AMP Ltd has reported a fall in first half earnings after the wealth manager and insurer battled volatile financial market conditions that cut the value of its investments.
Net profit for the six months to June 30 was $366 million, down 22 per cent from $470 million in the same period a year earlier, the Sydney-based company said in a statement.
Net profit before accounting mismatches fell 50 per cent to $278 million.
The consensus profit estimate of analysts was for net profit before non-recurring items of $300 million.
Underlying net profit, which excludes the effects of market volatility, fell two per cent to $437 million.
AMP declared an interim dividend of 22 cents per share, in line with the same period last year.
Chief executive Craig Dunn, who started in the position on January 1, said AMP remained confident about the medium to long term outlook for the wealth management industry, although market conditions were likely to remain volatile for the remainder of 2008.
"While AMP will prudently manage through these market conditions, we will also continue to invest where we see potential growth opportunities that position us well over the medium to long term," Mr Dunn said.
AMP said it believes that while the Australian economy is slowing, conditions should improve once likely interest rate falls flow through later this year and into 2009.
AMP said the New Zealand economy faces tougher conditions.
Asian economies, including China and India, are also slowing, but most are still growing at significantly stronger rates than the rest of the world.
"While AMP will prudently manage through these market conditions, we will also continue to invest where we see potential growth opportunities that position us well over the medium to long term," Mr Dunn said.
AMP said it is focussed on strengthening its position in its core Australian and New Zealand markets, while selectively expanding into Asian markets through AMP Capital Investors.
Mr Dunn said the company's primary focus is on organic growth and noted that AMP's planner numbers were up 11 per cent over the last 12 months.
"M&A can be legitimate but it would have to be strategically relevant," he told journalists.
Mr Dunn said the group's first half result did reflect strong earnings for the insurance business.
"We saw very strong earnings in our insurance business," he said.
"Businesses that are most impacted by the share market have also held up.
"That demonstrates financial strength and the strength of our business model."
On margins, Mr Dunn said AMP expected to see a contraction due to competitive market conditions.
"We expect margins to contract by two to three per cent per annum over the longer term because of the competitive market in which we operate," he said.
In terms of costs, AMP's financial services arm is expected to record cost growth of three to four per cent for calendar 2008.
The group office costs should remain around current levels.
The company said AMP Capital's costs will be managed closely, contingent on opportunities and conditions.
"Notwithstanding the short term pressures caused by markets, our goal remains to deliver top quartile TSR performance over a five year cycle, which means average annual growth of 15 per cent in the value of an investment in AMP," Mr Dunn.
AMP noted that group operating earnings for the first half rose three per cent to $394 million.
It said the attributable or bottom line net profit fall reflected the impact of a $88 million contribution in the half of 2007 from the divested Cobalt/Gordian business.
The AMP Financial Services arm delivered a three per cent rise in operating earnings to $334 million in the first half, with more than 57 per cent from businesses largely immune to short term market movements.
In contemporary wealth management - which includes the financial planning, superannuation, pensions and banking businesses - operating earnings fell two per cent to $142 million.
This was due largely to lower assets under management related revenue.
In contemporary wealth protection, operating earnings grew 29 per cent to $76 million due to an improved claims performance.
Individual risk annual premium income grew 12 per cent to $484 million over the previous corresponding half.
In AMP Capital Investors, operating earnings were steady at $78 million as growth in performance and transaction fee income offset market volatility impacts.
Assets under management fell nine per cent to $101 billion for the half, primarily because of adverse investment market movements.
Meanwhile, AMP said it remained well capitalised and had low gearing and so had "significant capacity" to raise additional Tier 2 capital.
"Our capital strategy is aimed at enhancing this already strong position in the current climate, increasing business flexibility to grow and further optimising our capital mix," Mr Dunn said.
"In difficult market conditions like these, we have a bias towards holding more capital rather than less."
He said AMP is evaluating options to raise lower Tier 2 capital subordinated debt.
A final decision on the size and timing of any issue is yet to be made.
Part of the funds will be used to refinance some$267 million of subordinated debt maturing in 2009.
AMP said it had no plans for a share buyback in the current environment.
"AMP has demonstrated a disciplined approach to capital management in recent years and will continue to be responsive to changing market conditions", Mr Dunn said.
At 30 June, AMP's capital resources exceeded minimum regulatory requirements by $665 million.
"With market conditions likely to remain volatile for the rest of this year, delivering growth in the short term will continue to be challenging but we remain confident in the medium to long term outlook for the wealth management industry," Mr Dunn said,
AMP said that in addition to its first half dividend of 22 cents, it will pay two cents from the proceeds of the sale of the Cobalt/Gordian business in 2007.
