AMP AGM 2023 Chair address
I address you all today, our shareholders, amid the backdrop of very challenging global economic conditions. I preface this by saying that we are fortunate here in Australia to have a strong and effective regulatory framework for banks of all sizes. The Government and our regulators have clearly reminded us that Australia’s financial system remains resilient, well-capitalised and highly liquid.
That said, the ramifications of the recent bank turmoil in the US and Europe have been felt in the Australian market and are still being digested by our banking sector and regulators. The implications of the sudden failure of Silicon Valley Bank, the near failure of others in the US and the rescue takeover of Credit Suisse are still playing out. What we do know is, that as a financial institution, liquidity is paramount, as is having an experienced board and management at the helm to ensure we navigate through this period successfully.
AMP has weathered many economic storms in our 174-year history, and the fundamentals of our company today remain strong. Our business portfolios are well positioned in their respective markets, particularly since leaning into the imperative to make AMP’s offerings more competitive over the last 12 to 18 months. In particular, based on the timely completion of the recent divestment of the AMP Capital businesses, we are very pleased to have delivered for our shareholders a much more resilient company - as we face into current economic headwinds and market volatility. We are a simplified company with a stronger balance sheet and liquidity position, and we are now in a solid position to focus on the go-forward banking and wealth management businesses in Australia and New Zealand.
Key achievements
We are in this stronger position as a result of many deliberate decisions taken in 2022 - a year of getting things done for AMP. There is still more to do – but we have made encouraging progress.
As Chair, I am proud of AMP’s progress in supporting customers, our people and the community - building on AMP’s strong legacy, and at the same time strengthening the business and sharpening our strategic focus. We are already delivering on our commitment to return capital to shareholders and we are now in a position to address the appropriate capital structure and cost base for our go-forward company.
A key function of any board is the appointment of the CEO. Since we appointed Alexis George in 2021, she has set a clear roadmap for AMP and together with her leadership team has made great progress through strategy execution and cultural transformation. We are part way through AMP’s transformation program and have full confidence in the CEO and management team’s ability to deliver.
As you will be aware, last month we announced the completion of the sales of the AMP Capital international infrastructure equity business, and this month the real estate and domestic infrastructure equity business. The completion of these sales follows the divestment in the past 18 months of the remaining interest in AMP Life, and the other AMP Capital businesses. These transactions were all very complex and their completion marks a significant milestone in the delivery of our simplification strategy.
Returning the capital raised through these sales to shareholders is a priority. Last August we announced a A$1.1 billion capital return program which comprises:
- A$350 million via an on-market buyback, which is now complete;
- another A$400 million via the announcement of further on-market buybacks and a 2022 final dividend of 2.5 cents per share; and
- another A$350 million through on or off-market buybacks or other capital mechanisms which are subject to regulatory and other approvals.
As well as delivery of portfolio simplification – AMP’s businesses in 2022 displayed a solid operational performance, given the challenging market environment.
The two key growth areas identified in our strategy – the Bank and Platform businesses – reported progress and momentum. AMP’s offerings are now more competitive and compelling for customers due to investment in technology to improve the customer experience in Bank and Platforms, and more competitive pricing across Platforms and our default super business. These strategic decisions had negative short term impacts to profit but will benefit the businesses and our shareholders in the longer term.
During 2022 management also significantly reduced costs - meeting our three-year A$300 million cost-out target announced in 2019, including significant cost reductions in the Advice business.
This marks significant progress on the transformation of AMP. We have simplified and strengthened the business portfolio and launched new offerings, while exploring other growth opportunities. We have mapped out a pathway to return capital efficiently and will continue to focus on delivering a sustainable lower cost base appropriate for the new AMP.
As ever, we maintain a strong focus on governance at board level as we guide the organisation through this transformation.
Board renewal has been critical to this. We have welcomed three new independent directors since I became Chair and we are confident that the board has the right balance of deep banking and wealth management backgrounds, as well as diversity of thought and broader relevant experience.
