AMP Limited (AMP) Earnings Call Transcript

Good afternoon, and welcome to AMP's Full Year 2020 Results Briefing. My name is Jason Bounassif and I'm the Group Treasurer, and I'm responsible for Investor Relations. To my left sits CEO Francesco De Ferrari; and the CFO James Georgeson, who will take you through the presentation. Thereafter, we'll have time for questions. If we are ready, Francesco, can we begin?

Yes, we can. So thank you, Jason, and good luck on your first official results. And hello, everyone, also from me. I hope you're all well and staying safe. It's a shame we need to do this virtually again, but we'll ensure there's ample time for discussion and Q&A at the end. Today, we're going to cover 4 key topics. I'll start with a brief introduction covering my highlights for 2020. Then as usual, I'll hand over to James to cover full year financials. I'll then walk through the tangible progress that we've made against our strategic agenda. And finally, take you through what we're committing to deliver this year. So let me start with a brief overview of last year on Slide 4. 2020 has had the complexity and challenges of 3 years all packed into one for AMP. Now it's been a year that's tested both our professional and personal resiliency. But notwithstanding this backdrop, I must say that I'm extremely proud of the commitment and dedication of our teams and how they've shown up. We faced both internal and external headwinds and haven't let this distract us. But let me take you through my key highlights. As I'm sure you're all acutely aware, we've been working through a portfolio review in the second half of the year. Now you're all -- I know you're all eager to be updated. So let me touch on this in a moment. 2020 financials have been significantly impacted by the extraordinary market conditions with earnings depressed across all business lines. Revenues has been impacted by lower AUM, loan loss provisions and lower transaction and performance fees, but with a number of these impacts to be considered as one-offs. Our balance sheet is robust with capital and liquidity positions remaining strong, but let me leave the detailed financials for James to cover in a moment. While COVID has had a profound impact, it is not distracting us from making material progress in executing on our transformation. We have delivered 90% of the initiatives we committed to at the start of the year when COVID was not even in the picture. Most notably, we executed the AMP Life transaction, including one of the largest SFTs in Australian history. We've returned $344 million to shareholders. We've completed the first phase of our super simplification, renovated our core banking platform and taken the first steps towards pivoting AMP Capital to the private markets opportunity that lies ahead of us. In the second half, we've also importantly regained momentum on our cost program and launch a broad suite of initiatives to strengthen our culture. And all of this while staying true to our purpose on investing our clients, employees and the broader community. Slide 5 would be easy to skip over in the context of full year results. But acknowledging the difficult year we've all had, it's even more important for us to anchor back on what AMP stands for and why we're all here. This year, we've prioritized the health and well-being of our clients in the broader community, having helped them through servicing their mortgage, providing early access to super and even repurposing AMP Capital assets to COVID-19 testing clinics. Equally important has been our commitment to continuing to invest in our employees. Finally, before I hand over to James, I want to take a moment to touch on the portfolio review we've announced in the second half, which I know you're all eager to be updated on. First, on behalf of the Board, let me reassure you of our commitment to AMP's strategic transformation. We categorically believe the strategy is the right one for our portfolio of businesses. But given the level of interest in our assets across the market, it is in our shareholders' best interest to determine if there is an optimal ownership structure to maximize value. And with that in mind, we've explored a whole range of options, including the publicly announced Ares offer. As you've no doubt read in today's announcement, Ares have advised us they will not proceed with their offer to acquire 100% of AMP. We are, however, continuing discussions with them in relation to AMP Capital and reviewing all options with the ultimate aim of finding the right setup to drive value for clients and supercharge AMP Capital's growth ambitions. Over the course of the portfolio review, we've also reaffirmed that our own transformation strategy for our Australia and New Zealand businesses derives the most value for shareholders. So as a result, we've concluded the review of those assets, and we'll continue to drive our own transformation agenda hard. Now as you can appreciate, our portfolio is unique and consists of a wide range of diversified assets. Therefore, the portfolio review has taken time, but I want to reassure you it is not distracting us from delivering on our strategic transformation. Now with that, let me pass over to James to take you through our full year financial results. James?

