Despite the challenges to our operating environment brought on by external and internal disruption, we remained agile. Providing help and support to our clients during the pandemic has been our priority, as volatile markets impacted their investments and financial plans. While strong progress has been made in delivering to our ambitious transformation agenda and historical remediation issues, we acknowledge that AMP’s organisational instability has adversely impacted shareholder experience. We have earnestly listened to your feedback and the board and management commit to take all necessary actions to restore confidence and trust in our company.
There are a number of key matters I would like to address in this message including an update on our capital management strategy, the portfolio review, business performance, our work on corporate culture and our standing on the critical issue of sustainability.
As announced at our half year results, a 10 cents per share special dividend was paid in October, following the completion of the AMP Life sale. As also indicated, the board has resolved not to declare a final full year 2020 dividend.
However, the board understands the importance of dividends to our shareholders and we are committed to restarting the group’s capital management initiatives including the payment of dividends, share buyback and other initiatives in 2021. This is subject to market conditions and business performance.
We maintain a strong financial position and remain prudent with our capital with a surplus above total requirements of $521 million.
Our company experienced significant change in 2020. The sale of AMP Life, our wealth protection and mature businesses in Australia and New Zealand, to Resolution Life Australia Pty Limited marked a historic moment for our company as AMP ceased to be a life insurer after 170 years.
Following the completion of the sale, the board initiated a portfolio review to assess and respond to increased interest in the group’s assets and business. This included engagement with Ares Management Corporation (Ares), a US-based investment manager, on a non-binding, indicative and conditional proposal for a whole of company acquisition.
Although discussions on a whole of company acquisition have now ceased, we have entered into a non-binding Heads of Agreement and 30-day period of exclusivity to pursue the formation of a joint venture for AMP Capital’s private markets businesses of infrastructure equity and infrastructure debt, real estate and other minority investments (Private Markets) on 26 February 2021. There is no certainty that a transaction will proceed, or the terms on which it would proceed, but we will provide an update (to the market) on the outcome as soon as possible.
Our review has confirmed that AMP’s transformation strategy for the AMP Australia (wealth management and AMP Bank) and New Zealand wealth management businesses is the strategy to drive value for shareholders. The AMP board has therefore concluded the review of these assets.
Business performance in 2020 remained resilient despite the market volatility and COVID-19 impacts on clients and asset performance. Our underlying net profit after tax (NPAT) was down 33% to $295 million. This was a result of volatile financial markets in our wealth management businesses in Australia and New Zealand, and our investment management business, AMP Capital. The COVID-19 related weakness in the Australian economy also led us to take a provision for potential mortgage defaults in AMP Bank, although reassuringly credit quality has remained strong.
Despite the conditions, our teams made strong progress on transforming the business. We have simplified our superannuation business and reduced fees for clients, continued to reshape our financial advice business and delivered a major technology platform upgrade in AMP Bank. In AMP Capital, we continued to invest in and grow our private markets businesses in global infrastructure and real estate.
Our industry is competitive and continuously changing, and achieving our goals requires a high-performance culture. The board and I are aware of the disappointment felt after questions about our company’s culture were raised last year. Improving corporate culture, including risk culture, is a core priority for AMP and is critical to the success of our three-year transformation program.
Following my appointment as Chair in September 2020, we committed to accelerating existing culture change initiatives and to introduce further initiatives to build a culture that is more inclusive, accountable and performance driven. The board was particularly involved in the establishment of the Board Culture Working Group, of which I was Chair, and initiated a review of workplace conduct. A major task of the Culture Working Group was to set down the board’s shared beliefs in terms of culture, governance and strategy. This work is now complete and provides the board and management with a clear framework for expectations and system design.
The comprehensive review of workplace conduct has also been completed and while it pleasingly found that AMP does not have a systematic issue with regards to sexual harassment or misconduct in our workplace, it has identified some key improvement areas to meet global best practice standards. The board stands firm with our CEO, Francesco De Ferrari, in his continued prioritisation of this important work.
Following feedback on the 2019 Remuneration report, the board has taken the time to complete a formal review of our remuneration framework.
We are committed to setting the remuneration targets of our executives at levels that align with the company’s performance and meet shareholder expectations. Our remuneration approach must also balance the need to retain talent and reward performance that delivers strong outcomes for clients.
AMP’s performance in 2020 is reflected in the variable remuneration outcomes for the CEO and key management personnel (KMP). The decision to not pay any short-term incentives to the CEO and current KMP reflects the board’s view to align remuneration with shareholder outcomes.
In recognition of the potential risk of losing key executives during the portfolio review process, the board has approved some limited retention payments to be paid later in 2021.
Looking forward, we have made a number of changes to our remuneration framework from 2021 to ensure focus on driving sustainable, long-term results. All changes are explained in further detail in our 2020 remuneration report.
The board prioritises addressing and advancing shareholder interests by focusing on long-term sustainable returns while balancing near-term objectives. Importantly, community interests and other non-financial considerations are also factored into board decision-making where they impact shareholder value. We recognise that economic, social and environmental issues can have a material impact on business performance and society. AMP’s non-financial disclosures have evolved significantly, and our 2020 Sustainability report represents the positive steps taken by AMP towards best practice.
The composition of our board changed significantly throughout 2020. Former Chairman David Murray AO and former non-executive director John Fraser resigned in August and I would like to take this opportunity, on behalf of the board, to thank them both for their significant contributions to AMP.
Earlier in 2020 Mike Wilkins AO, Andrew Harmos, Peter Varghese AO and Trevor Matthews retired from the board. We sincerely thank them all for their dedicated service and contribution. We welcomed three new additions to the board in 2020 with Rahoul Chowdry, Michael Sammells and Kate McKenzie. The board composition now meets our 40:40:20 target for gender diversity.
In 2021, ongoing stability, retention of corporate knowledge and ensuring that the board has the appropriate skill set to provide oversight of the business and its continuing transformation are key areas of focus.
In 2020, AMP delivered against major milestones of its transformation strategy to become a more client-led, simple, and growth-oriented business in particularly challenging circumstances. In 2021 we intend to build on this successful execution momentum while always acting in shareholders’ best interests and with absolute alignment to AMP’s values and purpose.
I am personally very encouraged by the number of people who expressly want to see AMP succeed in its ambitious transformation and am also buoyed by the resilience and passion of our people.
On behalf of our board, I sincerely thank you for your ongoing support.