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AMP is bracing for a profit squeeze as it moves to convince investors not to pull billions out of its funds management business. AMP has also revealed that a purchase bid by US-based Ares Management has been withdrawn.
AMP chairwoman Debra Hazelton’s “portfolio review” has failed to stoke any serious corporate interest in the company’s financial advice, superannuation and banking divisions, according to a report by The Australian Financial Review. Chief executive Francesco De Ferrari will cut customer super fees, freeze staff wages and cut costs as the 171-year-old business battens down the hatches.
De Ferrari warned that profit margins will face pressure as AMP prepares for the government’s stringent new superannuation performance tests. AMP revealed a 32% drop in underlying annual profit on Thursday and no final dividend payment, AFR reported.
AMP shares dropped 11% to $1.37 – 25% below the $6 billion nonbinding takeover offer extended by Ares Management in October. That bid was retracted Wednesday night, mere hours before AMP released its annual results.
Ares Management’s withdrawal is yet another blow for AMP, which reported a 15% drop in revenue from its continuing operations over the 12 months through December. AMP was also hit by withdrawn mandates and fund outflows across its business over the last 12 months.
Assets under management in AMP’s financial advice and superannuation businesses dropped 8% – by $8.3 billion – over the year, while AMP Capital posted a drop of 7%, or $13.3 billion, in assets under management.
Cash outflows from AMP’s external clients totaled $1.7 billion during the year after clients pulled a raft of fixed income, ESG fund and public markets mandates, AFR reported.
While AMP posted a statutory profit of $177 million for the year through December after a $2.5 billion loss the previous year, De Ferrari stressed that the company was only one year into a three-year transformation program. He said it was “frustrating” that the work completed during the year “does not show up in the end-of-year P&L.”
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“This is absolutely normal, especially in an annuity business like ours,” he told reporters. “The good work will show up in coming years. I’m not sure that’s a plea for clemency, but perhaps just context.”
While Ares Management is still holding discussions with AMP over the potential purchase of AMP Capital, a portfolio review launched in September resulted in AMP being compelled to double down on its own strategy for its wealth management businesses in Australia and New Zealand, its banking arm, and its financial advice business after potential buyers evinced little interest, AFR said.
De Ferrari wouldn’t disclose the number of potential buyers for AMP Capital, but said he “guaranteed” that the portfolio review had received “a lot of interest.” He said that discussions with Ares related to the structure and timing of any deal and implied that a deal would depend on whether AMP Capital would continue to service the assets under management in other parts of the AMP family.
“What is the right solution that can turbocharge our existing strategy and deliver for clients and shareholders? What attracted me to this job is an underlying passion for trying to solve the wealth inequality and build professional, affordable advice to the masses; that’s what motivated me to come here,” De Ferrari told AFR. “But I am managing this company on behalf of my shareholders, so if there is something that delivers a different ownership structure that delivers better value for shareholders, that’s the job I’m paid to do.”
De Ferrari said AMP would focus on recovering momentum in its banking arm, growing its North wealth management platform and revamping its super business, which could become obsolete if the government passes its “You Future, Your Super” performance tests.
“We fundamentally believe Australia needs a retail superannuation sector,” De Ferrari said. “We are committed to building the best default super product.”
AMP plans to make a range of fee cuts to its wealth and super offerings, which will shrink profit margins by eight basis points. The company hopes to offset that reduction with cost cuts, and also hopes to make a “significant reduction” in corporate mandate losses in its super arm with retention activities, AFR reported.