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annualreport2018
ioof.com.au
Contents
About IOOF
Our major brands
Chairman and Managing Director’s commentary
Our financial performance
Directors
Environmental, Social & Governance report
IOOF Foundation
Financial report
1
2
3
7
10
13
21
25
IOOF annual report 2018
About IOOF
At IOOF, we have been helping Australians secure their financial independence for over 170 years, and
have grown to become a leading provider of quality financial advice, products and services.
Today, IOOF is one of the largest financial services group in Australia. We are an ASX top 100 company with $161.7 billion in funds
under management, administration, advice and supervision, and we currently provide services to more than 500,000 customers
around Australia.*
Our broad range of products and services means that our ability to provide tailored solutions to help our clients achieve their
financial goals is unparalleled.
What does IOOF do?
IOOF provides a range of wealth management solutions for Australians, including:
Financial Advice
We believe in the value of
financial advice. Whether
provided through the
organisations we partner
with or our own extensive
network of financial advisers
and stockbrokers, our goal is
to help clients build, maintain
and protect their wealth.
Platform Management
and Administration
We offer financial advisers,
their clients and hundreds
of employers around Australia
leading superannuation and
investment administration
platforms. Our unique open
architecture model means
we not only offer our IOOF
platforms but selective leading
external platforms to ensure
advisers and their clients
can choose the product and
service solutions that best suit
their individual needs.
Investment Management
Through our investment
management expertise,
we offer a range of highly
rated multi-manager
solutions that add value on
several fronts; those being
our active management
of underlying investment
managers, our dynamic asset
allocation and our robust
risk management approach.
We also offer a tax effective
alternative to Super through
our leading investment bond.
Trustee Services
Our trustee business includes
compensation trusts, estate
planning and administration,
personal trustee services,
philanthropy and self-managed
super fund (SMSF) solutions.
* As at 30 June 2018
1
IOOF annual report 2018
Our major brands
Financial advice
Platform management
and administration
Investment management
Trustee
IOOF Employer Super
IOOF MultiMix
IOOF PlatformConnect
IOOF MultiSeries
IOOF Alliances
IOOF Pursuit
IOOF WealthBuilder
As at 30 September 2018
2
2
IOOF annual report 2018
Chairman and Managing Director’s
Commentary
George Venardos
Christopher Kelaher
Delivering on our strategy and
positioning for future growth
2018 has been a transformative year for IOOF.
Advice-led strategy continues to deliver client outcomes
We continued to deliver our unique
advice-led strategy during a period of
intense scrutiny for the financial advice
industry generally. There was strong
organic growth in each of our businesses.
We have remained steadfast in our
ambition to make improvements across
the business to ensure our focus remains
on our clients. Simplifying our businesses
resulted in cost efficiencies of $9.4m, which
puts us in good stead going forward.
Importantly, we also announced the
transformative acquisition of ANZ Wealth
Management. This transaction was
substantially completed on 1 October
2018 and shows our commitment to
financial advice.
Open architecture is a unique feature
of our business and is a standout to
our peers. We actively promote and
encourage the use of other quality
financial platforms and products.
On the retail side, we currently support
BT, Colonial and Macquarie platforms
alongside our own flagship platform
- IOOF Pursuit. We offer a choice of
external insurers, TAL, AIA and Zurich.
The investment options on our platforms
3
3
IOOF annual report 2018
contain our own highly rated multi-
manager funds, as well as hundreds of
other investment options.
This means we genuinely demonstrate our
commitment to ensuring our advisers have
access to a range of solutions that they can
use to best serve their clients. We believe
that this is the way forward and it is the
strongest possible strategic positioning in
the face of constant change.
Meeting commitments delivers
shareholder value
Underlying profit for the year was a
record for IOOF at $191.4m – up 13% on
2017’s strong result. For our shareholders,
this translated into a total dividend
for the full year of 54cps, fully franked.
We committed to our shareholders to
hold the dividend at 27 cents per share
after the announcement of the ANZ
transaction for the second half of the
year – to ensure our existing shareholders
were rewarded for their loyalty to IOOF.
We met that commitment thanks to our
strong financial performance.
This result could not be achieved without
the hard work and commitment of all of
our people, our Leadership Group and
our fellow Board members. With all of
the attention on the industry, all of our
people continued to work diligently
to ensure our clients’ needs were put
first. Thank you all for your ongoing
commitment to delivering superior
outcomes to clients and long term
value for shareholders.
Industry changes
At IOOF we are committed to quality
financial advice and recognise the true
value that it provides to all Australians.
Our own research has shown that
advice extends beyond measurable
financial gains - to improved physical
health, stronger relationships and
personal happiness.
4
It is well known that, along with other
large Australian financial services
providers, IOOF was involved in the Royal
Commission this year. We will welcome
changes to oversight and regulations
which genuinely improve the interests and
lives of our clients. Whilst there has been
considerable scrutiny on the industry by
the Royal Commission, we believe this will
ultimately create a better financial services
environment for all. Also of note for IOOF is
that we have not had to raise any provision
in respect of costs associated with the
Royal Commission.
We await the final report of the Royal
Commission in February 2019 and
recognise that our shareholders feel the
effects of the industry uncertainty in
the value of their shareholding. But our
existing business remains strong. We have
a transformational acquisition in motion.
With open architecture, we have options
in the face of strategic change. We are
confident that we will continue to have a
strong business going forward, once the
Royal Commission has concluded its work
and any recommendations actioned.
ClientFirst
Over the past two years we have
highlighted our ClientFirst journey and
client-centric culture. Client experience
has always been a sustainable competitive
advantage, but it is even more
pronounced in an environment where
product is fast becoming a commodity
and technology can be easily replicated.
ClientFirst is not just a way of thinking
or a philosophy. ClientFirst is about
completely changing the way we work.
It is about revealing unmet client needs,
reframing client problems, and helping
us to rethink the entire client experience.
It has been extremely pleasing to see
very positive feedback on our ClientFirst
approach from advisers and their clients.
One particular metric of relevance is that
our customer complaints are trending at a
three-year low.
Roy Morgan’s Satisfaction with Financial
Performance of Superannuation in
Australia survey of March 2018 has shown
improvements in our net promoter score
as a direct result of the changes we have
made under our ClientFirst approach.
We have improved three places to third
in the March 2018 survey, which is an
extremely pleasing result.
The value of financial advice
At IOOF, we have been unwavering
in our belief in the value of financial
advice. With our Advice Academy, we
are committed to improving the quality
of financial advice for all Australians,
in addition to improving the efficiency
of its delivery.
Two years on from its inception, our
IOOF Advice Academy continues to
lead the way in specialist coaching for
financial advice businesses. With over 100
advisers and 35 businesses now at various
stages of our Foundation program, the
IOOF Advice Academy supports advice
businesses and their clients achieve
what’s important to them. Our ultimate
aim is to empower clients to live their
ideal lives by achieving their financial and
lifestyle goals.
In addition to our investment in the
quality of financial advice via the IOOF
Advice Academy, 12 of the top 50
advisers in Barron’s second annual survey
of Australian financial advisers were
IOOF employed or licensed. This was
the highest number achieved by any
institution for the second year running.
This result shows our advisers deliver
high quality financial advice and superior
outcomes for clients.
Transformational acquisition to
deliver long term value
In October 2017, we announced
the significant acquisition of ANZ’s
Pensions & Investments businesses and
Aligned Dealer Groups (ANZ Wealth
Management). ANZ Wealth Management
fits seamlessly with IOOFs existing advice,
platform and investment management
businesses - our core wealth
management offerings.
In addition to the acquisition, we
announced we would be entering
into a 20 year partnership to offer our
wealth management products to ANZ’s
customers. This is a transformational
acquisition for IOOF in terms of the
additional scale it provides.
On 1 October 2018, IOOF obtained full
legal ownership of the ANZ Aligned
Dealer Groups whilst also securing 82%
of the economic benefit of the Pensions
& Investments business. IOOF anticipates
taking full ownership of that part of ANZ’s
business towards the end of March 2019.
We remain confident that this acquisition
will deliver significant benefits for those
clients and our shareholders.
Strong organic growth
continues
2018 saw advice net inflows of $4.4 billion,
up 48%. Platform net inflows were $1.6
billion, up 34% vs FY17. These significant
increases show that IOOF continues to
be an attractive alternative for advisers
looking to partner with a specialist
advice-led group and that our focus on
service excellence results in significantly
increased flows.
Our adviser numbers continue to
grow. At 1 October 2018, we had 1,707
salaried and licensed advisers, including
661 advisers who joined us from ANZ
Aligned Dealer Groups. Our commitment
to financial advice and our advice-
led strategy means we are unique in
an industry which is consolidating.
This unwavering dedication is leading
to record levels of interest in our advice
businesses. The choice open architecture
provides is the major reason advisers
choose to partner with IOOF.
Environmental, Social and
Governance matters
We are committed to ensuring
Environmental, Social and Governance
(ESG) practices are embedded in our
culture. ESG is our responsibility to clients,
shareholders and the communities in
which we operate.
Our IOOF Foundation has continued
its work in assisting some of our
most disadvantaged communities.
The Foundation has now surpassed $13.5
million in total donations since its formal
establishment in 2001.
In September 2018, IOOF announced its
support for the Taskforce for Climate-
Related Financial Disclosure (TCFD)
recommendations. We are proud to
join over 30 other large Australian
organisations in expressing support for
consistent, useful information on the
material financial impacts of climate-
related risks and opportunities.
Our ESG Report provides further details
on our approach to material ESG matters,
how these are linked to strategic
initiatives and our assessment of their
impact. We remain committed to the
sector with our significant shareholding
in Australian Ethical Investment Ltd,
Australia’s largest dedicated ESG
investment manager.
We encourage you to read the further
detail on our ESG matters and the IOOF
Foundation in our ESG report on page 21.
Outlook
This year has seen a period of intense
scrutiny on the financial services industry.
Any changes legislated by government
as a result of the Royal Commission
will be beneficial to confidence and
trust in Australia’s financial services
sector. Ultimately this will lead to better
outcomes for those Australians who place
their trust and hard-earned financial
resources with us and our competitors.
IOOF’s commitment to financial advice
is unwavering. We are different from
our peers in offering a genuine choice
of products and services. We remain
committed to our ClientFirst approach.
Diligently pursuing our strategy will
deliver positive long-term outcomes
for our advisers, their clients and our
shareholders.
To our shareholders, the Board and
management of IOOF, thank you for your
support over this past year.
George Venardos
Chairman
Christopher Kelaher
Managing Director
5
IOOF annual report 2018
IOOF annual report 2018
At IOOF we are committed to
quality financial advice and
recognise the true value that it
provides to all Australians.
6
IOOF annual report 2018
Our financial performance
divisional updates
Funds by segment
$161.7b
$35.7b
$22.0b
$39.8b
$146.9b
$32.2b
$20.6b
$37.2b
$134.3b
$131.1b
$29.6b
$27.0b
$20.6b
$19.6b
$34.9b
$34.5b
■ Funds Under Supervision
■ Investment Management
■ Platform Management and Administration
■ Financial Advice and Distribution
$49.9b
$50.0b
$56.8b
$64.1b
June 2015
June 2016
June 2017
June 2018
Financial Advice
% contribution to Group UNPAT
Key activities
41%
2017/2018
2016/2017
• Our advice-led strategy has delivered further growth in
adviser numbers.
•
IOOF achieved the top ranking for the number of advisers for
the second year running in Barron’s survey of Australian financial
advisers. Among the list of ‘Australia’s Top 50 Financial Advisers’,
12 out of 50 advisers were IOOF licensed advisers.
• Business simplification activities undertaken to divest non-core
businesses in previous years allows us to focus on our core Wealth
Management capabilities.
380.3
78.0
64.1
354.9
76.4
56.8
• Continued focus on quality of advice via our IOOF Advice Academy
– a training and coaching resource for the financial planning
industry; helping advisers build high quality businesses that in turn
helps clients achieve their financial and lifestyle goals.
• Unwavering dedication to our ClientFirst approach which focuses
on providing a high standard of service to our advisers and clients.
• Continued commitment to open architecture through Platform
Connect, providing IOOF with an attractive differentiator by offering
real choice. IOOF Platform Connect is unique in the industry in
that in addition to our internal platform offerings, we partner with
external product providers to deliver greater choice to clients.
$’m
Revenue
UNPAT
Closing FUA ($’b)
About the division
Our Financial Advice division supports over 1,000* financial
advisers and stockbrokers that provide financial advice services to
over 500,000* clients across both retail and institutional sectors.
Advice covers cash flow, wealth and contingency strategies
and is provided by our well-known brands Shadforth Financial
Group, Bridges Financial Services, Consultum Financial Advisers,
Lonsdale Financial Group and Ord Minnett
*As at 30 September 2018
7
Platform Management & Administration
Investment Management
% contribution to Group UNPAT
% contribution to Group UNPAT
42%
19%
$’m
Revenue
UNPAT
Closing FuAd ($’b)
About the division
2017/2018
2016/2017
$’m
2017/2018
2016/2017
393.2
81.0
39.8
393.8
77.3
37.2
Revenue
UNPAT
Closing FuM ($’b)
73.4
36.7
22.0
84.1
32.7
20.6
About the division
Our platforms allow clients, employers and advisers to manage a
wide range of superannuation and investment options, including
managed and listed investments. Our flagship platforms are
IOOF Pursuit and IOOF Employer Super.
Our investment management business offers multi-manager
products that are easy to understand with well-rounded
investment options across a range of asset classes.
Key activities
•
IOOF MultiMix trusts have had an impressive financial year,
where they have outperformed peers in industry surveys, as
well as over longer periods.
• The full suite of IOOF multi-manager funds maintained a
‘Recommended’ rating by Lonsec and the team maintained
their 5 Apples rating, the ‘highest quality’ multi-manager
rating by Chant West.
•
IOOF Investments approach to integrating environmental,
social and governance into our process is progressing
with a statement of responsible investing principals close
to finalisation.
• Enhancements made to Investment Central, an online
client engagement tool for advisers, has allowed further
transparency and client reporting for multi-manager
investment solutions.
• Successful reinvigoration of three Mosaic Specialist Funds in
July 2018. The enhancements to these funds offer investors
benefits including diversification at competitive management
costs and improved risk and return characteristics.
•
IOOF WealthBuilder continues to grow in popularity as an
alternative to super.
Key activities
• Launch of a managed account solution, Managed Portfolio
Service (MPS), on our flagship platform, IOOF Pursuit, in July
2018. MPS is designed to support advisers to efficiently deliver
value to their clients with flexible, high quality portfolio
construction and implementation capabilities.
• Rebrand and re-launch of IOOF Employer Super, IOOF
Personal Super and IOOF Pension including:
– Introduction of family fee aggregation within IOOF
Employer Super enabling super and pension members to
link accounts with immediate family members to reduce
overall administration fees.
– Expansion of existing fee aggregation entitlements on
IOOF Pursuit allowing the linkage of up to 6 accounts.
– Introduction of retail insurance via a panel of three high-
quality, independent insurers AIA, Zurich and TAL, along
with the introduction of an online application form.
– Enhanced member investment menu and fee structure
options through the introduction of ‘Core’ and ‘Full’ menu
segregation. The core investment menu provides access to
IOOF’s award-winning multi-manager range at a reduced
cost whilst the full investment menu provides access to
a comprehensive range of investments on a competitive,
tiered pricing structure.
•
Introduced a range of IOOF Pursuit enhancements including
improved dealer group and adviser reporting along with
expanded online functionality.
• Refreshed IOOF Online, our secure member portal, with
simplified (single sign-on) login, upgraded security, fresh
design navigation and new reports.
8
IOOF annual report 2018 Trustee Services
% contribution to Group UNPAT
5%
$’m
Revenue
UNPAT
Closing FuS ($’b)
About the division
2017/2018
2016/2017
37.5
9.0
35.7
30.8
6.7
32.2
The AET Private Client Trustee Services business is highly
complementary to IOOF’s advice-led business model.
The business includes estate planning, estate administration,
compensation trust services, fiduciary services and philanthropic
services. AET is also a specialist provider of self-managed super
fund (SMSF) solutions including the AET small APRA fund.
Key activities
• On 13 September 2018, IOOF announced the sale of the AET
Corporate Trust business to Sargon Capital Pty Ltd for a total
purchase consideration of $51.6 million. The sale allows IOOF
to focus on our retail and private client business.
•
•
Integration of the National Australia Trustees Limited (NATL)
business was completed which led to a significant uplift in
revenue and profitability.
Integration of the Ability One (WA) business well underway
post-acquisition, providing further scale and continued
growth – particularly in the Western Australian compensation
trust market.
• With the NATL and Ability One acquisitions, AET becomes
a national market leader in the compensation trust market
surpassing $2 billion in funds under administration/supervision.
• Announced a strategic alliance with leading global
philanthropic organisation Rockefeller Philanthropy Advisors
(RPA). The alliance will support donors, and their advisers in
designing philanthropic strategies that are comprehensive
and effective, through leveraging RPA’s global expertise,
granting advice framework and reference tools.
Our ultimate aim is to empower
clients to live their ideal lives
by achieving their financial and
lifestyle goals.
• Continued successful partnerships with industry peak bodies
including the Australian Lawyers Alliance, Society of Trust and
Estate Practitioners and the SMSF Association.
• Further strengthening and continued alignment between the
AET and IOOF Distribution and Operations teams resulting in
the surfacing of new opportunities to provide specialist estate
planning and trustee solutions to advisers and their clients.
Sum of total contribution equates to 100% when Corporate segment is included - FY18 UNPAT: ($13.3 million)
9
IOOF annual report 2018 IOOF annual report 2018
Directors
Mr George Venardos
B.Com, FCA, FGIA, FAICD, FCIS
Chairman – Independent Non-Executive Director
Independent Non-Executive Director since 2009
Mr Venardos is an experienced director with broad listed company
experience across a range of different industries including financial
services, affordable leisure, oil and gas services and technology
development.
Mr Venardos has over 30 years’ experience in executive roles in
financial services, insurance and funds management. For a period
of 10 years, Mr Venardos was the Chief Financial Officer of Insurance
Australia Group and Chairman of the Insurance Council of Australia’s
Finance and Accounting Committee. Mr Venardos was a director of
Bluglass Ltd from 2008 to 2016 and Ardent Leisure Group from 2009
to 2017.
Other significant directorships
• Chairman of Guild Group
• Cuscal Ltd
• Lawcover Pty Ltd
Special responsibilities
• Chairman of IOOF since November 2016
• Chairman of the Nominations Committee
• Member of the Group Audit Committee
• Member of the Remuneration Committee
10
IOOF annual report 2018
Mr Christopher Kelaher
B.Ec, LL.B, F Fin.
Managing Director
Managing Director since 2009
Mr Kelaher is the Managing Director of IOOF Holdings Ltd.
He was appointed in 2009, after IOOF’s merger with Australian
Wealth Management Limited (AWM), a company he had led
since 2006. Prior to AWM, Mr Kelaher was the CEO of Select
Managed Funds Limited for nine years, a private company
which was brought to market in 2005 and in turn ultimately
merged with AWM in 2006. In the following periods, he
has been instrumental in executing multiple mergers and
acquisitions that have added materially to the IOOF Group
and its antecedent businesses. Mr Kelaher has extensive
capital markets experience from his time during the late 1980s
with Citicorp where he oversaw the establishment of Citicorp
Investment Management and Global Asset Management
businesses in Australia and New Zealand.
He holds a Bachelor of Economics and a Bachelor of Laws
from Monash University and is a Fellow of the Financial
Services Institute of Australia.
Special responsibilities
• Managing Director of the IOOF Group since 2009
• Member of the Nominations Committee
Ms Elizabeth Flynn
LL.B, Grad Dip AppCorpGov, FAICD, FFin, FGIA, FCIS.
Independent Non-Executive Director
Independent Non-Executive Director since 2015
Ms Flynn has more than 30 years’ experience in the financial
services industry, including roles within law and corporate
governance as well as executive responsibilities. From 1998
to 2010, Ms Flynn was the Chief Legal Counsel, Group
Compliance Manager and Group Company Secretary of
financial services group Aviva Australia, and a director of
Aviva Australia’s superannuation trustee company. Prior to
her time at Aviva, Ms Flynn spent 18 years as a commercial
lawyer with Minter Ellison, including eight years as a partner,
specialising in managed funds, banking and securitisation
and superannuation. Ms Flynn was a non-executive director
of Bennelong Funds Management from 2010 to 2015.
Other significant directorships
• AIA Australia Limited
• Victorian Government’s Emergency Services
Superannuation Board
• Sovereign Assurance Company Limited
Special responsibilities
• Chair of the Risk and Compliance Committee
• Member of the APRA Regulated Entities Audit
Committee
• Member of the Remuneration Committee
11
Directors
Ms Jane Harvey
B.Com, MBA, FCA, FAICD
Mr Allan Griffiths
B.Bus, DipLi
Mr John Selak
Dip Acc, FCA, FAICD
Independent Non-Executive
Director
Independent Non-Executive
Director
Independent Non-Executive
Director
Independent Non-Executive Director
since 2005
Independent Non-Executive Director
since 2014
Independent Non-Executive Director
since 2016
Ms Harvey has more than 30 years’
experience in the financial and advisory
services industry. Prior positions include
as a Partner at PricewaterhouseCoopers,
a Director of David Jones Limited from
2012 to 2014, a Director of UGL Limited
from 2015 to 2017, and as a Director of
DUET Finance Limited, a stapled entity
within the ASX Listed DUET Group from
2013 to 2017.
Other significant directorships
• Bupa ANZ Healthcare Holdings Pty Ltd
• DuluxGroup Ltd
Special responsibilities
Mr Griffiths has more than 30 years’
experience with a deep understanding of
the financial services industry. Mr Griffiths
has held a number of executive positions
within the industry most notably as
Chief Executive Officer Aviva Australia
and later Managing Director South Asia,
Aviva Asia Pte Ltd based in Singapore.
Prior to joining Aviva Mr Griffiths held
executive positions with Colonial Ltd
and Norwich Union.
Other significant directorships
• Chairman of the Westpac/
BT Insurance Boards
Mr Selak has over 40 years’ experience
in the financial and advisory services
industry. From 2000 to 2016 he was a
partner in the Corporate Finance Practice
of Ernst & Young serving on their Global
Corporate Finance Executive. From 2014
to 2017 Mr Selak was an advisory board
member of Quest Apartment Hotels.
Other significant directorships
• Chairman of Corsair Capital
• National Tiles
• Turosi Food Solutions
Special responsibilities
• Chairman of Metrics Credit Partners
• Chair of the APRA Regulated Entities
• Chair of the Group Audit Committee
• CARE Australia
• Member of the Nominations
Committee
Special responsibilities
• Chairman of the Remuneration
Committee
• Member of the Group Audit
Committee
• Member of the Nominations
Committee since 13 February 2018
Audit Committee
• Member of the Group Audit
Committee
• Member of the Risk and Compliance
Committee from 28 August 2017
12
IOOF annual report 2018 IOOF annual report 2018
Environmental Social and Governance
report
Our ethics, values and culture are key factors to our continued success.
The application of Environmental, Social & Governance (ESG) practices enable us to manage risks and opportunities in a way that balances
the long-term needs of stakeholders, including customers, employees, shareholders, suppliers, the community and the environment.
Material exposure to Environmental and Social Sustainability Risks
There are a number of material ESG matters that impact the IOOF Group, the achievement of our strategic aims and the communities
in which we operate.
In determining our material ESG matters, the Board considers our business model, the industry in which we operate, current areas of focus
of our regulators, media and public commentary and the interests of our stakeholders, including industry bodies, investors and analysts.
Material ESG matters and their link to our strategic initiatives are outlined below.
Governance
Stakeholder
Material ESG matter
Strategic initiative
• Corporate Governance
• Establishing trusted relationships with advisers
• Responsible investment
• Tax transparency
• Climate change and the environment
• ClientFirst
• Open Architecture
• Advice Academy
• Business simplification
Our business
e
r
u
t
l
u
C
Our clients & community
• Acting in the best interests of our clients
• Advocating for quality financial advice for all Australians
• ClientFirst
• Advice Academy
• Diversity and inclusion
• Corporate culture and attracting and retaining talent
• Engagement
Our people
The IOOF corporate brand and our reputation as a leading provider of quality financial services could be damaged by failing to
identify, monitor and report our material ESG matters.
13
Our business
At IOOF, we believe in the value of financial advice.
In today’s complex and ever-changing financial world, it has never been more important for people to seek qualified and experienced
guidance to secure their financial future. One of our major goals is to make it easier for all Australians to access and benefit from
receiving the right advice for their individual needs and objectives.
ESG practices are deeply embedded in our day to day operations and to the creation of long-term financial outcomes for our advisers,
clients and shareholders.
Corporate Governance
Robust corporate governance policies, practices and procedures
are a fundamental part of our culture and lay the foundations that
underpin everything we do.
IOOF has adopted Listing Rule 4.10.3 which allows companies to
publish their corporate governance statement on their website
rather than in their annual report. The Directors of IOOF have
reviewed and approved the statement, which is available at
www.ioof.com.au/about-us/about-ioof/corporate-governance
The Royal Commission
IOOF has been helping Australians for over 170 years achieve
their financial goals and is one of Australia’s largest financial
services companies. We take our responsibilities to clients
and members seriously and they are at the heart of our
organisation’s purpose.
As a top 100 company on the Australian Securities Exchange, we
welcome any changes to processes and regulations that help
improve the lives of our clients. Whilst there has been a lot of
scrutiny on the industry by the Royal Commission, at IOOF, we
believe that this will ultimately create a better financial services
environment for all and restore clients’ faith in our system.
Establishing trusted relationships with
advisers
At IOOF, we recognise the true value of advice. Inclusive of our
acquisition of 661 on 1 October 2018, we employ or licence
approximately 1,700 advisers and stockbrokers and have trusted
relationships with independent financial advisers.
The true value of advice
IOOF undertook a survey of 521 advised and non-advised
clients and discovered that those who receive ongoing financial
planning advice experience1:
• 13% greater levels of overall personal happiness.
• 21% overall increase in peace of mind.
• 19% less likelihood to have arguments with loved ones.
Meanwhile those who don’t receive financial advice were:
• 22% more likely to have their sleep disrupted due to money
concerns.
• 15% more likely to feel stress and anxiety.
• 11% more likely to feel concerned about their finances.
In addition, 83% of clients surveyed endorsed the value of
financial advice by saying it’s also important for their loved ones
to have good financial advice.
A financial adviser provides the peace of mind of a well thought out
plan which ensures better preparation for the future. Also, advice
extends beyond measurable financial gains, to improved physical
health, stronger relationships and personal happiness.
Due to our advice-led wealth management strategy, we are
seeing record levels of interest in our advice businesses.
New advisers can join one of IOOF’s Advice Groups subject to
meeting minimum adviser education standards and undergoing
rigorous compliance and on-boarding processes, to ensure
that the quality of financial advice IOOF is offering our clients is
uncompromised.
In addition to our advice-led strategy, IOOF offers open
architecture. This means that our advisers have the choice to use
our platform, or those of competitors. Choice of products and
services presents a fundamental difference from our peers in the
industry. This is a major reason for advisers to choose to partner
with an IOOF advice group and a tangible demonstration of
offering solutions which best service our advisers and their
clients’ individual needs.
Our IOOF Advice Academy ensures we are at the forefront of
advocacy for improving the quality of financial advice. Further
information on our Advice Academy can be found in the ‘Our
clients & community’ section of this report.
Responsible investment
Our multi-manager investment management offering ensures
ESG factors are considered by underlying investment managers
in their investment decision-making processes in order to
protect and manage investments for the long term.
In 2017 an ESG clause was added to all of our Investment
Management Agreements with external fund managers.
14
1 IOOF: The true value of advice (2015)
IOOF annual report 2018 These managers must now identify and manage risks associated
with ESG as part of their investment process.
In 2018, we continued to build on our commitment to
responsible investment by developing a Responsible Investing
Statement of Principles which is close to completion. Approval
and commencement of the implementation of the principles
will occur over the course of 2019. We will also consider our
approaches to the measurement and scoring of portfolios
against the Responsible Investing Statement of Principles.
In addition, IOOF has a 18% shareholding in Australian Ethical
(ASX: AEF); Australia’s largest dedicated ESG investment manager.
This represents a long-standing commitment to responsible
investing with our initial investment dating back to 2005.
IOOF is proud of the results it achieved in this review which
are a direct result of the importance it puts on ensuring tax
governance and tax transparency
Tax contribution analysis
The IOOF Group contributed a total of $143.6m in taxes to
Australian, New Zealand and Hong Kong governments (state
and federal) in the 2018 tax year. $143m or 99.6% of this amount
was attributable to the Australian Government. The below
tables provide an analysis of the types of taxes the IOOF Group
is liable for and those payable in Australia versus those in
foreign jurisdictions.
2018 tax contribution by country (total $143.6m)
Tax Transparency
The IOOF Group is committed to tax transparency and integrity.
It has been a signatory to the Board of Taxation’s Voluntary Tax
Transparency Code (the Code), since January 2017.
The Code is a set of principles and ‘minimum standards’ to guide
disclosure of tax information by businesses, encourage those
businesses to avoid aggressive tax planning, and to help educate
the public about their compliance with Australia’s tax laws.
Tax strategy and governance
Tax governance is part of the IOOF Group’s overall risk
management framework, as well as being part of an overall
tax strategy. The overall tax strategy drives the IOOF Group’s
approach to tax risk management and is aimed at good
corporate tax compliance and reporting, ability to meet and be
prepared for regulatory changes, and in ensuring shareholder
value. Tax governance is continuously monitored and in line
with the IOOF Group’s strategy. The IOOF Group regards its
relationship with the Australian Tax Office (ATO) as effective and
open thereby maintaining transparency and collaboration.
ATO Streamlined Assurance Review
The ATO finalised a streamlined assurance review in November
2017, as part of its justified trust program, with IOOF Holdings
Ltd tax consolidated group. The ATO commended IOOF for
registering as a signatory to the Board of Taxation’s voluntary
Tax Transparency Code, being an “important tool to assist joint
efforts in increasing tax transparency and community confidence
that our largest taxpayers are paying the right amount of tax.”
IOOF received a high level of assurance across the areas
of tax risk management and governance, significant and
new transactions, specific tax risks, and alignment between
accounting and tax results. Its Tax Governance Framework was
considered by the ATO to be best-practice, with the ATO noting
that it has been both designed effectively and is operative.
Australia
New Zealand
Hong Kong
$143m
$0.6m
$0.0064m
2018 tax contribution by type (total $143.6m)
Income Tax
$74.91m
GST
$51.9m
$13.1m
Payroll Tax
Fringe Benefits Tax $1.19m
$2.5m
Other
Fiduciary oversight of superannuation
IOOF received the Large Fund Diagnostic Report for ATO
Reporting made by the Superannuation Funds which IOOF
Investment Management Limited administers. The ATO use the
outcome of these reports to categorise the risk of incorrect ATO
reporting and direct compliance activity. The ATO noted that “very
few funds have met more than eight of the 13 benchmarks”. IOOF
has met, or exceeded almost all benchmark tests across the prior
two years for its flagship product, receiving a ranking of being the
3rd best of all Funds in Australia for its ATO reporting.
15
IOOF annual report 2018 Further taxes paid by the IOOF Group on behalf of others,
including employees and members, are not directly borne by
the Group. These include income tax, GST, pay-as-you-earn
withholding taxes, and local duties, which total a further $123m.
Further detail on tax paid by the IOOF Group can be found in
note 2-5 to the financial statements within this Annual Report.
Climate change and the environment
Climate change presents significant challenges for society
and generates both risks and opportunities for IOOF’s business
and stakeholders.
In September 2018, IOOF announced its support for the
Taskforce for Climate-Related Financial Disclosure (TCFD)
recommendations. The TCFD recommendations are designed to
solicit consistent, decision-useful, forward-looking information
on the material financial impacts of climate-related risks and
opportunities, including those related to the global transition
to a lower-carbon economy. As a leading provider of wealth
management solutions, this will ultimately help us better
understand climate-related issues and how they can impact
investment decisions.
Perennial Value Management Limited (in which IOOF has a
42% shareholding) has been a supporter of the TCFD since
December 2017.
IOOF has joined a list of over 390 organisations worldwide and
30 other Australian organisations in its support for the TCFD.
Australian organisations which have supported the TCFD include;
the “Big Four” banks, APRA, Industry Super funds, investment
managers and other large ASX listed companies.
Environmental impact
As a diversified financial services company, we seek to minimise
our impact on the environment through a range of waste,
energy and emission-reduction activities.
During 2017 we commenced a significant project to consolidate
our property footprint, which will better enable us to monitor
and manage our environmental impact.
In Melbourne, our current corporate headquarters
has undergone significant refurbishment with further
enhancements planned or underway. In September 2017,
we moved all Melbourne based staff to work in one energy
efficient office building.
With stage 1 building works complete, a 4 Star NABERS Energy
Rating and 3 Star NABERS Water Rating are targeted, which will
make the building one of the most environmentally responsible
commercial addresses in Melbourne CBD.
In Sydney, we moved all of our people to 30 The Bond in
December 2017; a 5.5 Star NABERS rated building. Environmental
sustainability and enablement of our people were significant
factors in choosing this building. It has a 3.5 Star NABERS water
rating and a 5 Green Star rating, meaning it is currently one of
the most environmentally sustainable buildings in Sydney.
By November 2018 we expect to move all of our Hobart based
staff to 40 Bathurst Street. Construction works are well underway
to ensure we enable a work environment that is environmentally
conscious once completed.
Other environmental activities
We also continue to seek better ways to minimise our
environmental impact, including:
• Working with contractors, landlords and service providers to
increase waste recycling.
Outside of our major office movements, we continue to work
with our landlords in all locations to ensure we are limiting
our waste emissions and will look to report on total overall
improvements as part of our annual ESG reporting process.
• Reducing non-essential air travel.
• During 2017, we upgraded our internal communications
system to better facilitate video conferencing in all of our
office locations. In July 2017, we changed our corporate air
travel arrangements to a single provider for all domestic and
international travel.
• Encouraging employee work practices that reduce
environmental impacts.
• To encourage a move to a paperless environment, during
2017 we implemented “Follow Me” printing to reduce
unnecessary printing of documents and paper wastage.
16
IOOF annual report 2018 Our clients and community
Over 170 years ago, IOOF was established with a commitment to helping people and positively
contributing to the communities we serve. This commitment remains unchanged.
Advocating for quality financial advice for all Australians
Our unique advice-led wealth management strategy is differentiating us from our peers and is focused on delivering quality financial
advice to all Australians.
As one of Australia’s leading financial services businesses, we are pleased to be investing in the continued improvement in the quality
of advice for the benefit of all Australians.
In July 2016, we launched the IOOF Advice Academy, which aims to be the pre-eminent training and coaching resource for the
financial planning industry. Our vision for the IOOF Advice Academy is to create an environment where ongoing financial planning
relationships deliver continued mutual value and enable our clients to live their ideal lives and be free of financial concern.
Two years on from its inception our IOOF Advice Academy continues to lead the way in specialist coaching for financial advice
businesses. Through bespoke workshops, in-practice specialist coaching and implementation, we address the challenges of providing
quality advice through ever-changing technology, regulation and consumer expectations.
With over 100 advisers and 35 businesses now at various stages of our Foundation program, the IOOF Advice Academy supports
advice businesses and their clients achieve what’s important to them. Our ultimate aim is to empower clients to live their ideal lives by
achieving their financial and lifestyle goals.
Objectives and outcomes
based advice framework
Integrated advice
philosophies
Developing
industry talent
our
Advice Academy
Enabling advice businesses
and their clients to achieve
their ultimate measure
of success
Coaching focused on
client progression
Practice support and
team member training
Tools, templates
and education
In addition to our investment in the quality of financial advice via the IOOF Advice Academy, 12 of the top 50 advisers in Barron’s
second annual survey of Australian financial advisers were IOOF employed or licensed. This was the highest number achieved by any
institution for the second year running. This result showcases that our advisers are delivering high quality financial advice and superior
outcomes for their clients.
Acting in the best interests of our clients
Supported by robust corporate governance foundations, IOOF is committed to our ClientFirst strategy. In an environment where
product has become a commodity, and technology can be easily replicated, client experience is fast becoming a sustainable
competitive advantage.
17
IOOF annual report 2018 ClientFirst is much more than changing a process or a technology system. It’s about completely changing the way we work. It requires
us to systematically understand client demand types, variation and the roles all people through the organisation play in delivering
demand. ClientFirst is about revealing unmet client needs, reframing client problems, and helping us to rethink the entire client
Deep alignment on culture and new
operating model around our clients
Trusted by clients and partners as a leader
in advice and financial services.
T
U
I O N ADVICE
Vision and
Leadership
Our people
Are embracing our ClientFirst strategy. It is
driving empowerment and enablement.
New methods and measures emerging.