Thank you, Francesco, and good afternoon all. As you're aware, we are reporting the results today against the backdrop of what has been a challenging year of market volatility and economic headwinds as a result of COVID. Fortunately, market and economic conditions appear to be looking more favorable as we begin this year. Today, you'll also see we've made a number of enhancements to our investor report, which provide enhanced disclosures and move towards a more simplified and detailed reporting of our performance. Turning to Slide 8. We show the full year '20 profit summary, where underlying profit is down 33% to $295 million. The fall in earnings was largely driven by the impacts of investment market volatility and and weaker economic conditions, which had 4 main impacts: lower average AUM across all businesses, loan loss provisions in AMP Bank, lower AMP Capital performance and transaction fees and valuation impacts on our seed and sponsor investments in AMP Capital. Our bottom line result includes a number of nonrecurring items, including the final results of AMP Life, the accounting gain on sale and the recognition of all the remaining AMP Life separation costs. Taking all these into account, the bottom line statutory result for the year is $177 million. Moving to the summary of business unit performance on Slide 9. In our Australian Wealth Management business, in the face of significant market volatility, we remain focused on supporting our clients, simplifying our product offering, continuing to reshape the advice network and pricing -- passing on pricing benefits to customers. Operating earnings of $110 million for the year reduced substantially compared to full year '19, reflecting the COVID-related impacts on AUM as well as the planned transformation actions we are taking. Approximately 2/3 or $50 million of the earnings variance year-on-year is driven by lower average AUM and ongoing pricing and mix changes. The other 1/3 or approximately $30 million relates to legislative and regulatory changes including the impacts of the protecting of super legislation and the removal of grandfathered commissions. Average AUM was down 5% from full year '19, reflecting lower markets and $8.3 billion of net cash outflows. The advice network reshape activities did not have a material impact on outflows. The net cash result -- net cash outflow result of $8.3 billion for the year compared to $6.3 billion of outflows last year. However, the full year '20 result includes $1.8 billion from the early release of super and a further $1.8 billion of outflows from lost corporate super mandates. So adjusting for those large one-off impacts, underlying cash flow performance has improved period-on-period. However, we expect cash flows to continue to remain in net outflow in 2021. Pleasingly, AMP's flagship North platform continues to perform well with net inflows of $3.7 billion in 2020 and AUM surpassing $50 billion, up 9% on full year '19. Total revenue margins declined, as guided, to 73 basis points, a 9 basis points reduction from last year. The movements reflect approximately 6 basis points from normal business conditions, being 4 basis points from product and mix and volume changes and 2 basis points from pricing and SFT impacts and 3 basis points from legislative and regulatory impacts, being 2 from the protecting of super legislation and 1 from grandfathered commissions. We expect revenue margins to decrease by approximately 8 basis points in full year '21. This reflects the Phase 2 of the simplification work to be implemented mid this year. We're starting to see good traction on the cost-out program with controllable costs for the year $22 million lower. This largely reflects the impact of the cost savings achieved as part of the overall work. As we continue to transform the business, full year '21 operating earnings for Australian Wealth Management are expected to be at a similar level to full year '20 as ongoing margin compression is offset by efficiency savings within the business. Moving to AMP Bank, which has performed well given the backdrop of COVID and a period of intense competition. Despite the headwinds and challenges, we completed the bank platform refresh at the end of 2020, a key strategic enabler for the bank, positioning it for growth. Operating earnings of $119 million were down 16% on full year '19 following the recognition of $24 million of after-tax additional loan loss provisions in the first half, reflecting the macroeconomic outlook post COVID. Given the market conditions through the most of 2020, we adopted a conservative lending and liquidity position. And as a result, we saw a slight reduction in the loan book as we focused on maintaining credit quality. Accordingly, variable and controllable costs were flat across 2020 after adjusting for the loan loss provision in the first half. Pleasingly, arrears rates were favorable against full year '19 across both the 30- and 90-day categories. We're continuing to monitor these as government support begins to unwind. And as of the end of January, 90% of our clients under the repayment pause have now resumed repayment. Pleasingly, deposits grew strongly, increasing $1.7 billion across the year. However, NIM reduced 10 basis points from last year, reflecting the intense competition and higher funding costs. Looking forward, we're seeing a more positive growth outlook into 2021 with a strong mortgage pipeline in Q1. And we also expect funding costs to improve into 2021, but for revenue margins to remain pretty competitive. Accordingly, the bank continues to target double-digit earnings growth over the medium term. Turning to Slide 10. AMP Capital results were down, with full year operating earnings of $139 million, a reduction of 32% period-on-period. The main impacts were from lower average AUM, lower performance and transaction fees, and seed and sponsor revaluation impacts. Average AUM decreased $4.3 billion to $193.8 billion. AUM-based management fees reduced by 4%, but proved resilient despite the challenging economic backdrop. Non-AUM based fees decreased significantly in the year, reflecting infrastructure and real estate commitment fees, which decreased $34 million to $96 million. Performance and transaction fees also reduced by $33 million as one-off gains in the prior periods were not repeated, and the COVID-related impacts affecting underlying asset exposures, particularly to international airports, had an impact this year. Performance fees are expected to be volatile as the business transitions towards closed-end funds. Seed and sponsor income was also impacted in 2020 with revenue dropping from $39 million to $6 million. Much of the valuation losses in the first half have now reversed in the second half as the economic outlook has improved. Controllable costs in AMP Capital were down 1% from lower employee-related costs as well as a reduction in other expenses, such as travel. Full year '20 also includes retention and other actions we took to lock in key investment talent. Whilst this period was impacted by subdued performance fees, AMP Capital is well placed to take advantage of future market opportunities, with $4.1 billion of committed capital yet to be deployed and a strong pipeline of future fundraisers, including our latest fund, which is currently