AMP and its prospective takeover target, AXA Asia Pacific, make a fine couple.
On the eve of a meeting of AXA shareholders next month to approve the takeover (that’s assuming federal government approval) both wealth managers have the dubious claim to reporting lower earnings for 2010, despite a solid local economy and solid year for local and international financial markets.
Earlier this week, AXA revealed an 11% fall to $602 million in 2010 and AMP yesterday revealed a 2% fall in 2010 underlying net profit in line with expectations and warned that it may take some time for investor confidence to recover.
Underlying profit, which excludes one-off items such as costs on its $14.3 billion bid for AXA Asia Pacific, slipped to $760 million in 2010 from $772 million a year earlier as expenses grew in a subdued investment climate.
The AMP says it prefers to use underlying profit as its measure of profitability as it removes some of the impact of investment market volatility and is the basis on which the Board determines the dividend payment.
Net profit attributable to shareholders was $775 million, up 5% from $739 million in 2009.
Second-half profit fell 7% to $350 million from $377 million a year earlier.
AMP shares rose a touch to end at $5.50; AXA AP shares were steady on $6.44.
AMP said it will pay a final dividend of 15c making a total for 2010 of 30c a share, unchanged from 2009.
The AMP’s 2010 performance is irrelevant given the enormity of the proposed AXA AP deal.
Under that, AMP will retain the Australian and New Zealand operations of AXA Asia Pacific and sell the Asian business back to the target’s parent, France’s AXA SA.
The net cost to AMP will be more than $4 billion.
And for that AMP gets the solid bits of AXA AP, but not the growth businesses in Asia which are growing faster than Australia, which is why the French parent wants them.
Analysts say AMP will have little room in the present subdued investment climate to cap expenses and protect margins.
If the AXA deal goes through the gains will come from cost cuts, or the mythical ‘synergies’ as the merged operations will be the biggest player in a market that is mature and slow growing.
AMP painted a none-too vibrant outlook in yesterday’s statement.
It said expenses at its key wealth and retirement products unit will rise by 4%-5% this year. As well, investor confidence will take longer to rebound making it harder to grow revenue.
"Confidence recovery for retail investors will take longer than the normal cycle," AMP’s Chief Executive Craig Dunn said in yesterday’s outlook statement.
"While the recent spate of natural disasters is likely to be a drag on Australia’s economic growth in the short term, AMP continues to be very positive about the medium and long term outlook for Australia.
"Australia remains one of the largest and fastest growing wealth management markets in the world and over the medium term the dynamics underpinning wealth management in Australia and investment management in Asia will remain highly attractive," Mr Dunn said.
Mr Dunn said that AMP has worked hard to position itself ahead of the regulatory curve in product, distribution and capital management, while investing in targeted growth initiatives including the expansion of its Australian distribution footprint and the rollout of its investment management business into Asia.
"These growth initiatives, along with the proposed merger with AXA’s Australian and New Zealand business, place AMP in a very strong competitive position for the future," he said.
Given the uncertainty about the AXA deal AMP obviously couldn’t give any earnings guidance for 2011. That will have to wait until after the March meeting of AXA shareholders.
AMP said that in 2010, all earnings areas were relatively stable in the year, with the exception of the wealth protection business in AMP Financial Services, which saw a 16% drop from the previous corresponding period to $138 million.
This was due to higher than expected income protection claims, as small business felt ongoing economic pressure.
For the 2010 year, the AMP Financial Services business reported earnings of $639 million, down from $647 million in the previous corresponding period.
AMP Capital Investors posted operating earnings of $87 million, down 4.4% from the previous corresponding period.
Costs in the business were up 10%, reflecting investments in ‘‘growth initiatives’’, AMP said.