Leadership development
Investing in our leaders to help
them better support our people.
Our leaders meet quarterly to
discuss progress.
T & DIS T R I B
Celebrate
success
C
U
D
O
R
P
System
capability
G
O
Operating
rhythm
M
E
A
S
U
P U RPOSE
Cl ients
V
E
Knowledge and documentation
We have documented processes from
a client perspective. This is revealing
significant opportunity to innovate and
redesign the way our clients interact with us.
N
R
A
N
C
E
R
ES
Visual
Management
M E T
S
E
R
Knowledge and
documentation
VICES F I N A N C
Improvement
E T EC
Coaching
and
capability
O
P
E
R
A
T
I
O
N
S
Data driven
decision
making
S
D
O
H
Planning
Y
G
O
L
O
N
H
Date driven decision making
Capturing new data that reveals ‘what
really matters’ to clients. Building
new capability to utilise the data to
deliver more value for clients.
Improvement
Empowering our people and leaders to
solve client problems in ‘the moment’. New
support tools and techniques to identify
and address the root cause of client issues.
experience.
Giving back to our communities
IOOF Foundation
Since its formal establishment in 2001, the IOOF Foundation has
donated more than $13.5 million to community groups across
Australia. Our IOOF Foundation develops strong partnerships
with non-profit organisations that are bringing opportunities to
those less fortunate and are helping communities to grow and
thrive.
The IOOF Foundation offers long-term grants (up to three
years) in areas important to the history of IOOF and the wider
Australian community.
Further information on the programs that have been supported
by the IOOF Foundation, can be found on page 21 of this report.
Reconciliation Action Plan
We believe that all Australians can contribute to the
reconciliation of the nation. With this in mind, two of our
businesses, AET and Shadforth Financial Group (SFG) have come
together to develop a joint Reconciliation Action Plan (RAP).
Today, we are in better position than ever before to use our
combined expertise, past experience and networks to engage
with Traditional Owners and to raise awareness of their issues in
order to address inequality within our society.
We have developed the RAP to increase the cultural awareness
of Aboriginal and Torres Strait Islander peoples – for all IOOF
employees at a national level. Our vision is to create a workplace
18
culture that is respectful towards Aboriginal and Torres Strait
Islander peoples and their unique place in society.
Our RAP seeks to:
• Break down stereotypes and discrimination: We will
educate staff about the intergenerational effects of past
atrocities on Aboriginal and Torres Strait Islander peoples,
such as the stolen generations and displaced laws and
legislations. We believe an understanding of these issues
will help break down the stereotypes and discrimination
Aboriginal and Torres Strait Islander peoples face.
• Show respect: We are proud of the resilient, strong and
proud nature of the Aboriginal and Torres Strait Islander
peoples as well as their generosity, love of family and
connection to the land. We understand that learning
about specific Aboriginal groups and customs is integral to
developing fruitful long-term relationships. Showing respect
and appreciation is also a crucial part of our approach.
• Engage: We will actively engage with Aboriginal and Torres
Strait Islander peoples to gain a deeper understanding
of their issues, different lifestyles, cultures, histories,
contributions and rights.
• Offer our expertise: We will assist Aboriginal and Torres
Strait Islander peoples to understand their rights within our
capacity and sphere of influence.
• Create opportunity: We will identify opportunities for
Aboriginal and Torres Strait Islander peoples in both our
workplace and in our community.
IOOF annual report 2018
Our people
Our people are our most important asset. Our success depends on them.
Corporate culture & attracting and retaining talent
We are committed to attracting and retaining the best talent.
We recognise the value of diversity and embrace an inclusive
culture where people from diverse backgrounds, with
different skills, knowledge and experiences can develop their
unique talents.
Our culture is underpinned by four core values;
the organisation’s goals. We are committed to make year-on-
year improvements.
We are pleased that our engagement score has increased to 65%
in 2018.
Our recent initiatives to improve employee engagement include:
• Commitment – We do what we say we will do. We persevere
in the face of challenges.
• Excellence – We search for ways to improve. We strive to
• Let’s talk webinars
•
Inspire and other staff newsletters
• Leadership Foundations and Leading@IOOF
exceed expectations.
• Purpose & values
• Empathy – We listen, we feel and we care. We treat each
•
IOOF strategy on a page
other with respect.
• Trust – We act honestly, openly and reliably. We nurture
positive working relationships.
Development of our people
Equipping our people with the right tools, capability and
development opportunities is an investment we make for our
future success. IOOF has a number of initiatives to support all of
our people, including career development and planning, both
co-created and individually tailored learning and development
opportunities and commitment to financial study support.
These programs not only provide scope to extend individual
skills, but remain critical to succeed in a complex and competitive
industry landscape. All employees are encouraged to set personal
development plans with their managers and to undertake training
which is appropriate for their role and future career aspirations.
We have been using ClientFirst and Agile methods and tools and
holding innovation events to harness the creativity and abilities
of our people. Our approach supports us building a learning
environment where our people share and test their ideas, putting
their best ideas forward if they need further resourcing beyond
what their immediate team can do.
Employee engagement and alignment
In June 2018, we undertook a comprehensive survey of our
people in order to identify opportunities to further improve
employee engagement and alignment. Employee engagement
and alignment are both important for achieving sustainable high
performance. The survey was completed by 81% of our people
across the entire IOOF Group – an increase of 8% on 2017.
Using the results of this survey, we have implemented initiatives
to develop and foster improved employee engagement and
identifying the issues potentially acting as barriers to achieving
Commitment to balance and encouraging
community participation
We offer a range of programs and services to employees to
help achieve an appropriate balance between work and family.
As well as offering flexible work arrangements, we provide our
employees with a range of additional benefits.
Salary packaging
IOOF offers employees a range of salary sacrifice options:
• Additional superannuation contributions.
• Motor vehicle novated leasing.
• Car parking, where available.
• Workplace charitable giving program.
Work flexibility
To enable our people to make arrangements about their working
conditions to suit their personal circumstances, IOOF provides a
range of flexible working arrangements:
• Opportunity to purchase additional annual leave.
• Twelve weeks paid parental leave.
•
Job share.
• Community Day.
Leisure and Lifestyle Benefits
We believe in promoting a healthy work/life balance and, to
assist with this, IOOF offers:
• Confidential Employee Assistance program (EAP).
• Wellbeing program including Flu vaccinations.
•
IOOF’s iBenefits program – exclusive access to discounted
gift cards, e-gift cards and discounts at large retailers and
leisure outlets.
19
IOOF annual report 2018 • Gymnasium discounts.
• Service awards.
• Recruitment referral bonuses.
• Study leave and CPD support.
• One Professional membership paid annually.
• Preferred health insurance rates with select insurers.
• Discounted public transport tickets (Victoria).
•
IOOF Pursuit Select staff rates.
Volunteering and giving
For the last decade, we have supported employees who are
interested in volunteering through the use of paid volunteer
leave. This equates to more than 16,000 hours of volunteer time
available for our people.
Activities ranged from cooking at homeless shelters, supporting
Christmas giving programs, looking after neglected/ maltreated
animals, to supporting local school programs and providing
gardening support. Organisations assisted include Hobart City
Mission, RSCPA, Wesley Mission, Salvation Army and Easy Gardens.
Our people actively support a number of key community
initiatives in our offices throughout the year. In 2018, some of the
initiatives we supported include the Cancer Council’s Biggest
Morning Tea, Fight Cancer Foundations ‘Footy Colours Day’,
RSPCA ‘Cupcake Day’, Legacy Appeal, R U OK day and Earth Hour.
Our Workplace Giving program encourages all of our people
to make a tax-effective donation that IOOF matches dollar for
dollar. This is a simple and effective way for our people to make
small regular donations. We have committed to invest further in
this program, moving to a new online platform and expanding
the number of organisations we will support. We have listened
to our employees and understand that it is important to give
them a choice in where they give their time and money, which
encourages greater participation.
Diversity and inclusion
People with different skills and experience and from different
backgrounds bring fresh ideas and perspectives. IOOF
acknowledges diversity as critical to enabling innovation and
broader thinking and, ultimately, to the group’s greater success.
IOOF has a Diversity and Inclusion Plan 2017/2018 that sets
out the diversity initiatives for the IOOF Group. In this context,
diversity and inclusion covers gender, age, ethnicity, race, sexual
orientation, physical abilities, religious beliefs and other beliefs.
It also extends to differences surrounding socio economic or
educational background, marital status, mental health, family
responsibilities and addressing matters of domestic violence.
We recognise that building a diverse, inclusive workforce
increases the possibility to recruit, retain and develop the best
talent whilst forging a stronger understanding and connection
20
with our clients and broader communities. As part of our
employee engagement survey completed in June 2018, 32% of
our people identified as being from a culturally or linguistically
diverse background.
IOOF targets being a diversity leader in the financial sector by;
• providing a diverse, inclusive workplace in which everyone
has the opportunity to participate and be valued for their
distinctive skills, experiences and perspectives;
•
incorporating diversity into business practices through its
corporate social responsibility initiatives that aim to improve
quality of life for our workforce, their families, communities
and society at large; and
• ensuring diversity extends and is embraced across all aspects
of the Group, including recruitment and appointment to roles,
talent development, Board appointments, retention, mentoring
and coaching programs, flexible work arrangements,
succession planning, training and development and across all
of the relevant Group policies and procedures.
The table below sets out the number of women at board, senior
management and all staff levels:
Group
September
2016
September
2017
September
2018
Women on the
IOOF Holdings
Limited Board
Women
in senior
management
Women at all
staff levels
33%
33%
33%
31%
29%
40%
50%
49%
49%
In order to create a focus on encouraging a gender balanced
workplace, IOOF has supported a number of initial research
programs to address any gaps that may be evident. A pay equity
audit has been conducted annually since 2011 amongst all levels
of IOOF staff to determine whether a gender pay gap existed
within the IOOF Group in order to identify any trends. Our People
and Culture Committee will continue to address matters of equal
pay and continue to support the programs to further increase
the number of women in senior management positions.
Other initiatives include:
• a section dedicated to wellbeing on employee intranet portal;
• networking luncheons; and
• opportunities for small groups to attend industry networking
and skills specific conferences and workshops to enhance
their education and potential to encourage networking with
industry and business peers.
The Board approved Diversity and Inclusion Plan for 2017/2018 is
available on our website.
IOOF annual report 2018 IOOF annual report 2018
Through our grant program we support a range of Australian non-profit organisations who share our
passion in providing opportunities that reduce the obstacles to improved quality of life, programs that
help others achieve their potential and enable meaningfully participate in the community.
The Foundation is funded by the income
from a $20 million plus corpus provided
by IOOF. IOOF also funds our running
costs, ensuring that all of our investment
income goes to the community programs
we support.
Our grants program offers long-term
grants (up to three years) in areas
important to the history of IOOF and the
wider Australian community aligned to
our focus areas. To date these have been
in the areas of:
• Families – Our basic needs program,
supports community groups that are
assisting families that are struggling
to be self-sufficient and support
long-term priorities solutions that
help families move out of poverty or
avoid a crisis.
• Children & Youth – We are dedicated
to supporting education projects that
help break the cycle of disadvantage
and empower young Australians to
reach their potential.
• Aged Care – It is well known
that there is an increased need
for improving the quality of life
for Australia’s ageing population.
Our aged program supports
Health & progressive neurological
and physical diseases
Menzies Institute for
Medical Research
The Menzies Research Institute Tasmania
exists to improve human health and
well-being by performing excellent basic,
clinical and population health research that
focuses on major diseases.
The Foundation support the research
led by Professor Ingrid van der Mei, the
MS WorkSmart Program. The program
is focussed on developing a Cognitive
Behavioural Intervention for people with
MS in the workforce.
2018 Community Partners
The grants that are approved are innovative, yet sustainable, and are those that will provide value to the community. This helps
ensure that grants provided make a real impact on the community and achieve a meaningful result.
• The Smith Family
• Colman Foundation
• Girl from Oz
• Spinal Research Institute
• Red Dust
• Rural Aid
• Wintringham
• Very Special Kids
• Mama Lanas Community
Foundation
• TAD
• Parkinsons Australia
• Youth Focus WA
•
Juvenile Diabetes Research
Foundation
• Menzies Institute for Medical
• Ardoch Youth Foundation
Research
21
Wintringham
Wintringham is a Victorian-based not-
for-profit welfare company specialising
in the housing and care of older people
who are homeless or vulnerable to
homelessness. Wintringham secured
the premises of Angus Martin House, a
42 room supported residential housing
development (SRS) in Frankston.
The SRS opened in April 2017 and
offers supported housing to elderly
homeless men and women from the
local community. SRS was granted to
Wintringham, funds from our Foundation
are going directly to mandatory upgrades
to ensure the facility can run at capacity.
Juvenile Diabetes Research
Foundation
This year a passionate group of
employees created ‘Team Shadforth’ in
support of Juvenile Diabetes Research
Foundation (JDRF). This group completed
the One Ride challenge in April, raising
funds to help find a cure for Type 1
Diabetes. The riders could chose between
35km, 80km, 120km or 170km rides
through the scenic Barossa Valley.
Shadforth Financial Group staff members
have joined in the JDRF One Ride
challenge since 2011, their ongoing
fundraising efforts have raised over
$230,000 for Type 1 Diabetes research.
Over 65 staff members have participated
in the event, with some of our team being
involved for a number of years. The IOOF
Foundation is proud to have partnered
with the team at JDRF to support their
peer support program over a number
of years.
Girl from OZ
Girl from Oz (g-oz) uses the performing
arts as a hook of engagement, inspiring
and motivating girls and young women
to regularly attend school and to
meaningfully and actively participate
in their community. The vision is
to foster a sense of belonging and
connectedness between participants
and their community; giving students
the self-assurance to speak and perform
in front of their peers and families and
to feel proud of their achievements as
empowered, resilient and confident
young women. “Girls from OZ does
potent, targeted, nuanced and
intelligent work. It knows if you educate
a girl you educate a community” Kathleen
Noonan, Journalist. We are delighted to
partner with the team at g-oz until the
end of 2019.
22
IOOF annual report 2018 Colman Foundation
Maggie Beer Foundation
Rural Aid
Colman Foundation was created to
help in the education of underprivileged
children. It subsequently entered into a
written ‘social partnership’ agreement
with the State Government around the
construction and operation of a state
school at Doveton, in Victoria, this was
the first such arrangement in Australia.
The IOOF Foundation provides the
financial support to fund The Doveton
Engagement and Enrichment program
(DEEP) bringing students together in
the following sporting, theatre, dance,
music and multi-media activities, based
on notation that the school in order to
be the hub of the community needed
to operate from 7am to 6pm. Since the
DEEP program started, more than 70
activities have been offered and almost
2,500 students have enrolled, Doveton
is culturally diverse - 42 languages are
spoken across the school - but also
significantly disadvantaged with 92 per
cent of families healthcare card holders.
Before DEEP about 1 in 7 boys and 1 in
14 of the girls attend extra-curricular
activities, by the end of 2017 an overall
growth from 2015 to 2017 of 90%.
The Doveton school model has evolved
into what we now know as the ‘OUR
PLACE’ model.
Maggie Beer with IOOF Employees Brisbane
The vision of the Maggie Beer Foundation
is to ensure that all residents in aged
care have access to fresh, wholesome,
seasonal food, abundant with flavour.
To achieve this, they need to engage
with and educate cooks and chefs in
the aged care sector.
We continue to support the ‘Creating
an Appetite for Life’ program that
provides an opportunity for cooks
and chefs working in aged care to
participate in a two-day workshop with
Maggie and industry experts, who share
their knowledge and ideas about how
to enhance not just the food served
but the whole dining experience, all while
considering the economic sustainability
of the menus being created. The program
has been designed for those who are
committed to making a difference in
their aged care home kitchens and
who can influence those controlling
menus, the dining experience, budgets
and supplier relationships.
Rural Aid was founded in 2015 to
provide a central point of focus for rural
communities who require assistance.
The Farm Rescue program provides small
rural communities with direct access
to skilled trades mean and women.
They take these skilled volunteers
to these communities to do repair
and replacement work on small scale
infrastructure projects. Many of these
communities are struggling to access
these skills as towns are getting smaller
and mining and gas operations are taking
away those who do have the skills to
perform this work.
Mama Lanas Community
Foundation
Mama Lana’s Community Foundation
(MLCF) is a not-for-profit organisation that
provides assistance to the homeless and
underprivileged people in our community
to advance their well-being and prospects
for future independence. They believe in
kindness with no string. After operating
out of the family home and serving from
the judge’s car park, the team at MLCF
were successful in obtaining funding to
move into a leased premises located in
Penrith. Our community grant covered
the cost of general property upgrades
including installation of high resolution
CCTV to all areas of the newly leased
premises. This premises will be the hub for
the meal and service centre.
23
IOOF annual report 2018 Very Special Kids
Red Dust Role Models
Spinal Cord Injury
Very Special Kids (VSK) was established in
1985 and became the first organisation
in Victoria designed to offer assistance to
families of children with life-threatening
conditions. VSK now provides Professi
onal free-of-charge family support
services including counselling, advocacy,
sibling support, bereavement support,
networking and peer activities, trained
family volunteers and specialist care at
VSK Hospice, the only children’s hospice
in Victoria offering families access to
planned and emergency respite, as well
as end-of-life care. The hospice provides
24-hour medical and nursing care in a
warm and welcoming environment.
Generations of Indigenous Australians
in remote communities have lived a life
impacted by poor health. This affects
the whole community, especially young
people. Red Dust believes that good
health is the key to a bright future and
that health outcomes can only be made
possible through a two-way exchange
with communities. Working together
to enrich lives, improve health and
strengthen the future of Indigenous
youth and families.
Red Dust’s unique approach to achieving
health outcomes is working. They partner
with communities to best target specific
local needs – this is not a one size fits all
approach. They encourage Indigenous
youth to learn more about health by using
channels they respond to such as sport,
art, music and dance. Red Dust improve
knowledge and skills of Indigenous youth
and inspire them to live a healthy lifestyle
through the influence of positive role
models. The IOOF Foundation’s investment
will secure the delivery of an extra Healthy
Living Program into the communities
of Kintore and Yuendumu and the
development of community role models.
Spinal Cord Injury (SCI) Research
Collaborations Project: Closing the
gaps in the research continuum is the
Spinal Research Institute’s (SRI) initiative
to encourage collaboration among
international SCI researchers. This will
lead to multi-centred studies that can
achieve statistically significant outcomes
to improve the lives of people living
with SCI. There is currently a 7-12 year
gap between a research study and the
translation of its outcomes into practice.
With the Closing the Gaps project, the
SRI hopes to significantly speed up the
time taken for SCI research to deliver
life-changing SCI treatments and health
solutions. The key is the development of
the International online SCI Researchers
Hub, which is the focus of this proposal.
This online platform is called the Spinal
Cord Research Hub (SCoRH).
Angie Dickschen (Chair, IOOF Foundation),
Marc Brew, Artistic Director and Choreographer,
Susan Heron (Director IOOF Foundation)
24
IOOF annual report 2018 IOOF annual report 2018
Financial report
for the year ended 30 June 2018
Contents
Directors’ Report
Remuneration Report
Directors’ Declaration
Lead Auditor’s Independence Declaration
Independent Auditor’s Report to the Members
26
41
61
62
62
Consolidated Statement of Comprehensive Income 67
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the financial statements
68
69
71
72
25
252525
Directors’ report
The Directors present their report together with the financial report of IOOF Holdings Ltd (the “Company” or “Parent”) and of the
IOOF Group, being the Company and its subsidiaries and the consolidated Group’s interest in associates for the financial year ended
30 June 2018 and the auditor’s report thereon.
Directors
The Directors of the Company during or since the end of the financial year were:
Name, qualifications and
independence status
Mr George Venardos
BComm, FCA, FGIA, FAICD,
FCIS.
Independent Non-Executive
Director
Director since 2009
Chair since 2016
Mr Christopher Kelaher
B.Ec, LL.B, F Fin.
Managing Director
Director since 2009
Ms Jane Harvey
B.Com, MBA, FCA, FAICD.
Independent Non-Executive
Director
Director since 2005
Mr Allan Griffiths
B.Bus, DipLI.
Independent Non-Executive
Director
Director since 2014
Ms Elizabeth Flynn
LLB, Grad Dip App Corp Gov,
FAICD, FFin, FGIA, FCIS.
Director since 2015
Mr John Selak
Dip Acc, FCA, FAICD
Director since 2016
Experience, special responsibilities, listed and other significant directorships
An experienced Director with broad listed company experience across a range of different industries,
including financial services, affordable leisure, oil and gas services and technology development.
Over 30 years’ experience in executive roles in financial services, insurance and funds management
including 10 years as CFO of Insurance Australia Group and Chairman of the Insurance Council of
Australia Finance and Accounting Committee. Former Director of Bluglass Ltd from 2008 to 2016 and
Ardent Leisure Group from 2009 to 2017. Chair of the Nominations Committee and member of the
Group Audit and Remuneration Committees.
In 2009, Mr Kelaher became the Managing Director of the IOOF Group after its merger with Australian
Wealth Management Limited (AWM), a company he had led since 2006. Prior to AWM, Mr Kelaher
was the CEO of Select Managed Funds Limited for nine years, a private company which was brought
to market in 2005 and in turn ultimately merged with AWM in 2006. In the following periods, he has
been instrumental in executing multiple mergers and acquisitions that have added materially to
the IOOF Group and its antecedent businesses. Mr Kelaher has extensive capital markets experience
from his time during the late 1980s with Citicorp where he oversaw the establishment of Citicorp
Investment Management and Global Asset Management businesses in Australia and New Zealand.
Member of the Nominations Committee.
Ms Harvey has more than 30 years’ experience in the financial and advisory services industry. Prior
positions include as a Partner at PricewaterhouseCoopers, a Director of David Jones Limited from
2012 to 2014, a Director of UGL Limited from 2015 to 2017, and as a Director of DUET Finance Limited,
a stapled entity within the ASX Listed DUET Group from 2013 to 2017. Ms Harvey is currently a Director
of BUPA A&NZ and Dulux Group Ltd. Ms Harvey is the Chair of the IOOF Group Audit Committee and
member of the Nominations Committee. Member of the Risk and Compliance Committee until 28
August 2017. Member of APRA Regulated Entity Audit Committee until 13 February 2018.
More than 30 years’ experience with a deep understanding of the financial services industry. Mr
Griffiths has held a number of executive positions within the industry most notably as Chief Executive
Officer Aviva Australia and later, Managing Director South Asia, Aviva Asia Pte Ltd based in Singapore.
Prior to joining Aviva Mr Griffiths held executive positions with Colonial Ltd and Norwich Union. Mr
Griffiths is Chairman of the Westpac/BT Insurance Boards and the Chairman of Metrics Credit Partners.
Member of the Risk and Compliance Committee until 28 August 2017. Chair of the Remuneration
Committee and member of the Group Audit Committee. Member of the Nominations Committee
from 13 February 2018.
Ms Flynn has more than 30 years’ experience in the financial services industry, including roles within
law and corporate governance as well as executive responsibilities. From 1998 to 2010, Ms Flynn was
the Chief Legal Counsel, Group Compliance Manager and Group Company Secretary of financial
services group Aviva Australia, and a director of Aviva Australia’s superannuation trustee company.
Prior to her time at Aviva, Ms Flynn spent 18 years as a commercial lawyer with Minter Ellison,
including eight years as a Partner, specialising in managed funds, banking and securitisation and
superannuation. Ms Flynn was a non-executive director of Bennelong Funds Management from 2010
to 2015 and is a non-executive director of AIA Australia Limited. Chair of the Risk and Compliance
Committee and member of Remuneration and APRA Regulated Entity Audit Committees.
Mr Selak has over 40 years’ experience in the financial and advisory services industry. From 2000 to
2016 Mr Selak was a Partner in the Corporate Finance Practice of Ernst & Young serving on their Global
Corporate Finance Executive. From 2014 to 2017 Mr Selak was an advisory board member of Quest
Apartment Hotels. Mr Selak is currently Chairman of Corsair Capital, a non-executive director of National
Tiles and Turosi Food Solutions. Chair of APRA Regulated Entity Audit Committee and member of Group
Audit Committee. Member of Risk and Compliance Committee from 28 August 2017.
All Directors held office during and since the end of the financial year, unless otherwise noted.
2626
IOOF annual report 2018 The Remuneration and Nominations Committees review the balance of skills, experience, independence, knowledge and diversity
of Directors. This involves the creation of a board skills matrix setting out the mix of skills and diversity that the Board currently has
or is looking to achieve in its membership.
During the year each Board member completed a skills matrix. The Board was satisfied that the skills matrix results demonstrate
that the Board has the appropriate skills and experience necessary to oversee the operations and governance of the IOOF Group.
The Board Skills Matrix is available as part of our Corporate Governance Statement which is available on the IOOF website.
Principal activities
The principal continuing activities of the IOOF Group during the financial year consisted of:
• financial advice;
• platform management & administration;
•
•
investment management; and
trustee services including estate planning and corporate trust.
Operating and financial review
In accordance with current Australian Accounting Standards, the audited financial results of the benefit funds of IOOF Ltd are included
in the consolidated results of the IOOF Group. The inclusion of the benefit funds has no impact on the profit after tax for the year
(2017: $nil), but results in offsetting pre-tax profit and income tax amounts not available to shareholders.
The following table, which has not been audited, provides a reconciliation between the reported results of the IOOF Group and
underlying net profit after tax pre-amortisation (UNPAT), with the results of the benefit funds excluded. In calculating its UNPAT,
the IOOF Group reverses the impact on profit of certain, predominantly non-cash, items to enable a better understanding of its
operational result. It is the UNPAT result which will be analysed in detail in this section of the Directors’ Report. The items reversed, and
the rationale for that reversal, is also addressed in detail.
Shareholders can review the more detailed results presentation by visiting the Company website at www.ioof.com.au
2727
IOOF annual report 2018 Directors’ report (cont’d)
Operating and financial review (cont’d)
Profit attributable to Owners of the Company
Underlying net profit after tax pre-amortisation (UNPAT) adjustments:
Reverse the impact of:
Amortisation of intangible assets
Acquisition costs – Acquisition advisory
Acquisition costs – Integration preparation
Acquisition costs – Finance costs
Onerous contracts
Termination payments
Profit on divestment of subsidiaries
Profit on divestment of assets
Non-recurring professional fees (recovered)/paid
Impairment of goodwill
Unwind of deferred tax liability recorded on intangible assets
Settlement of legal claims
Other
Acquisition tax provision release
Income tax attributable
UNPAT
UNPAT Adjustments
Amortisation of intangible assets: Non-cash entry reflective
of declining intangible asset values over their useful lives.
Intangible assets are continuously generated within the IOOF
Group, but are only able to be recognised when acquired.
The absence of a corresponding entry for intangible asset
creation results in a conservative one sided decrement to
profit only. It is reversed to ensure the operational result is
not impacted. The reversal of amortisation of intangibles is
routinely employed when performing company valuations.
However, the amortisation of software development costs is
not reversed in this manner.
Acquisition costs - Acquisition advisory: One off payments
to external advisers for corporate transactions, such as the
acquisition of AET Services (AETS) and planned acquisition
of ANZ Wealth Management, which were not reflective of
conventional recurring operations.
Acquisition costs - Integration preparation: Staff and
specialist contractor costs related to integration preparation for
the planned acquisition of ANZ Wealth Management.
Acquisition costs - Finance costs: Costs of securing finance
for the planned acquisition of ANZ Wealth Management.
Onerous contracts: Non cash entry to record the estimated
present value of expected costs of meeting the obligations
2828
Note
2018
$’000
2017
$’000
88,301
115,990
2-3
2-3
2-3
2-3
2-3
2-3
2-2
2-2
2-3
2-3
2-3
2-3
39,400
38,611
5,367
4,973
6,725
2,345
2,128
(143)
(2,643)
(902)
28,339
(10,195)
44,250
1,244
–
(17,772)
191,417
–
–
–
–
4,125
(6,261)
(11,930)
2,013
38,592
(10,056)
–
–
(5,707)
3,980
169,357
under contracts where the costs exceed the economic
benefits expected to be received pursuant to the contracts.
Termination payments: Facilitation of restructuring to
ensure long term efficiency gains which are not reflective of
conventional recurring operations.
Profit on divestment of subsidiaries: The IOOF Group
partially divested a subsidiary during the year. (Prior year:
Perennial Investment Management Ltd and partial divestment
of a subsidiary).
Profit on divestment of assets: Divestments of non-core
businesses, client lists and associates.
Non-recurring professional fees (recovered)/paid:
Recovery of certain litigation related prior year costs via
successful insurance claim. (Prior year: Costs relating to
specialist service and advice providers enlisted to assist the
IOOF Group in better informing key stakeholders. These
services were required following negative media allegations.
In particular, but not limited to, process review, senate
inquiry support, government relations, litigation defence and
communications advice. This type and level of support was not
required on a recurrent basis).
Impairment of goodwill: A non-cash impairment of $28.3m
has been recognised in relation to goodwill allocated to
Perennial Investment Partners Limited (Prior year: $38.6m).
Reduced profitability from lower revenue led to calculated
IOOF annual report 2018 value-in-use declining to below the carrying value of the
aggregate goodwill and investment balances. Revenue decline
has arisen due to institutional outflows. These outflows reflect
below benchmark performance in certain core products and
changing market dynamics, where larger institutions now
weight a greater proportion of funds to indexed products.
Unwind of deferred tax liability recorded on intangible
assets: Acquired intangible asset valuations for AASB 3
Business Combinations accounting are higher than the
required cost base as set under tax consolidation rules
implemented during 2012. A deferred tax liability (DTL) is
required to be recognised as there is an embedded capital
gain should the assets be divested at their accounting values.
This DTL reduces in future years at 30% of the amortisation
applicable to those assets which have different accounting
values and tax cost bases. The recognition of DTL and
subsequent reductions are not reflective of conventional
recurring operations and are regarded as highly unlikely to
be realised due to the IOOF Group’s intention to hold these
assets long term.
Settlement of legal claims: Provision for settlement of
plaintiff claims in certain of the legal proceedings to which
Australian Executor Trustees Limited is party in connection
with its role as debenture trustee of Provident Capital Limited.
Other: Deferred consideration devaluation relating to prior
periods’ divestment of Perennial and other businesses.
Acquisition tax provision release: The acquisition of DKN in
the 2012 financial year necessitated recognition of a provision
related to an uncertain tax position. This was recognised at
estimated fair value, however the provision was released as
it was adjudged that a present obligation no longer existed.
This was a one-off, non-cash, non-operational increment to
the IOOF Group’s statutory profitability.
Income tax attributable: This represents the income tax
applicable to certain adjustment items outlined above.
Review of Strategy
The IOOF Group services the needs of financial advisers and
their clients through appropriately licensed and regulated
entities. The pool of investable funds emanates predominantly
from superannuation which has been supported by Australia’s
mandatory contributions regime since the early 1990s.
Competition for service offerings to superannuants and
investors (fund members) in the Australian market place is
currently drawn from five main fund types with the following
differentiating features:
Retail – privately operated trusts and other schemes. The
majority of funds are channelled to administration services and
investment management products through financial advisers.
However, technological development is enabling an increasing
range of offerings direct to fund members.
Industry Funds – superannuation entities which historically
have provided for employees working in the same union,
industry or group of related industries. Many industry funds
now offer membership to members of the public. Industry
funds generally administer these funds, but may outsource the
management of investments.
Self-Managed – the fund member acts as Trustee for his or
her pool of funds, which may include funds from a limited
number of other family members and associates. These funds
are predominantly utilised where the Trustee perceives they
have the requisite time and expertise to manage their own
investment strategy and a sufficient scale of funds to make the
fixed administration costs economically justifiable.
Corporate – funds established for the benefit of employees
of a particular entity or a group of related entities, with joint
member and employer control.
Public Sector – funds which provide benefits largely for
government employees or employees of statutory authorities,
or are schemes established by a Commonwealth, State
or Territory law.
Self Managed Funds are regulated by the Australian Taxation
Office (ATO) whereas all others above are regulated by the
Australian Prudential Regulation Authority (APRA).
The IOOF Group administers and manages Retail funds.
Australian Superannuation assets totalled $2.6 trillion as at
31 March 2018. Over the 12 months to March 2018 there
was a 6.8% increase in total superannuation assets and retail
providers had a market share of approximately 23%. The IOOF
Group’s market share of that sub-set was 5.5% when measured
by platform management and administration (platform)
segment Funds Under Administration (FUAdmin). There is a
high degree of competition between the five fund types and
fragmentation and competition among the participants within
each fund type.
As published in APRA’s March 2018 Quarterly Superannuation
Performance Statistics, the following were the asset allocation
metrics for funds with greater than four members: 50.8% of
investments were invested in equities; with 22.6% in Australian
listed equities, 24.2% in international listed equities and 4.0%
in unlisted equities; Fixed income and cash investments
accounted for 32.1% of investments; 21.1% in fixed income
and 11.0% in cash; Property and infrastructure accounted for
13.4% of investments and 3.7% were invested in other assets,
including hedge funds and commodities.
2929
IOOF annual report 2018 Directors’ report (cont’d)
Operating and financial review (cont’d)
The IOOF Group operates in the Wealth Management sector.
The sector has a substantial and growing pool of funds
underpinned by government compulsion. The attraction
of the sector is further enhanced by high regulatory and
technological barriers to entry from new competitors. As an
incumbent participant, we seek to grow our Funds Under
Management, Administration, Advice and Supervision
(FUMAS) faster than our competitors. In doing so, the portion
of our revenue net of direct costs (gross margin) which is
levied on asset balances may reasonably be expected to rise
proportionately with FUMAS. This proportionate rise may
be affected by the impact of differentiated product pricing
and competitive pressure on management fee rates. In
conjunction, we seek to leverage a cost base which is largely
fixed relative to the scale of our FUMAS.
The IOOF Group’s future FUMAS growth will be underpinned
by asset revaluation, flows of funds from new and existing
clients and acquisition initiatives. Funds flow will be
advanced through:
•
increasing brand and product awareness to
increase revenue;
• enhancing the adviser and fund client experience through
continued technology development and experienced
knowledgeable support staff;
• operating an open architecture environment which allows
our advisers and clients to utilise the administration service
which best meets their objectives irrespective of whether
it is an IOOF Group proprietary service or a competitor’s
service. All options, however, generate a favourable
economic return for the IOOF Group;
• enhanced training initiatives and leading minimum
qualification standards to give our staff and advisers every
opportunity to optimise the experience of our clients;
• establishing skilled teams and robust analytical processes
to enhance the prospect of achieving above benchmark
performance in investment management; and
• continuous improvement in process efficiency to minimise
operating costs.
The Royal Commission into Misconduct in the Banking,
Superannuation and Financial Services Industry (the Royal
Commission) was established on 14 December 2017 and is
ongoing at the date of this report. There has been speculation
among media commentators, investment analysts and others
that the structure of the industry in which the IOOF Group
operates may be materially changed in a manner which is
potentially disadvantageous to its profitability. The IOOF Group
is not able to determine whether any material changes will
eventuate, nor the form or timing of any potential changes
should they be recommended. The IOOF Group will continue
3030
to closely monitor Royal Commission hearings, relevant
public commentary and any reports by the Commissioner
when they are released. The IOOF Group will also continue to
advocate strongly for a regulatory framework which makes
appropriate financial advice, provided by well capitalised,
reputable, compliant license holders, available to as many
Australians as possible.
The fifth round of public hearings was held in Melbourne
from 6 August to 17 August 2018. This round considered how
RSE Licensees fulfil their duties to members of regulated
superannuation funds and the extent to which structural or
governance arrangements may affect the fulfillment of those
duties. Two witnesses from the IOOF Group were required
to give evidence before the Commission. Shortly after the
conclusion of this round, the IOOF Group will make written
submissions responding to matters raised by the Commission’s
Counsel Assisting.
The IOOF Group has a long-term strategy of pursuing growth
through acquisitions and has completed several acquisitions
in previous years. The IOOF Group will continue to pursue
acquisitions within the Wealth Management sector on
an opportunistic basis. However acquisitions will only be
considered where they present a logical strategic fit with
existing operations and are priced reasonably for the expected
value accretion to shareholders. The funding of acquisitions
will be considered on a case by case basis taking into account
the relative cost of available funding sources and the impact
on balance sheet structure overall.
Acquisitions
On 28 September 2017, the IOOF Group completed its
acquisition of National Australia Trustees Limited and has
since renamed the operating entity AET Services Limited
(AETS). AETS is a significant provider of trustee services with
a recognised history in Western Australia, New South Wales,
Queensland and Victoria. AETS’s offering has proved to be
a strong strategic fit with the IOOF Group’s existing trustee
business, Australian Executor Trustees Limited (AET). The
integration of AETS was completed in the year to 30 June
2018 with expected annualised synergies of approximately:
$2m revenue, primarily via client best interest led transition of
compensation trust funds to IOOF proprietary platforms; and
$3m in cost synergies through scale efficiencies. The impact
of synergy savings in the year to 30 June 2018 is $1.6m
in reduced costs.