Addressing stakeholder feedback
Ahead of the meeting today we received some shareholder questions and other feedback. We appreciate feedback we receive from investors and other stakeholders. I believe it’s important to address some of the more prominent topics here and now.
First, a number of shareholders have highlighted concern about the fall in the share price since the announcement of our FY 22 results.
I acknowledge that the share price performance in February was extremely disappointing.
That said, while the board and executive are mindful of the day-to-day share price movements, it is the long-term which remains our focus. By successfully executing our strategy and delivering on commitments, the share price will ultimately reflect that – irrespective of the influence of short-term market factors that may often be outside our control.
Over the course of 2022, AMP’s share price outperformed the market by about 30% as we progressed our transformation strategy. While the performance since February has reversed part of that gain, influenced as well by macroeconomic factors, we must focus on the long-term trend and where we take the business from here.
We have a clear strategy in place and are focused on our key growth businesses, as well as right-sizing our cost base and returning capital to our shareholders.
Second, some shareholders have raised the size of AMP’s capital management program and the pace of capital return – keen for us to return capital faster.
As already mentioned, we are steadily progressing the committed A$1.1 billion return to shareholders. To expedite that, today we are asking you to approve a motion to give the company flexibility to buy back and cancel up to 500 million AMP shares in the next 12-month period.
We have also recommenced the payment of dividends. The 2022 final dividend for the six months to December 2022 is the first dividend AMP has paid in four years and should be a strong sign of confidence in the stability and performance of the business going forward.
Returning capital to shareholders as quickly as possible, is a top priority for the board and management and I promise you that there has been much work done to determine how to do this most efficiently.
The speed of the capital return, and any ability to increase the amount of that capital return, is driven by two key factors:
- One, we have determined that returning capital through an on-market share buyback is the most tax effective method for shareholders. However, on-market share buybacks, by their nature, take time. Because the buyback reduces the number of shares on issue and increases the portion of AMP you own, it increases your participation in the future success of the company.
- And two, as for the size of the capital return – this is largely driven by our regulatory obligations to maintain appropriate capital and liquidity levels. As you will understand, this is even more important given current ongoing market volatility.
For both board and management it is an absolute priority to both complete the current A$1.1 billion capital management program, and to consider future options for returning any additional capital to shareholders.
The latter will form part of the capital and balance sheet review, along with a cost review which were announced earlier this month by the CEO, following recent completion of the AMP Capital sales.
Concerns have also been raised about how AMP Super directs voting for its investments when voting on climate resolutions. With the changes to our business and divestment of AMP Capital, these investments are no longer managed directly by AMP but through third party fund managers. However – and this indicates how important AMP regards climate risk – despite the fact that management of investments is now through external managers, AMP took the decision last September that on climate specific resolutions for select energy, materials and utility companies we would direct our managers (where available to us) as to how to vote our investment. AMP discloses its voting statistics annually.
AMP’s position on climate change is articulated in the latest Sustainability report – many of the actions in the previous report (2021) have been superseded as the actions related specifically to AMP Capital and are no longer relevant.
Capital, balance sheet and cost review
With the completion of the final AMP Capital sale transaction earlier this month, AMP has committed to a comprehensive review of its balance sheet with the view of returning excess liquidity to shareholders and/or reducing outstanding debt. We have also committed to review the operational model and cost base for the future business. Both reviews will be a key priority during the first half of 2023, and will reflect the forward-looking focus on AMP Bank and the Australian and New Zealand wealth management businesses.
While we have identified in the order of A$500 million of liquidity that could be deemed excess to requirements in a normal operating environment, given the current volatile markets the board deems it appropriate to retain this liquidity and focus on efficient execution of the A$1.1 billion return program until the capital and balance sheet review is completed. Clearly, at a time like this AMP’s capital position is a significant strength for us.