in market. External net cash outflows were $1.7 billion for the year, with positive flows across our infrastructure and debt capabilities of $2.4 billion and real estate inflows of $0.7 billion, this was offset by $4.8 billion of outflows across our public markets business. New Zealand Wealth Management's operating earnings was down year-on-year as average AUM levels fell from both market volatility and the closure of 2 legacy products. In addition, cost-sharing arrangement with AMP Life ceased, which also had a small negative impact. We expect 2021 New Zealand operating earnings to be broadly in line with 2020. Turning to controllable costs on Slide 11. This chart outlines the controllable cost movements across the year, which shows an overall 18% decrease. Adjusting for the removal of AMP Life and one-off COVID costs, costs were down 2.5% on last year. The key movements include $72 million of cost-out achieved in 2020, reflecting the flow-through of last year's activities as well as in-year activities. This has been offset by $51 million of other cost increases including $20 million related to regulatory and insurance costs. There was an $11 million one-off impact from COVID-related items, including additional client servicing costs and technology infrastructure investments to support remote working. As mentioned at the half year, the combination of COVID and the AMP Life sale meant the cost-out program was slower in the first half, but we accelerated our activities into the second half and have good momentum into 2021. Over the page on Slide 12, we outlined the progress on our cost-out program. We continue to remain committed to delivering $300 million of gross annual cost savings by the end of full year '22. The net benefit of flow-through is still expected to be $200 million, with $140 million emerging in controllable costs and $60 million in variable costs. In 2021, we expect to deliver $130 million of incremental cost savings, $30 million in variable costs and $100 million in controllable costs ex AMP Capital. We've already made good progress on this front with approximately 50% of the 2021 year target already achieved. As a result, we expect overall controllable costs ex AMP Capital to be approximately $775 million in 2021. Turning to Slide 13, which shows the key items reported below underlying profit. The key items of note include: the completion of the AMP Life sale in the first half, which resulted in an after-tax gain of $299 million. There was a small net wash-up recognized in the second half. The AMP Life separation costs of $208 million recognized at June 30 represent all of the residual program costs as required by accounting standards. Accordingly, there was no change in the second half. The risk management, governance and controls program continued with $15 million incurred in the second half, bringing the total spend for the year to $29 million. This brings us to the conclusion of this program, and any ongoing costs will appear in the operating earnings of the business lines. Transformation cost-out spend was $38 million in the second half, taking the total spend of the year to $51 million relating to realized cost improvements and program-related costs. As mentioned earlier, the cost-out program work was accelerated in the second half. As reported at the half year, there were impairments of $32 million recognized, which reflects the continuing advice network reshape activities. There were no further adjustments in the second half. Other items of $22 million in the second half primarily reflect the costs associated with conducting a portfolio review. On Slide 14, we show the latest position on our client remediation program. Pleasingly, significant progress has been made through 2020 with the program hitting its 80% completion milestone by the end of the year. We continue to make good progress, with the inappropriate advice component of the program 97% complete, and the fee for no service components 80% complete for active advisers and 45% complete for inactive advisers. We now expect the program to be complete by the first half of this year. Changes to the provision in the second half reflect lost earnings of $14 million, which are recognized at each period end. There have been no other changes to the overall program estimate in the second half. However, during the half, we did recognize $30 million for costs relating to isolated legacy advice matters, which do not relate to the broader fee for no service and inappropriate advice programs of work. As previously disclosed, no insurance recoveries have yet been recognized, and we're continuing to progress all recovery options. Slide 15, we show the capital movements in the second half. Surplus capital is in a strong position at December 31, with a $521 million surplus. Through the second half, surplus capital decreased by approximately $900 million, predominantly due to the payment of the $0.10 special dividend and reacquiring MUTB's 15% stake in AMP Capital. The previously announced $200 million buyback remains on pause, pending the completion of the portfolio review. The remaining surplus capital will be used to invest in the transformation strategy over the next 2 years and continuing to support the growth of AMP Capital and AMP Bank. We are currently holding additional capital above our requirements. And accordingly, the Board has resolved not to declare a final 2020 dividend. The Board is committed to restarting the group's capital management initiatives, including the payment of dividends, share buyback and other capital initiatives in 2021. This is subject to the completion of the portfolio review, market conditions and business performance. On Slide 16, we show the capital position as at the end of December. Shareholder equity has decreased by approximately $600 million since full year '19, reflecting the impacts of the payment of the special dividend and the reacquisition of MUTB's 15% stake in AMP Capital. Undrawn facilities have reduced from $750 million to $450 million following the completion of the AMP Life sale. Gearing is up in the year, however, we expect this to reduce in 2021 as we look to reduce corporate debt with the proceeds from the Life sale. So recapping on the full year '20 results. This year saw an unprecedented environment with market volatility and challenging economic conditions impacting the performance of all business units. This impacted AUM-based revenue in Australian Wealth Management and performance and transaction fees and seed and sponsor valuations in AMP Capital. Loan loss provisions and intense competition has impacted AMP Bank. However, the loan deferrals are almost fully back to repayment terms and the future economic outlook and mortgage growth opportunities look more promising into 2021. We are making good progress on the cost-out program with good momentum heading into 2021 to achieve the $130 million of cost-out required this year. Our client remediation program has made significant progress, hitting its 80% completion milestone and we now expect the program to finish mid this year. AMP is well capitalized and remains in a strong position to continue investing in the 3-year transformation strategy. I'll now hand back to Francesco, who will update you on the progress we're making on delivering the strategy.