On 17 October 2017, the IOOF Group announced an agreement
with Australia and New Zealand Banking Group Limited
(ANZ) to acquire ANZ’s OnePath Pensions and Investments
business and Aligned Dealer Groups (collectively “ANZ Wealth
IOOF annual report 2018 Management”) for a cash consideration of $975m, subject to a
completion adjustment.
On 26 July 2018, the IOOF Group entered into a non-
binding term sheet with ANZ in respect of implementing an
accelerated economic completion of the acquisition of ANZ’s
One Path Pensions and Investments (ANZ P&I) business and full
legal ownership of ANZ’s Aligned Dealer Groups (ADGs).
The IOOF Group and ANZ are negotiating final legally binding
arrangements to give effect to the following agreed outcomes:
• Full legal ownership of ANZ ADGs from 1 October 2018.
• Substantial economic completion of the ANZ P&I business
will also be brought forward to 1 October 2018 through:
– an initial payment by the IOOF Group of
$800m to ANZ; and
– ANZ to pay a return to the IOOF Group equivalent to
82% of the economic interests in the ANZ P&I business
from 1 October 2018.
Final completion of the acquisition of the ANZ P&I business
acquired by the IOOF Group will take place after successful
completion of a successor fund transfer (which separates
the ANZ P&I business products from OnePath Life), which is
expected to occur towards the end of March 2019.
Assuming stable economic conditions more generally, the
accelerated completion date for the ADGs and the proposed
economic completion is expected to deliver Earnings Per Share
broadly in line with forecasts previously disclosed in the initial
announcement of the transaction.
It should also be noted that there is no assurance that any
legally binding arrangement implementing the revised
arrangements described above will be entered into or that any
matter contemplated by the term sheet will be effected.
Analysis of financial results – IOOF Group
The IOOF Group’s UNPAT increased $22.1m or 13% to $191.4m
for the year ended 30 June 2018 relative to $169.4m UNPAT in
the prior year. Variances compare the year to 30 June 2018 with
the year to 30 June 2017 and are denoted as prior year.
Gross margin increased by $9.4m
During the current year, average Funds Under Management,
Administration and Advice (FUMA) were $118.9b, an increase
of 8.6% on prior year. This increase was derived largely from
equity market performance in the current year augmented by
organic growth in advice and platform funds. Financial advice
flows of $4.4b were up 48.3% on prior year. Outside of system
growth and solid performance from aligned adviser groups,
this was principally due to new advisers joining the IOOF
Group under its Consultum license. Platform flows of $1.6b
were up 33.7% on prior year. This segment benefited from
higher levels of flows across the sector, enhanced capture
of funds from other IOOF Group segments, principally
trustee, and better penetration of the IOOF Group’s
existing client base.
The higher level of average funds boosted gross margin
by $42m, but was partly offset by the more rapid growth
in products with lower earning rates or margins (impact of
-$33m on prior year). Within platform, the lower rates for the
current year principally reflected the continuing trend for
a higher proportion of funds to be directed towards more
contemporary platforms with lower fees, but commensurately
lower attributable overheads. Investment management
margins were relatively stable which is reflective of the steady
state maturity and complementary nature of that segment.
In financial advice, new business from incoming advisers was
dilutive on segment margin overall.
Other revenue increased by $3.9m
The IOOF Group’s broking businesses’, (Ord Minnett and
Bridges) contributions were up in comparison to prior year
due to improved equity market conditions for new issues and
traded volumes more broadly.
Operating expenditure decreased by $9.4m
The decrease in operating expenditure excludes the impact of
expenditure items reversed when calculating UNPAT. The most
significant factor was a $7.6m reduction in information
technology costs, which was an initiative first noted in analysis
of the first half of the current year’s results. This reduction was
derived principally from a return to conventional recurring
development spend following the completion of a number of
client experience enhancement initiatives. The IOOF Group has
also benefited from transferring software development from
external consultants to internal employees. Labour represents
the IOOF Group’s most material cost. Labour costs have
increased by $1.9m which includes higher rates of pay and
the transition of development resources noted above.
The rate of increase has been significantly offset by lower staff
numbers overall. This follows the realisation of efficiencies
through platform rationalisation in the first half of prior year.
Administration costs reduced significantly through recovery
of costs previously regarded as unrecoverable and therefore
expensed. Professional fees have decreased largely because
prior year acquisition related legal costs were expensed when
the relevant opportunities were unsuccessful. Occupancy
related expenses increased due to significant reconfiguration
of the property footprint which has resulted in certain one-off
service fees and short term duplication.
3131
IOOF annual report 2018 Directors’ report (cont’d)
Operating and financial review (cont’d)
Net financing costs decreased by $10.1m
Net financing costs reduced as a result of applying
approximately $557m of newly issued capital and surplus
cash to extinguish $207m in borrowings and the residual to
certificates of deposit. This application of funds reflected the
need to eliminate unnecessary debt carrying costs whilst
maintaining a relatively high level of liquidity given the
expectation of paying $800m in purchase consideration to
ANZ on 1 October 2018.
Other impacts decreased UNPAT by $2.6m
Non-controlling interest was $1.5m higher in line with Ord
Minnett’s increased profitability. Share of associates’ profits
declined $1.0m relative to prior year as a result of mandate
outflows within the Perennial Value Management Group (PVM).
Share-based payments expense was $1.4m higher due to the
rebalancing of certain adviser plans to long term incentives.
Partly offsetting these impacts, depreciation and amortisation
were reduced, reflecting an increased proportion of related
assets at the end of their estimated useful lives.
Income tax expense increased by $8.2m
Income tax expense relative to prior year principally reflected
the IOOF Group’s improved profitability. This was partly offset
by increased research and development (R&D) tax offsets and
prior year amendments. There was an $0.4m lower spend
on treasury shares to fulfil employee share plans ($0.1m tax
impact). The impact of this differential is relatively modest,
in line with reasonable stability in the scale and breadth
of plans overall.
Analysis of financial results - Segments
Financial advice
Net operating revenue
Other revenue (incl share of profits of associates)
Operating expenditure
Net financing
Net non-cash items
Income tax expense and non-controlling Interest
Underlying Profit after Tax
2018
$’000
268,457
3,914
(149,538)
715
(4,231)
(41,271)
78,046
2017
$’000
261,808
3,856
(148,755)
560
(3,221)
(37,894)
76,354
Movement
$’000
6,649
58
(783)
155
(1,010)
(3,377)
1,692
%
2.5%
1.5%
(0.5%)
27.7%
(31.4%)
(8.9%)
2.2%
• Average funds’ growth has been particularly strong through the addition of advisers. This has brought new revenue streams into
the IOOF Group, albeit at a dilutive margin as a percentage of average funds.
• Operating expenditure has increased slightly. Costs have followed conventional seasonal trends with lower second halves derived
from first half timing of adviser conferences. These events are largely profit neutral with expenses matched by participant and
sponsor receipts in revenue.
Platform management and administration
Net operating revenue
Other revenue (incl share of profits of associates)
Operating expenditure
Net financing
Net non-cash items
Income tax expense and non-controlling Interest
Underlying Profit after Tax
2018
$’000
2017
$’000
209,972
212,450
75
–
(89,507)
(95,865)
3
(4,446)
(35,091)
81,006
1
(5,380)
(33,939)
77,267
Movement
$’000
(2,478)
75
6,358
2
934
(1,152)
3,739
%
(1.2%)
n/a
6.6%
LARGE
17.4%
(3.4%)
4.8%
• Profitability improved due to more efficient delivery of products and services. Net operating margin, as represented by net
operating revenue less operating expenditure divided by average funds, was stable at 0.32%.
• Gross margin decreased as a result of net funds diminution in high priced legacy and transition platforms, partly offset by high
growth in platforms priced at contemporary competitive fee scales.
• Significantly reduced operating expenditure resulted primarily from reduced staff numbers, technology support and licence costs
following platform rationalisation. In addition, there was higher IT investment in the prior year to facilitate higher levels of on-line
transacting in future years.
3232
IOOF annual report 2018 Investment management
Net operating revenue
Other revenue (incl share of profits of associates)
Operating expenditure
Net financing
Net non-cash items
Income tax expense and non-controlling Interest
Underlying Profit after Tax
2018
$’000
61,880
1,811
(11,376)
–
(621)
(14,993)
36,701
2017
$’000
57,508
2,737
(14,284)
436
(723)
(12,967)
32,707
Movement
$’000
4,372
(926)
2,908
(436)
102
(2,026)
3,994
%
7.6%
(33.8%)
20.4%
n/a
14.1%
(15.6%)
12.2%
• Net operating revenue improved in line with market based growth in average funds flowing largely from improved platform
FUAdmin. Other revenue was affected by PVM performance.
• Decreased operating expenditure resulted from the divestment of Perennial Investment Management Ltd in the prior year.
Trustee services
Net operating revenue
Other revenue (incl share of profits of associates)
Operating expenditure
Net financing
Net non-cash items
Income tax expense and non-controlling Interest
Underlying Profit after Tax
2018
$’000
33,647
–
2017
$’000
28,490
–
(20,193)
(18,341)
–
(633)
(3,861)
8,960
–
(578)
(2,876)
6,695
Movement
$’000
5,157
–
(1,852)
–
(55)
(985)
2,265
%
18.1%
n/a
(10.1%)
n/a
(9.5%)
(34.2%)
33.8%
• Net operating revenue has increased in line with the acquisition of AETS and higher client numbers.
•
Increased operating expenditure followed the acquisition of AETS and was partly offset by synergies extraction from that business.
Financial Position
The IOOF Group held cash and cash equivalents of $121.4m at 30 June 2018 (30 June 2017: $208.2m). Cash is held to satisfy regulatory
net asset requirements and also to ensure adequate liquidity given management fee receipts are less frequent than payroll and service
fee cash outflows.
The overall debt to equity ratio stood at 0% at 30 June 2018 (30 June 2017: 13%) following the issue of new capital to fund the planned
ANZ Wealth Management acquisition and subsequent repayment of borrowings.
Cash flow forecasting is conducted monthly, principally to ensure sufficient liquidity for future needs and to monitor adherence to
licence conditions, and stress testing of lending covenants is conducted when assessing funding options for acquisition opportunities.
Risks
The IOOF Group manages a number of risks in conducting its operations and implementing its strategy. An in depth discussion of risks
and sensitivities is outlined in Section 1 of the financial statements. Material risks faced by the IOOF Group include, but may not be
limited to, the following:
(i) Changes in investment markets
The IOOF Group derives a significant proportion of its earnings from fees and charges based on the level of FUMAS. The level of
FUMAS will reflect (in addition to other factors such as the funds flowing into and out of FUMAS) the investment performance
of those funds. Therefore, changes in domestic and/or global investment market conditions could lead to a decline in FUMAS,
adversely impacting the amount the IOOF Group earn in fees and charges. Deterioration in investment market conditions could
also lead to reduced consumer interest in the IOOF Group’s financial products and services. The principal response to this risk has
been to establish comprehensive investment governance committees, policies and procedures which are subject to continuous
monitoring and oversight.
3333
IOOF annual report 2018 Directors’ report (cont’d)
Operating and financial review (cont’d)
(ii) Competition
There is substantial competition for the provision of financial
services in the markets in which the IOOF Group operates.
A variety of market participants in specialised investment
fund management, wealth advice and corporate trustee
services compete vigorously for customer investments and the
provision of wealth management services. These competitive
market conditions may adversely impact earnings and assets.
The IOOF Group manages this risk by continuously investing
in product design, stakeholder relationships and continuous
improvement initiatives.
(iii) Information technology
The IOOF Group relies heavily on information technology.
Therefore, any significant or sustained failure in the IOOF
Group’s core technology systems could have a materially
adverse effect on operations in the short term, which in turn
could undermine longer term confidence and impact the
future profitability and financial position of the IOOF Group.
The IOOF Group has implemented a next-generation firewall,
pursues continuous improvements to protect user devices
and imposes segregation of duties between technology
environments. More broadly, the IOOF Group uses policies and
procedures which are subject to continuous monitoring and
oversight, maintains a significant complement of experienced
staff and employs specialist advisers. Information technology
controls are highly complementary to those employed to
minimise cyber security risks.
(iv) Cyber security
There is a risk of significant failure in the IOOF Group’s
operations and/or material financial loss as a result of cyber
attacks. To manage this risk, the IOOF Group has followed
the recommendation of ASIC and adopted the United
States government’s National Institute of Standards and
Technology cybersecurity framework. In doing so, the IOOF
Group has implemented measures and controls that cover
identification, detection, monitoring and response in relation
to cyber threats. More broadly, the IOOF Group has developed
and tested its disaster recovery capability and procedures,
implemented high availability infrastructure and architectures,
conducted mandatory staff training which is focused on
cyber risk and continually monitor systems for signs of poor
performance, intrusion or interruption. Cyber security controls
are highly complementary to those employed to minimise
information technology risks.
(v) Brands and reputation
The IOOF Group’s capacity to attract and retain financial
advisers, employees, clients and FUMAS depends to a certain
extent upon the brands and reputation of its businesses.
3434
A significant and prolonged decline in key brand value or IOOF
Group reputation could contribute to lower new business
sales, reduced inflows of investment funds and assets, damage
to client strategies and may impact adversely upon the IOOF
Group’s future profitability and financial position. The IOOF
Group actively monitors media and other public domain
commentary on its affairs as well as proactively promoting the
value of its services, products and community initiatives and
building a customer centric culture.
(vi) Provision of investment advice
The IOOF Group’s financial advisers and authorised
representatives provide advice to clients and may be exposed
to litigation if this advice is judged to be incorrect or if the
authorised representative otherwise becomes liable for client
losses. This risk is managed by having high educational,
compliance and training standards for the IOOF Group’s
advisers whilst its potential financial impact is generally
mitigated by taking out appropriate insurance cover.
(vii) Operational risks
Operational risk is the risk arising from the daily functioning
of the IOOF Group’s businesses. The IOOF Group has specific
operational exposures relevant to the industry in which we
operate including exposures in connection with product
disclosure statements, investment management, tax and
financial advice, legal and regulatory compliance, product
commitments, process error, fraud, system failure, failure of
security and physical protection systems and unit pricing
errors. This risk is minimised via policies and procedures which
are subject to continuous monitoring and oversight. The IOOF
Group maintains a significant complement of experienced
staff, builds a positive culture and utilises specialist advisers to
carry out such monitoring.
(viii) Conduct risk
Conduct risk is the risk of failure of the IOOF Group’s
frameworks, product design or practices to prevent
inappropriate, unethical or unlawful conduct (either
by negligence or deliberate actions) on the part of the
IOOF Group’s management, employees, contractors or
representatives. The IOOF Group’s culture of honest and
ethical behaviour is supported by the IOOF Code of Conduct
and its Compliance Manual for Authorised Representatives,
which set out the tenets of professional and personal
conduct with which directors, employees, contractors,
Authorised Representatives, agents and consultants are
required to comply. These include promoting a healthy
and safe environment, protecting private and confidential
information, acting at all times within the law and acting in
the best interests of the IOOF Group, its shareholders, clients
IOOF annual report 2018 and investors. As an additional safeguard, the IOOF Group’s
Whistleblower Policy protects employees from detrimental
action where employees disclose, in good faith and with
reasonable grounds, any unethical, illegal, fraudulent or
undesirable conduct.
the suspension or cancellation of the licence. While it is not
expected to occur, a breach or loss of licences could have a
material adverse effect on business and financial performance.
AFS and RSE licences also require the licence holder to
maintain certain levels of capital.
(ix) Credit risk
Credit risk refers to the risk that a counterparty will fail to
meet its contractual obligations resulting in financial loss
that arises from receivables, loans and other receivables.
The IOOF Group’s counterparties generally do not have an
independent credit rating. The IOOF Group assesses the credit
quality of the debtor taking into account its financial position,
past experience with the debtor, and other available credit
risk information.
(x) Cash flow and interest rate risk
Interest rate risk is the risk to the IOOF Group’s earnings
and capital arising from changes in market interest rates.
The financial instruments held that will be impacted by interest
rate risk consist of cash and cash equivalents, certificates
of deposit, loans, and borrowings. Short and long-term
investment mixes and loans to related entities are influenced
by liquidity policy requirements.
Interest rates (both charged and received) are based on market
rates, and are closely monitored by management. They are
primarily at variable rates of interest, and will expose the IOOF
Group to cash flow interest rate risk. The IOOF Group intends
to apply partial hedge cover to manage its interest rate risk
exposure arising from its expected future borrowings to fund
the ANZ Wealth Management acquisition.
These capital requirements may change from time to time.
Earnings dilution may occur where a higher capital base is
required to be held.
(xiii) Insurance
The IOOF Group holds insurance policies, including errors and
omissions (professional indemnity) and directors’ and officers’
insurance, which are commensurate with industry standards,
and adequate having regard to our business activities.
These policies provide a degree of protection for the IOOF
Group’s assets, liabilities, officers and employees. However, no
assurance can be given that any insurance that the IOOF Group
currently maintains will:
• be available in the future on a commercially
reasonable basis; or
• provide adequate cover against claims made against or by
the IOOF Group, noting that there are some risks that are
uninsurable (e.g. nuclear, chemical or biological incidents)
or risks where the insurance coverage is reduced (e.g.
cyclone, earthquake, flood, fire).
The IOOF Group also faces risks associated with the financial
strength of its insurers to meet indemnity obligations when
called upon which could have an adverse effect on earnings.
If the IOOF Group incurs uninsured losses or liabilities, its
assets, profits and prospects may be adversely affected.
(xi) Liquidity risk
(xiv) Unit pricing errors
Liquidity risk relates to the IOOF Group having insufficient
liquid assets to cover current liabilities and unforeseen
expenses. The IOOF Group manages liquidity risk exposure
by maintaining sufficient liquid assets and an ability to
access a committed line of credit. The liquidity requirements
for licensed entities in the IOOF Group are also regularly
reviewed and carefully monitored in accordance with those
licence requirements.
(xii) Reliance on Australian Financial Services
Licence, Registrable Superannuation Entity and
other licences
In order to provide the majority of its services in Australia, a
number of the IOOF Group’s controlled entities are required to
hold a number of licences, most notably Australian Financial
Services (AFS) or Registrable Superannuation Entity (RSE)
licences. If any of those entities fails to comply with the general
obligations and conditions of its licence, this could result in
Systems failures or errors in unit pricing of investments are
issues affecting the broader funds management industry that
may result in significant financial losses and brand damage to a
number of financial services organisations. A unit pricing error
made by the IOOF Group or its service providers could cause
financial or reputation loss. This risk is minimised via policies,
procedures and contractual enforcement which are subject
to continuous monitoring and oversight. The IOOF Group
maintains a significant complement of experienced staff and
utilises specialist service providers to maintain robust systems
and accurate inputs.
(xv) Dependence on key personnel
The IOOF Group’s performance is dependent on the talents
and efforts of key personnel. The IOOF Group’s continued
ability to compete effectively depends on our capacity to
retain and motivate existing employees as well as attract new
employees. The loss of key executives or advisers could cause
3535
IOOF annual report 2018 Directors’ report (cont’d)
Operating and financial review (cont’d)
material disruption to operations in the short to medium term.
While equity incentives of key personnel align their interests
with the IOOF Group’s future performance, they do not
provide a guarantee of their continued employment. The IOOF
Group utilises succession planning to manage this risk.
(xvi) Dependence on financial advisers
The success of the IOOF Group’s advice and platform business
is highly dependent on the quality of the relationships with
its financial advisers and the quality of their relationships with
their clients. The IOOF Group’s ability to retain productive
advisers is managed by monitoring and, where necessary,
improving service levels, technological capability, suitability
of product offerings and the quality and relevance of
professional training.
(xvii) Acquisitions
Acquisition transactions involve inherent risks, including:
to the extent that such shareholders do not subscribe to
additional equity, or are otherwise not invited to subscribe in
additional equity. This risk will be managed by examination of
relevant factors and circumstances prevailing at that time.
(xix) Regulatory and legislative risk and reform
The financial services sectors in which the IOOF Group
operates are subject to extensive legislation, regulation and
supervision by a number of regulatory bodies in multiple
jurisdictions. The regulatory regimes governing the IOOF
Group’s business activities are complex and subject to change.
The impact of future regulatory and legislative change upon
the IOOF Group cannot be predicted. In addition, if the
amount and complexity of new regulation increases, so too
may the cost of compliance and the risk of non- compliance.
The IOOF Group maintains a significant complement of
experienced staff and holds relationships with specialist
advisers to minimise this risk.
• accurately assessing the value, strengths, weaknesses,
(xx) Royal Commission
contingent and other liabilities and potential profitability
of acquired businesses;
•
integration risks including the risk that integration could
take longer or cost more than expected or that the
anticipated benefits and synergies of the integration may
be less than estimated;
• diversion of management attention from existing business;
• potential loss of key personnel and key clients;
• unanticipated changes in the industry or general economic
conditions that affect the assumptions underlying the
acquisition; and
• decline in the value of, and unanticipated costs, problems
The Royal Commission was established on 14 December 2017
by the Governor-General of the Commonwealth of Australia.
The conduct and activities of the IOOF Group are included
in its terms of reference. The Commissioner is authorised
to submit an interim report no later than 30 September
2018. The final report is due by 1 February 2019. Given those
dates it is unclear at the date of reporting what impact the
Royal Commission will have on the IOOF Group and the
wealth management industry within which it operates.
The IOOF Group has engaged external counsel and retains a
complement of qualified staff to ensure it is able to interact
appropriately with the Royal Commission.
or liabilities associated with, the acquired business.
(xxi) Sustainability risk
A sustainability risk is an uncertain environmental or social
event or condition that, if it occurs, can cause a significant
negative impact on the IOOF Group. The IOOF Group focuses
on the environmental effects of its premises, investment
manager policies and business processes in order to
implement ways to minimise those effects. The IOOF Group
also maintains a number of policies dedicated to diversity,
inclusion and engagement to ensure that its interactions with
clients, staff and other key external parties are conducted in a
compliant manner which also meets community expectations.
Any of these risks could result in a failure to realise the benefits
anticipated to result from any acquisition of new business and
could have a material adverse impact on the IOOF Group’s
financial position. The IOOF Group maintains a significant
complement of experienced staff and holds relationships
with specialist advisers to assess acquisition opportunities.
This is designed to ensure the Board is fully informed of
the risks and opportunities associated with any potential
individual acquisition.
(xviii) Dilution
The IOOF Group’s need to raise additional capital in the future
in order to meet its operating or financing requirements,
including by way of additional borrowings or increases in the
equity of any of the consolidated entity’s companies, may
change over time. Future capital raisings or equity funded
acquisitions may dilute the holdings of particular shareholders
3636
IOOF annual report 2018 Shareholder returns
The IOOF Group dividend is calibrated to provide shareholders with a benefit which reflects performance and offers an attractive yield
when assessed against a range of other external economic factors and investment options. The Board also understands that dividend
payments should not hinder future organisational plans. The Board has therefore determined that a pay-out ratio range of 60% – 90%
of UNPAT is generally appropriate, but not binding. Due to the institutional placement completed by the IOOF Group during the year,
the Board has determined that a stable dividend of 27.0 cents per share, resulting in a payout ratio of 98%, is appropriate to ensure
shareholders are not diluted prior to the completion of the ANZ Wealth Management transaction.
Total Shareholder Return (TSR) measures the change in share value over a specified period together with the return by way of
dividends received. The IOOF Group’s TSR for the 12 months to 30 June 2018 was -2.8% with a dividend yield of 6.0% more than offset
by share price decline of 8.3%. The market valuation of the IOOF Group was reflective of uncertainty over the long term effects of the
Royal Commission on the wealth management industry despite positive movements in global equity markets generally. TSR in the 5
year period from 1 July 2013 was 57.7% in total and 9.5% on a compounding annualised basis. The IOOF Group is in a strong financial
position with no borrowings and significant free cash.
Profit attributable to owners of the Company ($'000s)1
Profit for the year from continuing operations ($'000s)
Basic EPS (cents per share)
Diluted EPS (cents per share)
Basic EPS (continuing operations) (cents per share)
UNPAT ($'000s)
UNPAT EPS (cents per share)
UNPAT EPS (continuing operations) (cents per share)
Dividends declared ($'000s)
Dividends per share (cents per share)
Opening share price
Closing share price at 30 June
Return on equity (non-statutory measure)2
2018
88,301
93,626
26.4
26.4
26.4
2017
115,990
119,851
38.7
38.6
38.7
2016
196,846
140,542
65.7
65.4
46.0
2015
138,371
140,527
47.7
47.4
45.8
2014
101,285
103,378
43.7
43.1
43.7
191,417
169,357
173,367
173,758
123,047
57.3
57.3
56.5
56.5
57.8
57.1
59.9
58.6
53.1
53.1
189,582
159,071
163,573
159,070
127,260
54.0
$9.80
$8.99
11.3%
53.0
$7.83
$9.80
12.1%
54.5
$8.99
$7.83
12.3%
53.0
$8.40
$8.99
13.4%
47.5
$7.36
$8.40
15.0%
1 Profit attributable to owners of the Company has been calculated in accordance with Australian Accounting Standards.
2 Return on equity is calculated by dividing UNPAT by average equity during the year.
Returns to shareholders increase/decrease through both dividends and capital growth/decline. Dividends for 2018 and prior years
were fully franked.
Dividends
In respect of the financial year ended 30 June 2018, the
Directors declared the payment of a final dividend of 27.0 cents
per share franked to 100% at 30% corporate income tax rate
to the holders of fully paid ordinary shares to be paid on 4
September 2018. This dividend will be paid to all shareholders
recorded on the Register of Members on 21 August 2018.
The Directors declared the payment of an interim dividend
of 27.0 cents per share franked to 100% at 30% corporate
income tax rate to the holders of fully paid ordinary shares paid
on 14 March 2018.
In respect of the financial year ended 30 June 2017, a final
dividend of 27.0 cents per share franked to 100% at 30%
corporate income tax rate was paid to the holders of fully paid
ordinary shares on 1 September 2017.
Environmental regulation
The IOOF Group is not subject to significant
environmental regulation.
3737
IOOF annual report 2018 Events occurring after balance date
The Directors have declared the payment of a final dividend
of 27.0 cents per ordinary share franked to 100% based on tax
paid at 30%, to be paid on 4 September 2018.
On 7 August 2018, the IOOF Group announced, in accordance
with its continuous disclosure obligations, that it’s wholly-
owned subsidiary, Australian Executor Trustees Limited
(AET), agreed settlements in relation to certain of the legal
proceedings to which AET is party in connection with its role
as debenture trustee of Provident Capital Limited (Provident
and the Provident Proceedings).
AET entered into a settlement deed with Mr Creighton and
has now finalised and will shortly execute the terms of a
settlement deed with Mr and Mrs Smith, the representative
plaintiffs in the two proceedings brought against AET in
relation to Provident. Those settlements, when finalised, are
expected to result in full and final settlement, without any
admission as to liability, of all claims (including as to legal costs)
made against AET as part of the Provident Proceedings. These
settlements remain subject to approval by the Supreme Court
of New South Wales.
As a result, and subject to Court approval of the settlements
with Mr and Mrs Smith and Mr Creighton, the amount AET
is expected to be obliged to pay to the plaintiffs and group
members in the Provident Proceedings is $44.3m.
AET also agreed settlements with PwC and HLB Mann Judd
in respect of the cross-claims brought by AET against those
parties as part of the Provident Proceedings, which relate to
their role as auditors of Provident.
Subject to Court approval, these settlements are expected to
resolve all aspects of the Provident Proceedings other than
AET’s and the IOOF Group’s cross-claims against their insurers
and insurance broker.
The IOOF Group and AET will continue to vigorously pursue
their claims against their insurers and insurance broker to
judgment (if a satisfactory settlement cannot be achieved
prior). In pursuing those claims, AET and the IOOF Group are
seeking to recover from those parties up to the whole of
the amount that they are obliged to pay the plaintiffs and
group members in the Provident Proceedings (less amounts
recovered through the settlements with PwC and HLB Mann
Judd), together with their costs of those Proceedings.
The IOOF Group will continue to keep the market informed
in relation to the outcome of the Provident Proceedings and
any settlement discussions in accordance with its continuous
disclosure obligations.
The settlements with the representative plaintiffs amount to
$44.3m and have been provided for in the year ended 30 June
2018 as an adjusting event given the Provident Proceedings
were active throughout that financial year.
The Directors are not aware of any other matter or
circumstance not otherwise dealt with in this report, or the
accompanying financial statements and notes thereto, that has
arisen since 30 June 2018 that has significantly affected, or may
significantly affect:
•
•
•
the IOOF Group’s operations in future financial years; or
the results of those operations in future financial years; or
the IOOF Group’s state of affairs in future financial years.
Lead auditor’s independence declaration
The lead auditor’s independence declaration is included on
page 60 of the annual financial report and forms part of the
Directors’ Report for the year ended 30 June 2018.
Company secretary
The Company Secretary is Mr A Paul M Vine LLB FGIA FCIS
GAICD. Mr Vine was appointed to the position in December
2015, with over 25 years’ experience in legal and governance
roles in public companies and leading law firms.
3838
IOOF annual report 2018Directors’ report (cont’d) Directors’ meetings
The number of Directors’ meetings (including meetings of committees of Directors) and number of meetings attended by each of the
Directors of the Company during the financial year are:
Director
Directors Meetings
Director
Remuneration Meetings
Status
Meetings
attended
Meetings
held
G Venardos
Chair
C Kelaher
J Harvey
A Griffiths
E Flynn1
J Selak
Managing
Director
Director
Director
Director
Director
19
17
19
19
18
19
19
19
19
19
19
19
1 Ms Flynn did not attend a meeting in order to manage a conflict of interest.
Status
Chair
Member
Member
A Griffiths
G Venardos
E Flynn
C Kelaher
In attendance
J Harvey
J Selak
In attendance
In attendance
Meetings
attended
Meetings
held
4
4
4
2
1
2
4
4
4
2
1
2
Director
Nominations Meetings
Director
Risk and Compliance Meetings2
Status
Meetings
attended
Meetings
held
G Venardos
Chair
C Kelaher
J Harvey
A Griffiths
Member
Member
Member from
February 2018
E Flynn
In attendance
3
2
3
2
2
3
3
3
2
2
E Flynn
J Selak
J Harvey
A Griffiths
Status
Chair
Member from
August 2017
Member until
August 2017
Member until
August 2017
G Venardos
In attendance
Meetings
attended
Meetings
held
6
4
6
6
6
6
4
6
6
6
2
These Committees include additional members who are not Directors of
IOOF Holdings Ltd but are Directors of APRA regulated subsidiaries.
Director
Group Audit Meetings
Director
APRA Regulated Entity Audit Meetings2
Status
Chair
Member
Member
Member
In attendance
J Harvey
G Venardos
A Griffiths
J Selak
E Flynn
Meetings
attended
Meetings
held
8
8
8
8
3
8
8
8
8
3
J Selak
E Flynn
J Harvey
Status
Chair
Member
Member until
February 2018
G Venardos
In attendance
A Griffiths
In attendance
Meetings
attended
Meetings
held
6
6
6
6
2
6
6
6
6
2
Meetings held represents the number of meetings held during the time the Director held office.
The Directors meetings are those held for IOOF Holdings Ltd. This does not include the meetings held and attended by Directors for
the various subsidiary companies. Major subsidiaries averaged a further 8 meetings each during the year.
In addition to the meetings attended during the year, a number of matters were considered and addressed separately via
circular resolution.
Shares issued on exercise of options
During the financial year, the IOOF Group did not issue any
ordinary shares of the Company as a result of the exercise of
options. All plans were satisfied from the purchase of shares.
Unexercised options over shares,
performance rights and deferred shares
At the date of this report unexercised options over shares of the
Company under deferral arrangements and performance rights are:
3939
IOOF annual report 2018 Performance rights
Vesting date
30 Jun 19
31 Dec 19
30 Jun 20
Deferred shares
Vesting date
31 Jul 18
31 Jul 19
31 Jul 20
Number
of rights
299,567
30,000
293,391
622,958
Number
of rights
35,420
93,746
93,746
222,912
The ‘look back’ relating to deferred shares that were due
to vest on 31 Jul 18 has been postponed. Refer to the
Remuneration Report for further details.
Shares allocated on vesting will rank equally with all other
ordinary shares on issue.
These performance rights do not entitle the holder
to participate in any share issue or receive dividends
of the Company.
Indemnification and insurance
Rule 84 of the IOOF Holdings Ltd Constitution requires the
Company to indemnify to the extent permitted by law, each
Director and Secretary against liability incurred in, or arising
out of the conduct of the business of the Company or the
discharge of the duties of the Director or Secretary. The
Directors and Secretary named in this Directors’ Report have
the benefit of this requirement, as do individuals who formerly
held one of those positions.
In accordance with this requirement the Company has entered
into Deeds of Access, Indemnity and Insurance (Deeds of
Indemnity) with each Director and Secretary. During the
financial year, the IOOF Group paid insurance premiums to
insure against amounts that the IOOF Group may be liable
to pay the Directors and Secretary pursuant to Rule 84. The
insurance policy also insures the Directors and Secretary of
the Company and its controlled entities, and the general
officers of each of the companies in the IOOF Group. Details of
the amount of the premium paid in respect of the insurance
contract have not been disclosed as such disclosure is
prohibited under the terms of the contract.
The liabilities insured are legal costs that may be incurred in
defending civil or criminal proceedings that may be brought
against the officers in their capacity as officers of entities
4040
in the IOOF Group and any other payments arising from
liabilities incurred by the officers in connection with such
proceedings, other than where such liabilities arise out of
conduct involving a wilful breach of duty by the officers or the
improper use by the officers of their position or of information
to gain advantage to themselves or someone else or to cause
detriment to the Company.
Rounding off of amounts
The Company is a company of the kind referred to in ASIC
Corporations Instrument 2016/191, dated 24 March 2016, and
in accordance with that Instrument amounts in the financial
report are rounded off to the nearest thousand dollars,
narrative disclosures are expressed in whole dollars or as
otherwise indicated.
Non-audit services
The Directors are satisfied that the provision of non-audit
services during the year of $811,195, by the auditor is
compatible with the general standard of independence for
auditors imposed by the Corporations Act 2001. Non-audit
services are managed as follows:
•
fees earned from non-audit work undertaken by KPMG are
capped at 1.0 times the total audit fee;
• all non-audit services have been reviewed and approved to
ensure that they do not impact the integrity and objectivity
of the auditor; and
• none of the services undermine the general principles
relating to auditor independence as set out in the Code
of Conduct APES 110 Code of Ethics for Professional
Accountants issued by the Accounting Professional &
Ethical Standards Board, including reviewing or auditing the
auditor’s own work, acting in a management or decision-
making capacity for the IOOF Group, acting as advocate
for the IOOF Group or jointly sharing economic risks
and rewards.
Proceedings on behalf of the Company
No person has applied to the Court under section 237 of the
Corporations Act 2001 for leave to bring proceedings on behalf
of the Company, or to intervene in any proceedings to which
the Company is a party, for the purpose of taking responsibility
on behalf of the Company for all or part of those proceedings.
No proceedings have been brought or intervened in on behalf
of the Company with leave of the Court under section 237 of
the Corporations Act 2001.
IOOF annual report 2018Directors’ report (cont’d) Letter from Remuneration Committee Chair
Executive Summary
1. Overview
1.1 Key Management Personnel
1.2 Summary - Key Management Personnel remuneration
1.3 Summary - Non-Executive Directors remuneration
2. Remuneration Framework
2.1 Objectives
2.2 Remuneration governance
2.3 Committee members
2.4 How remuneration is determined
2.5 Services from consultants
2.6 Consequences of performance on shareholder wealth
3. Managing Director Remuneration
3.1 Summary of Managing Director remuneration outcomes for 2018
3.2 Managing Director remuneration
3.2.1 Short term incentive: targets and outcomes
3.2.2 Long term incentive: targets and outcomes
3.3 Change of control and cessation of employment
3.4 Remuneration for the year ended 30 June 2019
4. Key Management Personnel remuneration
4.1 Key Management Personnel remuneration
4.1.1 Short term incentive: targets and outcomes
4.1.2 Long term incentive: targets and outcomes
5. Remuneration tables
5.1 Deferred shares and performance rights over equity instruments granted as compensation during 2018
5.2 Summary of Key Management Personnel deferred shares and performance rights holdings
5.3 Performance rights granted since the end of the financial year
6. Summary of Key Management Personnel Contracts
7. Shareholdings of Key Management Personnel
8. Non-Executive Directors’ Remuneration
8.1 Overview
8.2 Terms of appointment
8.3 Shareholdings of Non-Executive Directors
9. Payments to persons before taking office
42
43
44
44
44
46
47
47
47
47
47
49
49
50
50
50
51
52
53
53
54
54
54
54
55
55
56
57
58
58
59
59
59
60
60
The information in this report is in accordance with AASB 124 Related Party Disclosures and section 300A of the Corporations Act 2001,
and has been audited as required by Section 308(3C) of the Corporations Act 2001 unless otherwise stated.
