP) Earnings Call Transcript & Summary

Well, good morning, everyone, and thank you very much for joining us today on Valentine's Day for the presentation of the AMP full year results for '23. I'm very glad to be, of course, joined by our CFO, Blair Vernon. And before we start proceedings today, may I please just acknowledge the traditional custodians of the land on which we hold this meeting today, which for me is the Gadigal People of the Eora Nation, and I'd like to pay my respects to the elders past and present. Today, we'd like to give you an overview of the 2023 results, and then Blair will give a much more detailed presentation on the business units with particular focus on costs and capital. And of course, then I'll do a quick wrap-up before we open for Q&A. If I look at our 2023 results, firstly, we have delivered a 6.5% uplift in net profit underlying to AUD 196 million. We have actually delivered on our cost promises and slightly more at AUD 744 million. And we remain absolutely focused on continuing to deliver on our costs, on our corporate costs and resizing AMP for the future. We have dealt with several of the large legacy items during 2023. We settled our shareholder class action, and we've agreed to settle the buyer of last resort class action. And I think putting some of those legacy items behind us really gives us some free air. On top of that, we completed the AMP capital transactions firstly, earlier in the year and the Dexus transaction later in the year, and we also completed the sale of our SuperConcepts business. And that now leaves us with a much more simplified portfolio that we can continue to focus on to grow and make more efficient. We deleveraged our balance sheet, and that's something we've been focusing on again for a while, and we'll continue to look at opportunities for further deleveraging. And we've predominantly prefunded the TFF, which will continue to roll off through the first half of this year. And I think importantly, for many of our shareholders, today, we announced the commencement of the third tranche of the capital return, the remaining AUD 350 million of that AUD 1.1 billion that we promised. We announced a AUD 0.02 dividend today, which will deliver about AUD 55 million, and then we'll commence buyback in the next couple of days of up to AUD 295 million. Of course, we're going to review the dividend situation at the half year. And at the moment, we expect that buyback will continue through most of 2024. As I said, we really spent some time in 2023, dealing with some legacy items and simplifying the portfolio. And as we sit here today, we really have 5 business units together with some partnerships. In our AMP Bank, it is uncertain times. We knew some of that was coming, and we announced our strategy in relation to the consumer and small bank late last year. We continue to remain focused there on capital and on NIM management. And of course, you would have seen in the second half that there was nominal and in fact, negative growth in our loan book. In the platforms space, we launched our retirement solutions last year. We won several innovation awards there, and we continue to focus on being a retirement specialist and on growing that independent financial adviser footprint. In advice, we need to move that business to be a sustainable business, and we continue to look at opportunities with our advice part. In our Master Trust business, there were outflows last year, but we're right now focused on retention. And I'd like to remind you, we have AUD 120 billion in funds under management across platforms and Master Trust and are managing that margin, which remains very important. And in New Zealand, it continues to perform. We made a small acquisition there last year, which also allows us to diversify some of the revenue. When we come to our partnerships, let me first start with PCCP. I've said in a number of these forums that our interest in a real estate business in the U.S. is probably not a strategic relationship for us. But the market in the U.S. for those assets at the moment is poor. We have a really good business in PCCP, and we'll just continue to monitor that situation to be able to talk with the founders about monetizing that. With China, with the borders now being relieved, we have been able to visit China a couple of times in the last 12 months, and we really are rebuilding those relationships with our China partnership. We see that as a growth asset over the long term, but clearly, we want to focus on dividend payout and helping them continue to grow and deliver those sustainable profits. Let me first make a few comments on the market. Yes, we are in uncertain times. But if I think if we look at the underlying dynamics of the spaces we play, the fundamentals remain strong. In super, we're moving towards the contributions of 12%. And I think we're starting to establish ourselves as a retirement specialist. We launched solutions last year for the platforms. We'll continue to look at launching solutions later this year in our master trust space. And as we consider that 55% of the wealth is now in that 55-plus bracket, that is really important for us to continue to innovate in that space. We're probably in one of the best positions for advice as we move into 2024. The regulatory environment has started to recognize the importance of advice for our customers and really started to reduce some of that burden. And I think we're well positioned in our full financial advice with our advice partners, but also in our intra-fund advice to take advantage of that and something we're certainly going to remain focused on. While the economic environment has been difficult over the last couple of years, as we look forward, we see that inflation is starting to abate, and we are expecting some interest rate reductions later in the year, which will certainly relieve some of the pressure that our customers in the environment are experiencing. So as we look forward, you'll see we remain focused on 3 things, driving that business line profitability and customer experience, in the bank, remaining vigilant about NIM and managing it through the loan growth, in platforms, we want to continue to invest in sales and in service and growing that footprint in the independent financial adviser space. Not to say that our advisers that we license aren't important. They are critically important. In Master Trust, our focus remains there on bringing some of the innovation we've done with our platforms business into the master trust space and focusing on retention. And in New Zealand, it's just keep doing what they've been doing. On capital, we're going to continue to focus on managing our capital in a disciplined way. And I think the commitment to the third tranche of the capital return demonstrates that. And of course, we remain focused on costs, and we'll continue to reposition those corporate costs for the business we are into the future. And lastly, I think because of the way we've got our portfolio simplified now, we can genuinely start to talk about growth, improve our digital experience, diversify our channels and really continue to deliver product innovation. So on that front, I'll pass to you, Blair to go through the detailed results.