Thank you, James. Now while it's clear, as James illustrated, that the 2020 financials have been impacted by the extreme market conditions, moving on to the section, I must say I'm really pleased with the execution momentum that we're generating. But before I jump into the actual progress of our strategic delivery, let me take a step back with an overview of the go-forward portfolio and where we are in our overall 3-year strategic journey. On Slide 18, our ultimate goal of 2020 has been to refocus our portfolio of businesses to a higher growth and higher return profile for shareholders. We've divested AMP Life, retained New Zealand Wealth Management and pivoted AMP Capital efforts more towards private markets. On this slide, we illustrate for the first time our strategic partnerships and the role these investments play in diversifying and enhancing shareholder returns, recognizing we have around $1 billion of capital deployed in them. At a very high level, there are 3 levers on the bottom of the slide of long-term shareholder value creation. First will be the shifting of allocation of capital to higher returning assets; second, disentangling the complex 170-year value chain of AMP in order to enable operational efficiency and better management of costs; and third, building an inclusive and high-performing culture. Executing on these 3 levers in harmony is critical to the reinvention journey. Now we've always positioned this as a 3-year endeavor. So let me remind you of where we are on this transformation journey on Slide 19. And with all transformations, there is a dynamic element. So we've evolved our strategy to adapt to the changing market environment. And we've slightly adjusted some of the deliverables for years 2 and 3, but we're not slackening on the pace of change. 2020, our first year, has really been focused on laying the foundations and doing a lot of the operational heavy lifting behind the scenes, allowing us to truly simplify our portfolio. The benefit of these activities will emerge in future year P&Ls. This year, we'll be focusing on strengthening the individual businesses and making sure they're all set up to win in their respective markets. And finally, 2022 will be the year where we can really start to see the transformation take shape. So we'll be focusing on scaling each business and driving momentum. So with that, let me report on how we fared against the commitments we made to you at the beginning of last year. Now you've heard me say this before, notwithstanding the challenges and distractions we experienced, we've delivered 90% of our in-year objective, which is a true testament to the resiliency and execution capacity of our teams. And we're making good headway on the 2 objectives where we've only partially met our commitments. As flagged at the half, given COVID, we had shifted our guidance on costs in order to support clients. So while we overachieved on our revised targets, we did fall short of our original cost target. But we've made up ground in the second half, which gives me confidence, as you heard from James, to reconfirm our 3-year $300 million cost-out ambition. And we have more work to do to strengthen our corporate culture. Let me take you through the priorities one by one. First, Australian Wealth Management and an update on the 4 key commitments there. But before we kick off, let me take a moment to welcome Scott Hartley to the team. Scott is an exceptional leader with significant experience in the wealth industry, having been the CEO of Sunsuper, where he drove a multichannel strategy and grew the business to the fourth largest super player in Australia. Scott has an ambitious agenda for the AMP Australia business. So we're really excited to have him on board. With that, let me turn to reinventing advice on Slide 22. Now you're all aware of the significant challenges and disruption this industry is facing. Recognizing the importance of our aligned adviser, we've been focused on supporting them through this transition with the objective of arriving at a more productive and compliant business. Pleasingly, our advice reshape program is now 75% away through, and we aim to complete it in '21. We're also happy to see our AUM per practice grow 42% year-on-year, which is a key metric for the sustainability of our business. The necessary migration of clients to annual agreement is also progressing at pace, and that's another objective we plan to deliver this year ahead of legislation. Setting up for the future, we've begun a material restructure of our direct-to-client channels through the establishment of a multichannel client proposition and launching Intrafund advice for super members. We'll continue to accelerate our efforts in the direct-to-client space with the objective of ensuring affordable advice for all Australians. Moving to the best-in-class super system, super business on Slide 23. Now we fundamentally believe the Australian superannuation industry needs a retail super sector. And we're committed to redefining our proposition to take a leading position here. To do this, we've been working on ensuring our business is set up to thrive having not just size, but also scale and the ability to meaningfully lower, therefore, the cost to serve. Today, we've delivered the first phase of our product simplification program reducing MasterTrust products from 70 to 11 and removing all grandfathered commissions, returning $120 million of annualized benefit to members. The last piece of the puzzle here is finalizing the end-to-end business setup with transfer of our multi-asset group from AMP Capital to Wealth Management, which we aim to complete this year. Now we've made material strides forward in the super space, and you'll continue to see further progress this year as we face into compressing margins, as you've heard from James, and prepare for Your Future, Your Super legislation. Moving to our platform business on Slide 24. I fundamentally believe North is an undervalued asset in our portfolio of businesses. It is a platform of over $52 billion of FUM and growing at 20% over the last 5 years, North boasts a top 3 position in terms of market shares in the platform space. Our overarching strategy for North is clear: we're opening up from a captive business to a business that's able to compete head-on with the new market entrants. And our significant tech investments are critical to supporting our growth ambitions. Now looking to the bank on Slide 25. While this year's growth has been impacted by macroeconomic factors and an increasingly competitive market landscape, our bank does show an enviable return on capital and cost-to-income ratio comparative to peers. As a testament to our execution capability, the bank team have successfully completed this year the renovation of our core banking platform system on time and on budget, which honestly is the first time I've seen such a major replatforming tech exercise project hit these milestones in the banking industry. It's also comforting to see in our efforts to expand our direct-to-client base, the success we've had in raising retail deposits, delivering 12% year-on-year