4141
IOOF annual report 2018
Remuneration report
Dear Shareholders
I am pleased to present our Remuneration Report for the year
ended 30 June 2018 and explain some changes we have made,
and propose to make, to our remuneration framework.
The IOOF Group’s goal is to continue to ensure that our
remuneration framework and outcomes drive the right
behaviours whilst motivating, rewarding and retaining our key
people across the business. The Board has sought and listened
to feedback on our remuneration approach from various
stakeholders, as well as considered the spotlight placed on
remuneration and culture by the Royal Commission, APRA’s
views on executive remuneration and the proposed revised
ASX Corporate Governance Principles and Recommendations.
Remuneration approach for the year ended
30 June 2018
Recognising the matters and concerns raised by our various
stakeholders, balanced with our desire to fairly remunerate
our key people, the Remuneration Committee sought various
input and carried out benchmarking exercises. Our review
concluded that the following changes were appropriate for the
year ended 30 June 2018:
•
Increase to executive total fixed remuneration (TFR)
in line with our overall staff approach. Noting that the
TFR of our executives remains below the median of the
comparator group.
• Maximum short-term incentive (STI) opportunity for
executives and the Managing Director (MD) will be capped
at 100% of TFR, subject to the achievement of performance
measures tied to our business plan.
• From the year ended 30 June 2018 onwards, 50% of any
STI payable to the MD and executives will be delivered
in deferred shares, which will vest over the two years
following completion of the performance period. A ‘look
back’ approach will apply to these deferred shares.
• Maximum long-term incentive (LTI) opportunity for the
MD and executives will be set at 100% of TFR. For the
MD, the entire award will be subject to a relative total
shareholder return (TSR) metric. The Return on Equity (RoE)
gateway included in the year ended 30 June 2018 will
no longer apply.
• For executives other than the MD, we have resolved to
retain both a relative TSR metric (50%) and a tenure based
element for the other 50%. We strongly believe that
this tenure based LTI element, which we have used for
some years, assists us to attract and retain quality people
and aligns future performance with our shareholders’
expectations. Executive LTI will continue to have a three-
year vesting period, however shares vesting from the
tenure-based rights (applicable to executives other than
42
the MD) will have a holding lock applied for a further 12
months. In consideration for that further holding lock, the
TSR based element will be retested at the end of year four if
some or all of the rights do not vest at the end of the three-
year vesting period.
• We have for the last two years used governance key
performance indicators for all staff and this year we
are strengthening the links between risk and how it is
factored into the remuneration framework and outcomes.
For example, a gateway will be added to the STI which
requires certain governance behaviours to be maintained
in order for any vesting to occur under the STI. We are
also further clarifying the roles played by, and interaction
between, the Remuneration Committee and the Risk and
Compliance Committee. The Remuneration Committee will
receive regular updates from the Chief Risk Officer on risk
matters relevant to remuneration.
Performance for the year ended 30 June 2018
The year ended 30 June 2018 was a very solid year for the IOOF
Group, with accelerating growth across our businesses, net
inflows, prudent cost management, an increased Underlying
Net Profit After Tax and a maintained dividend.
Whilst we are confident in the IOOF Group’s strategy and
that we are well placed for future growth, we have taken
the external events of this year, the resulting impacts and
our current share price into account in consideration of
remuneration outcomes for the year. Those considerations are
reflected in the body of this Report.
Remuneration approach for the year ended
30 June 2019
In the year ended 30 June 2019, we will continue to review our
framework to ensure that it supports our direction, culture,
behaviours and expectations of our various internal and
external stakeholders.
Yours sincerely
Allan Griffiths
Remuneration Committee Chair
IOOF annual report 2018 Executive Summary
This report details the remuneration framework and outcomes for Key Management Personnel (KMP) of the IOOF Group for the year
ended 30 June 2018. The Board of Directors (Board) is committed to a remuneration strategy that aligns remuneration practices with
the creation of shareholder value. The IOOF Group’s policies remain aligned with its business strategy and focus. The key underlying
principles of the IOOF Group’s remuneration policy remain largely unchanged from last year, with key changes outlined in the letter
from the Remuneration Committee Chair.
This report aims to communicate our remuneration practices in a clear, concise and transparent way and demonstrate how
these practices:
• align to strategic objectives and the creation of shareholder value;
• are sufficient to attract, motivate and retain an ambitious and highly talented executive team; and
• support an appropriate governance culture to minimise risks to clients and shareholders.
The IOOF Group’s TSR performance over the three years to 30 June 2018 was 11.8%, placing it at the 37th percentile relative to the ASX
200. RoE for the year to 30 June 2018 was 11.3%. The impact of these outcomes on the Managing Director and other executive KMP
Long Term Incentives is detailed at sections 3.2.2 and 4.1.2 below.
43
IOOF annual report 2018 1. Overview
1.1 Key Management Personnel
This report covers the IOOF Group’s KMP. KMP are the people who have the authority and responsibility for planning, directing and
controlling the activities of the IOOF Group:
Name
Position
Managing Director
Mr C Kelaher
Managing Director
Other Executive KMP
Mr D Coulter
Mr R Mota
Mr G Riordan
Mr D Farmer
Chief Financial Officer
Group General Manager – Wealth Management
Group General Counsel
Chief Investment Officer
Term as KMP
Full year
Full year
Full year
Full year
Full year
The Non-Executive Directors of the IOOF Group are also required to be disclosed as part of this report and are listed below:
Non-Executive Directors
Mr G Venardos
Ms J Harvey
Mr A Griffiths
Ms E Flynn
Mr J Selak
Independent Non-Executive Director & Chair
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
1.2 Summary - Key Management Personnel remuneration
Full year
Full year
Full year
Full year
Full year
The IOOF Group uses a total remuneration package approach in determining remuneration that comprises both “fixed” and “at
risk” components. These components reflect an employee’s contribution to the IOOF Group, their skills and qualifications, market
benchmarks and the remuneration environment.
The remuneration arrangements for KMP comprise three key components:
• a base package which is a fixed amount and is reviewed on an annual basis with consideration given to cost of living increases
(CPI), market movements or changes in the scope of the individual’s role and responsibilities;
• a Short Term Incentive (STI) amount which is tied to the successful achievement of a set of performance scorecard objectives
(including financial, business excellence, strategic and governance objectives) for the annual performance period. STI awards are
considered “at risk” components of an individual’s remuneration and, for STI awards over $100,000, the total STI is awarded as cash
and share-based arrangements; and
• a Long Term Incentive (LTI) which is intended to provide incentives to KMP to remain with the IOOF Group to enhance the
sustainable performance of the IOOF Group over the long term. LTI awards are considered “at risk” components of an individual’s
remuneration and are all share-based arrangements.
44
IOOF annual report 2018Remuneration report (cont’d) The following table sets out the remuneration received by the Managing Director and other executive KMP for the year ended
30 June 2018 and the prior year to 30 June 2017. The share-based payments shown below are not amounts actually received by KMP
during the year, as they include accounting values for unvested share awards. Actual share-based payment amounts received are
shown as cash remuneration. Further details are disclosed in sections 2 to 7 below.
Element of
Remuneration
Short-term benefits
Share-
based payments3
Post
employ-
ment
benefits
Salary
Bonus –
cash1
Non-
monetary2
Super-
annu-
ation
Perform-
ance
Rights
Bonus –
deferred
shares
Total
Cash
remun-
eration4
Remuneration
components as
a % of total
remuneration
Fixed
$
At risk
$
Fixed
$
Fixed
$
At risk
$
At risk
$
$
$
Fixed
%
At risk5
%
Component of
Remuneration
Managing Director
C Kelaher
2018 1,236,286
314,302
19,145
20,049
893,487
314,302 2,797,571 2,932,026
2017
1,211,363
697,765
5,898
19,616
753,256
348,882
3,036,780
2,886,590
Other Executive KMP
D Coulter
R Mota
G Riordan
D Farmer
2018
2017
2018
2017
2018
2017
2018
439,951
225,000
420,384
300,000
499,951
225,000
480,384
350,000
7,249
4,904
5,363
9,218
20,049
169,039
225,000 1,086,288
982,025
19,616
130,138
–
875,042
810,747
20,049
169,039
225,000 1,144,402 1,092,025
19,616
130,138
–
989,356
870,747
455,911
142,841
–
20,049
144,710
142,841
906,352
837,984
447,048
140,000
311,451
116,025
1,961
4,026
19,616
20,049
130,138
–
738,763
777,411
29,584
116,025
597,160
396,500
Executive KMP – Former
S Merlicek6
2017
406,948
63,645
4,904
17,352
18,495
–
511,344
649,300
Total
2018 2,943,550 1,023,168
35,783
100,245
1,405,859 1,023,168 6,531,773 6,240,560
2017
2,966,127
1,551,410
26,885
95,816
1,162,165
348,882
6,151,285
5,994,795
46
41
43
51
46
51
53
63
56
84
54
59
57
49
54
49
47
37
44
16
1
2
3
4
5
6
The bonus reflects amounts provided under the STI program in relation to the financial year. One half of the bonuses awarded to the Managing Director and other
executive KMP are paid in cash and one half are deferred into shares, of which 50% will vest in July 2019 and 50% in July 2020 subject to a ‘look back’. The deferred
shares component of the STI are included as a share-based payment in this table. The expected payment value of the bonuses is the amount shown and includes
any amounts that may be sacrificed into superannuation.
Non-monetary benefits include company funded benefits and fringe benefits tax payable on those benefits, typically car parking.
Share-based payments include accruals in relation to the Executive Performance Share Plan and accruals in relation to other grants of performance rights over shares
in the Company. The value of the number of shares and options expected to vest has been apportioned over the term from grant date to vesting date. STIs awarded
in deferred shares are also shown here.
This non-statutory disclosure provides shareholders with a view of the cash and other benefits received by KMP. Cash remuneration includes all remuneration paid
during the financial year, including STIs for previous financial years. Shares received by the KMP during the year are also included at the closing share price on the date
the shares were allocated less any consideration paid.
As payment of the at-risk component is at the discretion of the Board, the minimum value is nil and the maximum is the total amount paid.
S Merlicek ceased employment with the IOOF Group on 3 July 2017 and received a termination payment of $160,077. Performance rights that were due to vest in 2018
and future financial years lapsed.
45
IOOF annual report 2018 1.3 Summary - Non-Executive Directors remuneration
The total fees paid to the Chair and the Non-Executive Directors have been determined within the total amount for Non-Executive
Directors as approved by shareholders.
G Venardos
J Harvey
A Griffiths
E Flynn
J Selak2
Former Non-Executive Directors
R Sexton3
Total
Short-term
benefits
Directors
fees1
$
Non-
monetary
$
2018
2017
2018
2017
2018
2017
2018
2017
2018
2017
2017
2018
2017
264,951
221,800
155,251
155,297
155,251
155,924
155,251
155,297
155,251
111,064
105,379
885,955
904,761
–
–
–
–
–
–
–
–
–
–
2,980
–
2,980
Post-em
ployment
benefits
Superan-
nuation
$
20,049
17,692
14,749
14,753
14,749
14,126
14,749
14,753
14,749
10,551
8,722
79,045
80,597
Total
$
285,000
239,492
170,000
170,050
170,000
170,050
170,000
170,050
170,000
121,615
117,081
965,000
988,338
1 Directors’ fees includes any fees sacrificed into superannuation funds.
Mr J Selak was appointed as a Non-Executive Director effective 14 October 2016.
Non-Executive Directors appointed after 13 April 2003 are not entitled to retirement benefits. Non-Executive Directors appointed prior to this date accrued retirement
benefits. Where entitled, the provision was based on the average emoluments of Non-Executive Directors over the previous three years’ of service. The benefit
accrued after three years of service and varied according to the number of years of service, reaching twice the average annual emoluments after 10 years of service.
R Sexton was paid $475,000 on his retirement on 24 November 2016. This amount was accrued at 30 June 2016 and relates to Director appointment pre 13 April 2003.
2
3
46
IOOF annual report 2018Remuneration report (cont’d) 2. Remuneration Framework
2.3 Committee Members
2.1 Objectives
The Board is committed to a remuneration strategy that aligns
remuneration practices with the creation of shareholder
value. To realise this objective, the Board is committed to
remuneration practices which align to the IOOF Group’s
strategic objectives, are sufficient to attract, motivate and
retain an ambitious and highly motivated executive team and
promote an appropriate governance culture in line with the
IOOF Group’s risk appetite.
2.2 Remuneration governance
The Board oversees the IOOF Group’s remuneration policies
on recommendation from the Remuneration Committee.
The Board and the Remuneration Committee review the
remuneration policies of the IOOF Group annually to ensure
that they support the IOOF Group’s objectives.
The IOOF Group’s Remuneration Framework, established by
the Remuneration Committee, considers the adequacy of
remuneration policies and practices within the IOOF Group on
an annual basis, including:
• determination of Managing Director and other executive
remuneration arrangements;
• ensuring that succession planning and development plans
are in place for KMP and their potential successors;
• on-going review and monitoring of short-term and long-
term incentive schemes;
• setting key performance indicators and assessment of the
Managing Director’s and the IOOF Group’s performance
against those key performance indicators;
• overall compensation arrangements of the IOOF Group;
The Committee is comprised solely of Non-Executive
Directors, all of whom are independent. The members of the
Remuneration Committee for the year ended 30 June 2018
were Mr Allan Griffiths (Chair), Mr George Venardos and Ms
Elizabeth Flynn.
The Board considers that the members of the Remuneration
Committee provide an appropriate mix of skills to undertake
its terms of reference, having regard to their qualifications,
knowledge of the financial services industry and experience in
business management.
In order to ensure that it is fully informed when making
remuneration decisions, the Remuneration Committee
receives regular reports and updates from the Company
Secretary and the Group General Manager, People and
Culture and other members of management invited by
the Remuneration Committee to attend meetings when
appropriate. The Remuneration Committee can also draw on
services from a range of external sources, including access
to benchmarking material and remuneration consultants.
This enables the IOOF Group to remain competitive with
relevant competitors in the financial services sector and the
broader spectrum of public companies of similar size, revenue
and profitability.
2.4 How remuneration is determined
Executive remuneration comprises a number of components
including total fixed remuneration (TFR), STIs (partially in
deferred shares) and LTIs in the form of performance rights
over ordinary shares. LTIs are subject to appropriate, pre-
determined performance hurdles. Each of these forms of
remuneration are described in detail below.
• ensuring remuneration policies are appropriate to Non-
Total Fixed Remuneration (TFR)
Executive Directors;
• ongoing review of the composition, skill base and
performance of Non-Executive Directors; and
• compliance with regulatory requirements including the ASX
Listing Rules and the associated ASX Corporate Governance
Principles and meeting both ASIC and APRA requirements.
The Remuneration Committee reviews and makes
recommendations to the Board on the remuneration structure
and policies applicable to the KMP and Non-Executive
Directors of the IOOF Group, as well as the wider IOOF
employee population.
The Remuneration Committee’s charter is available on the
Corporate Governance page of the Company’s website at
www.ioof.com.au
TFR includes a combination of base salary, employer
superannuation contributions and other fringe benefits
that an individual employee could choose to salary
sacrifice (e.g. superannuation, motor vehicle). TFR is based on
what is appropriate to the position taking into consideration
expertise, responsibility, knowledge, experience and
market competitiveness.
Short Term Incentive (STI)
The STI opportunity is one half cash-based, one half deferred
share-based incentive, forming part of each KMP’s total
remuneration package, the value of which is tied to the
successful achievement of a set of performance objectives,
as outlined below. For both the Managing Director and other
executive KMP, the maximum STI is up to 100% of TFR.
47
IOOF annual report 2018 Objectives are drawn from the following categories:
• Customer
Performance measures include Net Promoter Score (NPS)
and Wealth Insights.
• Financial
Performance measures include Underlying Profit After Tax
(UNPAT), TSR and RoE.
• Business excellence
Performance measures for the year ended 30 June 2018
included operational targets such as long-term structural
reductions to the cost base of the IOOF Group, balance
sheet and liquidity initiatives and improvements to the
performance of business units.
• Strategy
Measurable progress towards achieving longer term
strategic goals. This includes, but is not limited to,
implementation of major platform consolidation, regulatory
adherence, growth through acquisition (including the
planned ANZ Wealth Management transaction), divestment
of non-core assets and product rationalisation initiatives.
• Governance
Risk management, regulatory and IOOF Group compliance
and ensuring that outcomes from internal and external
audits are actioned.
• People and culture
Action plans from employee Engagement and Alignment
survey, improvement in that survey and developing
leadership capability.
Long Term Incentive (LTI)
The Board considers a long-term performance-related
incentive component to be an important element of the
executive reward framework. The IOOF Group utilises equity
based incentives in the form of deferred shares (for STIs) and
performance rights. These LTIs are currently subject to the
achievement of a gateway qualifying condition (Managing
Director only), which will be removed for future years,
minimum service periods and appropriate performance
hurdles. The LTI element of the Managing Director’s
remuneration is described in detail in section 3 of this report.
Early vesting may occur in certain circumstances, subject to the
performance hurdle being achieved and Board approval:
• on a person/entity acquiring more than 20% of the voting
shares in the Company pursuant to a takeover bid that has
become unconditional;
• on the termination of employee due to death or
permanent disability; or
48
•
in other exceptional circumstances where the Board
determines appropriate.
The performance hurdle for current LTI plans has been linked
to IOOF Group TSR compared to S&P ASX200 companies at the
date of grant. TSR represents the change in the value of a share
plus the value of dividends paid. TSR was chosen as the most
appropriate comparative measure as it focuses on the delivery
of shareholder value and is a well understood and tested
metric of performance. The tenure based element, which has
been used for some years for other executive KMP, assists the
IOOF Group to attract and retain quality people and aligns
future performance with shareholders’ expectations.
The Remuneration Committee engaged the services
of an independent external organisation (Deloitte) to
calculate the IOOF Group’s performance against the TSR
performance hurdles.
Deferral arrangements
The Board has implemented deferral arrangements and ‘look
back’ provisions on a portion of the STI (deferred shares) for
the Managing Director and other executive KMP. The deferral
element of the Managing Director’s remuneration is described
in detail in Section 3.2 of this report.
‘Look back’ events:
• an executive engages or has engaged in fraud, dishonesty
or gross misconduct;
•
•
•
the financial results that led to the executive’s STI
reward being provided are subsequently shown to be
materially misstated;
the executive behaves or has behaved in a manner which
brings the IOOF Group into disrepute; or
the Board determines, in its absolute discretion, that the
executive’s STI reward is an inappropriate benefit.
Hedging of unvested securities
The IOOF Group Policy - Personal Trading in IOOF Holdings
Limited Securities contains a restriction on KMP and other
employees entering into a hedging transaction to remove
the “at risk” aspect of securities that have been granted
to them as part of their remuneration package and which
have not vested subject to performance conditions and/or
which are still subject to forfeiture conditions. Employees are
provided with a copy of this policy and are required to provide
annual certification that they have complied with the policy.
Failure to comply with the policy may result in disciplinary
action, including forfeiture of the securities, suspension or
termination of employment.
IOOF annual report 2018Remuneration report (cont’d) 2.5 Services from consultants
The Remuneration Committee seeks and considers advice from independent, external remuneration consultants where appropriate.
Godfrey Remuneration Group Pty Ltd was engaged during the year to perform a benchmarking exercise for senior executive
remuneration at a cost of $23,000. A number of recommendations were implemented which are highlighted in the letter from the
Remuneration Committee Chair on page 42.
2.6 Consequences of performance on shareholder wealth
In considering the IOOF Group’s performance and benefits for shareholder wealth, the Remuneration Committee has regard to the
following indices in respect of the current financial year and the previous four financial years.
Profit attributable to owners of the Company
($'000s)
UNPAT ($'000s)1
UNPAT EPS (cents per share)
Basic EPS (cents per share)
Basic EPS (continuing operations) (cents per share)
Share price at start of year
Share price at end of year
Change in share price
Dividends per share (cents per share)
Return on equity (non-statutory measure)2
Total STIs paid to key management personnel
($'000s)
2018
2017
2016
2015
2014
88,301
115,990
196,846
138,371
101,285
191,417
169,357
173,367
173,758
123,047
57.3
26.4
26.4
9.80
8.99
(0.81)
54.0
11.3%
2,046
56.5
38.7
38.7
7.83
9.80
1.97
53.0
12.1%
1,900
57.8
65.7
46.0
8.99
7.83
(1.16)
54.5
12.3%
1,813
59.9
47.7
45.8
8.40
8.99
0.59
53.0
13.4%
1,573
53.1
43.7
43.7
7.36
8.40
1.04
47.5
15.0%
1,681
1 UNPAT is reconciled to profit attributable to owners of the Company in the Operating and Financial Review at page 28 of the Directors’ Report.
2 RoE is calculated by dividing UNPAT by average capital on issue during the year.
Underlying Profit & STI Payments
$m
200
180
160
140
120
100
80
60
40
20
0
T
A
P
N
U
2014
2015
2016
2017
2018
UNPAT
Aggregate KMP Bonuses
$’000s
2,500
2,000
1,500
1,000
500
0
t
n
u
o
m
A
I
T
S
STI payments awarded to KMP are commensurate to the IOOF Group’s levels of profitability and scale of operations. As is consistent
with the IOOF Group’s adherence to effective cost management, STI levels from 2014 to 2018 recognise KPIs specific to individuals
rather than being solely determined by profitability.
49
IOOF annual report 2018
3. Managing Director Remuneration
3.2 Managing Director remuneration
3.1 Summary of Managing Director
remuneration outcomes for 2018
Performance outcomes for the Managing Director for the year
ended 30 June 2018 were as follows:
•
•
•
the maximum opportunity for STI in 2018 was 100% of base
salary. For the reasons noted in section 3.2.1, the assessment
resulted in awarding 50% of the Managing Director’s base
salary. One half of this payment was paid in cash $314,302
and one half in 36,632 deferred shares;
the Board performed a ‘look back’ for the 35,420 deferred
shares awarded in August 2017 and determined that
this ‘look back’ should be postponed, as noted in
section 3.2; and
the performance rights awarded in 2016 were subject
to performance testing for the year ended 30 June
2018. The IOOF Group’s TSR of 11.8% over the three year
performance period placed it at the 37th percentile relative
to the ASX 200 as a comparator group. This percentile
ranking means that none of the 75,000 performance rights
awarded to Mr Kelaher have vested.
During the year ended 30 June 2018, Mr Kelaher received
a remuneration package comprising TFR of $1,257,208.
Mr Kelaher was entitled to a total STI opportunity of up to a
maximum of $1,257,208 (100% of TFR) based on achievement
of superior performance against set targets determined
by the Board on recommendation from the Remuneration
Committee, as outlined in section 3.2.1. In August 2018 the
Board assessed Mr Kelaher’s performance at 85% against
those targets. The Board took into account the external events
that arose during the year and the share price performance
and determined it appropriate to exercise its discretion
to reduce the STI payable to $628,604, being 50% of the
eligible opportunity.
The STI opportunity was settled one half by cash and one half
in the form of deferred shares. The number of deferred shares
granted to Mr Kelaher was determined on the basis of the STI
deferral amount divided by the five day Volume Weighted
Average Price up to and including the trading day prior to
the date of the allocation, which was $8.58. The number of
deferred shares to be issued accordingly was 36,632 (capped at
75,000 annually) and there is no consideration payable for the
grant of the deferred shares. Half of those shares are subject
to ‘look back’ in July 2019 and the other half in July 2020.
This means that the Board will conduct a review of Mr Kelaher
and the IOOF Group’s performance in July 2019 and July 2020
and assess whether any of the ‘look back’ events detailed in
section 2.4 have occured and whether it is still appropriate to
award the deferred shares.
In August 2018, the Board performed a ‘look back’ review in
regards to the 35,420 deferred shares issued in August 2017.
For the reasons noted above in relation to the STI award, the
Board resolved that this consideration should be postponed
until the outcome of those external events are known.
50
IOOF annual report 2018Remuneration report (cont’d) 3.2.1 Short term incentive: targets and outcomes
The key areas of focus for the Managing Director’s STI targets/objectives for the 2018 performance period are shown below.
The targets/objectives which were set for the year ended 30 June 2018 included both objective and subjective measures. The Board
assessed each of the Managing Director’s targets and resolved that the Managing Director had performed exceptionally well against
these measures, with an assessment at 85% of the total opportunity. For the reasons noted above, the Board resolved to award an STI
amount of $628,604.
Measures
Weighting Outcome
KPI
Clients
Accretive
acquisitions
• Maintain or improve NPS results
10%
• Progress viable Merger &
Acquisition options
• Execute ANZ Wealth
Management transaction
20%
Financial
performance
• Drive organic growth, improve net
flows, maintain operating leverage
30%
IOOF digital
footprint
•
Improve online visibility and presence,
rigorously assess potential digital
investments
5%
Technology
• Forward-looking Information
10%
Communication Technology strategy.
Deliver platform strategy and maintain
secure network
People & Culture
• Progress ClientFirst approach in
15%
Operations
Improve engagement and risk culture.
•
Governance
• Continue progress with APRA
10%
initiatives
Influence public and regulatory policy
•
Wealth Insights ranking maintained, ‘Adviser willing
to recommend’ score increased. In March 2018,
IOOF was the top retail superannuation fund for
satisfaction with financial performance (Roy Morgan).
Demonstrated acquisition and integration capability.
AET Services Limited acquisition fully integrated
by July 2018. ANZ Wealth Management acquisition
agreed and progressing.
Platform net flows and UNPAT improved. Net
operating margin steady. Operating expenditure/
costs reduced. Cost to income ratio improved.
Performance of product suites remain strong in peer
group.
IOOF Pursuit transaction usage up. ClientFirst
converting traditional paper based transactions into
straight through processing. “Investment Central”
website provides a significant enhancement to the
way advisers educate and advise. Strategic stake in
GROW Super.
Infrastructure approach improved. Cloud strategy
progressed. Performance of business systems and
services meeting or exceeding agreed SLAs. Platform
consolidation accelerated to enable integration
of ANZ Wealth Management. Cyber security and
increased education improvements delivered.
Approximately 90% of operations people
transitioned to ClientFirst approach. Alignment &
Engagement Survey shows improvement from 2016,
including governance culture. Leadership capability
growing.
Fuller stakeholder management plan, APRA review
items actioned, ATO reporting implemented.
Maintained strong record of resolution of any
remediation issues.
51
IOOF annual report 2018 3.2.2 Long term incentive: targets and outcomes
The Managing Director is eligible for an LTI award, with the amount to be determined each year by the Board. The LTI amount is paid
via performance rights, up to this year subject to a gateway qualifying condition and TSR hurdle.
Performance rights - gateway condition
Notwithstanding the gateway qualifying condition and TSR hurdle, the awarding of performance rights or similar remuneration
bonuses remains at the discretion of the Board.
For consideration to be given to the awarding of any performance rights to the Managing Director that were granted for the
year ended 30 June 2018 and prior, the IOOF Group must achieve a minimum RoE of 1.5 times the Long Term Bond Rate (10 year
bond yield) (LTBR). Only when this gateway condition is met, is consideration given to the TSR hurdle and the potential vesting of
performance rights. That is, if less than 1.5 times the LTBR is achieved, no performance rights are eligible to vest. If 1.5 and up to
2.0 times the LTBR is achieved, 50% of the performance rights are eligible to vest. If 2.0 to up to 2.5 times is met, then 75% of the
performance rights will be eligible to vest and 100% will be eligible to vest if 2.5 times (or above) the LTBR is achieved. The RoE
gateway condition was developed by the Board to ensure that an LTI is not paid in a period of low or negative performance.
RoE is calculated by dividing UNPAT by average equity on issue during the year. Summary of RoE performance against the LTBR over
the past 5 years is outlined below:
IOOF RoE v LTBR
Performance rights eligible to be tested
against hurdles
Performance rights - 2018 series performance hurdle
2018
4.4 x
100%
2017
4.5 x
100%
2016
3.8 x
100%
2015
3.9 x
100%
2014
4.0 x
100%
As noted above, only once the gateway qualifying condition is satisfied, will the performance hurdle be assessed.
The performance hurdle relates to the IOOF Group’s TSR over a three year period from 1 July 2017 to 30 June 2020 measured
against the TSR of a group of companies comprising the S&P ASX 200 as at 1 July 2017. The performance rights are subject to a
TSR hurdle whereby the IOOF Group’s TSR must be greater than the median TSR of S&P/ASX200. The TSR hurdle has progressive
vesting on a straight line basis, such that 2% of LTI awards vest for each 1% ranking increase from 50th percentile. All vest if 75th
percentile is achieved.
As approved at the Annual General Meeting on 23 November 2017, Mr Kelaher is entitled to participate in an LTI program offering
a maximum reward opportunity of 122,500 performance rights in respect of the 1 July 2017 to 30 June 2020 performance period.
The number of rights submitted to the AGM for approval was determined on 1 August 2017 by the Remuneration Committee based
on the face value of the shares, up to a maximum of 100% of the Managing Directors base salary. On that date, the face value of IOOF
shares was $10.04, hence 122,500 performance rights were granted for a total maximum value of $1,231,350 (100% of total base salary).
A summary of the current performance rights on issue to Mr Kelaher is as follows:
Grant
date
Performance
period
23 Nov 17
2018-2020
Rights
eligible
to vest
122,500
Vesting
date
30 Jun 20
24 Nov 16
2017-2019
120,000
30 Jun 19
26 Nov 15
2016-2018
75,000
30 Jun 18
Year
Performance Hurdle
TSR greater than median TSR of the S&P/ASX200
(progressive vesting)
TSR greater than median TSR of the S&P/ASX200
(progressive vesting)
TSR greater than median TSR of the S&P/ASX200
(progressive vesting) (0% satisfied)
2018
2017
2016
52
IOOF annual report 2018Remuneration report (cont’d) 2016-2018 performance results (2016 series
performance rights)
3.4 Remuneration for the year ended
30 June 2019
The IOOF Group’s TSR performance over the period was
11.8% placing it at the 37th percentile relative to the
ASX 200. This resulted in none of 75,000 performance
rights vesting in July 2018.
2019 Series Approval to be sought at the November
2018 Annual General Meeting - Managing Director
Approval will be sought at the 28 November 2018 Annual
General Meeting for the issue of 140,785 performance rights.
The gateway qualifying condition will be removed, with the
performance hurdles to remain the same as those selected
for the 2018 grant. 100% of the performance rights granted to
the Managing Director will be subject to a relative TSR metric.
Following feedback from various stakeholders and its own
assessment, the Remuneration Committee considers that
the RoE hurdle is no longer necessary or meeting a required
need as a gateway. The performance period will be from
1 July 2018 to 30 June 2021, with vesting to occur on 1 July
2021. The number of rights was determined on 17 August
2018 by the Board based on the face value of the shares,
up to a maximum of 100% of the Managing Director’s base
salary. On that date, the face value of IOOF shares was $8.93,
hence 140,785 performance rights were recommended for
granting, for a total maximum value of $1,257,208 (100% of
total base salary).
3.3 Change of control and cessation of
employment
The Board has determined that, if there is a change of control,
any unvested LTIs may vest subject to the approval of the
Board. If the Board so determines, any unvested performance
rights may become exercisable. On cessation of employment,
unvested LTIs will be dealt with as follows:
Reason for
termination
Treatment of unvested LTIs
Termination of
employment
by IOOF by
notice
The Board has discretion to waive the
performance hurdles or determine that the
proportion (if any) of unvested LTIs that will
vest
Termination of
employment
by IOOF for
cause
Resignation by
Mr Kelaher
Dismissal
for serious
misconduct
(eg fraud)
Unvested performance rights and share
options are forfeited
The Board has discretion to waive the
performance hurdles or determine that the
proportion (if any) of unvested LTIs that will
vest
Unvested performance rights and share
options are forfeited
The Board, on the recommendation of the Remuneration
Committee, has increased the Managing Director’s total
fixed annual remuneration to $1,288,638 for the financial year
commencing 1 July 2018.
STI terms will be the same as for the year ended 30 June 2018,
with an opportunity of up to 100% of total fixed remuneration,
with specific performance hurdles relating to: the continuing
growth of the business, product development, achievement
of management efficiencies, succession planning, profitability,
compliance, risk management and corporate governance.
The STI governance gateway and deferral arrangements
remain unchanged with one half of the STI award to be paid
in cash shortly after the performance assessment has been
completed at year end, and one half will be used to purchase
Company shares which will be released in July 2020 and July
2021 after ‘look back’ reviews.
53
IOOF annual report 2018 4. Key Management Personnel Remuneration
4.1 Key Management Personnel remuneration
The remuneration of other executive KMP is determined by the Managing Director, recommended by the Remuneration Committee
and approved by the Board. Details of the total value of fixed, STI and LTI for each other executive KMP is provided in section 1
of this report.
4.1.1 Short term incentive: targets and outcomes
At the end of the year, their targets were assessed by the Managing Director and considered and approved by both the Remuneration
Committee and the Board. The outcome of each assessment is set out below:
TFR
STI
opportunity
STI
awarded
Awarded in
cash
Awarded
in deferred
shares
% awarded
in year
% forfeited
in year
$
$
$
$
$
Other Executive KMP
D Coulter
R Mota
G Riordan
D Farmer
460,000
520,000
476,139
331,500
460,000
520,000
476,139
331,500
450,000
450,000
285,682
232,050
225,000
225,000
142,841
116,025
225,000
225,000
142,841
116,025
98%
87%
60%
70%
2%
13%
40%
30%
50% of STIs payable to the other executive KMP were delivered in deferred shares, which will vest over two years. The ‘look back’
policy summarised in section 2.4 applies to these deferred shares.
4.1.2 Long term incentive: targets and outcomes
A summary of the current performance rights on issue to other executive KMP is as shown below. Vesting of performance rights
is subject to serving a three year employment period commencing on the date of grant. 50% of the grant is then subject to a TSR
progressive vesting scale. TSR was chosen as the most appropriate comparative measure as it focuses on the delivery of shareholder
value and is a well understood and tested metric of performance This scale is the same as applies to the Managing Director as
outlined in section 3.2.2 of this report.
In July 2018, the other executive KMP each had nil of 7,500 performance rights vest under this TSR measure and 7,500 rights vested
on the basis of fulfilling a three year service period obligation. The aggregated vested performance rights for other executive
KMP was 22,500.
Performance
period
Grant date
IOOF TSR for the period
%
Ranking
relative to
ASX200
Vesting
status at
30 Jun 2018
2019-2021
2018-2020
2017-2019
2016-2018
17 Aug 18
21 Aug 17
10 Jul 16
02 Jul 15
Performance period not complete
Performance period not complete
Performance period not complete
11.8%
37th
0% vested
Vesting
date
30 Jun 21
30 Jun 20
30 Jun 19
30 Jun 18
Year
2019
2018
2017
2016
54
IOOF annual report 2018Remuneration report (cont’d)
5. Remuneration tables
5.1 Deferred shares and performance rights over equity instruments granted as compensation
during 2018
Details of deferred shares and performance rights over ordinary shares in the Company that were granted as compensation to each
Executive during the reporting year are as follows:
Name
Type of instrument
Number
granted
Grant
date
Vesting
date
Instrument
fair value
Vested
during 2018
Managing Director
C Kelaher
LTI performance rights
122,500
23-Nov-17
30-Jun-20
STI deferred shares
STI deferred shares
Other Executive KMP
D Coulter
LTI performance rights
STI deferred shares
STI deferred shares
R Mota
LTI performance rights
STI deferred shares
STI deferred shares
G Riordan
LTI performance rights
D Farmer
STI deferred shares
STI deferred shares
STI deferred shares
STI deferred shares
18,316
18,316
30,000
13,112
13,112
30,000
13,112
13,112
20,000
8,324
8,324
6,761
6,761
30-Jun-18
30-Jun-18
01-Jul-20
01-Jul-19
01-Sep-17
30-Jun-18
30-Jun-18
01-Sep-17
30-Jun-18
30-Jun-18
01-Sep-17
30-Jun-18
30-Jun-18
30-Jun-18
30-Jun-18
30-Jun-20
01-Jul-20
01-Jul-19
30-Jun-20
01-Jul-20
01-Jul-19
30-Jun-20
01-Jul-20
01-Jul-19
01-Jul-20
01-Jul-19
$6.61
$8.58
$8.58
$8.32
$8.58
$8.58
$8.32
$8.58
$8.58
$8.32
$8.58
$8.58
$8.58
$8.58
–
–
–
–
–
–
–
–
–
–
–
–
–
–
In addition to a continuing employment service condition, the ability to exercise the performance rights is conditional on the IOOF
Group achieving certain performance hurdles. Details of the performance criteria are included in the performance rights hurdles at
sections 3 and 4 of the Remuneration Report.