Thanks, Lex. Good morning, everyone. I'm going to cover 5 key topics today. I'll give an overview of the group results in a little more detail than Lex provided. I'll obviously make some comments about individual business units, most importantly, provide an update on cost and also our capital position and capital management. And then finally, some guidance for FY '24. So turning to the results at a high level Alexis has already mentioned. Our NPAT, up 6.5% at underlying level to AUD 196 million. Our total revenue was down slightly with a number of mix items that I'll talk to you through the presentation. That is offset, as Lex mentioned, by good cost control, and that came through both in controllable costs, but also the variable cost lines. We obviously benefited from a higher interest rate environment. And then at the statutory level, you can see we delivered a AUD 265 million profit. That reflects both the gain on sales from the completion of the M&A transactions that we've talked to through the year, offset by litigation costs. And we just talked about statutory impact reconciliation in a little more detail. As Lex mentioned, pleasingly, we reached outcomes in the shareholder class action and an agreement to settle the BOLR class action. Those 2 components, net of insurance proceeds that we talked to in terms of the shareholder class action and also after tax, see an impact of AUD 99 million recorded below the line in FY '23. As we've previously guided, our transformation program that's been running over the last 3 years to simplify the business did conclude in the second half, and you can see that reflected in the below-the-line impacts. Other items is, obviously, mostly impacted by the gain on sale for AUD 245 million across those various transactions. And so while NPAT is down at a statutory level year-on-year, obviously, there's significant items in terms of M&A activity through those last 2 years. Just briefly across the business units. At a high level, we had a solid FY '23 for platforms, Master Trust and New Zealand. Advice losses continued to improve year-on-year. And as we've previously indicated, the bank was impacted in H2, particularly by NIM compression. At a group level, we were down year-on-year, and that's principally an impact of our partnerships businesses delivering lower profit. Overall, our group cost-to-income ratio though fell 2.6% to 69%, and that reflects the growing momentum we have on our cost management strategy that we've previously guided to. If I just talk to NPAT underlying and the key movements there, as I've mentioned, you can see the impacts, the twin impacts really of both the reduction in PCCP earnings during the year and also our China partnerships. In large part, that was offset though by improvements in the North Guarantee product recovering from previous year experiences negatively and delivering positively this year. You can also see the post-tax impacts of our cost savings program, both in controllable and variable costs, so delivering that 6.5% lift overall. Finally, the macro level, just to comment on stock and flows. We've flagged quite significantly the Marte Trust mandate loss in H2 when we talked at the half year, and that did eventuate. That, together with subdued cash flows overall, saw our cash flows down year-on-year, which is something that we had anticipated. Against that market obviously performed well. And so we finished the year with an overall AUM position of nearly AUD 134 billion across our 3 wealth management franchises. Importantly, as Lex mentioned, the key focus in those franchises is also around margin management. And I think the results demonstrate that we've attended that back very well in FY '23, and it remains a key focus for us in FY '24. Now turning to individual business units. The bank profit fell to AUD 93 million in NPAT level off the back of NIM contraction of 11 basis points over the full year. The NIM contraction, obviously, something we'd previously guided to. We operate a relatively simple bank originating residential mortgages and then raising call and term deposits to fund that book. Both those market niches experienced significant competition through FY '23. And particularly in the second half of the year, we saw that competition being especially fierce. Against that backdrop, though, our simple focus allows us to maintain a quality book. And you can see that reflected in our 90-day arrears rate at 62 basis points. And if I look through that and think about items like our dynamic LVR, that, in fact, reduced through the year. Liquidity and capital ratios are considerately positioned, and so our absolute focus on the bank will be on NIM management and improving our return on capital metrics. Just turning to NIM specifically. We've broken the NIM waterfalls into 2 halves because we really think of the year as a game of 2 halves. And in particular, you can see the NIM compression in H2 flowing through. Within that waterfall, the dominant factor is clearly the market conditions we faced around call and term deposits with a contraction of 16 basis points through the half. That's a particularly intensified focus for us, and we experienced more competition in that space because of our lack of a comprehensive transaction account offering. As Lex mentioned, that's something we expect to remedy with our already announced strategy in terms of our small business and consumer banking offer. Responding to that NIM compression, we did address very quickly our mortgage growth focus. And you can see the speed at which we dial back that growth in the second half, delivering a near flat position for the second half growth numbers in the loan book. As I mentioned, despite the NIM challenges, we do maintain a conservative capital position, a solid arrears performance and I think a still strong cost-to-income ratio relative to peers. That leads our absolute focus on NIM management and improving return on capital metrics from here. And that will also see us examining further cost options within the bank given the prevailing conditions for FY '24. Turning now to platforms, where NPAT for the year is up 38%. Cash flows were subdued in FY '23 as was flagged in H1. But against that, I think we delivered a very good margin management performance, with margins down just 1% for the year. Controllable costs are up, but that's exactly as we planned and had flagged. And that reflects our ongoing investment in this critical business unit. The most significant move for platforms year-on-year is obviously the return to positive performance of the North Guarantee product. That's highlighted, particularly in the NPAT waterfall here. You can see the North Guarantee movement is accentuated though year-on-year because of the underperformance against our plan in FY '22. Platform has also benefited, obviously, from increased interest rates or higher interest rates. And those positives helped offset that investment that I talked to, particularly that investment in platforms is focused on continuing to enhance our technology and product offer, but also continue to expand our distribution efforts. As I mentioned, cash flows were subdued relative to FY '22. In part that's because of outflows and investment products, but also you can see on this slide, the higher pension payments we experienced year-on-year as a result of some of the changes in regulatory conditions. Those mix features aren't unusual for us given the considerable weighting we have towards pension products on our platform, which as a function of that drives a relatively stable AUM base for our platform business. You can see in the IFA flows graph, we continue to improve our share of IFA flows as a percentage of our total year-on-year, and that's reflective of that ongoing development and investment we're making in distribution, in particular. Now turning to advice, where we continue to make improvements and reduce losses by 30% year-on-year. We continue to pursue cost out strategies