growth. So I'm sure you'll all agree that bank continues to be a great asset, which we plan to return, as you've heard from James, to double-digit earnings growth. Turning to Slide 27 on our New Zealand Wealth Management business. As you know, over the course of the first half, we decided to retain our New Zealand franchise, which also has a competitive return on equity and cost to income. Since then, we've been focused on taking the necessary steps to capitalize on our leading position and reset the business on a growth path. The New Zealand team are very focused on the key actions required to deliver this, which include completing the localization of the end-to-end business, migrating to a new investment management setup and seeking further consolidation opportunities through the acquisition of advice practices into our market-leading AdviceFirst division. Moving to AMP Capital. From a leadership perspective, we've welcomed David Atkin to the team at the end of last year. David joins us as Deputy CEO of AMP Capital on an interim basis and brings with him extensive experience in the investment management sector, having tripled funds under management during his time at Cbus, and with a proven ability to lead and implement cultural change. Before we drive into the detail of the AMP Capital section, it's really important to recognize the macroeconomic trends impacting the investment management industry today. The extraordinary level of government stimulus of around $14 trillion, coupled with historically low interest rates, has led to a significant increase in money supply and market liquidity, a correlation of listed assets, prompting the search for yield in defensive exposures and real asset valuations remaining relatively buoyant. At the same time, the focus on sustainability is an all-time high as the world reflects on higher order issues. Recognizing this, our strategy for AMP Capital to be a leader in private markets is absolutely the right one. Now let me turn to the progress we've made, starting with our flagship infrastructure division on Slide 29. Despite the impacts of COVID, our private markets performance remained relatively resilient, with our majority of our infrastructure debt and equity fund outperforming benchmark over 3 years. This year, we've committed and deployed over $5 billion of capital into high-quality infrastructure assets. And importantly, for the success of our closed-end funds, we've also demonstrated our ability in divesting assets with exceptional returns realized for our investors on our 3 main divestments for the year. We've also restructured our distribution arm, consolidating international teams into a single function to support capital raising in the future. Our real estate business has also proved resilient with 72% of our assets outperforming benchmark. As you can all appreciate, it's been a really challenging year for the sector. And our teams have remained focused on supporting tenants through COVID, while sustaining our development pipeline and progressing our important sustainability agenda. Turning to public markets on Slide 30. And first on our multi-asset capability. As I've already spoken about, in order to create an end-to-end super division, we will transfer our multi-asset group to AMP Australia and renovate the function to improve efficiency. This will provide our super division greater control over the required simplification activity and is the last piece, big piece in disentangling the value chain across our top level of businesses. Our global equities and fixed income business have demonstrated exceptional performance, with 94% of the funds under management exceeding benchmark over 3 years. Now as we've said, in August, there is an opportunity to commercialize this great track record in investment management with the right strategic partner, and we'll continue to explore partnership opportunities in order to maximize shareholder value. Shifting now our focus from our P&L divisions to our overall group. Getting to the right shareholder outcomes requires a think of -- a rethink of how we operate. Now you've heard me refer to this as disentangling the value chain to create a simpler and leaner business. On Slide 20 -- 32, you'll see that we're well advanced in establishing end-to-end businesses with discrete P&Ls. And as James pointed out, continuing to improve our financial disclosures. We remain focused on materially reshaping the cost base. And while we've fallen short of our original cost-out target, I'm extremely confident in our ability, given progress in the second half, to deliver against our overall transformation commitment. On risk management, we completed our 2-year $100 million investment to materially upgrade our ability to manage risk and embed internal controls. This one-off program is effectively complete, and we're folding these activities and expenses back into BAU. Now I've touched on the ambitious agenda we've set out for ourselves in 2021. But we won't be able to achieve this without strengthening our culture and fostering an inclusive, high-performing environment. Moving to Slide 33. Acknowledging the events of last year, we've launched a broad-based set of initiatives to improve inclusion and diversity in service of high-performance and strengthening accountability, and most importantly, ensuring AMP remains a destination for talent. Now while we've made material progress, our transformation remains an ongoing journey. In the spirit of accountability and transparency, as we did last year, let me be very clear on the 10 key deliverables that you can hold me and the executive team accountable for this year. On Slide 35, in Australia, we're going to complete the advice reshape and the next phase of super simplification. We're going to double down on growth -- on North and regain momentum in the bank. In New Zealand, it's about localizing our business and repositioning for growth. For asset management, we're accelerating the expansion of our leading infrastructure capabilities and working through the industry disruption faced both by real estate and public market businesses. On the group side, we're going to deliver $250 million of cost savings and, as James said, see more drop to the bottom line, continue our efforts on culture and kick off the share buyback and pay down corporate debt. So we've set ourselves another ambitious agenda for '21, and we'll keep you updated as usual on the progress. So in summary, 2020 financials have been impacted by the extraordinary market conditions with depressed earnings across all business lines, but really impacted by a number of one-offs. Through this uncertainty, we've retained a strong capital and liquidity position. We've also generated execution momentum against our strategic transformation, having delivered 90% of our priorities and laying the foundations for future growth. 2020 has been a huge year for our organization. The way our business and teams responded in the face of all the adversity leaves me extremely confident in our ability to deliver on our broader transformation program. So with that, Jason, I hand it back to you for Q&A. Thank you.