On costs, we recognise that a structural shift is required to right-size AMP’s cost base. I want to assure shareholders that we intend to align our go-forward cost base to the size of the go-forward business.
It is also important to point out that AMP is still in a transition period – and while we are close to separating the legacy businesses, there remain costs and other separation activity to work through. Just to keep costs flat this year, management will need to mitigate the impact of inflation and stranded costs resulting from the sales. Alexis and her team will also continue to actively identify all future sustainable cost reductions across business units. Moreover, our new CFO, Peter Fredricson, is focused on working hand in hand with Alexis to simplify the internal operating model and architecture to further unlock sustainable cost reductions.
An update on the quantum and intended use of identified surplus liquidity, and the amount and timing for delivery of identified cost savings, will be reported back to shareholders as soon as the reviews are completed, but no later than with the delivery of the half year results in August.
Remuneration
I would like to take some time now to talk about AMP’s remuneration approach and acknowledge some negative shareholder feedback as demonstrated by votes already cast on today’s Remuneration report resolution. Based on the votes already cast, we are expecting to receive a first strike on the adoption of the Remuneration report.
While we have already made significant changes to our remuneration framework over the past 12 months based on comprehensive engagement with investors, proxy advisors, remuneration experts and regulators – we remain keen to understand and respond to feedback. While the first strike we’re expecting today is disappointing, we hear the feedback from our stakeholders and are committed to continuing to evolve our approach.
I would summarise the two key objections to the Remuneration report as follows:
- The board’s decision to award a bonus higher than the scorecard outcome – particularly in light of the fall in share price in February; and
- A lack of both a retrospective and a prospective disclosure of STI targets.
I think there is merit in explaining the way we think about remuneration. We are guided by three key principles:
- Ensuring a clear link between performance and the reward outcome;
- Reaching a balance between shareholder experience and rewarding our people for what they deliver against the group scorecard and a holistic assessment of performance in the year; and
- Attracting and retaining the talent required to deliver on AMP’s transformation strategy.
The board appreciates that the share price performance in February of this year, may have coloured shareholders’ views of management’s performance. Remuneration was allocated based on performance against the 2022 scorecard – in addition to a number of other factors that occurred during the performance year – that were not envisaged at the start of 2022. The board is obliged by regulation to apply appropriate discretion to ensure that performance is assessed holistically. In doing so the board deemed that upward discretion was warranted due to the value creation and strategic delivery that was not captured in the scorecard measures. The 2022 scorecard was designed without the prior knowledge of the requirement to pivot to trade sales from the planned demerger during the year. There is no doubt that this extra work was in the best interests of shareholders. Discretion also reflected a more than 30 per cent increase in the share price over the course of the performance period. It is important to note, to highlight consistency, that the board exercised downward discretion in 2021 to align reward for management with shareholders’ disappointing experience that year.
With regard to the disclosure of STI targets, we are continually looking to improve our disclosures. We take the feedback of shareholders onboard and we will consider 2023 performance outcomes on that basis.
With respect to our new 2023 remuneration framework, the feedback has been largely positive as you can see by the vote for the 2023 LTI grant for the CEO – Item 4. The board made several changes in order to comply with APRA’s new remuneration Prudential Standard (CPS 511) as well as improving the framework’s effectiveness. The changes outlined in the Remuneration report and the Notice of Meeting explanatory notes are the result of comprehensive engagement with investors, proxy advisers, remuneration experts and regulators over the past 12 months.
Critical to these changes has been finding the appropriate balance between financial and non-financial metrics. Much of the restructuring of the framework addresses this, to ensure AMP meets the expectations of regulators and, of course, our shareholders.
For our 2023 short-term incentive scorecard, we have listened to market feedback and increased the weighting of financial objectives, with an increased focus on profitability. We have maintained a balance of non-financial metrics – including Customer, People and Risk, in line with the new regulatory requirements (CPS 511) and our ongoing commitment to these key performance areas. The Strategy metric includes non-financial and financially-aligned measures.