across the advice business as we look to simplify it and make sure we're delivering services that advisers value, and we'll continue to examine alternative options to best manage this important business. Pleasingly, as Lex mentioned, the agreement around settling BOLR sets a good platform for our go forward in this segment and a key milestone for us. You can see some improvement in adviser sentiment year-on-year, which we think lays a good platform for FY '24 after years of significant change in this business. Those changes in advice, as I mentioned, have seen our network consolidate, both in terms of practices and adviser numbers, but we see adviser numbers becoming more stable year-on-year through -- as evidenced in the graph. Our revenue per adviser and also our revenue per practice is significantly above industry norms, and that gives us a strong position in partnership with our advisers as we look into '24. As Lex mentioned, we see conditions generally being more positive for this segment, which is important. Now turning to Master Trust. The business had a strong year, delivering NPAT of AUD 53 million. While flat year-on-year, we clearly absorbed the significant impact of a major mandate loss that we previously advised. We were very proactive in addressing our cost out to match that revenue out. And at the same time, margins were managed well, only modestly down year-on-year. With most of our multiyear product simplification program now complete, the team under the leadership now of Melinda Howes is very focused on driving cash flow improvements and returning to growth. For New Zealand, the business delivered a 6.3% improvement in NPAT despite tough economic conditions in New Zealand. Cost of living pressures impact our cash flows more significantly in New Zealand, where the KiwiSaver system has got a lower contribution rate and is voluntary in nature. So a softer market dynamic overall. Costs in the business are well managed, and our business strategy in New Zealand to diversify our revenue streams continues. In FY '23, we completed the acquisition of enable.me into our Advice First business. Now to group. NPAT declined in FY '23 and there are really 2 key drivers of that, a reduction in our partnership's performance and an increase in group costs. Our China partnerships experienced lower year-on-year profits. That was a function of margin and mix changes coming through that business. Our PCCP joint venture performed well, but our smaller sponsor stake did experience write-downs as a result of negative market conditions for U.S. real estate. Costs, as we had flagged, are up at a group level, and that's mostly a function of stranded cost emerging across both technology and premises as a result of the M&A transactions that we conducted through both FY '22 and '23 coming to a conclusion. Just talking to those partnerships in a little more detail, as Lex referenced at the opening of the presentation. Our China joint ventures have performed very strongly over time, and we have a permanent local partner in China Life. The market growth prospects continue to be significant by almost any measure we look at, particularly with the Pillar 3 pension focus now emerging. PCCP has a carrying value of around AUD 240 million for us. As I mentioned, the joint venture is the significant part of that, about 75%, and that continues to perform well. The sponsor stake did experience write-downs, as I mentioned, but we wouldn't necessarily expect that to be repeated in go-forward years. So to costs specifically. FY '23 controllable costs delivered just ahead of our guidance to the market at AUD 744 million. We think that's a very solid position. The waterfall shows you where most of that cost out emerged, which is as we had anticipated and planned through both advice and Master Trust. As I've previously said, platforms costs increased, but that's a deliberate strategy to continue to invest in that business. Group costs, as I just mentioned, were impacted by those stranded costs, something we're very focused on as we look into FY '24. What I would note is that combination of our technology and project cost at a group level is, in fact, reducing. And that's a reflection of a move to more persistent teams and a simplification of our overall project portfolio as we look forward. FTE reductions were around 11% for the year, but they were significantly weighted towards the back half. In fact, as we look forward to FY '24, FTE reductions are a significant driver of our momentum already being seen. We reduced FTE by around 11% through the year. Actually only 1% of those FTE reductions were in the first half with 10% emerging in the second half, a significant weighting towards Q4. So that momentum sets us up for a very clear focus on delivering our controllable costs of AUD 690 million controllable costs in FY '24. We would expect further cost savings in advice and Master Trust, but as I mentioned, we'll also be examining costs across the bank. And we are particularly focused on harvesting those cost savings from stranded costs around both technology as well as property, which is already well underway. And as Lex mentioned, with the simplification of the business, we'll continue to examine all of our corporate infrastructure to best match that to the appropriate cost base going forward. As we've guided, we expect about AUD 60 million to AUD 75 million of our business simplification program to emerge as expense in FY '24, and that will be repeated in FY '25 as we pursue the AUD 120 million cost-out program that we've announced previously. That would see us with an FY '25 cost position of between AUD 620 million to AUD 640 million, as we previously guided. Now to capital. The FY '23 capital waterfall shows our twin focus of both delivering returns to shareholders [ with ] capital return and also simplifying and deleveraging our balance sheet. That's in line with the commitments we've made to the market. MRR did increase slightly as we responded to increased capital standards from APRA. Offsetting that, though, was a reduction in the Board buffer following the sale of the AMP Capital businesses and the simplification of our business generally. So on an overall basis, our target capital level, in fact, fell just over AUD 100 million. You can see surplus capital at year-end was down to AUD 565 million, substantially reduced from our FY '22 close. As Lex mentioned, earlier today, we announced a AUD 0.02 per share partially franked final dividend. And that forms part of our critical tranche 3 capital return of AUD 350 million, delivering on our commitment of the AUD 1.1 billion capital return program announced in 2022. That buyback will continue throughout the year and see our surplus capital trend down towards a level more consistent with the business of our shape and complexity going forward. At the same time, you can see we've reduced debt by AUD 337 million during the year, and we continue to focus on deleveraging our balance sheet. You'll note our group cash resources are slightly elevated at year-end and that, in fact, reflects our prefunding already of maturities emerging in the first half of this year. We thought that was the appropriate -- prudent position to take as we look into the first half of the year. So the guidance for FY '24, obviously set against current market conditions, which are somewhat uncertain. But for AMP Bank, we're expecting the first half to continue to be very competitive. That leads just to a full year NIM guidance of 110 basis points to 115 basis points. For both platforms and Master Trust, we would expect margins to be broadly in line with FY '23. Controllable costs, as I've just mentioned, we expect to be in the region of AUD 690 million for the year, and we expect around half of our simplification spend, so about AUD 60 million to AUD 75 million pretax to emerge through the year. In strategic partnerships, we're anticipating a 10% return through the cycle. I'll now hand back to Lex.

