ASX Announcement

ASX Announcement

15 February 2007

AMP underlying profit up 11 per cent in 2006 to A$893 million Strong cashflows, growth in assets under management and ongoing tight cost management have contributed to an 11 per cent rise in underlying profit to A$893 million for AMP Limited in the year to 31 December 2006.

Underlying profit is AMP’s preferred measure of profitability as it removes investment market volatility, and is the basis for calculation of AMP’s dividends to shareholders. AMP has also announced today a proposed A$750 million capital return - or 40 cents a share - to shareholders, following returns of the same quantum in both 2005 and 2006. The final dividend for the year has been lifted to 21 cents a share (85 per cent franked), up from 18 cents a share previously, taking the full year dividend to 40 cents a share. A separate ASX announcement provides full details of AMP’s capital management approach.

Profit attributable to shareholders before accounting mismatches rose 11 per cent to A$976 million. This was despite a 3 per cent fall in underlying investment income to A$184 million due to the impact of capital initiatives in the past two years that have reduced invested capital.

AMP Chief Executive Officer Andrew Mohl said that AMP had recorded improvements in its five key performance measures in 2006: • Underlying return on equity: rose 6 percentage points to 31 per cent. • Operating earnings: rose 16 per cent to A$752 million. • Cost to income ratio: down 1.6 percentage points to 39.4 per cent. • Value measures: in the AMP Financial Services business, embedded value rose 27 per cent to A$7.7 billion before transfers while the value of new business rose 17 per cent to A$364 million1. • Investment performance: 77 per cent of Australian Assets under Management (AUM) and 87 per cent of New Zealand AUM either met or exceeded benchmarks in the year to December.

“AMP’s core businesses have continued to perform well,” Mr Mohl said.

“In recent years our strategy has been clear: to run the business better than it’s ever been run before. The benefits of this strategy can be seen in strong cashflows, improving operational efficiency, consistently high investment performance, more innovative products and services, and a robust capital management framework.

“AMP has positioned itself well to take advantage of strong economic conditions and the changes taking place in the relatively high growth retirement savings industry, such as the Federal Government’s recent Simpler Super initiatives.” 1 Both value measures are on the traditional basis at a 3 per cent discount margin against restated 2005 numbers.

Mr Mohl said AMP’s major disappointment for the year was the Enforceable Undertaking that was entered into between AMP Financial Planning (AMPFP) and the Australian Securities and Investments Commission (ASIC). A separate ASX announcement provides an update on the Enforceable Undertaking.

Medium term goal AMP’s medium term goal, originally announced in 2005, was to double the value of an investment in AMP between mid 2005 and mid 2010. This was equivalent to average growth of around 15 per cent per annum and is being measured by calculating the value of dividends and capital returns paid to shareholders, and increases in enterprise value. Enterprise value is calculated as the median of the major stockbroking analyst valuations of AMP each year.

In 2006, growth of 33 per cent was recorded – from a value of A$13.5 billion to A$17.9 billion. Growth in value of 55 per cent has been recorded since mid 2005. AMP announced last year that it expects to achieve a doubling in value of an investment in AMP by no later than mid 2009 given the strong growth recorded to date.

Review of business unit performance

In AMP Financial Services (AFS), operating earnings grew 18 per cent to A$607 million for the year as the business continued to use its brand, scale, distribution and low unit cost position to drive growth.

Costs were held broadly steady at A$543 million. Revenue growth drove the cost to income ratio to a new low of 35.6 percentage points, down 3.2 percentage points. The increase in operating earnings drove an increase in return on equity from 34.3 per cent to 42.5 per cent for the year.

Cash inflows for the year rose 22 per cent to A$13.7 billion, which included improvements in all distribution channels and an exceptional June quarter due to record Corporate Superannuation inflows ahead of APRA licensing changes. Retail superannuation inflows were also strong, and including allocated pensions/annuities, grew 30 per cent to A$5.2 billion.

Cash outflows grew 15 per cent to A$10.2 billion, partially due to the fact that average AUM balances are growing. Average retail superannuation member balances grew by 13 per cent. Persistency increased marginally to 84.3 per cent. Net cashflows rose 53 per cent to A$3.5 billion, buoyed by the exceptional second quarter. AMPFP net cashflows rose 27 per cent to A$1.4 billion, Hillross 31 per cent to A$625 million and the Corporate Superannuation direct salesforce 35 per cent to A$2.1 billion.

AMP will report a fourth quarter net cashflow result of A$544 million to Plan for Life and ASSIRT (which report industry-wide data in Australian retail managed funds). The comparative figure in 2005 was A$474 million. Operating earnings in the Australian contemporary wealth management business grew 30 per cent to A$244 million. Highlights for the year included growth in AUM of 23 per cent, net cashflows of A$4.5 billion and further substantial reductions in unit costs.

Revenue margins declined by 9 basis points to 191 basis points for the full year. Of this decline, 6 basis points was attributable to mix impacts, including the large amount of Corporate Superannuation business won during the year. The balance of the decline was due to rising average AUM balances - as AUM balances increase, the level of fees paid in percentage terms declines.