The following series performance hurdles were tested during the financial year:
Name
Type of instrument
Managing Director
C Kelaher
Other Executive KMP
D Coulter
R Mota
G Riordan
2016 deferred shares2
2016 rights3
2016 rights3
2016 rights3
2016 rights3
% vested
in year
% forfeited
in year1
0.0%
0.0%
0.0%
0.0%
0.0%
0.0%
100.0%
100.0%
100.0%
100.0%
1
2
The percentage forfeited in the year represents the reduction from the maximum number of options or performance rights available to vest due to performance
criteria not being achieved.
In August 2018, the Board performed a ‘look back’ review in regards to the 35,420 deferred shares issued in August 2017. The Board resolved that this consideration
should be postponed.
3 These performance rights are subject to a TSR hurdle. Refer section 2.4 for further details.
55
IOOF annual report 2018 5.2 Summary of Key Management Personnel deferred shares and performance rights holdings
There have been no alterations to the terms of share-based payment transactions during the current or the prior reporting years.
Details on deferred ordinary shares and performance rights in the Company that were granted as compensation to each key
management person during the reporting year and details on the vesting profiles of each are as follows:
Name
Type of
instrument
Grant
date
Number
granted1
Balance
as at
1 Jul 17
Granted
as
compen-
sation
Exercised Forfeited/
Lapsed
Balance
as at
30 Jun 18
Deferred
shares
vested
during
the year
Financial
years in
which
grant
vests/
vested
Managing Director
C Kelaher 2018 rights
23-Nov-17
122,500
–
122,500
2017 rights
24-Nov-16
120,000
120,000
2016 rights
26-Nov-15
2015 rights
25-Nov-14
30-Jun-18
75,000
75,000
18,316
75,000
49,500
–
–
–
–
–
18,316
18,316
30-Jun-18
18,316
30-Jun-17
35,420
35,420
30-Jun-16
41,895
41,895
2018 deferred
shares2
2018 deferred
shares2
2017 deferred
shares
2016 deferred
shares
Other Executive KMP
D Coulter 2018 deferred
30-Jun-18
13,112
shares3
2018 deferred
shares3
30-Jun-18
13,112
2018 rights
1-Sep-17
2017 rights
9-Sep-16
2016 rights
2-Jul-15
2015 rights
18-Jul-14
30-Jun-18
30,000
30,000
15,000
25,000
13,112
30-Jun-18
13,112
R Mota
2018 deferred
shares4
2018 deferred
shares4
2018 rights
1-Sep-17
2017 rights
9-Sep-16
2016 rights
2-Jul-15
2015 rights
18-Jul-14
G Riordan 2018 deferred
30-Jun-18
30,000
30,000
15,000
25,000
8,324
shares5
2018 deferred
shares5
30-Jun-18
8,324
2018 rights
1-Sep-17
2017 rights
9-Sep-16
2016 rights
2-Jul-15
2015 rights
18-Jul-14
20,000
30,000
15,000
25,000
56
–
–
–
30,000
15,000
20,750
–
–
–
30,000
15,000
20,750
–
–
–
30,000
15,000
20,750
–
–
122,500
120,000
–
–
–
(49,500)
–
–
–
(41,895)
–
–
–
–
–
(20,750)
–
–
–
–
–
(20,750)
–
–
–
–
–
(75,000)
–
–
–
–
–
–
–
–
–
(15,000)
–
–
–
–
–
(15,000)
–
–
–
–
–
(15,000)
(20,750)
–
–
–
18,316
18,316
35,420
–
13,112
13,112
30,000
30,000
–
–
13,112
13,112
30,000
30,000
–
–
8,324
8,324
20,000
30,000
–
–
–
–
–
–
–
–
–
–
–
–
2020
2019
2018
2017
2021
2020
2019
2018
2021
2020
2020
2019
2018
2017
2021
2020
2020
2019
2018
2017
2021
2020
2020
2019
2018
2017
–
–
13,112
13,112
30,000
–
–
–
13,112
13,112
30,000
–
–
–
8,324
8,324
20,000
–
–
–
IOOF annual report 2018Remuneration report (cont’d) Name
Type of
instrument
Grant
date
Number
granted1
Balance
as at
1 Jul 17
Granted
as
compen-
sation
Exercised Forfeited/
Lapsed
Balance
as at
30 Jun 18
Deferred
shares
vested
during
the year
Financial
years in
which
grant
vests/
vested
D Farmer
2018 deferred
shares6
2018 deferred
shares6
30-Jun-18
6,761
30-Jun-18
6,761
–
–
6,761
6,761
2017 rights
1-Mar-17
15,000
15,000
–
–
–
–
–
–
–
6,761
6,761
15,000
–
–
2021
2020
2020
1 Exercise price at grant date is $nil.
2
3
4
5
6
In August 2018, Mr Kelaher was awarded an STI amount of $628,604 for the 2018 financial year of which one half was settled in the form of deferred shares. The
number of deferred shares issued was 36,632 of which half will vest in July 2019 with the remaining half in July 2020 subject to Board ‘look back’ provisions.
In August 2018, Mr Coulter was awarded an STI amount of $450,000 for the 2018 financial year of which one half was settled in the form of deferred shares. The
number of deferred shares issued was 26,224 of which half will vest in July 2019 with the remaining half in July 2020 subject to Board ‘look back’ provisions.
In August 2018, Mr Mota was awarded an STI amount of $450,000 for the 2018 financial year of which one half was settled in the form of deferred shares. The number
of deferred shares issued was 26,224 of which half will vest in July 2019 with the remaining half in July 2020 subject to Board ‘look back’ provisions.
In August 2018, Mr Riordan was awarded an STI amount of $285,682 for the 2018 financial year of which one half was settled in the form of deferred shares. The
number of deferred shares issued was 16,648 of which half will vest in July 2019 with the remaining half in July 2020 subject to Board ‘look back’ provisions.
In August 2018, Mr Farmer was awarded an STI amount of $232,050 for the 2018 financial year of which one half was settled in the form of deferred shares. The number
of deferred shares issued was 13,522 of which half will vest in July 2019 with the remaining half in July 2020 subject to Board ‘look back’ provisions.
5.3 Performance rights granted since the end of the financial year
The Board resolved on 17 August 2018 to offer the following performance rights to Other Executive KMP:
Name
Type of instrument
D Coulter
R Mota
G Riordan
D Farmer
LTI performance rights
LTI performance rights
LTI performance rights
LTI performance rights
Number
granted
Vesting
date
50,000
50,000
30,000
25,000
30-Jun-21
30-Jun-21
30-Jun-21
30-Jun-21
Exercise
price
$
$nil
$nil
$nil
$nil
In addition to continued service to the IOOF Group, the performance hurdle remains unchanged from previous TSR hurdle over three
years as outlined in section 3.2.2.
Rights vesting from the tenure-based hurdle will have a holding lock applied for a further 12 months. In consideration for that further
holding lock, the TSR based element will be retested once only in 2022 if some or all of the rights do not vest in 2021.
57
IOOF annual report 2018 6. Summary of Key Management Personnel Contracts
Details of the employment contracts, as applied during the financial year, are as follows:
Executive
Term
Managing Director
Termination notice period –
IOOF1,2
Termination notice period –
Executive
C Kelaher
Ongoing
12 months
Other Executive KMP
D Coulter
R Mota
G Riordan
D Farmer
Ongoing
Ongoing
Ongoing
Ongoing
6 months
6 months
6 months
6 months
3 months
6 months
6 months
6 months
6 months
A review of contracts for other executive KMP was completed during the year with all termination notice periods extended to
six months. This change ensures consistency and alignment with business strategy, as well as assisting appropriate transition
arrangements where required.
1
Termination provisions - the IOOF Group may elect to make a payment in lieu of part or all of the notice periods, incorporating unpaid leave entitlements and pro-
rated entitlement to STI (if applicable).
2 The Board has discretion regarding treatment of unvested short and long-term incentives.
7. Shareholdings of Key Management Personnel
The relevant interest of KMP in the shares issued by the Company, is as follows:
Ordinary shares
Managing Director
C Kelaher
Other Executive KMP
D Coulter
R Mota
G Riordan
D Farmer
2018
2017
2018
2017
2018
2017
2018
2017
2018
Balance at
1 July
No.
3,443,449
3,305,290
271,293
252,043
103,009
93,009
44,250
25,000
–
Received on vesting
of performance
No.
91,395
113,159
20,750
19,250
20,750
19,250
20,750
19,250
–
Net other
change
No.
Balance at
30 June1
No.
31,537
25,000
3,566,381
3,443,449
1,428
–
(15,644)
(9,250)
–
–
–
293,471
271,293
108,115
103,009
65,000
44,250
–
1 The equity holdings for the above individuals is inclusive of both direct and indirect shareholdings.
58
IOOF annual report 2018Remuneration report (cont’d) 8. Non-Executive Directors’ Remuneration
8.1 Overview
Non-Executive Directors are remunerated for their skilled input, time responsibilities and commitment to the IOOF Group through the
payment of a fixed fee inclusive of superannuation. Non-Executive Directors do not receive additional fees for service on individual
Board Committees or subsidiary companies.
To ensure that independence and impartiality is maintained, fees to Non-Executive Directors are not linked to the performance of the
Company and Non-Executive Directors are not eligible to participate in any of the IOOF Group’s incentive arrangements.
8.2 Terms of appointment
All Non-Executive Directors have letters of appointment detailing the terms under which they are engaged. The term of appointment
for each is open-ended, subject to the provisions of the Corporations Act and the Company’s Constitution. Under the Constitution,
one-third of Directors must retire from office each year and may seek re-election by shareholders at the Annual General Meeting
of the Company.
The Company’s Constitution requires that the aggregate remuneration paid or provided to all Non-Executive Directors in any financial
year by the Company, its subsidiaries and associated entities may not exceed an amount approved by shareholders. This ceiling
amount includes all remuneration provided to Non-Executive Directors, including superannuation but not including retirement
benefits. The current limit of $1,250,000 per annum was approved by shareholders at the 2013 Annual General Meeting and the
remuneration for all Non-Executive Directors remains within the shareholder approved limits.
Elements
Details
Current Board fees
2017/18 Fees per annum were:
IOOF Holdings Board Chair fee
IOOF Holdings Board Non-Executive Director fee
$285,000
$170,000
Post-employment benefits
Superannuation contributions are made at a rate of 9.5% (up to the Government’s rescribed maximum
contributions limit) which satisfies the IOOF Group’s statutory superannuation contributions and are
included in the base fee.
59
IOOF annual report 2018 8.3 Shareholdings of Non-Executive Directors
The relevant interest of each Non-Executive Director in the shares issued by the Company, as notified by the Directors to the ASX in
accordance with s.205G(1) of the Corporations Act 2001 is as follows:
Name
G Venardos
J Harvey
A Griffiths
E Flynn
J Selak
Balance as at
1 Jul 2017
Shares from changes
during the year
Balance as at
30 Jun 2018 1
Balance as at
report sign-off date
51,816
23,578
30,000
20,000
25,000
22,428
6,278
11,428
6,428
30,000
74,244
29,856
41,428
26,428
55,000
91,429
35,256
41,428
26,428
55,000
1
The following shares (included in the holdings above) were held on behalf of the Non-Executive Directors (ie. indirect beneficially held shares) as at 30 June 2018: G
Venardos - 74,244; J Harvey - 29,856; A Griffiths - 41,428; E Flynn - 26,428; and J Selak - 55,000.
9. Payments to persons before taking office
No Director or member of senior management appointed during the year received a payment as part of his or her consideration for
agreeing to hold the position.
This Directors’ report is signed in accordance with a resolution of the Directors made pursuant to s.298(2) of the Corporations Act 2001.
This report is made by a resolution of the Directors:
Mr George Venardos
Chairman
30 August 2018
60
IOOF annual report 2018Remuneration report (cont’d) Directors’ declaration
For the year ended 30 June 2018
1
In the opinion of the Directors of the Company:
a the consolidated financial statements and notes set out on pages 67 to 122, and the Remuneration Report, set out on pages
41 to 60 in the Directors’ Report, are in accordance with the Corporations Act 2001 including:
i giving a true and fair view of the IOOF Group’s financial position as at 30 June 2018 and its performance for the financial year
ended on that date; and
ii complying with Australian Accounting Standards and the Corporations Regulations 2001; and
b there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become
due and payable.
2 The Directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the Managing Director
and Chief Financial Officer for the financial year ended 30 June 2018.
3 The Directors draw attention to section 7-2 to the consolidated financial statements, which includes a statement of compliance
with International Financial Reporting Standards.
Signed in accordance with a resolution of the Directors:
Mr George Venardos
Chairman
30 August 2018
61
IOOF annual report 2018 Independent Auditor’s Report
To the members of IOOF Holdings Ltd
Opinion
We have audited the Financial Report of
IOOF Holdings Ltd (the Company).
In our opinion, the accompanying Financial
Report of the Company is in accordance
with the Corporations Act 2001, including:
•
•
giving a true and fair view of the
Group’s financial position as at 30
June 2017 and of its financial
performance for the year ended on
that date; and
complying with Australian Accounting
Standards and the Corporations
Regulations 2001.
Basis for opinion
The Financial Report comprises:
• Consolidated statement of financial position as at 30
June 2017;
• Consolidated statement of comprehensive income,
Consolidated statement of changes in equity, and
Consolidated statement of cash flows for the year
then ended;
• Notes including a summary of significant accounting
policies; and
• Directors’ Declaration.
The Group consists of the Company and the entities it
controlled at the year-end or from time to time during
the financial year.
We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Our responsibilities under those standards are further described in the Auditor’s responsibilities for
the audit of the Financial Report section of our report.
We are independent of the Group in accordance with the Corporations Act 2001 and the ethical
requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics
for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in
Australia. We have fulfilled our other ethical responsibilities in accordance with the Code.
Key Audit Matters
The Key Audit Matter we identified is:
• Valuation of Goodwill and Intangible
Assets
Key Audit Matters are those matters that, in our
professional judgment, were of most significance in our
audit of the Financial Report of the current period.
These matters were addressed in the context of our
audit of the Financial Report as a whole, and in forming
our opinion thereon, and we do not provide a separate
opinion on these matters.
KPMG, an Australian partnership and a member firm of the KPMG
network of independent member firms affiliated with KPMG
International Cooperative (“KPMG International”), a Swiss entity.
Liability limited by a scheme approved under
Professional Standards Legislation.
31
62
IOOF annual report 201833 KPMG, an Australian partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.Liability limited by a scheme approved under ProfessionalStandards Legislation.Lead Auditor’s Independence Declaration under Section 307C of the Corporations Act 2001 To the Directors of IOOF Holdings Ltd I declare that, to the best of my knowledge and belief, in relation to the audit of IOOF Holdings Ltd for the financial year ended 30 June 2018 there have been: i.no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and ii.no contraventions of any applicable code of professional conduct in relation to the audit. KPM_INI_01 KPMG DM Waters Partner Melbourne 30 August 2018 KPMG Rachel Milum Partner Melbourne 30 August 2018 PAR_SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01
63
IOOF annual report 201863Independent Auditor’s Report To the members of IOOF Holdings Ltd Report on the audit of the Financial Report Opinion We have audited the Financial Report of IOOF Holdings Ltd (the Company). In our opinion, the accompanying Financial Report of the Company is in accordance with the Corporations Act 2001, including: •giving a true and fair view of the Group’s financial position as at 30 June 2018 and of its financial performance for the year ended on that date; and •complying with Australian Accounting Standards and the Corporations Regulations 2001. The Financial Report comprises: •Consolidated statement of financial position as at 30 June 2018; •Consolidated statement of comprehensive income, Consolidated statement of changes in equity, and Consolidated statement of cash flows for the year then ended; •Notes including a summary of significant accounting policies; and •Directors’ Declaration. The Group consists of the Company and the entities it controlled at the year-end or from time to time during the financial year. Basis for opinion We conducted our audit in accordance with Australian Auditing Standards. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the Financial Report section of our report. We are independent of the Group in accordance with the Corporations Act 2001 and the ethical requirements of the Accounting Professional and Ethical Standards Board’s APES 110 Code of Ethics for Professional Accountants (the Code) that are relevant to our audit of the Financial Report in Australia. We have fulfilled our other ethical responsibilities in accordance with the Code. 64
IOOF annual report 201864Key Audit Matters The Key Audit Matter we identified is: •Valuation of Goodwill and Intangible Assets. Key Audit Matters are those matters that, in our professional judgement, were of most significance in our audit of the Financial Report of the current period. These matters were addressed in the context of our audit of the Financial Report as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Valuation of Goodwill and Intangible Assets - $940.2m and $408.3m Refer to Note 4-3 Goodwill and 4-2 Intangible Assets to the Financial Report The key audit matter How the matter was addressed in our audit A key audit matter was whether the Group’s value in use models for goodwill and intangible assets impairment included assumptions that were appropriate having regard to accounting standards. Specific intangible assets we focused on related to customer relationships and brand names. The size of the goodwill and intangible assets relative to the total assets of the Group (being 30.0% and 13.0% respectively) and the level of judgement required by the Group, contributed to this being a key audit matter. The models and forecast assumptions incorporated significant judgement in respect of key factors such as: discount rates, revenue growth, and forecasted funds under management, as well as economic assumptions such as inflation rates. Changes in the underlying assumptions can significantly impact the recoverable amount of the relevant intangible assets and can therefore give rise to impairment. The Group recorded an impairment charge of $28.3m against goodwill. This related to the Perennial Cash Generating Unit (“CGU”) as a result of reduced profitability from lower revenues. Revenue decline has arisen due to institutional outflows. This increased the sensitivity of the model to small changes and further increased our audit effort in this key audit area. Working with our valuation specialists, our procedures included: • Testing of key controls, such as the assessment and approval of internal forecasts, to evaluate the Group’s goodwill and intangible asset valuation process; • We considered the appropriateness of the value in use method applied by the Group to perform the annual test of goodwill and intangibles for impairment against the requirements of the accounting standards. • For goodwill, customer relationships and brand names, we challenged the Group’s key assumptions, in particular those relating to discount rates, revenue growth and forecasted funds under management by analysing historical data and taking into consideration expected future events, and verifying the key market related assumptions to external data, through the following procedures:-We compared relevant data in the models to the latest Board approved forecasts; - We assessed the accuracy of previous Group forecasts to inform our evaluation of forecasts incorporated in the models; - We independently developed a discount rate range considered comparable using publicly available data for comparable entities, adjusted by risk factors specific to the Group’s CGUs and the industry they operate in; - We assessed the integrity of the value in use models used, including the accuracy of the underlying formulas in the calculations; - We considered the sensitivity of the models by varying key assumptions such as revenue growth and discount rates, within a reasonably possible 65
IOOF annual report 201865We involved valuation specialists to supplement our senior audit team members in assessing this key audit matter.range, to identify those CGUs at higher risk of impairment and to further focus our procedures; and - We assessed the key assumptions for consistent application across the Group. • We recalculated the impairment charge from the Perennial CGU model against the recorded amount and reconciled it to the amount disclosed; and • We assessed the disclosures in the financial report using our understanding of the issue obtained from our testing and against the requirements of the accounting standards. Other Information Other Information is financial and non-financial information in IOOF Holding Ltd’s annual reporting which is provided in addition to the Financial Report and the Auditor’s Report. The Directors are responsible for the Other Information. The Other Information we obtained prior to the date of this Auditor’s Report was the Directors’ Report, and the Remuneration Report. The remaining other information is expected to include: About IOOF, Our Major Brands, Chairman and Managing Director’s Commentary, Our Financial Performance, Environmental, Social & Governance Report, IOOF Foundation and Shareholder Information and is expected to be made available to us after the date of the Auditor’s Report. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not and will not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: •preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001; •implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error; and •assessing the Group’s ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group or to cease operations, or have no realistic alternative but to do so. 66
IOOF annual report 201866Auditor’s responsibilities for the audit of the Financial Report Our objective is: •to obtain reasonable assurance about whether the Financial Report as a whole is free from material misstatement, whether due to fraud or error; and •to issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: http://www.auasb.gov.au/auditors_responsibilities/ar1.pdf. This description forms part of our Auditor’s Report. Report on the Remuneration Report Opinion In our opinion, the Remuneration Report of IOOF Holdings Ltd for the year ended 30 June 2018, complies with Section 300A of the Corporations Act 2001. Directors’ responsibilities The Directors of the Company are responsible for the preparation and presentation of the Remuneration Report in accordance with Section 300A of the Corporations Act 2001. Our responsibilities We have audited the Remuneration Report included in pages 41 to 60 of the Directors’ report for the year ended 30 June 2018. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG KPMG DM Waters Partner Melbourne 30 August 2018 Rachel Milum Partner Melbourne 30 August 2018 Consolidated statement of comprehensive income
For the year ended 30 June 2018
Revenue
Expenses
Share of profits of associates accounted for using the equity method
Finance costs
Profit before tax
Income tax expense
Statutory fund
Statutory fund revenue*
Statutory fund expenses*
Income tax (expense)/benefit - statutory*
Statutory fund contribution to profit, net of tax
Profit for the year
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Net change in fair value of available-for-sale financial assets
Exchange differences on translating foreign operations
Income tax on other comprehensive income
Other comprehensive income/(expense) for the year, net of income tax
Total comprehensive income for the year
Profit attributable to:
Owners of the Company
Non-controlling interest
Profit for the year
Total comprehensive income attributable to:
Owners of the Company
Non-controlling interest
Total comprehensive income for the year
Earnings per share:
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
Note
2-2
2-3
2-5
5-4
5-4
5-4
2-7
2-7
2018
$’000
919,141
(780,083)
2,524
(2,103)
139,479
(45,853)
61,798
(44,401)
(17,397)
–
2017
$’000
907,519
(724,745)
3,478
(6,828)
179,424
(59,573)
65,016
(52,124)
(12,892)
–
93,626
119,851
8,185
(89)
(2,444)
5,652
3,770
15
(1,134)
2,651
99,278
122,502
88,301
5,325
93,626
93,953
5,325
99,278
26.4
26.4
115,990
3,861
119,851
118,641
3,861
122,502
38.7
38.6
Notes to the consolidated financial statements are included on pages 72 to 122.
*
A subsidiary of the Company, IOOF Ltd, is a friendly society in accordance with the Life Insurance Act 1995. The funds operated by IOOF Ltd, and any trusts controlled
by those funds, are treated as statutory funds in accordance with the Life Insurance Act 1995. These statutory funds are required to be consolidated in accordance
with accounting standards and are shown separately from shareholder funds in the financial statements.
67
IOOF annual report 2018
Consolidated statement of financial position
For the year ended 30 June 2018
Assets
Cash
Certificates of deposit
Receivables
Other financial assets
Prepayments
Deferred acquisition costs
Associates
Property and equipment
Intangible assets
Goodwill
Assets relating to statutory funds*
Total assets
Liabilities
Payables
Borrowings
Current tax liabilities
Contingent consideration
Provisions
Deferred tax liabilities
Deferred revenue liability
Lease incentives
Liabilities relating to statutory funds*
Total liabilities
Net assets
Equity
Share capital
Reserves
Accumulated losses
Total equity attributable to equity holders of the Company
Non-controlling interest
Total equity
Note
1-1(d)
1-1(d)
1-1(d)
1-1(d)
4-1
4-2
4-3
5-1
1-1(d)
3-2
1-1(d)
4-4
2-5
2018
$’000
121,441
407,443
99,659
55,087
17,307
1,552
24,002
19,339
408,310
940,226
1,036,491
3,130,857
65,139
–
25,615
392
116,335
69,255
1,413
3,530
2017
$’000
208,218
–
108,401
45,430
14,403
1,913
21,081
21,480
441,079
954,867
934,119
2,750,991
60,007
206,948
25,813
1,839
64,639
92,949
1,800
2,429
5-2
1,036,491
934,119
1,318,170
1,390,543
1,812,687
1,360,448
3-3
3-5
1,967,023
1,434,459
19,413
(184,169)
13,349
(97,048)
1,802,267
1,350,760
10,420
9,688
1,812,687
1,360,448
Notes to the consolidated financial statements are included on pages 72 to 122.
*
A subsidiary of the Company, IOOF Ltd, is a friendly society in accordance with the Life Insurance Act 1995. The funds operated by IOOF Ltd, and any trusts controlled
by those funds, are treated as statutory funds in accordance with the Life Insurance Act 1995. These statutory funds are required to be consolidated in accordance
with accounting standards and are shown separately from shareholder funds in the financial statements.
68
IOOF annual report 2018 Consolidated statement of changes in equity
For the year ended 30 June 2018
For the year ended
30 June 2018
Ordinary
shares
Treasury
shares
Reserves
Accu-
mulated
losses
Total
Non-
controlling
interest
Total
equity
$’000
1,438,601
$’000
(4,142)
$’000
13,349
$’000
$’000
$’000
$’000
(97,048)
1,350,760
9,688
1,360,448
Balance at 1 July 2017
Total comprehensive income
for the year
Profit for the year attributable to
owners of the Company
Other comprehensive income for
the year, net of income tax
Total comprehensive income
for the year
Transactions with owners,
recorded directly in equity
Contributions by and (distributions
to) owners
Dividends paid
Share-based payments expense
Issue of shares
Transaction costs of issuing new
shares
Transfer from employee equity-
settled benefits reserve on
exercise of performance rights
Treasury shares transferred to
recipients during the year
Transfer of lapsed performance
rights to retained earnings
Purchase of treasury shares
–
–
–
–
–
539,264
(5,917)
2,093
–
–
–
–
–
–
–
–
(2,393)
2,393
–
–
(223)
223
–
–
Total transactions with owners
533,047
Balance at 30 June 2018
1,971,648
(2,876)
(483)
(4,625)
–
412
Notes to the consolidated financial statements are included on pages 72 to 122.
–
88,301
88,301
5,325
93,626
5,652
–
5,652
–
5,652
5,652
88,301
93,953
5,325
99,278
–
(175,645)
(175,645)
(4,593)
(180,238)
2,728
–
–
(2,093)
–
–
–
–
–
2,728
539,264
(5,917)
–
–
–
–
(2,876)
–
–
–
–
–
–
–
2,728
539,264
(5,917)
–
–
–
(2,876)
(175,422)
357,554
(4,593)
352,961
19,413
(184,169)
1,802,267
10,420
1,812,687
69
IOOF annual report 2018 Consolidated statement of changes in equity
For the year ended 30 June 2018
For the year ended
30 June 2017
Ordinary
shares
Treasury
shares
Reserves
Accu-
mulated
losses
Total
Non-
controlling
interest
Total
equity
$’000
1,439,276
$’000
(2,816)
$’000
11,266
$’000
$’000
$’000
$’000
(57,501)
1,390,225
9,475
1,399,700
Balance at 1 July 2016
Total comprehensive income
for the year
Profit for the year attributable to
owners of the Company
Other comprehensive income for
the year, net of income tax
Total comprehensive income
for the year
Transactions with owners,
recorded directly in equity
Contributions by and (distributions
to) owners
Dividends paid
Share-based payments expense
Operating Risk Financial Reserve
Transfer from employee equity-
settled benefits reserve on
exercise of performance rights
Treasury shares transferred to
recipients during the year
Transfer of lapsed performance
rights to retained earnings
Purchase of treasury shares
–
–
–
–
–
–
1,322
–
–
–
–
–
–
–
–
115,990
115,990
3,861
119,851
2,651
–
2,651
–
2,651
2,651
115,990
118,641
3,861
122,502
–
(155,934)
(155,934)
(3,648)
(159,582)
1,295
(144)
(1,322)
–
–
–
–
1,295
(144)
–
–
–
–
–
–
–
–
–
1,295
(144)
–
–
–
(3,323)
(1,997)
1,997
–
Total transactions with owners
(675)
Balance at 30 June 2017
1,438,601
(568)
(155,537)
(158,106)
(3,648)
(161,754)
13,349
(97,048)
1,350,760
9,688
1,360,448
–
(397)
397
–
–
(3,323)
–
–
(3,323)
(1,326)
(4,142)
Notes to the consolidated financial statements are included on pages 72 to 122.
70
IOOF annual report 2018 Consolidated statement of cash flows
For the year ended 30 June 2018
Note
2018
$’000
2017
$’000
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Dividends from associates
Net stockbroking purchases
Non-recurring professional fees recovered/(paid)
Termination payments
Income taxes paid
Net cash provided by operating activities
Cash flows from investing activities
Dividends and distributions received
Interest received
Acquisition costs - Acquisition advisory
Acquisition costs - Integration preparation
Acquisition costs - Finance costs
Interest and other costs of finance paid
Purchase of certificates of deposit
Proceeds on divestment of subsidiaries
Acquisition of subsidiary, net of cash acquired
Purchase of shares in associates
Proceeds on divestment of other assets
Receipt of deferred purchase consideration
Net (purchases)/sales of financial assets
Payments for property and equipment
Amounts (advanced to)/borrowed from other entities
Payments for intangible assets
Net cash (used in)/provided by investing activities
Cash flows from financing activities
Net borrowings repaid
Purchase of treasury shares
Proceeds from issue of shares
Transaction costs of issuing new shares
Dividends paid:
- members of the Company
- non-controlling members of subsidiary entities
net cash provided by/(used in) financing activities
Net increase in cash and cash equivalents
Cash and cash equivalents at the beginning of year
Cash and cash equivalents divested
Operating Risk Financial Reserve cash requirement
Effects of exchange rate changes on cash and cash equivalents
Cash and cash equivalents at the end of year
Notes to the consolidated financial statements are included on pages 72 to 122.
2-4
958,444
(670,098)
1,753
(142)
902
(2,304)
(72,682)
215,873
1,115
8,051
(5,367)
(4,973)
(6,269)
(2,061)
(407,443)
163
(18,329)
(1,750)
3,967
845
(110)
(9,341)
(114)
(1,289)
(442,905)
(207,424)
(2,876)
539,264
(8,452)
(175,645)
(4,593)
140,274
(86,758)
208,218
–
–
(19)
967,166
(725,564)
3,966
(55)
(2,013)
(3,933)
(60,288)
179,279
823
4,313
–
–
–
(6,608)
–
6,261
(1,045)
–
14,814
325
1,015
(7,440)
18
(4,934)
7,542
(212)
(3,323)
–
–
(155,934)
(3,648)
(163,117)
23,704
186,992
(2,350)
(144)
16
121,441
208,218
71
IOOF annual report 2018 Notes to the financial statements
For the year ended 30 June 2018
Section 1 – Financial instruments and risk management
The IOOF Group’s activities expose it to a variety of financial and non-financial risks. Financial risks include: market risks (including
price risk, currency risk and cash flow and interest rate risk), credit risk, statutory fund and liquidity risk. The nature of the financial
risk exposures arising from financial instruments, the objectives, policies and processes for managing these risks, and the methods
used to measure them are detailed below. Key non-financial exposures, such as operational risk and a failure to meet regulatory
compliance obligations, are discussed in detail in the Operating and Financial Review.
1-1 Risk management
IOOF risk management framework
Risk is defined as the chance of an event occurring that will
have an impact on the strategic or business objectives of
the IOOF Group, including a failure to exploit opportunities.
The IOOF Group’s risk management process involves the
identification of material risks, assessment of consequence
and likelihood, implementation of controls to manage
risks, and continuous monitoring and improvement of the
procedures in place.
The IOOF Group’s objective is to satisfactorily manage its risks
in line with the IOOF Group’s Risk Management Policy set by
the Board, and this aligns to International Standard ISO 31000.
The IOOF Group’s Risk Management Framework manages
the risks faced by the IOOF Group, with approaches varying
depending on the nature of the risk. The IOOF Group maintains
a framework to ensure regulatory compliance obligations
are managed in accordance with Australian Standard 3806
Compliance Programs. The IOOF Group’s exposure to all
material risks is monitored by the Risk Team and this exposure,
and emerging risks, are regularly reported to the Risk and
Compliance Committee, and the Board.
The IOOF Group’s income and operating cash flows are
indirectly impacted by changing market conditions. Its
exposure is through the impact of market changes on the
level of funds under management and administration, and
consequently management fee and service fee revenue.
Information has been provided below only on the direct
impact of changing market conditions to the IOOF Group’s
income and operating cash flows.
Financial risk
The financial risk management objectives, policies and
processes and the quantitative data about the exposure to
risk at the reporting date, as set out in the remainder of this
note, excludes the benefit funds and the controlled unit trusts.
This is because the risks associated with financial instruments
held by the benefit funds and controlled trusts are borne
by the policyholders and members of those funds and
72
trusts, and not the shareholders of the IOOF Group. There is
no direct impact on the net profit or the equity of the IOOF
Group as a consequence of changes in markets as they apply
to financial instruments held by those funds and trusts at the
reporting date.
Similarly the objectives, policies and processes for managing
the risks of the IOOF Group are separate and distinct from
those for the benefit funds and trusts. The funds and trusts
are managed under extensive regulatory requirements,
and in accordance with specific investment guidelines, risk
management strategies, risk management plans, and product
disclosure statements. The IOOF Group is managed under
a set of separate corporate policies and review processes
that are directed toward the interests of the shareholders of
the IOOF Group.
Information in relation to financial risks associated with the
benefit funds and controlled trusts is available in their Product
Disclosure Statements and the individual annual financial
reports of those trusts.
Further information in relation to the Australian Accounting
Standards requirement to consolidate the benefit funds and
controlled trusts in the consolidated financial statements of the
IOOF Group is available in Note 7-3(b) Basis of consolidation.
(a) Market risk
(i) Price risk
Price risk is the risk that the fair value or future earnings of
a financial instrument will fluctuate because of changes in
market prices (other than from interest rate risk or currency
risk, as described later). The financial instruments managed
by the IOOF Group that are impacted by price risk consist
of investment units held in trusts and available for sale
financial assets.
The price risk associated with the units held in trusts is that
the fair value of those units will fluctuate with movements in
the redemption value of those units, which in turn is based
on the fair value of the underlying assets held by the trusts.
Available for sale financial assets are exposed to price risk as
the share price fluctuates.
IOOF annual report 2018 IOOF Group sensitivity
(b) Credit risk
At 30 June 2018 had the price of the units / shares held by the
IOOF Group in unlisted unit trusts / shares in other entities
increased / decreased by 1% (2017: 1%) with all other variables
held constant, post-tax profit for the year would increase /
decrease by $6,000 (2017: $5,000) as a result of gains / losses
recorded through profit or loss, and available-for-sale reserves
would increase / decrease by $236,000 (2017: $178,000).
(ii) Currency risk
The IOOF Group’s exposure to foreign exchange risk in relation
to the financial instruments of its foreign activities in New
Zealand and Hong Kong is immaterial.
(iii) Cash flow and interest rate risk
Interest rate risk is the risk to the IOOF Group’s earnings
and capital arising from changes in market interest rates.
The financial instruments held that are impacted by interest
rate risk consist of cash, loans, and borrowings.
Short and long-term investment mixes and loans to related
entities are influenced by liquidity policy requirements. Interest
rates (both charged and received) are based on market rates,
and are closely monitored by management. They are primarily
at variable rates of interest, and expose the IOOF Group to cash
flow interest rate risk.
Management regularly assesses the appropriateness of
the investment of surplus funds with the objective of
maximising returns.
There is limited exposure to fair value interest rate risk because
of the relatively short time frame of any fixed rate investments
and borrowings.
IOOF Group sensitivity
At 30 June 2018, if interest rates had changed by +/- 100 basis
points (2017: +/- 100 basis points) from the year-end rates with
all other variables held constant, post tax profit for the year
would have increased/decreased by $nil (2017: $1,448,000).
Equity would have been higher/lower by the same amount.
Credit risk refers to the risk that a counterparty will fail to meet
its contractual obligations resulting in financial loss to the
IOOF Group. Credit risk arises for the IOOF Group from cash,
receivables and loans.
The IOOF Group mitigates its credit risk by ensuring cash
deposits are held with high credit quality financial institutions
and other highly liquid investments are held with trusts
operated by the IOOF Group. Where investments are held
in units in a trust operated by the IOOF Group, that trust is
subject to the rules of the trust deed and the investment in
underlying assets is subject to asset allocation guidelines.
Receivables consist of management fees receivable, service
fees receivable and other amounts receivable from related
parties. These counterparties generally do not have an
independent credit rating, and the IOOF Group assesses the
credit quality of the debtor taking into account its financial
position, past experience with the debtor, and other available
credit risk information. In relation to management fees
receivable, the IOOF Group is contractually entitled to deduct
such fees from investors’ account balances, in accordance with
the Product Disclosure Statements, and pass the fees to the
Responsible Entity or Trustee. Due to this pass-through process
the embedded credit risk is considered minimal.
Other receivables are regularly monitored by line management.