Thank you very much, Blair. So if we come to our focus for the first half, there should be no surprises here. As I mentioned before, we continue to focus on the business line profitability and improving our customer experience. And for us, that means managing the bank loan growth very carefully as we've discussed today, to optimize return on capital. In terms of platforms, we want to invest in sales and service, particularly in the technology area. In New Zealand, it's about maintaining performance. And in advice, it's that continued execution towards a sustainable business unit. And in Master Trust, leverage off the benefits that we've had with the retirement solutions and platforms and start to deploy those in those solutions when we know we've got an aging population. The second focus, manage our capital and costs appropriately for the size of the organization we are today. We've committed to ongoing reductions in controllable costs, and we're all absolutely focused on making sure that happens. We want to right size the corporate for the organization we are today, not the organization we were, and we've taken major strides to that and will continue through the first half. We want to continue to make sure we have the right capital and debt mix for going forward. And as Blair and I have both said, we'll look to deleveraging opportunities where they're appropriate and focus on getting that capital back to shareholders through this year. All of that needs to be done, but we also want to focus on new revenue sources and making sure we have sustainable businesses going forward and sustainable differentiation. For that -- us, that means focusing on the digital experience, focusing on our digital advice and looking for distribution channels that have remained untapped at this point. So if I look at 2023, there's probably 3 things I want to leave you with. We are delivering on our commitments. We've delivered on cost, we've delivered on capital, and we're delivering on the simplification of the portfolio, and we'll continue to deliver on those commitments. Our portfolio is now simpler and allows us to focus on growth and continued efficiencies. And we do have a clear strategic focus for this reshaped business, and it's really up to us to just continue to execute on that strategy. So thank you very much for your attention, and I'll now pass to the operator for questions.