Controllable costs were held relatively flat at A$359 million while the cost to income ratio fell 6 percentage points to 48 per cent. The controllable costs to AUM ratio dropped by 17 basis points to 69 basis points, leading to an increase in the operating earnings to AUM ratio of 2 basis points to 54 basis points.

Total planner numbers across AMPFP, Hillross and New Zealand fell from 1,906 to 1,876. AMPFP is partway through a program to improve advice and business capabilities, to enhance the customer experience and increase planner productivity. It is expected that this will lead to a consolidation of planner practices in the short term, and an increase in planner numbers in the long term. The growth in operating earnings drove return on equity in this business 6.5 percentage points higher to 38.2 per cent.

In the Australian contemporary wealth protection business, operating earnings grew 13 per cent to A$121 million. Profit margins rose 26 per cent to A$107 million, primarily as a result of growth in business volumes, improved mortality assumptions and improved unit costs. Highlights in the year included the completion of the pilot phase of an automated underwriting service, which will now be rolled out progressively during 2007. Return on equity in this business was up 1.2 percentage points to 29.1 per cent. In the Australian mature business, the focus remains on achieving cost efficiencies while improving persistency and capital efficiency. Operating earnings rose 11 per cent to A$190 million for the year reflecting strong investment markets. Persistency again improved, up 0.8 of a percentage point to 88.1 per cent. Return on equity rose sharply, up from 51.4 per cent to 112.3 per cent, reflecting higher earnings, ongoing improvements in risk management and significant releases of shareholder capital in the past two years flowing from strong investment markets.

Following increases in terminal bonuses to Australian policyholders in 2005 and 2006, higher annual bonuses will apply in 2007 along with further increases in terminal bonuses.

In New Zealand, operating earnings rose 12 per cent to NZ$60 million, driven by growth in the risk insurance book and experience profits. Risk annual premium income rose 16 per cent to NZ$104 million. Controllable costs rose 13 per cent to NZ$69 million with continued investment in distribution, brand and IT. However strong revenue growth resulted in a steady cost to income ratio at 41.1 per cent (New Zealand dollar terms). Return on equity improved 2.9 percentage points to 30.5 per cent (New Zealand dollar terms).

In AMP Capital Investors, operating earnings rose 25 per cent to A$115 million, driven by higher management and performance and transaction fees. AUM rose by 16 per cent in the year to A$105.6 billion, mainly reflecting the strength of investment markets.

External net cash inflows from Australia and Asia were A$2.4 billion, with the Fixed Interest sector posting particularly strong netflows of A$1.1 billion. Internal net cash outflows were A$1.2 billion, with outflows in run-off businesses and shareholder funds partially offset by an increase in contemporary product inflows. Controllable costs rose 13 per cent to A$223 million in the year due largely to higher employee costs and targeted business expansion. Revenue growth, however, drove the cost to income ratio down 1.8 percentage points to 56 per cent. Return on equity in this business rose by 9.6 percentage points to 60.9 per cent. Investment performance remained strong with 77 per cent of Australian AUM and 87 per cent of New Zealand AUM either meeting or exceeding benchmark for the year.

The flagship diversified funds performed particularly well, with the conservative and balanced growth funds both ranking first in their respective Mercer competitor surveys for the 12 months to 31 December 2006. Cobalt/Gordian has continued to focus on the runoff of its remaining insurance and reinsurance books. Operating earnings, while down 9 per cent in the year to A$67 million, were ahead of expectations following a stronger than expected 2005 result of A$74 million.

Capital was reduced in the second half of 2006 by A$164 million following APRA approval to reduce the capital base of the business. A further capital reduction of A$92 million has recently been approved by APRA and will be effected in the first half of 2007.

Capital reductions from Cobalt/Gordian are being used to repay intercompany loans, which now stand at A$484 million.

Strategic positioning “AMP is using its strengths in brand, distribution, products and platforms, cost efficiency, asset management and product packaging to power its strategy of running the business better than it’s ever been run before,” Mr Mohl said. AMP has for the first time released a number of the assumptions underlying its strategic plan, which is based on doubling the value of an investment in AMP every five years, consistent with growth of 15 per cent per annum across the cycle. These include: • Equity markets growing around 6 per cent per annum, net of dividends. • Realising scale benefits from volume and market growth of 10 per cent plus per annum in the retirement savings and post retirement sectors. • Sustaining the lowest unit cost position in the industry, with Group-wide cost increases around cost-of-living levels per annum. • Actively managing margin contraction of around 2-3 per cent per annum in the AFS contemporary wealth management business due to changes in the business mix, increases in average AUM balances, and infrequent, strategic repricing initiatives.

“AMP continues to make good progress in its journey from a traditional life insurance

business to a modern wealth management company,” Mr Mohl said. “Today, AMP is a high returning, growing wealth management group with reducing capital intensity. AMP’s strategy is to realise scale benefits from volume and market growth, drive unit cost reductions and pursue strong growth in our core businesses. “The fostering of an increasingly constructive culture and the development of a talented and committed employee and planner base are key to delivering on this strategy.

“In summary, AMP is well positioned to deliver outstanding returns to all its key stakeholders - customers, planners, staff and shareholders.”

ENDS

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