The new regulations require that a material weighting is also given to non-financial metrics across all variable reward. As such, we have introduced a non-financial metric in the design of the long-term incentive. In response, we have included an independent, benchmarked relative reputation measure, together with the financial measures of relative TSR and adjusted EPS.
With AMP’s performance year starting on 1 January, I note that we are one of the first organisations whose go-forward remuneration structure needs to comply with these new regulations. As such, we will continue to seek feedback from stakeholders during 2023 on our model.
Board governance
Turning to the critical matter of governance. Good governance is central to our business performance and culture.
As we simplify AMP, we are ensuring that the functioning of the board reflects the needs of the company for its future. During 2022 we restructured the board committees while continuing to reduce the costs of running the board. We also established two Advisory Groups to enhance our focus on the key strategic enablers of ESG and sustainability, and technology transformation.
Your board is made up of committed individuals with deep integrity, experience and high capability. In addition to core banking and wealth management skills and experience, the diverse mix of backgrounds results in deep insights into technology, risk management, government, culture transformation, multi-sector advisory, strategy and capital management among others. It also means robust boardroom discussions and challenges to management.
The board takes an active role in guiding AMP’s cultural transformation and from its beginning has had a strong focus on driving a culture of performance, inclusion and accountability.
We have also continued to enhance AMP’s robust risk culture. We fully recognise that the risks facing the industry are evolving, and that all businesses must continually refine and strengthen their responses as well as looking forward to anticipate future risks and mitigants.
A key process in determining focus areas from a risk perspective is our annual materiality review, which is an important part of our sustainability work. This ongoing engagement with stakeholders on their most material issues helps to inform the board’s decision making around risks most relevant to our business and our stakeholders.
I believe that engagement with shareholders and other relevant stakeholders is essential if the board is to deliver on its obligation to always act in the best long-term interests of the company – that is, all its shareholders. I am conscious that there is often a dichotomy of views around financial performance and meeting stakeholder expectations regarding ESG standards. Strong financial performance is critical of course, however we believe that the two interests are not mutually exclusive and that they often converge, particularly in the longer-term. This is how we think about setting up the company for a strong, sustainable future.
AMP’s role in society
To that end, as Chair of one of Australia’s leading wealth managers, I am very conscious of the broader role AMP has to play in society in supporting financial wellbeing. It is a role that AMP has played for 174 years and will continue to play into the future.
The board takes its role as custodian of wealth and retirement savings very seriously. We recognise the profound impact it can have on individuals, and our society.
For individuals, our purpose as an organisation is helping people create their tomorrow. This means supporting our customers and members to realise their financial goals and aspirations, and to support them when things do not go to plan.
For society more broadly, we have an opportunity to play a leading role in enabling Australians to feel more confident in retirement, and in increasing financial wellbeing, financial literacy and financial inclusion. We also address this responsibility to society through our Sustainability report and other related policies and engagements, which help guide our investment decisions.
We are very aware of the responsibility we have to those parts of the community that need more support – we are acting on this through our Reconciliation Action Plan, our collaboration with community partners to support financial counselling programs across Australia, and of course through our support for the important work of the AMP Foundation in enabling individuals and organisations to tackle complex social and environmental challenges. This work, and much more, makes AMP a company we can all be very proud to be associated with.
Conclusion
For any board there is always a great deal of focus on managing risk, and of course for AMP’s board that is no different. However, we are also focused on the significant potential in this business. I am confident that AMP has a bright and prosperous future as a Bank and Wealth Manager in Australia and New Zealand.
As a board, our interests are entirely aligned to yours as shareholders. We will continue to work hard to deliver for you a business that is strong and stable – returning consistent value to its shareholders and other stakeholders, has a corporate structure and cost base that is efficient and fit-for-purpose, and is a highly respected iconic Australian company.
Thank you for your ongoing support.
I will now hand over to Alexis to address the meeting.