[Operator Instructions] Your first question comes from Andrei Stadnik from Morgan Stanley.

Can I ask 2 questions, both actually around margins? Can I ask, firstly, on the wealth business, across platforms -- and across the Master Trust, you're talking about broadly flat revenue margins, which hasn't happened for a very long time. So -- but what gives you the confidence to come up with such an outlook?

Yes. Firstly, I think we did deliver in line with the expectations last year, and there's clearly pressure around price in the market. But I think we've taken a lot of actions in terms of our variable expenses to make sure we're able to protect that platform going forward. So I think we did a lot of the hard work in '23 to make sure we're comfortable with those kind of predictions.

And my second question, the sum around the bank. I mean the bank had a difficult second half and you explained some of the reasons behind, the deposit franchise being very different some of the other banks [indiscernible] facility created this intense competition and should be easing. But nonetheless, like the forecast bank margin for FY '24 seems quite robust in terms of -- versus the trends in FY '23. So can you talk a little bit about that? Like are you assuming any kind of reprice on mortgages and/or deposits?

Yes. I think if you look at our margins that we've given you for 2024, I think we expect as the TFF continues to roll off in the first half that there is going to be elevated competition for funding, particularly. I think if we look at mortgage competition, that has started to abate somewhat and return to normal conditions. So for us, the first half is really about that funding. If I look about what we expect going into this year, we are expecting a couple of interest rate reductions in the second half of the year. That may, depending on the market, allow us to grab some of that margin back. But it's really as a result of that funding competition as the TFF rolls off to 0 at the end of June.

Your next question comes from Simon Fitzgerald from Jefferies.

Just checking you can hear me, okay?

Sure. Thank you, Simon.

Just a question firstly on debt. The AUD 461 million, the pre-funding and the TFF, how is that going to be funded over the next sort of 6 months as you mentioned that, that will be rolling off?

Yes, I think it's AUD 416 million. But Blair, do you want to comment on that?