The maximum exposure to credit risk at the reporting date
is the carrying value of the financial assets as summarised
in the table included in this note below. The IOOF Group
does not hold any significant collateral as security over its
receivables and loans, apart from its recourse to certain shares
in subsidiaries in relation to loans to executives of subsidiaries.
There are no significant concentrations of credit risk within
the IOOF Group.
The IOOF Group does not hold any Other financial assets
whose terms have been renegotiated, but which would
otherwise be past due or impaired.
The credit quality of the financial assets that are neither past
due nor impaired as at balance date was consistent with that
described above, and management assesses the credit risk
associated with these reported balances as being minimal.
Information in relation to impaired receivables and past due
but not impaired receivables is included below.
73
IOOF annual report 2018 Impaired receivables
(c) Statutory Fund Risk
Financial risks are monitored and controlled by selecting
appropriate assets to back policy liabilities. The assets
are regularly monitored by the Investment Management
Committee to ensure there are no material exposures and
that liability mismatching issues and other risks such as
liquidity risk and credit risk are maintained within acceptable
limits. The Investment Management Committee is chaired by
an independent expert and its membership is drawn from
appropriately skilled senior management. There are no Non-
Executive Directors on this Committee.
The IOOF Group’s friendly society operations are subject to
regulatory capital requirements which prescribe the amount
of capital to be held depending on the type, quality and
concentration of investments held. Procedures are in place to
monitor compliance with these requirements. Refer to Section
5 - Statutory funds for further details.
(d) Liquidity risk
Liquidity risk relates to the IOOF Group having insufficient
liquid assets to cover current liabilities and unforeseen
expenses. The IOOF Group maintains a prudent approach to
managing liquidity risk exposure by maintaining sufficient
liquid assets and an ability to access a committed line of credit.
It is managed by continuously monitoring actual and forecast
cash flows and by matching the maturity profiles of financial
assets and liabilities. Temporary surplus funds are invested in
highly liquid, low risk financial assets.
The IOOF Group had access to undrawn bank borrowing
facilities at the balance date, on the terms described and
disclosed in section 3-2 Borrowings. The liquidity requirements
for licensed entities in the IOOF Group are regularly
reviewed and carefully monitored in accordance with those
licence requirements.
As at 30 June 2018, $2,671,000 trade receivables of the IOOF
Group were past due but not impaired (2017: $3,447,000).
The amount of the impairment provision was $607,000
(2017: $585,000).
Collectability of trade receivables is reviewed on an ongoing
basis. Debts which are known to be uncollectible are written
off by reducing the carrying amount directly. An allowance
account (provision for impairment of trade receivables) is
used when there is objective evidence that the IOOF Group
may not be able to collect all amounts due according to the
original terms of the receivables. Significant financial difficulty
of the debtor, probability that the debtor will enter bankruptcy
or financial reorganisation, and default or delinquency in
payments (more than 120 days overdue) are considered
indicators that the trade receivable is impaired. The amount
of the impairment allowance is the difference between the
asset’s carrying amount and the present value of estimated
future cash flows, discounted at the original effective interest
rate. Cash flows relating to short-term receivables are not
discounted if the effect of discounting is immaterial.
The amount of the impairment loss is recognised in profit or
loss within other expenses. When a trade receivable for which
an impairment allowance has been recognised becomes
uncollectible in a subsequent year, it is written off against
the allowance account. Subsequent recoveries of amounts
previously written off are credited against other expenses
in profit or loss
2018
2017
$’000
585
22
607
2018
$’000
45,985
665
511
888
48,049
2,671
$’000
598
(13)
585
2017
$’000
54,594
1,568
563
731
57,456
3,447
Movements in the
provisions for impairment
of trade receivables are
as follows:
Carrying value at 1 July
Provision for impairment
provided/(written back)
during the year
Carrying value at 30 June
Ageing of trade receivables
that were not impaired at
30 June
Neither past due nor impaired
Past due 31-60 days
Past due 61-90 days
Past due 91-120 days
Trade receivables past due
but not impaired
74
IOOF annual report 2018Notes to the financial statementsFor the year ended 30 June 2018 Maturities of financial liabilities
The tables below analyse the IOOF Group’s financial liabilities into relevant maturity groupings based on the remaining years at the
balance date to the contractual maturity date. The amounts disclosed therein are the contractual undiscounted cash flows. Statutory
funds are excluded on the basis that monies held in the benefit funds and controlled trusts are held for the benefit of the members of
those funds, and are not available to shareholders or creditors.
2018
Carrying Amount
Current Non-Current
Total
Contractual cash flows
1-5 years
5+ years
1 year
or less
Total
contractual
cash flows
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Financial liabilities
Payables
Total payables
Contingent
consideration
65,136
65,136
392
65,528
Financial assets available to meet
the above financial liabilities
65,139
65,139
392
65,136
65,136
392
65,531
65,528
3
3
–
3
–
–
–
757
5,392
6,149
121,441
407,443
48,049
45,461
–
93,510
121,441
407,443
48,049
46,218
5,392
99,659
18
–
–
–
18
768
33,739
768
33,739
121,441
407,443
48,049
45,461
–
93,510
18
–
–
–
8,404
8,404
–
5,005
–
5,005
5,005
–
7,153
7,153
–
Cash
Certificates of deposit
Trade receivables
Other receivables
Security bonds
Total receivables
Fair value through
profit or loss
Shares in listed
companies
Unlisted unit trusts
Available-for-sale
investments
Loans and other
receivables
Loans to directors
and executives of
associated entities
Receivables from
statutory benefit
funds
Seed capital
receivable
Total other
financial assets
Net financial assets/
(liabilities)
3
3
–
3
–
–
–
757
–
757
–
768
–
–
–
–
–
–
–
-
–
–
–
–
5,392
5,392
–
–
33,739
65,139
65,139
392
65,531
121,441
407,443
48,049
46,218
5,392
99,659
18
768
33,739
8,404
8,404
–
5,005
7,153
7,153
5,023
50,064
55,087
5,023
768
49,296
55,087
627,417
561,889
56,213
56,210
683,630
618,099
627,417
561,889
1,525
1,522
54,688
54,688
683,630
618,099
75
IOOF annual report 2018 2017
Carrying Amount
Current Non-Current
Total
Contractual cash flows
1-5 years
5+ years
1 year
or less
Total
contractual
cash flows
$’000
$’000
$’000
$’000
$’000
$’000
$’000
Financial liabilities
Payables
Total payables
Borrowing facilities
Finance lease
liabilities
Total borrowings
Contingent
consideration
60,004
60,004
90,000
40
90,040
1,447
3
3
60,007
60,007
116,908
206,908
–
40
116,908
206,948
392
1,839
60,004
60,004
90,000
40
90,040
1,447
3
3
116,908
–
116,908
392
151,491
117,303
268,794
151,491
117,303
Financial assets available to meet
the above financial liabilities
Cash
Trade receivables
Other receivables
Security bonds
208,218
57,456
44,838
–
Total receivables
102,294
–
–
718
5,389
6,107
208,218
57,456
45,556
5,389
208,218
57,456
44,838
–
108,401
102,294
–
–
–
–
–
–
–
–
–
–
5,389
5,389
–
–
25,445
60,007
60,007
206,908
40
206,948
1,839
268,794
208,218
57,456
45,556
5,389
108,401
18
679
25,445
8,404
8,404
–
3,731
7,153
7,153
–
–
718
–
718
–
679
–
–
–
–
18
–
–
–
18
679
25,445
679
25,445
18
–
–
–
8,404
8,404
–
3,731
–
3,731
3,731
–
7,153
7,153
–
3,749
41,681
45,430
3,749
679
41,002
45,430
314,261
162,770
47,788
(69,515)
362,049
93,255
314,261
162,770
1,397
(115,906)
46,391
46,391
362,049
93,255
Fair value through
profit or loss
Shares in listed
companies
Unlisted unit trusts
Available-for-sale
investments
Loans and other
receivables
Loans to directors
and executives of
associated entities
Receivables from
statutory benefit
funds
Seed capital
receivable
Total other
financial assets
Net financial assets/
(liabilities)
76
IOOF annual report 2018Notes to the financial statementsFor the year ended 30 June 2018 (e) Accounting policies and fair value estimation
Certificates of deposit
The fair values of financial assets and liabilities are equal to
the carrying amounts shown in the statement of financial
position with the exception of finance lease liabilities which are
disclosed in note 3-2 Borrowings.
Certificates of deposit includes deposits with original
maturities of more than three months.
Financial assets at fair value through profit or loss
Offsetting assets and liabilities
Financial assets and liabilities are offset and the net amount
presented in the statement of financial position when, and
only when, the IOOF Group has a legal right to offset the
amounts and intends either to settle on a net basis or to realise
the asset and settle the liability simultaneously.
Non-derivative financial assets
The IOOF Group initially recognises loans and receivables and
deposits on the date that they are originated. All other financial
assets (including assets designated at fair value through
profit or loss) are recognised initially on the date at which the
IOOF Group becomes a party to the contractual provisions of
the instrument.
The IOOF Group derecognises a financial asset when the
contractual rights to the cash flows from the asset expire, or
it transfers the rights to receive the contractual cash flows on
the financial asset in a transaction in which substantially all
the risks and rewards of ownership of the financial asset are
transferred. Any interest in transferred financial assets that
is created or retained by the IOOF Group is recognised as a
separate asset or liability.
The IOOF Group has the following non-derivative
financial assets:
• cash;
• certificates of deposit;
• financial assets at fair value through profit or loss;
• available-for-sale financial assets; and
•
loans and receivables.
Cash
Cash includes cash on hand, deposits held at call with financial
institutions, other short-term, highly liquid investments with
original maturities of three months or less that are readily
convertible to known amounts of cash.
A financial asset is classified as at fair value through profit or
loss if the IOOF Group manages such investments and makes
purchase and sale decisions in accordance with the IOOF
Group’s documented risk management or investment strategy.
Upon initial recognition attributable transaction costs are
recognised in profit or loss when incurred. Financial assets at
fair value through profit or loss are measured at fair value, and
changes therein are recognised in profit or loss.
Units in unlisted trusts are carried at the current unit price for
redemption of those units with the trust.
The fair value of financial instruments traded in active
markets is based on quoted market prices at the reporting
date. The quoted market price used for financial assets is
the closing price.
Available-for-sale financial assets
Available-for-sale financial assets are non-derivative assets
comprising principally marketable equity securities that are
either designated in this category or are not classified in any of
the other categories of financial instruments. Available-for-sale
financial assets are recognised initially at fair value plus any
directly attributable transaction costs.
Subsequent to initial recognition, they are measured at fair
value and changes therein, other than impairment losses, are
recognised in other comprehensive income and presented
within equity in the available-for-sale investment revaluation
reserve. When an investment is derecognised, the cumulative
gain or loss in equity is transferred to profit or loss.
Loans and receivables
Loans and receivables are non-derivative financial assets
with fixed or determinable payments that are not quoted on
an active market. They arise when the IOOF Group provides
money, assets, or services directly to a debtor with no intention
of selling the receivable. Subsequent to initial recognition,
loans and receivables are measured at amortised cost using
the effective interest method and closely approximate their
estimated fair value due to their short-term nature.
77
IOOF annual report 2018 Non-derivative financial liabilities
Payables
The IOOF Group initially recognises financial liabilities on
the date at which the IOOF Group becomes a party to the
contractual provisions of the instrument. The IOOF Group
derecognises a financial liability when its contractual
obligations are discharged, cancelled or expire.
The IOOF Group has the following non-derivative
financial liabilities:
• payables;
• borrowings (including finance leases); and
• other financial liabilities (including contingent
consideration).
Such financial liabilities are recognised initially at fair value plus
any directly attributable transaction costs. Subsequent to initial
recognition these financial liabilities are measured at amortised
cost using the effective interest method.
1-2 Financial Instruments
Fair value hierarchy
The carrying value of payables are assumed to approximate
their fair values due to their short-term nature.
Borrowings and finance leases
Borrowings and finance leases are further explained in section
3-2 Borrowings.
Contingent consideration
The contingent consideration amounts payable can rise and
fall depending on performance hurdles achieved during
the deferral period specific to each agreement which may
include revenue targets, gross margin targets and/or FUMAS
retention requirements.
Where contingent consideration is due for payment after
12 months, the estimated amounts payable are discounted.
Assumptions used include pre-tax discount rates in the range
of 3-4% which were based on market interest rates upon
acquisition of related intangibles.
The fair values of financial assets and liabilities are equal to the carrying amounts shown in the statement of financial position with the
exception of finance lease liabilities which are disclosed in note 3-2 Borrowings.
The table below analyses financial instruments carried at fair value, by valuation method.
30 June 2018
Financial assets measured at fair value
Available-for-sale investments
Shares in listed companies
Unlisted unit trusts
Financial liabilities measured at fair value
Contingent consideration
30 June 2017
Financial assets measured at fair value
Available-for-sale investments
Shares in listed companies
Unlisted unit trusts
Financial liabilities measured at fair value
Contingent consideration
78
Level 1
$’000
Level 2
$’000
Level 3
$’000
33,739
18
–
33,757
–
–
25,445
18
–
25,463
–
–
–
–
768
768
–
–
–
–
679
679
–
–
–
–
–
–
392
392
–
–
–
–
1,839
1,839
Total
33,739
18
768
34,525
392
392
25,445
18
679
26,142
1,839
1,839
IOOF annual report 2018Notes to the financial statementsFor the year ended 30 June 2018 The definitions of each level and the valuation techniques used are as follows:
• Level 1: quoted closing prices (unadjusted) in active markets for identical assets or liabilities.
• Level 2: inputs other than quoted prices included with Level 1 that are observable for the asset or liability, either directly (ie. as
prices) or indirectly (ie. derived from prices). Level 2 fair values for the over-the-counter foreign exchange and index swap are
provided by the counterparty and verified by the IOOF Group. Fair values are derived from published market indices and include
adjustments to take account of the credit risk of the IOOF Group entity and counterparty.
• Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
The IOOF Group recognises transfers between levels of the fair value hierarchy as of the end of the reporting year during
which the transfer has occurred. There were no transfers between Level 1 to Level 2 of the fair value hierarchy during the year
ended 30 June 2018.
Reconciliation of movements in level 3 financial liabilities
Contingent consideration
Opening balance as at 1 July 2017
Fair value gain from derecognition of contingent consideration payable
Unwinding of discount
Settlement of contingent consideration
Closing balance as at 30 June 2018
$’000
1,839
(805)
22
(664)
392
79
IOOF annual report 2018 Section 2 - Results for the year
This section focuses on the results and performance of the IOOF Group. On the following pages you will find disclosures explaining
the IOOF Group’s results for the year, segmental information, taxation and earnings per share.
Where an accounting policy is specific to a single note, the policy is described in the note to which it relates.
2-1 Operating segments
Corporate and other
Corporate and other costs include those of a strategic,
shareholder or governance nature incurred in carrying on
business as a listed entity managing multiple business units.
Information regarding the results of each reportable segment
is included below. Performance is measured based on
segment underlying profit before income tax as management
believes that such information is the most relevant in
evaluating the results of certain segments relative to other
entities that operate within these industries.
The IOOF Group has the following five strategic divisions,
which are its reportable segments. All segments’ operating
results are regularly reviewed by the IOOF Group’s Managing
Director to make decisions about resources to be allocated
to the segment and assess its performance, and for which
discrete financial information is available.
Financial advice
The provision of financial planning advice and stockbroking
services supported by services such as investment research,
training, compliance support and access to financial products.
Platform management and administration
The provision of administration and management services
through master trust platforms, which offer a single access
point to a range of investment products.
Investment management
The management and investment of monies on behalf of
corporate, superannuation, institutional clients and private
individual investor clients.
Trustee services
The provision of estate planning, trustee, custodial, agency and
estate administration services to clients.
80
IOOF annual report 2018Notes to the financial statementsFor the year ended 30 June 2018 Financial advice
Platform
management
and
administration
Investment
management
Trustee services Corporate and
Total
other
2018
$’000
2017
$’000
2018
$’000
2017
$’000
2018
$’000
2017
$’000
2018
$’000
2017
$’000
2018
$’000
2017
$’000
2018
$’000
2017
$’000
288,470 263,494 384,929 387,608
70,968
81,942
33,197
26,695
–
– 777,564 759,739
15,273
16,167
5,506
6,239
2,426
2,146
4,235
3,833
407
489
27,847
28,874
(150,613) (126,443) (108,630) (109,026)
(8,542)
(26,339)
(3,900)
(2,321)
384
398 (271,301) (263,731)
(179)
(372)
(141)
(157)
–
–
–
–
–
–
(320)
(529)
Management and
service fees revenue
External other fee
revenue
Service fees and other
direct costs
Deferred acquisition
costs
Gross Margin
152,951 152,846 281,664 284,664
64,852
57,749
33,532
28,207
791
887 533,790 524,353
Stockbroking revenue
96,304
85,478
(55,210)
(48,549)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
– 96,304
85,478
– (55,210)
(48,549)
41,094
36,929
–
–
–
–
–
–
–
– 41,094
36,929
Stockbroking service
fees expense
Stockbroking net
contribution
Inter-segment revenuei
76,764
75,467
2,746
–
–
–
115
283
137
139
79,762
75,889
Inter-segment
expensesi
Net Operating
Revenue
Other revenue
Finance income
Inter-segment revenuei
Share of profits of
associates
(2,352)
(3,434)
(74,438)
(72,214)
(2,972)
(241)
–
–
–
– (79,762)
(75,889)
268,457 261,808 209,972 212,450
61,880
57,508
33,647
28,490
928
1,026 574,884 561,282
3,193
3,028
747
8
713
603
12
816
75
3
–
–
–
1
–
–
–
–
–
75
436
–
1,811
2,662
–
–
–
–
–
774
1,197
4,042
4,300
– 9,848
4,190
10,598
5,230
–
–
–
–
–
8
12
– 2,524
3,478
Operating expenditure (149,538) (148,755)
(89,499)
(95,853)
(11,376)
(14,284)
(20,193)
(18,341)
(37,885)
(40,682) (308,491) (317,915)
Share-based payments
expense
Finance costs
Inter-segment
expenses(i)
Depreciation of
property & equipment
Amortisation of
intangible assets - IT
Development
Non-controlling
interest
(1,263)
(102)
(359)
(189)
(95)
(211)
(50)
(15)
(961)
(778)
(2,728)
(1,295)
(32)
(43)
–
–
–
(8)
–
(12)
–
–
–
–
–
–
–
(2,071)
(6,785)
(2,103)
(6,828)
–
–
–
(8)
(12)
(2,968)
(3,119)
(3,563)
(3,454)
(526)
(512)
(583)
(563)
–
–
(7,640)
(7,648)
–
–
(524)
(1,737)
–
–
–
–
–
–
(524)
(1,737)
(5,325)
(3,861)
–
–
–
–
–
–
–
–
(5,325)
(3,861)
Income tax expense
(35,946)
(34,033)
(35,091)
(33,939)
(14,993)
(12,967)
(3,861)
(2,876)
16,071
18,166
(73,820)
(65,649)
UNPAT
78,046 76,354 81,006 77,267 36,701 32,707
8,960
6,695
(13,296) (23,666) 191,417 169,357
i
Segment revenues, expenses and results include transfers between segments. Such transfers are priced on a commercial basis and are eliminated on consolidation.
Segment disclosures have been prepared on an underlying (UNPAT) basis as discussed in the Operating and Financial Review section
of the Directors’ Report. Comparatives have been restated to be on a comparable basis.
81
IOOF annual report 2018 Reconciliation of reportable segment revenues and expenses
Profit attributable to Owners of the Company
Underlying net profit after tax pre-amortisation (UNPAT) adjustments:
Amortisation of intangible assets
Acquisition costs - Acquisition advisory
Acquisition costs - Integration preparation
Acquisition costs - Finance costs
Onerous contracts
Termination payments
Profit on divestment of subsidiaries
Profit on divestment of assets
Non-recurring professional fees (recovered)/paid
Impairment of goodwill
Unwind of deferred tax liability recorded on intangible assets
Settlement of legal claims
Other
Acquisition tax provision release
Income tax attributable
UNPAT
Note
2-3
2-3
2-3
2-3
2-3
2-3
2-2
2-2
2-3
2-3
2-3
2-3
2018
$’000
2017
$’000
88,301
115,990
39,400
38,611
5,367
4,973
6,725
2,345
2,128
(143)
(2,643)
(902)
28,339
(10,195)
44,250
1,244
–
(17,772)
191,417
–
–
–
–
4,125
(6,261)
(11,930)
2,013
38,592
(10,056)
–
–
(5,707)
3,980
169,357
The significant accounting policies which apply to the major revenue and expense items below follow each of the notes. More
general information on how these are recognised/measured can be found in note 7-2 Basis of preparation.
82
IOOF annual report 2018Notes to the financial statementsFor the year ended 30 June 2018 2-2 Revenue
Management and service fees revenue
Stockbroking revenue
External other fee revenue
Finance income
Interest income on loans to Directors of associated entities
Interest income from non-related entities
Dividends and distributions received
Net fair value gains on other financial assets at fair value through profit or loss
Other revenue
Profit on divestment of assets
Profit on divestment of subsidiaries
Other
Total revenue
Accounting policies
Policy
note
(i)
(ii)
(ii)
(iii)
2018
2017
$’000
777,564
96,304
27,847
260
9,128
1,122
88
10,598
2,643
143
4,042
6,828
$’000
759,739
85,478
28,874
254
4,098
824
54
5,230
11,930
6,261
10,007
28,198
919,141
907,519
Revenue is measured at the fair value of the consideration received or receivable.
(i) Management and service fees revenue
The IOOF Group provide management services to unit trusts and funds operated by the IOOF Group at normal commercial rates.
Management and service fees earned from the unit trusts and funds are calculated based on an agreed percentage of the respective
funds under management or administration as disclosed in the respective product disclosure statements, and are recognised on an
accruals basis.
Management and service fees revenue from the provision of financial advisory services together with revenue from the rendering of
services are recognised at the time the service is provided.
(ii) Stockbroking revenue and external other fee revenue
Other fee revenue and stockbroking revenue from the rendering of services are recognised at the time the service is provided.
(iii) Finance income
Finance income comprises interest income on funds invested (including available-for-sale financial assets), dividend income, gains
on the divestment of available-for-sale financial assets and changes in the fair value of financial assets at fair value through profit or
loss. Interest income is recognised as it accrues in profit or loss, using the effective interest method. Dividend income is recognised in
profit or loss on the date that the IOOF Group’s right to receive payment is established, which in the case of quoted securities is the
ex-dividend date.
83
IOOF annual report 2018 Policy
note
2018
2017
$’000
$’000
(i)
(ii)
(iii)
(iv)
(v)
(v)
(v)
(vi)
248,306
55,210
22,995
326,511
213,912
33,979
9,038
8,665
14,010
23,327
5,560
–
241,153
48,549
22,578
312,280
211,987
41,532
10,959
8,446
17,120
21,989
5,877
5
308,491
317,915
2,728
5,367
4,973
6,725
2,128
7,640
39,400
524
28,339
320
(902)
2,345
44,250
1,244
1,295
–
–
–
4,125
7,648
38,611
1,737
38,592
529
2,013
–
–
–
145,081
780,083
94,550
724,745
2-3 Expenses
Service fees and other direct costs
Service and marketing fees expense
Stockbroking service fees expense
Other direct costs
Operating expenditure
Salaries and related employee expenses
Information technology costs
Professional fees
Marketing
Office support and administration
Occupancy related expenses
Travel and entertainment
Other
Other expenses
Share-based payments expense
Acquisition costs - Acquisition advisory
Acquisition costs - Integration preparation
Acquisition costs - Finance costs
Termination payments
Depreciation of property and equipment
Amortisation of intangible assets
Amortisation of intangible assets - IT development
Impairment of goodwill
Deferred acquisition costs
Non-recurring professional fees (recovered)/paid
Onerous contracts
Settlement of legal claims
Other
Total expenses
84
IOOF annual report 2018Notes to the financial statementsFor the year ended 30 June 2018 Accounting policies
Annual and long service leave benefits
Expenses are recognised at the fair value of the consideration
paid or payable for services received, further specific expense
policies are listed below.
(i) Service Fees and other direct costs
Service fees and other direct costs include amounts paid to
advisers, dealer groups and other suppliers in the course of
operating and marketing products and services of the IOOF
Group. Examples of direct costs include custodian fees, audit
services and the printing and mailing of client statements and
other communications. The values are recognised at the fair
value of the consideration paid or payable for the goods or
services received.
(ii) Salaries and related employee expenses
These entitlements include salaries, wages, superannuation,
bonuses, overtime, allowances, annual and long service
leave, but exclude share-based payments. The accounting
policies for the four major expense categories under this
definition are as follows
Short-term employee benefits
Short-term employee benefit obligations are measured
on an undiscounted basis and are expensed as the related
service is provided.
A liability is recognised for the amount expected to be paid if
the IOOF Group has a present legal or constructive obligation
to pay this amount as a result of past service provided by the
employee and the obligation can be estimated reliably.
Short-term incentive plans
A provision for employee benefits in the form of an incentive
plan is recognised when there is no realistic alternative
but to settle the liability, and at least one of the following
conditions is met:
•
•
there are formal terms in the plan for determining the
amount of the benefit;
the amounts to be paid are determined before the time of
completion of the financial report; or
• past practice gives clear evidence of the amount of
the obligation.
The IOOF Group’s net obligation in respect of long-term
employee benefits is the amount of future benefit that
employees have earned in return for their service in the current
and prior years plus related on-costs.
Liabilities for long-term benefits that are expected to be
settled beyond 12 months are discounted using rates attaching
to high quality corporate bonds which most closely match the
terms of maturity of the related liabilities at balance date.
In determining the liability for employee entitlements,
consideration is given to future increases in wage and
salary rates, experience with employee departures and
years of service.
Employee defined contribution plan expense
A defined contribution plan is a post-employment benefit plan
under which an entity pays fixed contributions into a separate
entity and will have no legal or constructive obligation to pay
further amounts. Obligations for contributions to defined
contribution plans are recognised in profit or loss in the years
during which services are rendered by employees. Prepaid
contributions are recognised as an asset to the extent that a
cash refund or a reduction in future payments is available.
(iii) Share-based payments expense
The grant date fair value of share-based payment awards
granted to employees is recognised as a share-based payment
expense, with a corresponding increase in the share-
based payments reserve, over the year that the employees
unconditionally become entitled to the awards. The amount
recognised as an expense is adjusted to reflect the number of
awards for which the related service and non-market vesting
conditions are expected to be met, such that the amount
ultimately recognised as an expense is based on the number
of awards that meet the related service and non-market
performance conditions at vesting date.
For share-based payment awards with non-vesting conditions,
the grant date fair value of the share-based payment is
measured to reflect such conditions and there is no true-up for
differences between expected and actual outcomes.
The fair value at grant date is independently determined where
considered appropriate.
85
IOOF annual report 2018 (vi) Deferred acquisition costs
Deferred acquisition costs relate to service fees paid, and are
deferred as an asset in recognition that they relate to a future
economic benefit. Deferred acquisition costs are initially
measured at historical cost and are written down immediately
to their recoverable amount if the carrying amount is greater
than its estimated recoverable amount.
Deferred acquisition costs are progressively amortised in
profit or loss by a systematic allocation over the years the
future economic benefits are expected to be received.
The amortisation period is between 5 and 7 years.
Shares held by the IOOF Equity Plan Trust will contribute to
the employee allocation of shares on satisfaction of vesting
performance hurdles. The IOOF Group has no right to recall
placed shares. However, a subsidiary company acts as the
Trustee of the Trust, and can direct the voting rights of shares
held and strategic direction.
Non-Executive Directors have the opportunity to participate
in the IOOF Deferred Share Purchase Plan. The plan provides
a facility for Non-Executive Directors to sacrifice base salary or
future incentive entitlements in order to acquire shares. As the
purchase is funded by Directors’ salary sacrifice, no additional
expense is recorded by the IOOF Group.
(iv) Termination payments
Termination benefits or redundancy costs are recognised as an
expense when the IOOF Group is committed demonstrably,
without realistic opportunity of withdrawal, to a formal
detailed plan without possibility of withdrawal, or providing
termination benefits as a result of an offer made to encourage
voluntary redundancy.
(v) Amortisation and impairment
The value of intangible assets, with the exception of goodwill
and brand names with indefinite useful lives, reduces over
the number of years the IOOF Group expects to use the asset,
the useful economic life, via an annual amortisation charge
to profit and loss. The values and useful lives ascribed are
reflective of arms-length transactions and independent expert
advice thereon.
Where there has been a technological change or decline
in business performance the Directors review the value of
assets to ensure they have not fallen below their carrying
value. Should an asset’s value fall below its carrying value an
additional one-off impairment charge is made against profit.
86
IOOF annual report 2018Notes to the financial statementsFor the year ended 30 June 2018 2-4 Net cash provided by operating activities
Cash includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original
maturities of three months or less that are readily convertible to known amounts of cash.
This note reconciles the operating profit to the cash provided by operating activities per the cash flow statement.
Profit for the year
Depreciation of property and equipment
Amortisation of intangible assets
Impairment of goodwill
Profit on divestment of assets
Interest and other costs of finance
Interest received and receivable
Dividends and distributions received and receivable
Dividends received from associates
Share of profits of associates accounted for using the equity method
Share-based payments expense
Acquisition costs - Acquisition advisory
Acquisition costs - Integration preparation
Acquisition costs - Finance costs
Other
Changes in net operating assets and liabilities:
(Increase)/decrease in receivables
(Increase)/decrease in other assets
(Increase)/decrease in other financial assets
(Increase)/decrease in deferred acquisition costs
Increase/(decrease) in payables
Increase/(decrease) in deferred revenue liabilities
Increase/(decrease) in provisions
Increase/(decrease) in income tax payable
Increase/(decrease) in contingent consideration
Increase/(decrease) in other liabilities
Increase/(decrease) in deferred taxes
Net cash provided by operating activities
2018
$’000
93,626
7,640
39,924
28,339
(2,643)
2,103
(9,388)
(1,115)
1,753
(2,524)
2,728
5,367
4,973
6,725
(327)
11,056
(1,171)
(1,274)
361
5,098
(387)
51,464
(112)
-
(974)
(25,369)
215,873
2017
$’000
119,851
7,648
40,348
38,592
(18,228)
6,828
(4,352)
(823)
3,966
(3,478)
1,295
–
–
–
1,144
(7,575)
(833)
1,674
569
(8,275)
(699)
1,919
7,871
1,089
103
(9,355)
179,279
87
IOOF annual report 2018 2-5 Income taxes
Income taxes
Current tax expense
Current year
Adjustment for prior years
Deferred tax expense
Origination and reversal of temporary differences
Adjustments recognised in the current year in relation to the deferred tax of prior years
Total income tax expense
Income tax recognised in other
comprehensive income
2018
$’000
2017
$’000
70,408
(1,478)
68,930
(9,460)
103
(9,357)
59,573
2018
$’000
74,716
(3,495)
71,221
(25,159)
(209)
(25,368)
45,853
2017
$’000
Available-for-sale financial assets
Exchange differences on translating
foreign operations
Before tax
Tax expense
Net of tax
Before tax
Tax expense
Net of tax
8,185
(89)
(2,456)
12
5,729
(77)
3,770
15
(1,131)
(3)
2,639
12
8,096
(2,444)
5,652
3,785
(1,134)
2,651
Reconciliation of effective tax rate
Profit before tax
Tax using the IOOF Group's domestic tax rate
Tax effect of:
Share of tax credits with statutory funds
(Non assessable income)/Non-deductible expenses
Impairment of goodwill
Share of net profits of associates
Assessable associate dividends
Imputation credits
Other
Under/(over) provided in prior years
2018
2017
%
$’000
%
$’000
30.0%
0.7%
(0.1%)
6.1%
(0.5%)
2.7%
(2.9%)
(0.4%)
(2.7%)
139,479
41,844
1,032
(178)
8,502
(757)
3,792
(4,068)
(610)
(3,704)
30.0%
0.5%
(1.8%)
6.5%
(0.6%)
2.1%
(2.2%)
(0.5%)
(0.8%)
179,424
53,827
978
(3,264)
11,578
(1,044)
3,771
(4,012)
(886)
(1,375)
32.9%
45,853
33.2%
59,573
For statutory reporting purposes, the Group had an effective tax rate of 32.9% on its continuing operations for the year ended
30 June 2018 (2017: 33.2%) compared to a statutory corporate tax rate of 30%. This rate difference is primarily due to impairment of
goodwill, research and development (R&D) tax offsets, tax offsets for fully franked dividend income, prior period amendments and
non-deductible subsidiary acquisition costs. For the year ended 30 June 2017, the rate difference was primarily due to impairment of
goodwill, research and development (R&D) tax offsets, tax offsets for fully franked dividend income and prior period amendments.
Excluding these items the IOOF Group’s effective tax rate would be 30% across both periods. The effective tax rate for New Zealand
and Hong Kong operations was 28.7% and 11.8% respectively for the year ended 30 June 2018 (2017: 29.7% and 18.0% respectively).
88
IOOF annual report 2018Notes to the financial statementsFor the year ended 30 June 2018 Deferred tax assets and liabilities
Deferred tax asset balance comprises temporary differences attributable to:
Salaries and related employee expenses
Provisions, accruals and creditors
Carry forward capital and revenue losses
Other
Deferred tax asset balance as at 30 June
Set-off of deferred tax liabilities pursuant to set-off provisions
Net deferred tax asset balance as at 30 June
Deferred tax liability balance comprises temporary differences attributable to:
Customer relationships
Unrealised gains
Fixed assets and computer software
Other
Set-off of deferred tax liabilities pursuant to set-off provisions
Net deferred tax liability balance as at 30 June
Reconciliation of movements
Net carrying amounts at the beginning of the year
Acquisitions and divestments
Credited/(charged) to profit or loss
Temporary differences directly attributable to equity
Carrying amount at the end of the year
Unrecognised deferred tax assets
Tax losses
Potential tax benefit at the Australian tax rate of 30%
2018
$’000
2017
$’000
20,234
17,690
97
3,067
41,088
(41,088)
–
18,721
3,349
99
1,934
24,103
(24,103)
–
98,941
107,534
7,566
130
3,706
110,343
(41,088)
69,255
(92,949)
(1,754)
25,368
80
5,087
1,230
3,201
117,052
(24,103)
92,949
(101,163)
(9)
9,357
(1,134)
(69,255)
(92,949)
–
–
–
–
The deductible temporary differences and tax losses do not expire under current tax legislation. Deferred tax assets have not been
recognised in respect of these items because it is not probable that future taxable profit will be available against which the IOOF
Group can utilise the benefits there from.
Accounting policies
Income tax
Income tax comprises current and deferred tax. Current
and deferred tax are recognised in profit or loss except
to the extent that it relates to a business combination,
or items recognised directly in equity or in other
comprehensive income.
Current tax
Current tax is the expected tax payable or receivable on
the taxable income for the year, using tax rates enacted
or substantively enacted at the reporting date, and any
adjustment to tax payable in respect of previous years. Current
tax also includes any tax arising from dividends.
Current tax assets and liabilities are offset only if certain
criteria are met.
Deferred tax
Deferred tax is recognised in respect of temporary differences
between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for
taxation purposes. Deferred tax is not recognised for:
89
IOOF annual report 2018 •
•
temporary differences on the initial recognition of assets or
liabilities in a transaction that is not a business combination
and that affects neither accounting nor taxable
profit or loss;
temporary differences related to investments in subsidiaries
and associates to the extent that the IOOF Group is able
to control the timing of the reversal of the temporary
differences and it is probable that they will not reverse in
the foreseeable future; and
•
taxable temporary differences arising on the initial
recognition of goodwill.
Deferred tax is measured at the tax rates that are expected to
be applied to temporary differences when they reverse, based
on the laws that have been enacted or substantively enacted
by the reporting date.
Deferred tax assets and liabilities are offset when there is
a legally enforceable right to offset current tax assets and
liabilities and when deferred tax balances relate to the same
taxation authority.
Tax consolidation
IOOF Holdings Ltd and its wholly owned Australian resident
entities (including IOOF Ltd benefit funds) are part of a
tax-consolidated group under Australian taxation law. As a
consequence, all members of the tax-consolidated group are
taxed as a single entity.
Tax transparency
The IOOF Group is committed to tax transparency
and integrity. It has been a signatory to the Board of
Taxation’s Voluntary Tax Transparency Code (the Code),
since January 2017.
Tax contribution analysis
The Code is a set of principles and ‘minimum standards’ to
guide disclosure of tax information by businesses, encourage
those businesses to avoid aggressive tax planning, and
to help educate the public about their compliance with
Australia’s tax laws.
The IOOF Group provides a reconciliation of accounting profit
to tax expense, and to income tax paid/payable including
identification of material temporary and non-temporary
differences and accounting effective company tax rates for the
IOOF Groups Australian and global operations.
