AMP to raise $650 million ahead of transformation strategy
Written on the 8 August 2019 by David Simmons
Embattled financier AMP (ASX: AMP) intends to raise $650 million to buoy a complete reinvention of the company
The new AMP will be a "simpler, client-led, higher growth and higher return" business.
AMP is in serious need of a facelift following a rough FY19 stacked with intense criticism of its practices that were revealed during the Royal Commission into the banking and finance sector.
The three-year strategy to rejuvenate the business will see the company reinvent itself as a contemporary wealth manager.
A cost reduction program will also be put in place to achieve $300 million annual run-rate savings by FY22.
"2019 is a year of transition for AMP as we fundamentally reset and de-risk the business," says chief executive Francessco De Ferrari.
"We are reinventing our Australian business to deliver a proposition that fulfils client needs with whole-of-wealth solutions including banking. We will continue to grow AMP Capital through differentiated capabilities and international growth opportunities."
The transformation announcement comes as the company posts its 1H19 results, showing an underlying profit of $309 million, defying the group's earlier estimates.
Alongside the profit was a non-cash impairment of $2.35 billion. The company says it is taking this hit to reset the group's Australian wealth business and clean up its balance sheet.
Therefore, the loss attributable to shareholders of AMP Limited came in at a $2.3 billion.
"The 1H19 result reflects the challenges we've faced and our actions to address them including taking a predominantly non-cash impairment," says De Ferrari.
"The impairment doesn't materially impact AMP's financial stability and shouldn't overshadow a resilient underlying performance, particularly from AMP Capital and AMP Bank, during the half."
The Australian company has also announced that it has revised its agreement for the sale of AMP Life to Resolution Life.
The revised agreement delivers a consideration of $3 billion comprising $2.5 billion cash and $500 million equity interest in Resolution Life Australia, a new Australian-based holding company that will become the owner of AMP Life.
Also announced was the resignation of AMP CFO Joshn Patrick Moorhead who has left to pursue other opportunities. He will be replaced by James Georgeson, currently AMP deputy CFO, who has been appointed to the role of acting CFO.
"The capital raising ant the AMP Life sale will provide the funds to implement immediately our new transformational strategy, which creates a simpler, higher-growth and higher-return AMP that's focused on clients and ensures our balance sheet will be unquestionably strong," says Dr Ferrari.
"This strategy will put AMP on the path to sustainable, long-term value creation."
AMP's makeover comes as it is facing down the barrel of a Slater and Gordon class action.
Slater and Gordon alleges that, through arrangements entered into with related parties, trustees AMP Super and NM Super paid too much to related AMP entities for administration services.
It also alleges they failed to secure an appropriate return on cash-only investment options.
The class action rides on the back of the 2018 Royal Commission into the Banking and Finance sector during which it was revealed that AMP was charging administrative fees with high costs exceeding returns and causing investment losses in some instances.
Slater and Gordon joins Quinn Emanuel Urquhart & Sullivan, Phi Finney McDonald, Maurice Blackburn and Shine Lawyers who have each launched separate investigations and class actions against the financial services giant.
Business News Australia
Author: David Simmons