[Audio Gap]

Yes. I mean we've obviously already prefunded a chunk of that. So about half of its already done. And so we would expect -- obviously, there's going to be an impact to us, as Lex mentioned, in terms of, as you replace that with our normal deposit gathering. But in an aggregate basis, I mean, we're down to the last couple of hundred million. So it's not a material factor for us in a funding sense. It obviously just has some impact in terms of margin, which is why we've been quite conservative about our view on margin, particularly in the first half.

And Simon, I think that will be a mix depending on what's happening in the deposit market. We've got credit facilities in place, but we can make decisions as needs to be, whether we replace some of that with deposits if the market abates a little bit.

Is that what the 200 new facility that started up in December '23 is about? And should I assume that that's then drawn that [indiscernible].

No. No. No. The 200 facility that we put in place is simply a prudent measure given as we continue to simplify the business. We felt it was appropriate to have a standby facility. That's not drawn at all. But we just felt that given the general direction of simplification, we'd put that facility in place.

Okay. And then final question, just on the Board buffer being reduced to AUD 536 million. I don't want to give you the impression, I'm not in favor of that. But like I just would like to know a little bit about what is behind the Board's thinking in terms of the reduction there. I mean, it's still 37% of your requirement.

Yes. Yes. Look, obviously, the Board, as you would expect, take a conservative view across not just meeting minimum regulatory requirements or making or there's a buffer across our various business lines. Of that AUD 530 million, about AUD 200 million is decked against the bank to provide some additional buffer, there's buffers and platforms as well, but there's also a buffer at group level just for anything unexpected. And so obviously, it's pleasing to see that reduce, and we'll continue to examine that with the Board as we look forward and continue to simplify the business.

And I think the reductions in '23 were largely as a result of the portfolio simplification, Simon. So we got -- we finally settled those AMP capital transactions. So that allowed the Board to have another look at that buffer. And now that we've got several of the legacy items behind us, they'll continue to look at that buffer.

Yes. And just final question. Just on the corporate debt and then the senior debt, is there any planned redemptions or at least repayments coming up in '24? I just couldn't remember if there was.

Yes, there are. In the first half, there's a redemption to about AUD 190 million. It's the remainder of our Swiss notes. And so that's obviously against that's why there's a little more cash at year-end, we've prefunded that. So that's all ready to go. I think from memory it's June that, that final redemption occurs.

Okay. Great. And then sorry, just one more. With the AUD 565 million in terms of the surplus, obviously, that doesn't include the last tranche sort of buy that AUD 350 million, so that will be reduced to AUD 215 million once that goes through and completed towards the end of the year?

That's correct.

Your next question comes from Kieren Chidgey from Jarden.

Apologies, I might have missed an earlier question on this, but just on the pro forma surplus capital position that I think it's about AUD 565 million.

That's right.

So that presumably reduces by this AUD 350 million remaining. So just wondering what the sort of additional AUD 200 million, like how we should think about that, given you saying the Board has reassessed the target buffers?

Yes. If I can just comment on that. At the moment, as you know, we declared a AUD 0.02 dividend today, which is AUD 55 million. We'll consider at the half year, whether we pay a half-year dividend. That kind of leaves us with significant shares to buy back. We, at this point, expect that will take most of 2024, depending on volumes. Obviously, we'll try aggressively to get that back as quickly as possible. So I think it's some time before we can reevaluate what happens with that surplus capital.

Okay. And Alexis on the dividend payout, I know you said the Board is sort of reconsidering that into the first half result. But sort of any sort of comments today in terms of how we should think about a sustainable payout policy moving forward? I know sort of [ it being ] paused a while ago, sort of the commentary was 60% to 70% of underlying NPAT. So just wondering whether or not that's sort of a fair guide.

Yes. I mean, we'll come out with a more formal dividend policy this year because I think we're in a position where the profits are more sustainable now. But at the moment, given all things being equal, it will be there or thereabouts for the final dividend is what I would expect for the half year.

Okay. And secondly, just on the bank ROE. Obviously, you've sort of pulled back on growth, which is clearly sensible, but just keen to -- I think there was some commentary around the cost, controllable cost reductions this year sort of including the bank, just kind of to get a sense of how much of that falls into the bank, given the ROE was 6% in second half. Obviously, you've got the digital bank initiatives that will deliver into '25 and beyond. But sort of in the interim, what levers are you pulling to sort of improve that ROE near term?