Thank you, Francesco, and James. We have a number of questions. So if you can please limit your questions, and we'll try and come back to you at the end. If we're ready, I think we'll begin.

Your first question comes from Andrei Stadnik from Morgan Stanley. Your next question comes from Matt Dunger from Bank of America.

If I could just ask about the remediation, which you're talking to being 80% complete. You made $77 million of payments in the half on the $603 million starting balance. Could you comment on why this -- the payments are so slow and the potential that you don't fully utilize this provision?

So thank you, Matt, for the question. We've -- in terms of the remediation activity, we've always quoted the completion as being the activity that's required to prove whether we effectively need to repay clients or not. And so when you look at inappropriate advice, and we talk about 97% completion, it is of the single instances where we believe there could have been an appropriate advice provided. If we look at fee for no service, it is on the total number of fee-for-service that we're analyzing throughout the multiyear period. Now once all this activity is done, the files are reviewed and we reach a determination, that is when we effectively end up paying the clients. So we've said from the beginning the payments of a program like this are -- tend to be back ended. And we aim to complete the program, and we're on track to complete it by the first half of this year.

Great. And if I could ask on the dividend, you're flagging recommencement of dividends potentially in FY '21. Does this imply a look-through the $320 million to $460 million of investment that you've flagged given your payout ratio is based on reported NPAT?

So Matt, on that point, I guess some of the incremental -- well, the transformation spend that we highlight right at the back of the pack on Slide 51, a range of that spend is already included in our, I guess, our operating earnings or our run rate numbers. And so it's not incremental to our, I guess, our P&L. We would see the investing for growth category is already baked into our controllable costs and our earnings. And similarly, the -- derisking the business spend is either built into controllable costs or within our capital forecasts. And the realizing cost improvement is that below the line spend, which is the point you're making around the look-through. Look, we'll review in the first half what is the best way to return the surplus capital we have to shareholders. We obviously have $520 million as at the end of the year and $200 million that was obviously put aside to recommence the buyback as soon as the portfolio review was completed. So I think you should think of $320 million to $460 million as the range that is already included in the earnings and capital numbers. And so it wouldn't necessarily be a straight deduction from bottom line earnings.