Information about international related party
dealings
The IOOF Group conducts foreign activities in New Zealand,
via IOOF New Zealand, and in Hong Kong, via share broking
business, Ord Minnett. Each of those entities is subject to the
local tax regime and effective tax rates are disclosed with
the IOOF Group’s effective tax rate. Related party dealings
between the IOOF Group’s Australian and foreign jurisdictions
are supported by transfer pricing documentation.
Approach to tax strategy and governance
Tax governance is part of the IOOF Group’s overall risk
management framework, as well as being part of an overall
tax strategy. The overall tax strategy drives the IOOF Group’s
approach to tax risk management and is aimed at good
corporate tax compliance and reporting, ability to meet and be
prepared for regulatory changes, and in ensuring shareholder
value. Tax governance is continuously monitored and in line
with the IOOF Group’s strategy. The IOOF Group regards
its relationship with the ATO as effective and open thereby
maintaining transparency and collaboration.
The IOOF Group contributed a total of $143.6m in taxes to Australian, New Zealand and Hong Kong governments (state and federal) in
the 2018 tax year. $143m or 99.6% of this amount was attributable to the Australian Government. The below tables provide an analysis
of the types of taxes the IOOF Group is liable for and those payable in Australia versus those in foreign jurisdictions.
2018 tax contribution by type (total $143.6m)
2018 tax contribution by country (total $143.6m)
Income Tax $74.91m
GST $51.9m
Payroll Tax $13.1m
Fringe Benefits Tax $1.19m
Other $2.5m
Australia $143m
New Zealand $0.60m
Hong Kong $0.0064m
Further taxes paid by the IOOF Group on behalf of others, including employees and members, are not directly borne by the Group.
These include income tax, GST, pay-as-you-earn withholding taxes, and local duties, which total a further $123m.
90
IOOF annual report 2018Notes to the financial statementsFor the year ended 30 June 2018 2-6 Dividends
After 30 June 2018 the following dividends were declared by the directors. The dividends have not been provided for and there are no
income tax consequences.
Final 2017 dividend
Cents per
share
27.0
Total
amount
$’000
94,791
Date of
payment
Franked/
unfranked
4 September 2018
Franked
Dividend franking account
30 per cent franking credits available to shareholders of IOOF Holdings Ltd
for subsequent financial years
2018
$’000
2017
$’000
77,399
84,469
The above available amounts are based on the balance of the dividend franking account at year-end adjusted for:
(a) franking credits that will arise from the payment of the current tax liabilities; and
(b) franking credits that the IOOF Group may be prevented from distributing in subsequent years.
The ability to utilise the franking credits is dependent upon there being sufficient available profits to declare dividends. The impact
on the dividend franking account of dividends declared after the balance date but not recognised as a liability is to reduce it by
$40,625,000 (2017: $34,730,000).
The following dividends were declared and paid by the IOOF Group during the current and preceding financial year:
2018
Interim 2018 dividend
Final 2017 dividend
2017
Interim 2017 dividend
Final 2016 dividend
Cents per
share
Total
amount
$’000
Date of
payment
Franked/
unfranked
27.0
27.0
54.0
26.0
26.0
52.0
94,791
14 March 2018
81,036
01 September 2017
Franked
Franked
175,827
78,035
78,035
156,070
30 March 2017
13 October 2016
Franked
Franked
Franked dividends declared or paid during the year were franked at the tax rate of 30 per cent.
Dividend amounts shown are inclusive of any dividends paid on treasury shares.
91
IOOF annual report 2018 2-7 Earnings per share
Basic earnings per share
Diluted earnings per share
Basic earnings per share
2018
2017
Cents per
share
Cents per
share
26.4
26.4
38.7
38.6
The earnings and weighted average number of ordinary shares used in the calculation of basic earnings per share are as follows:
Profit for the year attributable to owners of the Company
Earnings used in the calculation of basic EPS
Weighted average number of ordinary shares
Weighted average number of ordinary shares (basic)
Effect of unvested performance rights
Weighted average number of ordinary shares (diluted)
Accounting policies
2018
$’000
88,301
88,301
2017
$’000
115,990
115,990
2018
2017
No. ’000
No. ’000
334,072
299,820
750
673
334,822
300,493
The IOOF Group presents basic and diluted earnings per share data for its ordinary shares. Basic earnings per share is calculated by
dividing the profit or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares
outstanding during the year, adjusted for treasury shares held.
Diluted earnings per share is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted
average number of ordinary shares outstanding, adjusted for treasury shares held, for the effects of all dilutive potential ordinary
shares, which comprise performance rights and share options granted to employees.
At 30 June 2018, there were no options outstanding.
The average market value of the Company’s shares for purposes of calculating the dilutive effect of share options was based on
quoted market prices for the year.
92
IOOF annual report 2018Notes to the financial statementsFor the year ended 30 June 2018 Section 3 - Capital management and financing
This section outlines how the IOOF Group manages its capital structure and related financing costs, including its balance sheet
liquidity and access to capital markets.
The IOOF Group’s objectives when managing capital are to safeguard its ability to continue as a going concern, so that it can
continue to provide returns to shareholders and benefits to other stakeholders, and to maintain an optimal structure to reduce the
cost of capital.
3-1 Capital management
In order to maintain or adjust the capital structure, the
IOOF Group may adjust the amount of dividends paid to
shareholders, return capital to shareholders, buy back its
shares on market, issue new shares, sell assets, or otherwise
adjust debt levels.
The IOOF Group monitors capital on the basis of investment
capital, working capital and regulatory capital.
Investment capital is the IOOF Group’s capital that is not
required for regulatory and working capital requirements of
the business. The investment capital is invested in:
• bank deposits and certificates of deposit;
• subsidiaries;
• available-for-sale assets;
• unit trusts, as investments; and
•
IOOF Group operated unit trusts, as seed capital.
The investment capital is available to support the organic
development of new businesses and products and to respond
to investment and growth opportunities such as acquisitions,
as they arise. Seed capital is primarily available to support
the business in establishing new products and is also used to
support capital adequacy requirements of the benefit funds.
Working capital is the capital that is required to meet the day
to day operations of the business.
Regulatory capital is the capital which the IOOF Group is
required to hold as determined by legislative and regulatory
requirements in respect of its friendly society and financial
services licensed operations. During the year, the IOOF Group
has complied with all externally imposed capital requirements
to which it is subject.
The Board of each operational subsidiary manages its own
capital required to support planned business growth and meet
regulatory requirements. Australian Prudential Regulation
Authority (APRA) regulated subsidiaries have their own capital
management plan which specifically addresses the regulatory
requirements of that entity and sets a target surplus over
minimum regulatory requirements. Regular monitoring of
regulatory requirements ensures sufficient capital is available
and appropriate planning is made to retain target surpluses.
IOOF Holdings Ltd is primarily the provider of equity capital to
its subsidiaries. Such investment is funded by IOOF Holding
Ltd’s own investment capital, through capital issues, profit
retention and, in some instances, by debt.
Subsidiary capital generated in excess of planned requirements
is returned to IOOF Holdings Ltd, usually by way of dividends.
A standby facility is in place as a safeguard against a temporary
need for funds and to provide a short term funding facility
that allows the business to take advantage of acquisition
opportunities as they arise.
The weighted average cost of capital is regularly monitored.
Funding decisions take into consideration the cost of debt
versus the cost of equity with emphasis on the outcome that is
best for shareholder interests.
The IOOF Group’s capital risk management strategy was not
changed during the year.
Further information in relation to capital adequacy requirements
imposed by the Life Insurance Act is provided in section 5-7
Capital adequacy position.
93
IOOF annual report 2018 3-2 Borrowings
This note provides information about the contractual terms of the IOOF Group’s interest-bearing borrowings, which are measured at
amortised cost.
For more information about the IOOF Group’s exposure to interest rate and liquidity risk, see section 1-1 Risk management.
Syndicated facility agreement
Finance lease liabilities – refer (c)
The IOOF Group’s borrowings were fully repaid during the year.
(a) Cash Advance & Working Capital Facility
2018
$’000
–
–
–
2017
$’000
206,908
40
206,948
The unsecured cash advance facilities and working capital facility is provided under an Australian dollar line of credit facility, to which
unrestricted access was available at balance date as follows:
Total facilities
Used at 30 June
Unused at 30 June
The financial liability under the facility has a fair value equal to its carrying amount.
Opening balance 1 July 2017
Net borrowings repaid
Capitalised establishment fees
Closing balance 30 June 2018
Accounting policies
2018
$’000
–
–
–
2017
$’000
225,000
206,908
18,092
Borrowings
$’000
206,948
(207,424)
476
–
Finance costs comprise interest expense on borrowings, unwinding of the discount on provisions, changes in the fair value of financial
assets at fair value through profit or loss and impairment losses recognised on financial assets.
Borrowing costs that are not directly attributable to the acquisition, construction or production of a qualifying asset are recognised in
profit or loss using the effective interest method.
(b) Other bank facilities
In addition to the cash advance and working capital facilities, the IOOF Group has a number of facilities including equipment finance
and contingent liability facilities. The aggregate of these facilities is $40m (2017: $40m) of which $38.9m was used at 30 June 2018
(2017: $34.3m). The IOOF Group had other facilities of $8m at 30 June 2017 where $5.05m was used.
94
IOOF annual report 2018Notes to the financial statementsFor the year ended 30 June 2018 (c) Finance lease liabilities
Finance leases relate to computer hardware.
IOOF Group Finance lease liabilities are payable as follows:
Less than one year
Between one and five years
Less future finance charges
3-3 Share capital
2018
2017
Future
minimum
lease
payments
Present
value of
minimum
lease
payments
Future
minimum
lease
payments
Present
value
of minimum
lease
payments
$’000
$’000
$’000
$’000
–
–
–
–
–
–
–
–
40
–
40
–
40
40
–
40
The Company does not have authorised capital or par value in respect of its issued shares. All issued shares are fully paid. The holders
of ordinary shares are entitled to receive dividends as declared from time to time, and are entitled to one vote per share at meetings of
the Company. All shares rank equally with regard to the Company’s residual assets.
351,076,027 fully paid ordinary shares (2017: 300,133,752)
484,964 treasury shares (2017: 476,411)
Ordinary shares
On issue at 1 July
Issue of shares
Transaction costs of issuing new shares
Transfer from employee equity-settled benefits reserve on exercise of
performance rights
Treasury shares transferred to recipients during the year
On issue at 30 June
Treasury shares
On issue at 1 July
Purchase of treasury shares
Treasury shares transferred to recipients during the year
On issue at 30 June
2018
$’000
2017
$’000
1,971,648
1,438,601
(4,625)
(4,142)
1,967,023
1,434,459
2018
2017
No. ’000
$’000
No. ’000
$’000
300,134
50,942
1,438,601
539,264
-
-
-
(5,917)
2,093
(2,393)
300,134
1,439,276
-
-
-
-
-
-
1,322
(1,997)
351,076
1,971,648
300,134
1,438,601
(476)
(287)
278
(485)
(4,142)
(2,876)
2,393
(4,625)
(321)
(380)
225
(476)
(2,816)
(3,323)
1,997
(4,142)
350,591
1,967,023
299,658
1,434,459
95
IOOF annual report 2018 Accounting policies
Ordinary shares
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares and share options are shown
in equity as a deduction, net of any tax effects.
Treasury shares
Shares in the Company which are purchased on-market by the IOOF Equity Plan Trust are classified as treasury shares and are
deducted from share capital. Treasury shares are excluded from the weighted average number of ordinary shares used in the earnings
per share calculations. The IOOF Equity Plan Trust is controlled by the IOOF Group and is therefore consolidated. Dividends received
on treasury shares are eliminated on consolidation.
3-4 Capital commitments and contingencies
The only capital commitments entered into by the IOOF Group are operating lease commitments disclosed below.
Operating lease commitments
Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease. Lease
incentives received are recognised as an integral part of the total lease expense, over the term of the lease.
Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows:
2018
Premises
2017
Premises
Office equipment
Guarantees and underwriting commitments
Rental bond guarantees
ASX settlement bond guarantee
ASIC bond guarantees
Other guarantees
Less than
one year
1 to 5 years
Later than
five years
$’000
17,967
17,967
$’000
54,114
54,114
$’000
34,904
34,904
Less than
one year
1 to 5 years
Later than
five years
$’000
18,045
3
$’000
50,600
–
$’000
30,322
–
Total
$’000
106,985
106,985
Total
$’000
98,967
3
18,048
50,600
30,322
98,970
2018
$’000
12,256
1,000
20
3,000
16,276
2017
$’000
16,281
500
140
3,000
19,921
On 26 July 2018, the IOOF Group entered into a non-binding term sheet with Australia and New Zealand Banking Group Limited (ANZ)
in respect of implementing an accelerated economic completion of the acquisition of ANZ’s One Path Pensions and Investments
(ANZ P&I) business and full legal ownership of ANZ’s Aligned Dealer Groups (ADGs).
Pursuant to the planned acquisition of ANZ Wealth Management, the purchase price will be funded through a combination of the
fully underwritten institutional placement conducted during the year and debt facilities of $675m. The IOOF Group has committed
to take up the following facilities prior to acquisition completion and intends to leverage domestic and international Debt Capital
Markets in its longer term finance strategy beyond these repayment terms:
96
IOOF annual report 2018Notes to the financial statementsFor the year ended 30 June 2018 • $240m with a 5 year repayment term from date of draw down with commercial margins against 90 day BBSY;
• $375m with a 3 year repayment term from date of drawdown with commercial margins against 90 day BBSY; and
• $60m revolving facility to cover regulatory and property guarantees and capital commitments.
A committment fee is to be paid under conventional terms until draw down is required.
Contingent liabilities
Contingent liabilities of the IOOF Group exist in relation to claims and/or possible claims which, at the date of signing these accounts,
have not been resolved. An assessment of the likely loss to the Company and its controlled entities has been made in respect of
the identified claims, on a claim by claim basis, and specific provision has been made where appropriate. The IOOF Group does
not consider that the outcome of any other current proceedings, either individually or in aggregate, is likely to materially affect its
operations or financial position.
3-5 Reserves
Available-for-sale investment revaluation reserve
Business combinations reserve
Foreign currency translation reserve
Operating Risk Financial reserve*
Share-based payments reserve
2018
$’000
18,804
(326)
44
2,655
(1,764)
19,413
2017
$’000
13,074
(326)
121
2,655
(2,175)
13,349
*This reserve is held for certain AET Superannuation products. Other similar reserves exist within the IOOF Group, however these are generally held by the relevant funds.
97
IOOF annual report 2018 Section 4 - Operating assets and liabilities
This section shows the assets used to generate the IOOF Group’s trading performance and the liabilities incurred as a result.
Liabilities relating to the Group’s financing activities are addressed in Section 3.
4-1 Associates
Associates are those entities over which the IOOF Group has significant influence, but not control, over the financial and
operating policies.
The IOOF Group has interests in a number of associates. For one of these associates, Perennial Value Management Limited, the IOOF
Group owns 52.4% (2017: 52.4%) of the equity interests but has 42.4% of the voting rights and dividend entitlements. The IOOF Group
has determined that it does not have control but has significant influence because it has representation on the board of the investee.
The table below discloses material associates individually:
Associate
Country of
incorporation
Ownership interest
2018
2017
Carrying
value
Perennial Value Management Ltd
Australia
Other associates
%
52.4
%
52.4
$’000
10,274
13,728
24,002
IOOF
Group’s
share of
profit/
(loss)
$’000
1,811
713
2,524
Associates had a carrying value of $21,081,000 and share of profit of $3,478,000 in 2017.
The following table summarises the financial information of the IOOF Group’s material associate, Perennial Value Management Limited,
as included in its own financial statements. All fair values and accounting policies are consistent with those of the IOOF Group.
Beneficial ownership interest
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets (100%)
IOOF Group's share of net assets (42.4%)
IOOF Group's share of movements in equity and other reserves (42.4%)
Goodwill
Carrying value of interest in associate
Revenue (100%)
Profit and total comprehensive income (100%)
Profit and total comprehensive income (42.4%)
Dividends received by the IOOF Group
2018
$’000
42.4%
17,222
7,422
(6,967)
(408)
17,269
7,313
(1,490)
4,451
10,274
26,202
4,278
1,811
1,270
2017
$’000
42.4%
14,655
7,516
(5,376)
(619)
16,176
6,851
(1,569)
4,451
9,733
27,196
6,285
2,662
2,961
None of the IOOF Group’s equity-accounted investees are publicly listed entities and consequently do not have published
price quotations.
Dividends received from associates
During the year, the IOOF Group has received dividends of $1,753,000 (2017: $3,966,000) from its associates.
98
IOOF annual report 2018Notes to the financial statementsFor the year ended 30 June 2018 Accounting policies
Interests in associates are accounted for using the equity method. They are initially recognised at cost, which includes any transaction
costs. Subsequent to initial recognition, the consolidated financial statements include the IOOF Group’s share of the profit or loss and
other comprehensive income of the associates, until the date on which significant influence ceases.
4-2 Intangible assets (other than goodwill)
2018
$’000
677,147
(268,837)
408,310
IT Develop-
ment
Computer
software
Customer
relationships
Brand
names
Other
Intangibles
$’000
641
–
1,167
–
(524)
1,284
$’000
5,246
–
–
–
(979)
4,267
$’000
361,558
6,188
–
(20)
(35,790)
331,936
$’000
67,746
–
–
–
(801)
66,945
$’000
5,888
–
122
(302)
(1,830)
3,878
2017
$’000
670,159
(229,080)
441,079
Total
$’000
441,079
6,188
1,289
(322)
(39,924)
408,310
Cost
Accumulated amortisation
Carrying value at 1 July 2017
Acquisition through business
combination
Additions
Divestments
Amortisation expense
Carrying value at 30 June 2018
Accounting policies
Intangible assets are non-physical assets used by the IOOF Group to generate revenues and profits. These assets include brand names,
software, customer and adviser relationships and contractual arrangements. The cost of these assets is the amount that the IOOF
Group has paid or, where there has been a business combination, the fair value of the specific intangible assets that could be sold
separately or which arise from legal rights.
The value of intangible assets, with the exception of goodwill and brand names with indefinite useful lives, reduces over the number
of years the IOOF Group expects to use the asset, the useful economic life, via an annual amortisation charge to profit and loss.
The values and useful lives ascribed are reflective of arms-length transactions and independent expert advice thereon. Where there
has been a technological change or decline in business performance the Directors review the value of assets to ensure they have not
fallen below their carrying value. Should an asset’s value fall below its carrying value an additional one-off impairment charge is made
against profit.
Subsequent expenditure
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which
it relates. All other expenditure, including expenditure on brands, is recognised in profit or loss as incurred.
Amortisation
Amortisation is charged to the income statement over the estimated useful lives of intangible assets unless such lives are judged to be
indefinite. Indefinite life assets are not amortised but are tested for impairment at each reporting date. The estimated useful lives for
the current and comparative years are as follows:
• brand names 20 years
• computer software 2.5 - 10 years
• customer relationships 10 - 20 years
•
IT development 3 - 5 years
• other 5 - 10 years
Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
99
IOOF annual report 2018 Impairment testing for cash-generating units containing indefinite life intangible assets
For the purposes of impairment testing, indefinite life intangibles are allocated to the IOOF Group’s operating divisions, or CGUs, which
represent the lowest level within the IOOF Group at which intangible assets are monitored for internal management purposes.
Each CGU is not higher than the IOOF Group’s operating segments as reported in Note 2-1 Operating segments.
Indefinite life intangible assets
The indefinite life intangible assets relate to brand names. The below table excludes $8.7m of intangibles which have a finite life.
The aggregate carrying amounts of indefinite-life intangible assets allocated to each CGU are as follows:
Shadforth
Ord Minnett group
Lonsdale
2018
$’000
51,000
6,773
500
2017
$’000
51,000
6,773
500
58,273
58,273
In designating brand names as indefinite life, consideration was given to the length of time the brand names have been in existence
and it was determined that there is no foreseeable limit to the years over which the brand names are expected to generate net cash
inflows for the IOOF Group.
The recoverable amount for the brand names have been determined based on a royalty savings method of calculating value in use.
The calculation incorporates estimated costs of brand maintenance. The discount rate of 12.7% (2017: 12.5%) used reflects the IOOF
Group’s pre-tax nominal weighted average cost of capital (WACC). Management’s assessment of indefinite life intangible value-in-use
exceeds the value of the intangible asset allocated to the CGU, therefore any reasonably possible changes to assumptions used in
management’s assessment is not expected to result in impairment.
4-3 Goodwill
Cost
Accumulated impairment
Net carrying value of goodwill
Carrying value at 1 July
Acquisition through business combination
Impairment of goodwill
Carrying value at 30 June
2018
$’000
2017
$’000
1,024,166
1,010,468
(83,940)
940,226
954,867
13,698
(28,339)
(55,601)
954,867
991,712
1,747
(38,592)
940,226
954,867
A non-cash impairment of $28.3m has been recognised in relation to goodwill allocated to Perennial Investment Partners Limited
(2017: $38.6m). Reduced profitability from lower revenue led to calculated value-in-use declining to below the carrying value of the
aggregate goodwill and investment balances. Revenue decline has arisen due to institutional outflows. These outflows reflect below
benchmark performance in certain core products and changing market dynamics, where larger institutions now weight a greater
proportion of funds to indexed products.
100
IOOF annual report 2018Notes to the financial statementsFor the year ended 30 June 2018 Accounting policies
Goodwill represents the future economic benefits that arise from assets that are not capable of being individually identified and
separately recognised. Its cost is the amount the IOOF Group has paid in acquiring a business over and above the fair value of the
individual assets and liabilities acquired. The value of goodwill is an ‘intangible’ value that comes from, for example, a uniquely strong
market position and the outstanding productivity of its employees. The goodwill recognised by the IOOF Group has all arisen as a
result of business combinations.
For the measurement of goodwill at initial recognition, see section 7-3(b)(i) Business combinations.
Subsequent measurement
Goodwill is measured at cost less accumulated impairment losses. In respect of equity-accounted investees, the carrying amount of
goodwill is included in the carrying amount of the investment, and any impairment loss is allocated to the carrying amount of the
equity accounted investee as a whole.
Impairment testing for cash-generating units containing goodwill
For the purposes of impairment testing, goodwill is allocated to the IOOF Group’s cash-generating units (CGUs). These represent the
lowest level within the IOOF Group at which the goodwill is monitored for internal management purposes. Assets that cannot be
tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are
largely independent of the cash inflows from continuing use of other assets or groups of assets (the CGU).
These CGUs are not higher than the IOOF Group’s operating segments as reported in 2-1 Operating segments.
The aggregate carrying amounts of goodwill allocated to each CGU are as follows:
2018
2017
Cash inflows
yrs 2-5
Cash out
flows yrs 2-5
Cash flows
– perpetuity
Value in Use element
Shadforth
Platform management and
administration
Perennial
DKN
Multi manager
IOOF Ltd
Consultum
Bridges
Australian Executor Trustees
$’000
431,191
347,509
9,490
80,339
39,735
11,970
4,344
1,950
13,698
$’000
431,191
347,509
37,829
80,339
39,735
11,970
4,344
1,950
–
940,226
954,867
A Reserve Bank of Australia forecast GDP growth rate1
B Blended rate of the 2019 budgeted rates by asset class and business unit
C Forecast for Perennial Value Management Limited
B
B
C
B
B
D
A
B
F
E
E
E
E
E
D
E
E
F
2.3% growth from yr 5
2.3% growth from yr 5
2.3% growth from yr 5
2.3% growth from yr 5
2.3% growth from yr 5
2.3% growth from yr 5
2.3% growth from yr 5
2.3% growth from yr 5
2.3% growth from yr 5
D Observed Australian friendly societies annual compounding growth for March 2013 to March 20182
E Blended rate of the underlying Australian forecast inflation levels and the applicable Reserve Bank of Australia GDP growth rate1
F Arose from a recently concluded, arms-length transaction which provides a reasonable estimate of fair value
1
2
source - RBA Statement of Monetary Policy
source - ABS 5655.0 Managed Funds Australia
101
IOOF annual report 2018 The recoverable amounts for goodwill allocated to all CGUs have been determined based on value-in-use calculations using 2018
actual balances to forecast 2019 and beyond cash flows. The manner in which the IOOF Group conducts each impairment assessment
for years 2 to 5 and into perpetuity is discussed below for each relevant CGU.
The growth rates applied do not exceed the long-term average growth rate for businesses in which each CGU operates. The pre-
tax discount rate of 12.7% (2017: 12.5%) used reflects the IOOF Group’s pre-tax nominal weighted average cost of capital (WACC).
Management’s assessment of goodwill’s value-in-use exceeds the value of goodwill allocated to these CGUs, except for the Perennial
CGU where a $28.3m non-cash impairment has been recognised in 2018. Any reasonably possible changes to assumptions used in
management’s assessment is not expected to result in impairment.
Management has applied post tax WACC increments of 2.5% for Perennial and 3.5% for Consultum to reflect specific company risk
premiums. These incremental amounts are judgement based and are consistent with accepted valuation industry practice.
4-4 Provisions
Onerous contracts
Employee entitlements
Other
Balance at 1 July 2017
Acquisition through business combination
Provisions made during the year1
Provisions utilised during the year
Balance at 30 June 2018
2018
$’000
985
67,487
47,863
116,335
2017
$’000
350
62,456
1,833
64,639
Other
Total
$’000
1,833
1,977
45,203
(1,150)
47,863
$’000
64,639
2,314
89,413
(40,031)
116,335
Onerous
contracts
Employee
entitle-
ments
$’000
350
–
2,345
(1,710)
985
$’000
62,456
337
41,865
(37,171)
67,487
1 Other includes $44.3m settlements with the representative plaintiffs in the Provident Proceedings.
Accounting policies
A provision is recognised if, as a result of a past event, the IOOF Group has a present legal or constructive obligation that can be
estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions
are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the
time value of money
Onerous contracts
A provision for onerous contracts is recognised when the expected benefits to be derived by the IOOF Group from a contract are
lower than the unavoidable cost of meeting its obligations under the contract. The provision is valued as the estimated present value
of future lease payments net of anticipated recoveries from third parties, that the IOOF Group is presently obligated to make under
non-cancellable operating lease contracts. The estimate may vary as a result of changes in the utilisation of the leased premises
and sub-lease arrangements where applicable. Provisions relate to onerous lease contracts. The unexpired term of these leases is
less than 1 year.
102
IOOF annual report 2018Notes to the financial statementsFor the year ended 30 June 2018 Employee entitlements
The provision for employee benefits includes provisions for remuneration in the form of incentive plans and expected leave benefits
that employees have earned in return for their service in the current and prior years plus related on-costs.
A provision for employee benefits in the form of an incentive plan is recognised when there is no realistic alternative but to settle the
liability, and at least one of the following conditions is met:
•
•
there are formal terms in the plan for determining the amount of the benefit;
the amounts to be paid are determined before the time of completion of the financial report; or
• past practice gives clear evidence of the amount of the obligation.
A provision for restructuring is recognised when the IOOF Group has approved a detailed and formal restructuring plan, and the
restructuring either has commenced or has been announced publicly. Future operating losses are not provided for.
Liabilities for incentives are expected to be settled within 12 months and are measured at the amounts expected to be paid when
they are settled.
Other provisions
Other provisions have been made for the present value of the Directors’ best estimates of legal settlements. The information usually
required by AASB 137 Provisions, Contingent Liabilities and Contingent Assets, is not disclosed on the grounds that it can be expected
to prejudice the outcome of certain other litigation.
103
IOOF annual report 2018 Section 5 - Statutory funds
A subsidiary of the Company, IOOF Ltd, is a friendly society in accordance with the Life Insurance Act 1995. Balances below are
disclosed inclusive of amounts collected/receivable from or paid/payable to IOOF Group entities. These funds are not available
to shareholders.
5-1 Assets relating to statutory funds
Cash at bank
Receivables
Unlisted unit trusts
Loans to policyholders
Statutory
2018
$’000
4,178
49,691
951,855
30,767
Investments backing policyholder liabilities designated at fair value through profit or loss
1,036,491
2017
$’000
3,717
32,794
875,079
22,529
934,119
Assets held in the Statutory Funds (including the Benefit Funds) are subject to the distribution and transfer restrictions and other
requirements of the Life Insurance Act 1995. Monies held in the benefit funds and controlled trusts are held for the benefit of the
members of those funds, and are subject to the constitution and rules of those funds.
Accordingly, with the exception of permitted profit distributions, the investments held in the statutory funds are not available for use
by other parties of the IOOF Group.
The IOOF Group has determined that all financial assets held within its reported statutory funds (including the benefit funds which
are treated as statutory funds) represent the assets backing policy liabilities and are measured at fair value through profit or loss.
Other than loans and receivables held by the IOOF Group and its controlled entities, assets backing policy liabilities have been
designated at fair value through profit or loss as the assets are managed on a fair value basis.
5-2 Liabilities relating to statutory funds
Payables
Seed capital
Deferred tax liabilities
Investment contract liabilities with DPF
Investment contract liabilities
Policyholder liabilities
Statutory
2018
$’000
9,955
7,153
4,501
240,379
774,503
1,036,491
2017
$’000
6,360
7,153
2,307
267,220
651,079
934,119
Policy liabilities have been determined in accordance with applicable accounting standards. Policy liabilities for life insurance contracts
are valued in accordance with AASB 1038, whereas life investment contracts are valued in accordance with AASB 139 and AASB 118.
There are differences between the valuation requirements of the accounting standards and those of the Life Insurance Act 1995.
104
IOOF annual report 2018Notes to the financial statementsFor the year ended 30 June 2018 Accounting policies
Contract classification
The accounting treatment of certain transactions varies depending on the nature of the contract underlying the transaction.
The major contract classifications are insurance contracts and investment contracts.
(i) Insurance contracts
Insurance contracts with DPF are those containing significant insurance risk at the inception of the contract, or those where at
the inception of the contract there is a scenario with commercial substance where the level of insurance risk may be significant.
The significance of insurance risk is dependent on both the probability of an insured event and the magnitude of its potential effect.
Life insurance contract liabilities are calculated in accordance with actuarial standards.
Once a contract has been classified as an insurance contract, it remains an insurance contract for the remainder of its lifetime, even if
the insurance risk reduces significantly during the year.
(ii) Investment contracts
Contracts not considered insurance contracts are classified as investment contracts. The accounting treatment of investment
contracts depends on whether the investment has a discretionary participation feature (‘DPF’). A DPF represents a contractual right to
receive, as a supplement to guaranteed benefits, additional benefits that are:
•
likely to be a significant portion of the total benefits;
• distributed at the discretion of the insurer; and
• are based on the performance of a specified pool of assets.
Deposits collected and benefits paid under investment contracts with DPF are accounted for through profit or loss. The gross
change in the liability to these policyholders for the year, which includes any participating benefits vested in policyholders and any
undistributed surplus attributed to policyholders, is also recognised in profit or loss.
Deposits collected and withdrawals processed for investment contracts without DPF are accounted for directly through the statement
of financial position as a movement in the investment contract liability. Distributions on these contracts are charged to profit or
loss as an expense.
Where contracts contain both an investment component and an insurance component and the deposit component can be
separately measured, the underlying amounts are unbundled. Premiums relating to the insurance component are accounted for
through profit or loss and the investment component is accounted for as a deposit through the statement of financial position as
described above.
105
IOOF annual report 2018 5-3 Reconciliation of movements in contract liabilities
Investment contract liabilities with DPF
Investment contract liabilities with DPF at beginning of the year
267,220
300,259
Statutory
2018
$’000
2017
$’000
Net increase in investment contract liabilities with DPF
Investment contract liabilities with DPF contributions
Investment contract liabilities with DPF withdrawals
Investment contract liabilities with DPF at end of the year
Other investment contract liabilities
Investment contract liabilities at beginning of the year
Net increase in investment contract policy liabilities
Investment contract contributions
Investment contract withdrawals
Investment contract liabilities at end of the year
5-4 Statutory fund contribution to profit or loss, net of tax
Statutory fund revenue
Interest income
Dividends and distributions received
Net fair value gains on other financial assets designated as fair value through profit or loss
Investment contracts with DPF:
Contributions received - investment contracts with DPF
DPF policyholder liability decrease
Non - DPF policyholder liability (increase)
Other fee revenue
Statutory fund expenses
Service and marketing fees expense
Direct operating expenses
Investment contracts with DPF:
Benefits and withdrawals paid
Termination bonuses
Interest
Income tax
Statutory fund contribution to profit or loss, net of tax
106
1,249
5,701
(33,791)
240,379
651,079
45,192
169,009
(90,777)
774,503
Statutory
2018
$’000
794
58,035
13,488
5,701
26,841
(45,192)
2,131
61,798
2,371
6,249
(41,659)
267,220
563,798
36,490
129,571
(78,780)
651,079
2017
$’000
563
54,595
4,999
6,249
33,038
(36,490)
2,062
65,016
10,533
10,354
5
5
33,732
41,636
58
73
44,401
17,397
-
23
106
52,124
12,892
-
IOOF annual report 2018Notes to the financial statementsFor the year ended 30 June 2018 Accounting policies
Processes used to select assumptions
Investment contracts with DPF
Mortality and Morbidity
The value of these liabilities changes in relation to the change
in unit prices for unit linked contracts, and are decreased by
management fee charges. In accordance with the rules of the
funds, any remaining surplus is attributed to the policyholders.
Adjustments to the liabilities at each reporting date are
recorded in profit or loss.
Other investment contracts
The value of these liabilities changes in relation to the change
in unit prices for unit linked contracts, and are decreased by
management fee charges. In accordance with the rules of the
funds, any remaining surplus is attributed to the members of
the fund. Amounts distributable to members are recorded in
profit or loss as an expense.
There is no claims expense in respect of life investment
contracts. Surrenders and withdrawals which relate to life
investment contracts are treated as a movement in life
investment contract liabilities. Surrenders are recognised when
the policyholder formally notifies of their intention to end the
policy previously contracted.
Insurance contract liabilities and claims expense
A claim expense is recognised when the liability to
the policyholder under the policy contract has been
established, or upon notification of the insured event.
Withdrawal components of life insurance contracts are not
expenses and are treated as movements in life insurance
contract liabilities.
5-5 Actuarial assumptions and methods
The effective date of the actuarial report on the policy liabilities
and capital adequacy reserves is 30 June 2018. The actuarial
report for IOOF Ltd was prepared by Mr Andrew Mead, FIAA,
and was dated 15 August 2018. The actuarial report indicates
that Mr Mead is satisfied as to the accuracy of the data upon
which the policy liabilities have been determined.
Actuarial Methods
Policy liabilities have been calculated in accordance with
relevant actuarial guidance issued by the Australian Prudential
Regulation Authority under the Life Insurance Act 1995.
Policy liabilities are based on a systematic release of planned
margins as services are provided to policyholders and
premiums are received.
All mortality and morbidity risk is fully reinsured and the gross
risk to the IOOF Group is low. The mortality and morbidity
assumptions have been taken to be equal to the reinsurer’s
mortality and morbidity assumptions.
Other Assumptions
In adopting the accumulation method to assess the policy
liabilities, one material assumption is required. It is assumed
that the future overall experience as to expense levels,
surrender/lapse rates and discount rates will likely remain
within a satisfactory range so that the policies produce future
profits for the business. In which case, there is no need to set
aside provisions, in addition to the accumulation amounts, for
future losses (i.e. there is no loss recognition concerns for the
business). This assumption has been adopted on the basis that,
based on the current actual experience of the business, the
policies are producing satisfactory profits for the business and
there is no circumstances known that would indicate that the
current position (i.e. general experience levels and ongoing
profitability) will not continue into the future.
Sensitivity analysis
The policy liabilities are not sensitive to changes in variables
within a moderate range. Increases in mortality and morbidity
assumptions will result in an increase in gross policy liabilities
for the IOOF Group, however as the mortality and morbidity
risk is fully reinsured any change in these assumptions would
be consistent with the reinsurer’s assumptions and the net
change in policy liabilities would be nil.
5-6 Disclosures on asset restrictions, managed
assets and trustee activities
(i) Restrictions on assets
Investments held in life statutory funds can only be used in
accordance with the relevant regulatory restrictions imposed
under the Life Act and associated rules and regulations.
The main restrictions are that the assets in a life statutory
fund can only be used to meet the liabilities and expenses of
that life statutory fund, to acquire investments to further the
business of the life statutory fund or as distributions when
capital adequacy and other regulatory requirements are met.
107
IOOF annual report 2018 (ii) Managed Funds and other fiduciary duties
Entities in the IOOF Group, including the IOOF Ltd Benefit
Funds, hold controlling investments in managed funds.
A subsidiary of the Company is the Responsible Entity for these
managed funds and has a fiduciary responsibility for managing
these trusts. Arrangements are in place to ensure that such
activities are managed separately from the other activities of
the IOOF Group.