Yes. As we looked into the second half of last year and we saw the conditions around the funding, the bank team clearly has looked into their cost to see what we could do there. You see we delivered negative growth in the second half in terms of the loan portfolios. And that's what we'll continue to do through '24, manage the costs vigilantly, make sure that every dollar we spend is creating value and manage that loan book according to what's happening in the market. So I mean, I think for us, we are a simple bank. We have mortgages, and we have deposits in varying forms. So the levers are really the loan growth and the costs as we look to build out that strategy that we announced last year.

Okay. And that cost control is already anticipated within the AUD 690 million...

Yes.

Yes, that's right.

Number. Yes. Okay. And then just lastly, on the strategic partnerships. Sort of the China partnership earnings reduced quite sharply in the second half of the year. I know that can be volatile half to half, but there was a comment around sort of regulatory change impacts there on a year-on-year basis. Just wondering if those are fully seasoned through and sort of how we should think about that line item moving forward just given it is fairly reasonable to the group.

I think if we look through 24 and into '25, we see 2023 as being a bit of an aberration. Clearly, we're in an interesting geopolitical dynamic at the moment. We'll continue to watch that. But the assets continue to grow in our China partner. CLPC is the predominant pension provider in China. So we expect that would return to something more normal as we move forward.

Okay. And are these assets still core to the group? Or have you thought about retention of these stakes moving forward?

I think we think about everything all of the time. But at the moment, those stakes remain important. We're helping our partner over there continue to grow the assets. I think the last year has been the most productive for us because we've been able to get people there. I have made a couple of visits there as well. So we're starting to really rebuild and strengthen that relationship to go forward.

Your next question comes from Lafitani Sotiriou from MST.

I've got 3 questions, if I may. The first is in relation to the advice business. And if you sort of think back to the last result presentation, there was a bit more talk about approaches that AMP received and everything was on the table about exploring the format and how the structure of that advice business may look. And yes, there's some costs that come out of the advice business, but knowing what you guided to, which was a halving of the cost base or the loss rate in the last year and then halving again. So could you just give us an update? Has the language around that fallen away because you're less likely to sell it, spin it out or do something with it? And would you say that's more likely you will keep this business 2, 3 years out?

Yes. Let me be clear, Laf. We are still, and I think I said this at the half year, absolutely focused on making this a sustainable business and losing AUD 40 million or AUD 47 million is not a sustainable business. And we've been very upfront with our advice partners about giving that message and certainly have not walked away from that. I think I've also said that we need to make a sustainable business to be able to look at alternative options. Absolutely have not walked away from alternative options. We continue to discuss alternative options with our advice partners. There's clearly a lot of activity in the advice space at the moment. And we'll be discussing with both our partners and the various stakeholders about options available to us. So not changed the position on that.

Okay. Got it. Can I just go to the capital and excess capital accounts? And I just want to better understand the retirement of the AUD 250 million Tier 2, I believe it was at a group level. I think it was in November. So -- and you retired some other debt and there's some more debt that's going to retire next year. Can you just talk us through the interest cost or expense expectations because there's a lot of moving pieces and particularly with it going up so -- and because there's been so many moving pieces, could you just talk us through the outlook of the interest expense into the next year?

Yes, sure, Laf. And I think you're right, there's a couple of [ AUD 250s million ] floating around as well. So it gets a bit confusing. Blair?

Yes. Obviously, we would continue -- look to continue to simplify the position going forward. And particularly, we've obviously prefunded already this year the maturity that's coming up, as I mentioned, in June of '24, Laf. And so that's obviously seen elevated cash, but obviously flows straight through to elevated interest expense. And so the interest expense and interest revenue numbers are both accentuated because we've been carrying excess. And so that would continue to trail off through this year would be our expectation. The particular milestone I'm looking for -- looking to is obviously June when we repay that sort of nearly AUD 200 million note maturing, and so that's a key one.

But we can spend more time with you, Laf, explaining those differences because it is quite complex. So I understand that.

Can I just clarify, I mean, because it is important, this AUD 250 million of your excess capital that's gone to this Tier 2, can you just talk to the savings on that?