Your next question comes from Kieren Chidgey from Jarden.

A couple of questions, if I can. Firstly, Francesco, on the reshaping of advice, you said you're 75% of the way through that. Just wondering if you can unpack that in a little bit more detail in terms of whether or not there are further practice exits to come and also where you are in terms of investing into new owned advice businesses.

I'm happy to, Kieren, you said you had a second question? Or should I go now?

I got a second question for James around some of the fee pressures, I'll come back to that.

So on the advice reshape, our -- let me first state the objective. I mean our ultimate objective, having gone through sort of disruptions like this in similar industries before, it's really about having a resulting outcome where advice practices can be profitable, compliant and professional. That requires practices to have a certain scale. And that's why as we looked at the reshape program, we've been really giving our smaller practices, typically where you just have one authorized rep, the possibility to either sell our business back to us or to effectively merge with a larger practice. Ultimately, we believe that the best sustainable business is for larger, better quality practices that can help co-invest with us in developing the business. And that's why we are now starting to track our average AUM per practice and how much that changes. And you would see if you go to Page 30 of our investor report, how effectively the number of practices has come down faster than the number of advisers. When we talk about 75% of the way there, that is the fact that we've screened all the practices based on sort of their current P&L, the quality of the advisers and our implied sustainability to make it through a transition like this. And we've engaged them all in partnership on the choice that they could apply. And so as you can imagine, each one of these transactions is like doing a mini M&A. So we've gone through hundreds of these transactions last year. That's been a significant effort. When we say we have 25% to go, it's of the number of practices that are still in the pipeline to be executed on this year. Again, we aim to close this activity this year, so we can start looking forward. Once we have a stable and professional advice network and sustainable, we can start thinking about growing it.

The investments into new advice businesses, has that been largely on hold until you're through that process?

I think they've been really marginal. We do take equity position in some advice practices, as James would have said in the past, as a way to help them transition. Sometimes we buy the books, sometimes we put equity in the practice. So we have a range of options in working with our advisers through some of this disruption.

Yes. And Kieren, you're right, it has been reasonably subdued through 2020. We have found that we've been able to on-sell more practices than we were expecting to buy, although sometimes when we have taken part stakes to partner with an adviser or a business in that way. But generally been more subdued than we were expecting.

And second question, James, just on the Australian Wealth Management fee outlook. You mentioned 8 basis points of fee pressure for '21. Just wondering if you can give us a feel for the composition between mix and repricing. And on the repricing, I think you might have said sort of that occurs midyear. So should we be thinking about a similar sort of 8 basis point headwind into the '22 year?

So Kieren, of the 8 that we're guiding to in 2021, a little over half is from relating to the simplification and pricing changes. And you're right, as that hits in the middle of the year, we'll see some more of that in '22. We don't expect there to be as much as 8 basis points because what effectively that deliberate product simplification, effectively is dealing with a normal mix and squeeze impact. So they start to materially -- get materially smaller. Normally, they've been trending at 4 or 5 basis points per year, they'll go much more towards 1 to 2. So we'll see 8 this coming year, and it will be a number that will be a bit less than that given the simplification will hit midyear, but the mix and volume stuff starts to get smaller going forward.

All right. Can I just sneak in one last question, just a quick one on AMP Capital. The non-AUM management fees down significantly in the second half. How much of that was rental abatements? And do you see that bouncing back in '21?

Kieren, I need to come back to you on the exact quantification of what the rent is. Look, we see some of that coming through again in '21 and look, we hope that conditions improve. I guess it's probably still a little early to see. And I guess some of the lockdowns that have happened over the last few months have probably pushed back some of our expectations around when that would happen. But let's come back to you on the detail. Look, it's an impact. It's more that we also had other one-off commitment fees as we closed the GIF II Fund at the end of 2019. That was a fairly big kicker in the prior year, which wasn't repeated this year, given the next fund close will be in 2021. So I'd say that's probably a bigger impact than the rent relief. The rent relief would be probably under $10 million.

So I think, Kieren, if I can add. I mean if you look at AMP Capital results, the asset -- AUM-based management fees were actually very resilient, being down only 3.8%. Most of the volatility, as James has explained, has come from the non-AUM. And that's where sort of as we see an increase in closed-end funds, we put in seed and sponsor. And so we are aligned to our clients. If they make returns, we make returns. And if they don't, we don't. And so that volatility that James referred to is from that. Now we have large investment in airports and lots of other infrastructure, which have been hit during the year, we effectively expect a lot of this to recover. And so obviously, maybe not as fast as this year, but definitely through the cycle.

Your next question comes from Laf Sotiriou from Bell Potter.

