AMP chief executive Craig Meller let the two executives running his China joint ventures make the opening presentations at the company’s strategy day on Thursday.
This was mostly out of courtesy to his guests, which is an important part of doing business with China, rather than a subtle signal that China will take precedence over the Australian businesses.
China is an important growth engine for AMP but is still a relatively small part of the company, which has plenty of work to do on home soil as it implements a turnaround plan for its Australasian wealth management operations after a tough year.
AMP’s relatively modest $250 million investment in China is paying off, though, as the financial services giant targets China’s fast-growing pension market as a promising source of future earnings growth at a time when companies such as ANZ Banking Group are backing away from the region.
China has not been the flavour of the month for Australian companies lately but bankers and consultants say Asia is not out of favour either. One consultant who spends a lot of time in Singapore told Chanticleer that Australian executives were still keen to do business in the region, but they were just being more cautious about it now that they realised the easy money was not there.
Chinese companies are still on the lookout for Australian assets as well. Ansell will pocket $800 million from a Chinese consortium after selling its condom business on Thursday.
AMP wants to generate earnings of abut $50 million per annum from its China business within five years. Given ANZ’s experience in the region, this may look risky but AMP has two strong joint ventures that are in a position to increase their share of the world’s fastest-growing pension market.
The scale benefits are obvious in China, which AMP says has a population of 1.3 billion with a median age of 36. This will increase to 1.45 billion with a median age of 43 by 2030 when there will be 360 million people aged over 60. AMP also says national savings now make up 40 per cent of GDP and there is an appetite for financial products to help people save. AMP’s partners are not the only ones chasing this potential growth, though, and big banks are moving in fast.
AMP owns 20 per cent of China Life Pension Corp, which sells pensions in China, and 15 per cent of asset management company China Life Asset Management. Those businesses were profitable in 2016 but the earnings were not high enough to significantly affect AMP’s overall profits.
AMP has had trouble selling the merits of the China investments to investors because it has not been in a position to make specific earnings forecasts.
Meller is trying to reposition the company as a faster-growing, capital-lite business. The challenge for AMP is that volume growth has been strong but the fees it charges customers for products is reducing as a percentage of assets under management. AMP has forecast 5 per cent margin compression this year. Meller wants to expand in financial advice, where he sees strong margin growth.
He has been under pressure to increase short-term returns following a tough three years for the financial services sector and changes to superannuation rules last year. AMP made a net loss of $344 million last year following write-downs to its life insurance division.
The jury is still out on the growth plan. AMP shares, which have lost half their value in the past decade, closed 1¢ higher on Thursday to $5.18. While the big bank levy is a positive for AMP’s banking operations, Meller is concerned about the precedent it creates for companies.
By Michael Smith