While the -- I mean I think the note was like, I think, 180 basis points over BBSW. I think, 200 basis points, yes. So about that. So there's obviously some savings, but the redemption only occurred in November. So very small, but there'll be some impact into obviously in the coming year.

Okay. And would be keen to get some follow-up on that. And just finally on the bank. And we have had some discussion about that, but the return on capital has fallen in below expectations, even still the ROE at 6% doesn't include a fair allocation of the group costs. So effectively, your bank is earning below 5%, you'd almost be better off putting your own capital in your -- one of your term deposits. So could you just talk us through a bit more on -- I know that there's something coming in financial year '25. But previously, the cost out that you've already put on the table didn't include anything from the bank. So why would we not expect a net reduction or a net increase to the cost out, if you do find some further savings in the bank? And at what stage -- I mean, what would you consider an acceptable return 2, 3 years out? I mean you're at half your cost of capital. So can you explain in a succinct way, why you should be staying in banking, given these -- you're returning half your level of cost of capital?

Firstly, let me answer that question, Laf, in a couple of ways. I'll talk about the specific questions. The bank does [Audio Gap].

Half of the amounts that -- less than half what others are delivering, and we don't tend to be getting in that as to why you guys should be staying in banking.

Well, I think I just went through the reasons why I believe we need to be in this banking. Ultimately, you're right, we don't allocate every growth cost. We hold at the center that my costs, listing costs, et cetera. That's fair. I believe that the strategy we put forward [ in that ] number will help us diversify the funding, diversify the customer base and improve the enterprise value. Now of course, there is a sense of urgency. We need to continue to look at what the market dynamics are. We need to continue to refresh our financials, all of which we are doing, and I'm sure we'll have more discussions with you about that.

[Operator Instructions] Your next question comes from Nigel Pittaway from Citi.

Just like to refocus back on the advice business. I mean, previously, when you've talked about the target towards breakeven, you said the last few million would be difficult.

Yes.

I mean given that you're now saying that the regulatory environment is more supportive, does that mean that, that becomes easier? Or how should we think about that?

Yes. I think when we talk about individual advisers, they certainly are having an influx of customers at the moment. And that ultimately can benefit us in terms of improved adviser sentiment, improved revenue for the advice business. I'm not sure it makes the whole task a lot easier. To be honest, it needs to be focused more on costs so making sure we've got the right technology for that licensee going forward. But it certainly doesn't make it harder. That's correct.

Okay. So in terms of the sort of regulatory environment, what other benefits do you think will start to accrue from that and how long will that change?

I think in terms of -- well, firstly, we don't have all the legislation through the parliament yet. So let's hope that, that comes through this year. But it certainly does relieve some of the compliance burden that's in place for both licensees and advisers. So I do see an opportunity there, but I stress we don't have the legislation yet, but everyone seems to be leaning into making sure that it is more easily accessible for customers. So that will be a benefit to us. And secondly, as I said, the advisers should be able to become more efficient, speak to more customers as a result of that, which should help with the flows into our various solutions.

Okay. And then -- I mean, previously, one of the hurdles you've said in terms of coming out with this alternative structure for advice was the resolution of the BOLR case, and that's obviously now behind you. So how close are you to coming up with an alternative structure. Is this something that is imminent? Or is this still going to take some time, you think, to be able to execute on?

Undoubtedly, BOLR was incredibly important, but so is making sure that we have a sustainable business going forward, which means addressing the costs, addressing the technology, which we've been working on now for the last 12 months. As I said, there's a lot of activity happening in the market. We're working with our advisers. In fact, we're having a big day with them next week where we'll be discussing various things. So we'll continue to watch a watching brief on that.

Okay. And previously, the breakeven target was sort of notionally for the end of this year. I mean, is that at all realistic do you think or...

Yes. As I've always said...

[indiscernible] push out?

Yes, sorry. We're trying to run for that exit run rate of that. But I think, as I've always said, the last AUD 10 million to AUD 15 million will be hard. Some of that's in the group that we need to address, but we're running hard at that through '24.

There are no further questions at this time. I'll now hand back for closing remarks.

So I'd like to thank everybody for their attention today. Certainly look forward to speaking with you more on a one-on-one during today and the next few days and enjoy the rest of Valentine's Day. Thank you.