I've got 2 questions, if I may. The first is in relation to the portfolio review. Given that it's already been 6 months, are you able to provide a little bit more detail around how the Ares deal with AMP Capital may look around possible structure, price and timing? And should we consider the price you paid for the 15% stake in AMP Capital as a baseline?

So let me take that, Laf. Thank you for your question. Yes, the portfolio review took a while, and we announced it in September. That's really linked to -- on one hand, we have a very complex group. On the other, we wanted to make sure that we would test each one of our businesses and each one of our assets. Market interest versus our own strategic transformation agenda and what would be the best outcome for shareholders. And so as you can imagine, that does take time. Pleasingly, we have been able to close and reach a conclusion that we are the best owner for our Australian and New Zealand Wealth Management businesses. And as we announced, we are now looking at options for AMP Capital. On your more precise questions on structure, time and consideration for AMP Capital, it's a little hard for me to answer right now. I can tell you in terms of structure, as you would have seen in the announcement, we kept it very broad leaving all options open for us to consider. We're basically looking at what is the right solution that can turbocharge our already existing strategy and deliver better value for clients and shareholders.

And on timing, should we hear something before the AGM?

I think we put a sentence in there as soon as possible. So we're very cognizant of the fact that the sooner we reach a conclusion, the better.

Okay.

It's hard -- Laf, it's just hard to call timing on these things. Whatever I say now, I will get wrong. So we're all focused on getting to a conclusion of this.

Would you be disappointed if nothing is finalized one way or the other before the AGM?

We are very focused on driving this as fast as possible.

Okay. The second question relates to the guidance that AMP Capital -- sorry, Contemporary Wealth Management is expected to remain flat with lower margin set to be offset by the cost-out. How should we think about how much of the gross $130 million cost savings to be seen across the group will fall into this division?

So Laf, you're spot on the guidance, my comments today was that the margin compression we're seeing will be broadly offset by the cost-out. We would see the majority probably of that cost-out would sit in wealth. As we've sort of guided previously, it's more -- it's sort of 60% of the number with some of the rest of the residual sitting in the group office as well as in bank, but the majority of it would sit in the wealth business of that -- that $100 million dropping through to the controllable cost line.

Your next question comes from Andrew Buncombe from Macquarie.

Just the first one from me. You've mentioned a couple of times in the pack that you're interested in restarting the dividends again in FY '21. Can you just remind us on the payout range, please? And what metric will be used to drive that?

So -- our previous guidance on dividend has been a 40% to 60% of bottom line profit adjusted for noncash items. That's moved us away from the old underlying profit concept, which was more of a 70% to 90% range. So a 40% to 60% range at the bottom line. We normally think about that as the wealth business can generally generate a sort of payout ratio that's closer to 80% to 100%, given it needs sort of low capital intensity. Similarly with AMP Capital, it would be probably a little lower than that, given we want to continue to grow the business via seed and sponsor investments. And the bank is probably at a payout ratio of more like 50% given we want to continue to grow the mortgage book. So that also -- that gets us to around the 40% to 60% mark at the total level.

Excellent. And then the other one from me was just on 8 basis points reduction in wealth IRR again for next year. Just making absolutely sure that, that reduction is of the average FY '20 number and not of the exit rate, please?

That will be of the full year '20 numbers, so of the 73 that the 8 would come off.

Your next question comes from Andrei Stadnik from Morgan Stanley.

I've sent an apology. So I was leaving your webcast early and might have missed my first attempt. I wanted to ask 2 questions. Firstly, on AMP Capital, what is some of your thoughts in terms of how you want to support that business? And particularly given in 2 of the most in-demand categories, which are infra equity and real estate, AMP Capital tilted from inflows in the first half to outflows in the second half. Like is there anything more on that? And if you take in kind of these questions in pairs, my other question was about the proposed reforms to super. What are you thoughts about stapling super tax fall numbers? Do you think this will increase the power of the industry funds and do you need to reinvest in your corporate super business, given that same $4.3 billion outflows in the last year?

Do you want me to take the cash flow question?

Yes, please.

So Andrei, on the AMP Capital cash flows, we did have a weaker second half, particularly in the public markets area. That was related to a couple of fixed income mandates that were lost that float out. Obviously, we've got the public markets businesses more impacted by the wealth outflows as well. And we did actually see -- pleasingly, in our infrastructure fund series, we did start to divest some of the assets, which is the way to build a track record in those funds. And so they're actually quite good outflows because they're showing that we're getting money back to clients. So we did have some weakness in public markets in the second half, but that was to do with a couple of fixed income mandates. They are quite low margin. So it shouldn't have that material an impact on the AMP Capital earnings. I think that was where you were getting at with your question.

Yes, yes. Particularly the infra equity and the real estate on that Page 18 showing some uplift. Is that basically from realizing investments, okay?

Yes, that's right.