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AMP share price: half-year results reveal mammoth $2.3 billion loss

A trading halt, a hefty capital raise and the revelation of a A$2.3 billion loss are likely to be key talking points in the next week as investors digest AMP’s interim results.

AMP Ltd released its 2019 half-year results today, while its shares were also placed into a trading halt.

AMP’s interim results left a lot for investors to digest, including: the salvaged sale of AMP Life, a A$2.3 billion dollar loss, a revitalised mid-term strategy and a A$650 million capital raise.

Here are some of the most important things we learnt this morning from the company’s earnings release:

AMP financials in focus

AMP Ltd continues to focus on transformation in a post-Royal Commission world, epitomised by the firm’s short and mid-term focus on ‘simplifying’, ‘strengthening’ and ‘scaling’ its business model.

Of course, this ‘simplifying process’ has incurred a number of immediate costs, with AMP seeing its business impacted across the board.

On the bottom-line, both AMP’s Australian and New Zealand wealth management operations saw their profits fall 49% and 21%, respectively.

Though the company reported ‘underlying profits of A$309 million’, these results were overshadowed by significant impairment costs.

The damage in full

As the impact of the Royal Commission becomes fully realised, AMP posted a massive A$2.3 billion loss, as impairments snowballed, and legacy issues persisted.

This loss was attributable primarily to non-cash impairments, with the company noting that:

'Goodwill impairment reflects overall reduction in value of Australian wealth management business from significant industry disruption including actions to reshape our advice network.'

AMP’s Chief Executive Officer, Francesco De Ferrari said that these interim results reflect:

‘The challenges we've face and our actions to address them including taking a predominately non-cash impairment.’

Mr De Ferrari was also keen to point out that the impairments outlined above:

‘Doesn't materially impact AMP's financial stability and shouldn't overshadow a resilient underlying performance, particularly for AMP Capital and AMP Bank, during the half.'

AMP also confirmed that it would not pay an interim dividend.

AMP Life sale salvaged, pending approval

The AMP Life deal has been a sore spot for investors in recent times. In July, when news broke that the sale of AMP Life had stalled, AMP’s share price collapsed some 16%.

In a positive turn of events then, the firm looks to be making good progress on a slightly altered deal, which now values the potential sale of AMP Life at A$3.0 billion.

As part of the revised deal, AMP will receive A$2.5 billion in a cash and a 20% equity stake in the newly sold-off AMP Life operation – valued at some A$500 million.

AMP Ltd further pointed out, that as part of this revised deal, the company will have ‘the right, but not the obligation, to subscribe to additional capital in future to maintain its expected 20% holding.'

The firm will use the proceeds from this deal to reduce debt, fund separation expenses and execute new strategies, among other purposes.

It’s important to realise that the completion of this deal still requires regulatory approval, though AMP is confident that the deal will be finalised during the first half of FY2020.

A capital raise

In what some may consider a surprise move, AMP Ltd announced today that it would launch a fully-underwritten A$650 million capital raise, to institutional investors.

This capital raise, according to AMP, will be 'combined with a separate non-underwritten SPP [share purchase plan] for eligible shareholders in Australian and New Zealand.'

This new raise should help AMP realise its revitalised growth strategy, tackle ongoing legacy issues and in general bolster the company’s balance sheet.

AMP’s outlook going forward

As we noted at the beginning, AMP is currently in the process of streamlining its business model.

In the scheme of things, this means that the firm will look to significantly decrease its reliance on its wealth management arm; while aiming to increase the profitability of both AMP Bank and AMP Capital.

As AMP’s Chief Executive Officer, Francesco De Ferrari pointed out, the intention here is to:

‘Put AMP on the path to sustainable, long-term value creation.'

AMP share price: final thoughts

Ultimately, AMP’s simplified strategy and new-found focus on growing its AMP Bank and Capital businesses look to be a positive development for the troubled firm. Though, investors may not be thrilled by the dilutive impact of the proposed capital raise.

It will be interesting then to see how investors respond when AMP’s shares are released from their trading halt, expected to take place this coming Monday, August 12.

Year-to-date, AMP’s share price has continued to struggle, falling some 28%.


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