5-7 Capital adequacy position
Capital adequacy reserves are required to meet the prudential standards determined in accordance with Prudential Standard LPS 110
Capital Adequacy issued by the Australian Prudential Regulation Authority under paragraph 230A(1)(a) of the Life Insurance Act 1995.
Capital adequacy reserves provide additional protection to policy holders against the impact of fluctuations and unexpected adverse
circumstances on the Company.
The figures in the table below represent the number of times coverage of the aggregate of all benefit funds and statutory funds in the
Life Group over the prescribed capital amount.
(a) Capital Base
(b) Prescribed capital amount
Capital in excess of prescribed capital amount = (a) - (b)
Capital adequacy multiple (%) (a) / (b)
Capital Base comprises:
Net Assets
Regulatory adjustment applied in calculation of Tier 1 capital
(A) Common Equity Tier 1 Capital
(B) Total Additional Tier 1 Capital
(C) Total Tier 2 Capital
Total capital base
Statutory
2018
$’000
16,749
7,534
9,215
222%
2017
$’000
35,139
14,883
20,256
236%
16,749
35,139
–
–
16,749
35,139
–
–
–
–
16,749
35,139
For detailed capital adequacy information on a statutory fund basis, users of this annual financial report should refer to the financial
statements prepared by the friendly society.
108
IOOF annual report 2018Notes to the financial statementsFor the year ended 30 June 2018 Section 6 - Other disclosures
6-1 Parent entity financials
As at and throughout the financial year ended 30 June 2018, the parent entity of the IOOF Group was IOOF Holdings Ltd.
Result of the parent entity
Profit for the year
Total comprehensive income for the year
Financial position of parent entity at year end
Current assets
Total assets
Current liabilities
Total liabilities
Total equity of the parent entity comprising of:
Share capital
Share-based payments reserve
Retained earnings
Total equity
Parent entity contingent liabilities
2018
$’000
2017
$’000
189,175
189,175
159,871
159,871
428,765
75,845
2,017,840
1,677,687
24,244
24,245
114,215
231,124
1,971,647
1,438,601
2,473
19,475
2,062
5,900
1,993,595
1,446,563
There are currently no complaints or claims made against the parent entity.
The parent entity does not provide any guarantees to subsidiaries or related parties.
6-2 Share-based payments
The IOOF Group operates a number of employee share and option schemes operated by the IOOF Equity Plan Trust (the “Trust”).
The employee share option plans were approved by the Board of Directors.
IOOF Executive and Employee Share Option Plan
The IOOF Group has an ownership-based compensation scheme for executives and senior employees.
Selected employees may be granted options which entitle them to purchase ordinary fully paid shares in the Company at a price fixed
at the time the options are granted. Voting and dividend rights will be attached to the unissued ordinary shares when the options
have been exercised. Options may be exercised at any time from the date of vesting to the date of their expiry.
The Remuneration Committee regards the grant of options to employees as an appropriate long-term incentive and retention
component of total remuneration for executives and senior employees. It is expected that future annual grants of options will
be made, the vesting of which will be subject to attainment of appropriate performance hurdles and on the basis of continuing
employment with the IOOF Group.
Options granted under the plan carry no dividend or voting rights. All plans are equity-settled. There were no options granted in 2018.
109
IOOF annual report 2018 IOOF Executive Performance Rights Plan
The IOOF Executive Performance Rights Plan is the vehicle used to deliver equity based incentives to executives and senior employees
of the IOOF Group.
Each employee receives ordinary shares of the Company on vesting of the performance rights. No amounts are paid or payable by the
recipient on receipt of the performance rights or on vesting. The performance rights carry neither rights to dividends nor voting rights
prior to vesting.
The Remuneration Committee regards the grant of performance rights to employees as an appropriate long-term incentive
and retention component of total remuneration for executives and senior employees. It is expected that future annual grants of
performance rights will be made, subject to the Board’s determination of the overall performance of the Company and market
conditions. The vesting of any performance rights awarded will be subject to attainment of appropriate performance hurdles and on
the basis of continuing employment with the IOOF Group.
Performance rights granted under the plan carry no dividend or voting rights. All plans are equity-settled.
Deferred Share Plan
A Short Term Incentive (STI) mandatory deferral program exists with equity deferral relating to half of the Managing Director’s STI.
This also applies to Executive STIs from 2018 onwards.
The following share-based payment arrangements were in existence during the current and comparative reporting years:
On vesting of performance rights, ordinary shares are transferred to the employee’s name or held in trust. The employee receives all
dividends on the ordinary shares while held in trust.
Opening balance at 1 July 2017
Forfeited or lapsed during the year
Exercised during the year
Granted during the year
Outstanding at 30 June 2018
Exercisable at 30 June 2018
Performance
Rights
Number of
rights
Deferred
Shares
Number of
shares
Total
Number of
rights & shares
No.
647,817
(135,000)
(243,027)
383,168
652,958
–
No.
77,315
–
(41,895)
187,492
222,912
–
No.
725,132
(135,000)
(284,922)
570,660
875,870
–
110
IOOF annual report 2018Notes to the financial statementsFor the year ended 30 June 2018 Disclosure of share-based payment plans
Series – Recipient
Performance rights
2015-01 Executives
2015-02 Managing Director
2016-01 Executives
2016-02 Managing Director
2017-01 Executives
2017-02 Managing Director
2017-03 Executives
2017-04 Other Key Stakeholders
2018-01 Executives
2018-02 Managing Director
2018-03 Other Key Stakeholders1
2018-04 Other Key Stakeholders
Deferred shares
2016-03 Managing Director
2017-03 Managing Director
2018-05 Managing Director
2018-06 Executives
Exercise
price
Opening
balance
as at
1 July 2017
Granted
Forfeited
or lapsed
Exercised
Closing
balance
as at
30 June 2018
$nil
$nil
$nil
$nil
$nil
$nil
$nil
$nil
$nil
$nil
$nil
$nil
$nil
$nil
$nil
$nil
103,750
49,500
60,000
75,000
180,000
120,000
30,000
29,567
–
–
–
–
647,817
41,895
35,420
–
–
77,315
725,132
–
–
–
–
–
–
–
–
155,000
122,500
89,777
15,891
383,168
–
–
36,632
150,860
187,492
–
–
(103,750)
(49,500)
(30,000)
(75,000)
(30,000)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(89,777)
–
(135,000)
(243,027)
–
–
–
–
–
(41,895)
–
–
–
(41,895)
570,660
(135,000)
(284,922)
–
–
30,000
–
150,000
120,000
30,000
29,567
155,000
122,500
–
15,891
652,958
–
35,420
36,632
150,860
222,912
875,870
1 Shares are held in trust for 18 months and may be forfeited in the event of compliance breaches.
There are no options outstanding at 30 June 2018.
Inputs for measurement of grant date fair values granted during the financial year
The grant date fair value of share-based payment plans granted during the year were measured based on a binomial options pricing
model for non-market performance conditions and a monte carlo simulation model for market performance conditions. Expected
volatility is estimated by considering historic average share price volatility. The inputs used in the measurement of the fair values at
grant date of the share-based payment plans are the following:
Series
Fair value
Grant date
share price
Expected
volatility
Expected
life (years)
Dividend
yield
Risk-free
interest rate
2018-01 Executives
2018-02 Managing Director
2018-03 Other Key Stakeholders
2018-04 Other Key Stakeholders
$8.32
$6.61
$9.81
$9.21
$11.08
$10.92
$11.44
$10.74
25%
25%
n/a
n/a
3
3
2
3
4.7%
4.7%
4.6%
5.0%
2.0%
1.8%
1.9%
2.0%
111
IOOF annual report 2018 The following share-based payment arrangements were in existence during the current and comparative reporting years:
Performance Rights Series – Recipient
Exercise
price
Earliest
vesting
date
Last tranche
vesting date
2018-04 Other Key Stakeholders
2018-03 Other Key Stakeholders1
2018-02 Managing Director
2018-01 Executives
2017-04 Other Key Stakeholders
2017-03 Executives
2017-02 Managing Director
2017-01 Executives
2016-02 Managing Director
2016-01 Executives
2015-02 Managing Director
2015-01 Executives
2012-01 Managing Director
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
30-Jun-20
19-Apr-18
30-Jun-20
30-Jun-20
30-Jun-19
31-Dec-19
30-Jun-19
30-Jun-19
30-Jun-18
30-Jun-18
30-Jun-17
30-Jun-17
01-Jul-14
Performance
related
vesting
conditions
n/a
n/a
TSR & RoE
TSR
n/a
TSR
TSR & RoE
TSR
TSR & RoE
TSR
TSR & RoE
TSR
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
n/a
01-Jul-16
TSR & RoE
1
Shares are held in trust for 18 months and may be forfeited in the event of compliance breaches.
The breakdown of share-based payments expense for the year by recipient is as follows. This represents the expense recorded to date
and does not reflect the opportunity to transfer to retained profits the value of those legacy series that will lapse.
Recipient
Managing Director
Senior Management
Other Key Stakeholders
Accounting policies
2018
$’000
893
833
1,002
2,728
2017
$’000
753
513
29
1,295
The grant date fair value of share-based payment awards granted to employees is recognised as a share-based payment expense, with
a corresponding increase in the share-based payments reserve, over the years that the employees unconditionally become entitled to
the awards. The amount recognised as an expense is adjusted to reflect the number of awards for which the related service and non-
market vesting conditions are expected to be met, such that the amount ultimately recognised as an expense is based on the number
of awards that meet the related service and non-market performance conditions at vesting date.
For share-based payment awards with non-vesting conditions, the grant date fair value of the share-based payment is measured to
reflect such conditions and there is no true-up for differences between expected and actual outcomes.
The fair value at grant date is independently determined where considered appropriate. The option pricing model used takes into
account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of
the underlying share, the expected dividend yield and the risk free interest rate for the term of the option.
Shares held by the Trust will contribute to the employee allocation of shares on satisfaction of vesting performance hurdles. The IOOF
Group has no right to recall placed shares. However, a subsidiary company acts as the Trustee of the Trust, and can direct the voting
rights of shares held.
Shares in the Company held by the Trust are classified and disclosed as treasury shares, and deducted from share capital. Dividends
received by the Trust are recorded as dividend income in the financial statements of the Trust and are eliminated on consolidation.
112
IOOF annual report 2018Notes to the financial statementsFor the year ended 30 June 2018 6-3 IOOF Group subsidiaries
Set out below is a list of material subsidiaries of the IOOF Group.
Parent entity
IOOF Holdings Ltd
Material subsidiaries
AET Corporate Trust Pty Limited
Australian Executor Trustees Limited
Bridges Financial Services Pty Limited
Consultum Financial Advisers Pty Ltd
Executive Wealth Management Financial Services Pty Limited
I.O.O.F. Investment Management Limited
IOOF Ltd
IOOF Equity Plan Trust
IOOF NZ Ltd
IOOF Service Co Pty Ltd
Lonsdale Financial Group Limited
SFG Australia Limited
Financial Acuity Limited
Shadforth Financial Group Limited
Actuate Alliance Services Pty Ltd
Ord Minnett Limited
Ord Minnett Financial Planning Pty Limited
Ord Minnett Management Limited
Unconsolidated structured entities
Country of
incorporation
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Ownership interest
2018
%
2017
%
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
70.0
70.0
70.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
70.0
70.0
70.0
The IOOF Group has interests in various structured entities that are not consolidated. An ‘interest’ in an unconsolidated structured
entity is any form of contractual or non-contractual involvement which exposes the IOOF Group to variability of returns from the
performance of that entity. Such interests include holdings of equity securities, seed capital and fees from funds management
activities. The seed capital is primarily available to support the business in establishing new products and is also used to support
capital adequacy requirements of the benefit funds.
The IOOF Group has investments in managed investment funds through its asset management subsidiaries. Control of these
managed investment funds may exist since the IOOF Group has power over the activities of the fund. However, these funds have
not been consolidated because the IOOF Group is not exposed to significant variability in returns from the funds. The IOOF Group
earns management fees from the management of these investment funds which are commensurate with the services provided and
are reported in external management and service fee revenue in note 2-2. Management fees are generally based on the value of
the assets under management. Therefore, the fees earned are impacted by the composition of the assets under management and
fluctuations in financial markets.
Investment funds are investment vehicles that consist of a pool of funds collected from several investors for the purpose of investing
in securities such as money market instruments, debt securities, equity securities and other similar assets. For all investment funds, the
IOOF Group’s maximum exposure to loss is equivalent to the carrying amount of the investment in the fund.
113
IOOF annual report 2018 6-4 Remuneration of auditors
Auditors’ remuneration paid or payable by members of the IOOF Group to the auditors of the corporate entities in relation to audit
services of the corporate entities and products operated by the IOOF Group during the year and for the prior year:
Audit services
Auditors of the Company
KPMG Australia
Audit and review of financial reports
Other regulatory audit services
Other services
Auditors of the Company
KPMG Australia
Taxation services
Due diligence services
Other services
All amounts payable to the Auditors of the Company were paid by an IOOF Group subsidiary.
6-5 Key management personnel
The key management personnel compensation comprised:
Short-term employee benefits
Post-employment benefits
Share-based payments
Key management personnel compensation reconciles to disclosures in the remuneration report as follows:
Executive key management personnel
Non-executive Directors
2018
$
2017
$
2,721,222
1,010,007
3,731,229
2,903,518
1,052,624
3,956,142
271,280
122,488
417,427
811,195
131,452
185,744
182,762
499,958
4,542,424
4,456,100
2018
$
2017
$
4,888,456
5,452,163
179,290
176,413
2,429,027
1,511,047
7,496,773
7,139,623
6,531,773
6,151,285
965,000
988,338
7,496,773
7,139,623
Individual Directors and executives compensation disclosures
Information regarding individual Directors and executives compensation and some equity instruments disclosures as required by
Corporations Regulation 2M.3.03 is provided in the remuneration report section of the Directors’ Report.
No Director has entered into a material contract with the IOOF Group since the end of the prior financial year and there were no
material contracts involving directors’ interests existing at year-end.
114
IOOF annual report 2018Notes to the financial statementsFor the year ended 30 June 2018 6-6 Related party transactions
(a) Ultimate parent entity
IOOF Holdings Ltd is the ultimate parent entity in the IOOF Group.
(b) Loans to Directors and executives of associates and subsidiaries
Financial
year
Opening
balance
1 July
Closing
balance
June
Interest paid
and payable
during
the year
Interest free loans
Perennial Value Management Limited
Interest bearing loans
Perennial Value Management Limited
2018
2017
2018
2017
Highest
balance
during
the year
$
2,286,717
2,286,717
$
$
2,286,717
2,286,717
2,286,717
2,286,717
$
–
–
6,267,091
6,402,062
239,898
6,402,062
6,263,882
6,267,091
234,588
6,336,367
The amounts above were advanced by Perennial Investment Partners Pty Ltd and I.O.O.F. Investment Management Limited for the
specific purpose of assisting executives to acquire an equity interest in subsidiaries and associates of the Company. Secured interest
bearing loans totalling $6,402,062 were made on commercial terms and conditions and loans totalling $2,286,717 are unsecured
interest free loans.
(c) Transactions with key management personnel
i. Key management personnel compensation
Details of key management personnel compensation are disclosed in section 6-5 to the financial statements and in the
Remuneration Report.
ii. Loans to key management personnel
There are no loans between the IOOF Group and key management personnel.
iii. Other transactions with key management personnel of the IOOF Group
During the financial year the IOOF Group purchased artwork from Mr C Kelaher for $35,000. The amount paid represents the fair value
as determined by a third-party independent valuation.
There were no other transactions with key management personnel of the IOOF Group during the 2018 and 2017 financial years.
115
IOOF annual report 2018 Section 7 - Basis of preparation
This section sets out the IOOF Group’s accounting policies that relate to the financial statements as a whole. Where an accounting
policy is specific to a single note, the policy is described in the note to which it relates. This section also shows new accounting
standards, amendments and interpretations, and whether they are effective in 2018 or later years. How these changes are expected
to impact the financial position and performance of the IOOF Group is explained in this section.
7-1 Reporting entity
(c) Functional and presentation currency
The Company is a public company listed on the Australian
Stock Exchange (trading under the symbol ‘IFL’), domiciled
in Australia. The consolidated financial statements of the
Company as at and for the year ended 30 June 2018 comprise
the Company and its controlled entities and the IOOF Group’s
interests in associates.
The IOOF Group is a for-profit entity and is primarily involved in
the provision of wealth management services.
The Company’s registered office and its principal place of
business are Level 6, 161 Collins Street, Melbourne.
7-2 Basis of preparation
(a) Statement of compliance
These general purpose financial statements have been
prepared in accordance with Australian Accounting Standards
(AASBs) adopted by the Australian Accounting Standards
Board (AASB) and the Corporations Act 2001. The consolidated
financial statements comply with International Financial
Reporting Standards (IFRS) adopted by the International
Accounting Standards Board (IASB).
The annual financial report was approved by the Board of
Directors on 30 August 2018.
(b) Basis of measurement
The consolidated financial statements have been prepared on
the historical cost basis except for the following material items
in the statement of financial position:
• financial instruments at fair value through profit or loss are
measured at fair value; and
• available-for-sale financial assets are measured at fair value.
The statement of financial position is presented in
order of liquidity.
116
These consolidated financial statements are presented in
Australian dollars, which is the Company’s functional currency.
All amounts have been rounded to the nearest thousand
unless otherwise stated.
(d) Rounding of amounts
The Company is a company of the kind referred to in ASIC
Corporations Instrument 2016/191, dated 24 March 2016, and
in accordance with that Instrument amounts in the financial
report are rounded off to the nearest thousand dollars,
narrative disclosures are expressed in whole dollars or as
otherwise indicated.
(e) Use of estimates and judgements
To conform with AASBs management is required to make
judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts
of assets, liabilities, income and expenses. Actual results may
differ from these estimates.
Estimates and underlying assumptions are reviewed on
an ongoing basis. Revisions to accounting estimates are
recognised in the year in which the estimates are revised and
in any future years affected.
Information about critical judgements in applying accounting
policies that have the most significant effect on the amounts
recognised in the financial statements is included in the
following notes:
• section 2-3 - (vi) Deferred acquisition costs;
• section 4-2 - Intangible assets (other than goodwill);
• section 4-3 - Goodwill; and
• section 6-2 - Share-based payments.
Information about assumptions and estimation uncertainties
that have a significant risk of resulting in a material
adjustment within the next financial year are included in the
following notes:
• note 4-2 & 4-3 - key assumptions used in discounted cash
flow projections; and
• note 3-4 & 4-4 - contingencies and provisions.
IOOF annual report 2018Notes to the financial statementsFor the year ended 30 June 2018 7-3 Other significant accounting policies
Significant accounting policies have been included in the
relevant notes to which the policies relate. Other significant
accounting policies are listed below.
Certain comparative amounts have been reclassified to
conform with the current year’s presentation.
(a) Changes in accounting policies
The IOOF Group has consistently applied the accounting
policies to all years presented in these consolidated
financial statements.
(b) Basis of consolidation
The consolidated financial statements incorporate the assets
and liabilities of all subsidiaries of the Company as at 30 June
2018 and the results of all controlled subsidiaries for the year
then ended. This includes the benefit funds of its subsidiary,
IOOF Ltd, and any controlled trusts.
The benefit funds, and any trusts controlled by those funds,
are treated as statutory funds in accordance with the Life
Insurance Act 1995. These statutory funds, in addition to the
statutory funds of the life insurance business conducted by the
IOOF Group, are shown separately from shareholder funds in
the notes to the financial statements.
Refer to Note 5-2 Liabilities relating to statutory funds for
information in relation to the different accounting treatment of
investment contracts with discretionary participating features.
(i) Business combinations
The IOOF Group accounts for business combinations
using the acquisition method when control is transferred.
The consideration transferred in the acquisition is generally
measured at fair value, as are the identifiable net assets
acquired. Any goodwill that arises is tested annually for
impairment. Any gain on a bargain purchase is recognised
in profit or loss immediately. Transaction costs are expensed
as incurred, except if related to the issue of debt or
equity securities.
Any contingent consideration payable is recognised at fair
value at the acquisition date. If the contingent consideration
is classified as equity, it is not remeasured and settlement is
accounted for within equity. Otherwise, subsequent changes
to the fair value of the contingent consideration are recognised
in profit or loss.
When share-based payment awards (replacement awards) are
required to be exchanged for awards held by the acquiree’s
employees (acquiree’s awards) and relate to past services, then
all or a portion of the amount of the acquiree’s replacement
awards is included in measuring the consideration transferred
in the business combination. This determination is based on
the market-based value of the replacement awards compared
with the market-based value of the acquiree’s awards and the
extent to which the replacement awards relate to past and/or
future service.
(ii) Non-controlling interests (NCI)
NCI are measured at their proportionate share of the acquiree’s
identifiable net assets at the acquisition date. Changes in the
IOOF Group’s interest in a subsidiary that do not result in a loss
of control are accounted for as equity transactions.
(iii) Subsidiaries
Subsidiaries are entities controlled by the IOOF Group.
The IOOF Group controls an entity when it is exposed to, or
has rights to, variable returns from its involvement with the
entity and has the ability to affect those returns through its
power over the entity. The financial statements of subsidiaries
are included in the consolidated financial statements from the
date on which control commences until the date on which
control ceases.
(iv) Loss of control
When the IOOF Group loses control over a subsidiary, it
derecognises the assets and liabilities of the subsidiary, and
any related NCI and other components of equity. Any resulting
gain or loss is recognised in profit or loss. Any interest retained
in the former subsidiary is measured at fair value when
control is lost.
(v) IOOF Equity Plan Trust (the “Trust”)
The IOOF Group has formed a trust to administer the IOOF
Group’s employee share schemes. The Trust is consolidated, as
the substance of the relationship is that the Trust is controlled
by the IOOF Group. Shares held by the Trust are disclosed as
treasury shares and are deducted from share capital.
117
IOOF annual report 2018 The gain or loss on divestment of an item of property and
equipment is determined by comparing the proceeds from
divestment with the carrying amount of the property and
equipment and is recognised net within other income/other
expenses in profit or loss. When revalued assets are sold,
any related amount included in the revaluation reserve is
transferred to retained earnings.
(ii) Subsequent costs
Subsequent costs are included in the asset’s carrying amount
or recognised as a separate asset, as appropriate, only when it
is probable that future economic benefits associated with the
item will flow to the IOOF Group. Repairs and maintenance
costs are charged to profit or loss as they are incurred.
(iii) Depreciation
Depreciation is recognised in profit or loss on a straight-line
basis over the estimated useful lives of each component
of an item of property and equipment. Leased assets are
depreciated over the shorter of the lease term and their useful
lives unless it is reasonably certain that the IOOF Group will
obtain ownership by the end of the lease term.
Items of property and equipment are depreciated from the
date that they are installed and are ready for use, or in respect
of internally constructed assets, from the date that the asset is
completed and ready for use.
The estimated useful lives for the current and comparative year
are as follows:
• office equipment 3-10 years
•
leasehold improvements 3-10 years
• equipment under finance lease 3-10 years
Depreciation methods, useful lives and residual values are
reviewed at each reporting date, and adjusted if appropriate.
(vi) Transactions eliminated on consolidation
Intra-IOOF Group balances and transactions, and any
unrealised income and expenses arising from intra-IOOF Group
transactions, are eliminated in preparing the consolidated
financial statements. Unrealised gains arising from transactions
with equity accounted investees are eliminated against the
investment to the extent of the IOOF Group’s interest in
the investee. Unrealised losses are eliminated in the same
way as unrealised gains, but only to the extent that there is
no evidence of impairment. Dividends paid to the Trust are
also eliminated.
(c) Foreign currency
Foreign currency transactions
Transactions in foreign currencies are translated at the
foreign exchange rate ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign
currencies at the balance sheet date are translated to
Australian dollars at the foreign exchange rate ruling at that
date. Foreign exchange differences arising on translation are
recognised in profit or loss. Non-monetary assets and liabilities
that are measured in terms of historical cost in a foreign
currency are translated using the exchange rate at the date
of the transaction.
Foreign operations
The assets and liabilities of foreign operations, including
goodwill and fair value adjustments arising on consolidation,
are translated to Australian dollars at foreign exchange rates
ruling at the balance sheet date. The revenue and expenses of
foreign operations are translated to Australian dollars at rates
approximating the foreign exchange rates ruling at the dates
of the transactions.
Foreign currency differences are recognised directly in equity
in the foreign currency translation reserve.
(d) Property and equipment
(i) Recognition and measurement
Property and equipment are measured at cost less
any accumulated depreciation and any accumulated
impairment losses.
Cost includes expenditure that is directly attributable to the
acquisition of the asset.
118
IOOF annual report 2018Notes to the financial statementsFor the year ended 30 June 2018 (e)
Impairment
(i) Non-derivative financial assets
A financial asset not carried at fair value through profit or loss
is assessed at each reporting date to determine whether there
is objective evidence that it is impaired. A financial asset is
impaired if objective evidence indicates that a loss event has
occurred after the initial recognition of the asset, and that the
loss event had a negative effect on the estimated future cash
flows of that asset that can be estimated reliably.
Objective evidence that financial assets (including equity
securities) are impaired can include default or delinquency by
a debtor, restructuring of an amount due to the IOOF Group
on terms that the IOOF Group would not consider otherwise,
indications that a debtor or issuer will enter bankruptcy,
adverse changes in the payment status of borrowers or
issuers in the IOOF Group, economic conditions that correlate
with defaults or the disappearance of an active market of a
security. In addition, for an investment in an equity security, a
significant or prolonged decline in its fair value below its cost is
considered objective evidence of impairment.
Financial assets measured at amortised cost
An impairment loss in respect of a financial asset measured
at amortised cost is calculated as the difference between its
carrying amount and the present value of the estimated future
cash flows discounted at the asset’s original effective interest
rate. Losses are recognised in profit or loss and reflected as
an allowance account against loans and receivables. Interest
on the impaired asset continues to be recognised. When a
subsequent event (eg. a repayment by a debtor) causes the
amount of impairment loss to decrease, the decrease in
impairment loss is reversed through profit or loss.
Available-for-sale financial assets
Impairment losses on available-for-sale financial assets are
recognised by reclassifying the losses accumulated in the
investment revaluation reserve, to profit or loss. The cumulative
loss that is reclassified from equity to profit or loss is the
difference between the acquisition cost, net of any principal
repayment and amortisation, and the current fair value, less
any impairment loss previously recognised in profit or loss.
Changes in impairment provisions attributable to application
of the effective interest method are reflected as a component
of interest income. If, in a subsequent year, the fair value of
an impaired available-for-sale debt security increases and the
increase can be related objectively to an event occurring after
the impairment loss was recognised in profit or loss, then the
impairment loss is reversed, with the amount of the reversal
recognised in profit or loss. However, any subsequent recovery
in the fair value of an impaired available-for-sale equity security
is recognised in other comprehensive income.
Associates
An impairment loss in respect of an associate is measured by
comparing the recoverable amount of the investment with its
carrying amount. An impairment loss is recognised in profit or
loss, and is reversed if there has been a favourable change in
the estimates used to determine the recoverable amount.
(ii) Non-financial assets
The carrying amounts of the IOOF Group’s non-financial
assets, other than deferred tax assets, are reviewed at each
reporting date to determine whether there is any indication
of impairment. If any such indication exists, then the asset’s
recoverable amount is estimated. For goodwill, and intangible
assets that have indefinite useful lives or that are not yet
available for use, the recoverable amount is estimated each
year at the same time.
An impairment loss is recognised if the carrying amount of
an asset or its related cash-generating unit (CGU) exceeds its
estimated recoverable amount.
The recoverable amount of an asset or cash-generating unit
is the greater of its value in use and its fair value less costs to
sell. In assessing value in use, the estimated future cash flows
are discounted to their present value using a pre-tax discount
rate that reflects current market assessments of the time value
of money and the risks specific to the asset. Subject to an
operating segment ceiling test, for the purposes of goodwill
impairment testing, CGUs to which goodwill has been
allocated are aggregated so that the level at which impairment
is tested reflects the lowest level at which goodwill is
monitored for internal reporting purposes. Goodwill acquired
in a business combination is allocated to groups of CGUs that
are expected to benefit from the synergies of the combination.
Impairment losses are recognised in profit or loss. Impairment
losses recognised in respect of CGUs are allocated first to
reduce the carrying amount of any goodwill allocated to the
units, and then to reduce the carrying amounts of the other
assets in the unit (group of units) on a pro rata basis.
119
IOOF annual report 2018 Minimum lease payments made under finance leases
are apportioned between the finance expense and the
reduction of the outstanding liability. The finance expense
is allocated to each year during the lease term so as to
produce a constant periodic rate of interest on the remaining
balance of the liability. Other leases are operating leases
and are not recognised on the IOOF Group’s statement of
financial position.
7-4 New standards and interpretations not yet
adopted
A number of new standards and amendments to standards are
effective for annual years beginning after 1 January 2016 and
earlier application is permitted; however the IOOF Group has
not early adopted the following new or amended standards in
preparing these consolidated financial statements.
IFRS 15 Revenue from Contracts with Customers
IFRS 15 establishes a comprehensive framework for
determining whether, how much and when revenue is
recognised. It replaces existing revenue recognition guidance,
including IAS 18 Revenue, IAS 11 Construction Contracts and
IFRIC 13 Customer Loyalty Programmes.
IFRS 15 is effective for annual years beginning on or after
1 January 2018, with early adoption permitted.
The IOOF Group has completed an initial assessment of the
potential impact of the adoption of IFRS 15 on its consolidated
financial statements and does not expect that there will be a
significant impact.
The IOOF Group currently recognises investment manager fees
as a reduction to management and service fees revenue. Upon
adoption of IFRS 15 these fees will be recognised in service and
marketing fees expense. This change will not impact the IOOF
Group’s profit.
The IOOF Group currently recognises insurance revenue
when it is received. Upon adoption of IFRS 15 revenue will
be recorded upfront at the commencement of the policy. As
the advisers of the IOOF Group have an obligation to review
the suitability of the product’s offered on an annual basis
unless otherwise specified, this is not expected to have a
material impact.
An impairment loss in respect of goodwill is not reversed. In
respect of other assets, impairment losses recognised in prior
years are assessed at each reporting date for any indications
that the loss has decreased or no longer exists. An impairment
loss is reversed if there has been a change in the estimates
used to determine the recoverable amount. An impairment
loss is reversed only to the extent that the asset’s carrying
amount does not exceed the carrying amount that would have
been determined, net of depreciation or amortisation, if no
impairment loss had been recognised.
Goodwill that forms part of the carrying amount of an
investment in an associate is not recognised separately, and
therefore is not tested for impairment separately. Instead, the
entire amount of the investment in an associate is tested for
impairment as a single asset when there is objective evidence
that the investment in an associate may be impaired.
(f) Goods and service tax (GST)
Revenues, expenses and assets (excluding receivables) are
recorded net of GST. GST input tax credits are initially recorded
as an asset and GST collected as a liability. These balances
are offset as at the reporting date and recognised as either
an amount receivable or payable to the Australian Taxation
Office. The GST portion relating to financial supplies and non-
deductible expenditure, for which an input tax credit cannot
be claimed, is expensed or is recognised as part of the cost of
acquisition of an asset.
Receivables and payables are stated inclusive of the amount of
GST receivable or payable. The net amount of GST recoverable
from, or payable to, the Australian Taxation Office is included
with other receivables or payables in the statement of
financial position.
Cash flows are presented in the statement of cash flows on a
gross basis. The GST components of cash flows arising from
investing or financing activities which are recoverable from,
or payable to, the Australian Taxation Office are presented as
operating cash flows.
(g) Leases
Leases in terms of which the IOOF Group assumes substantially
all the risks and rewards of ownership are classified as finance
leases. Upon initial recognition the leased asset is measured at
an amount equal to the lower of its fair value and the present
value of the minimum lease payments. Subsequent to initial
recognition, the asset is accounted for in accordance with the
accounting policy applicable to that asset.
120
IOOF annual report 2018Notes to the financial statementsFor the year ended 30 June 2018 (i) Management and service fees revenue
IFRS 16 Leases
The IOOF Group provide management services to unit trusts
and funds operated by the IOOF Group at normal commercial
rates. Management and service fees earned from the unit
trusts and funds are calculated based on an agreed percentage
of the respective funds under management or administration
as disclosed in the respective product disclosure statements,
and are recognised on an accruals basis.
The IOOF Group currently recognises management and service
fees revenue at the time the service is provided. No significant
changes are expected to this treatment under IFRS 15.
Stockbroking revenue and external other fee revenue are also
recognised at the time the service is provided. No significant
changes are expected to this treatment under IFRS 15.
The IOOF Group plans to adopt IFRS 15 in its consolidated
financial statements for the year ending 30 June 2019.
IFRS 9 Financial Instruments
IFRS 9 is effective for annual years beginning on or after 1
January 2018, with early adoption permitted. The IOOF Group
plans to adopt IFRS 9 in its consolidated financial statements
for the year ending 30 June 2019.
At 30 June 2018, the IOOF Group had equity investments
classified as available-for-sale with a fair value of $33.7m that
are held for long-term strategic purposes. Upon application
of IFRS 9 the IOOF Group will classify these as Fair Value
Other Comprehensive Income with all fair value gains and
losses reported in other comprehensive income in line with
current treatment.
IFRS 9 replaces the “incurred loss” model in IAS 39 with a
forward looking ‘expected credit loss’ (ECL) model when
determining provision for impairment of receivables. This will
require considerable judgement as to how changes in
economic factors affect ECLs, which will be determined on a
probability-weighted basis. Given the IOOF Group’s receivables
are short term, loss allowances are not expected to change
significantly when IFRS 9 is adopted.
The IOOF Group have assessed the impact of IFRS 9 on
the consolidated financial statements. Given no financial
instruments are held by the IOOF Group which could result
in a reclassification, the adoption of IFRS 9 is not expected to
have a significant impact on the recognition and measurement
of the IOOF Group’s financial instruments. The derecognition
rules have not been changed from the previous requirements,
and the IOOF Group does not apply hedge accounting.
IFRS 16 introduces a single, on-balance sheet lease accounting
model for lessees. A lessee recognises a right- of-use asset
representing its right to use the underlying asset and a lease
liability representing its obligation to make lease payments.
There are optional exemptions for short-term leases and leases
of low value items.
IFRS 16 replaces existing leases guidance including IAS 17
Leases, IFRIC 4 Determining whether an Arrangement contains a
Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating
the Substance of Transactions involving the Legal Form of a Lease.
The standard is effective for annual years beginning on or after
1 January 2019. Early adoption is permitted for entities that
apply IFRS 15 Revenue from Contracts with Customers at or
before the date of initial application of IFRS 16.
The IOOF Group has started an initial assessment of the
potential impact of its consolidated financial statements.
So far, the most significant impact identified is that the IOOF
Group will recognise new assets and liabilities for its property
operating leases $91.4m. The nature of expenses related to
those leases will now change as IFRS 16 replaces the straight-
line operating lease expense with a depreciation charge for
right-of-use assets and interest expense on lease liabilities.
No significant impact is expected for the IOOF Group’s
finance leases.
The IOOF Group will apply the standard using a retrospective
approach and plans to adopt IFRS 16 in the consolidated
financial statements for the year ended 30 June 2020.
IFRS 17 Insurance Contracts
IFRS 17 replaces AASB 4 Insurance Contracts and similarly
applies to insurance contracts. The classification of insurance
contracts is similar to AASB 4 Insurance Contracts however
unbundling rule changes may mean some contract
components now need to be measured under IFRS 17.
The new standard contains a lower level of aggregation/
smaller portfolios, changes to contract boundaries and
valuation approaches, the application of Contractual Service
Margins to policies valued under certain methodologies,
changes in treatment to reinsurance and an ability to use Other
Comprehensive Income for changes in asset values.
The IOOF Group is in the process of assessing the potential
impact of its consolidated financial statements and plans to
adopt IFRS 17 in the consolidated financial statements for the
year ended 30 June 2021.
121
IOOF annual report 2018 Disclosure Initiative (Amendments to IAS 7)
The amendments require disclosures that enable users of
financial statements to evaluate changes in liabilities arising
from financing activities, including both changes arising from
cash flow and non-cash changes.
The amendments are effective for annual years beginning on
or after 1 January 2017, with early adoption permitted.
To satisfy the new disclosure requirements, the Group has
presented a reconciliation between the 2017 opening and
2018 closing balances for liabilities with changes arising from
financing activities. This is shown in Note 3-2 Borrowings.
Other amendments
The following new or amended standards are not expected
to have a significant impact on the IOOF Group’s consolidated
financial statements.
• Classification and Measurement of Share-based payment
Transactions (amendments to IFRS 2);
• Sale or Contribution of Assets between an Investor
and its Associate or Joint Venture (amendments to IFRS
10 and IAS 28);
• Recognition of Deferred Tax Assets for Unrealised Losses
(amendments to IAS 12);
• Clarification of the accounting for transactions that include
the receipt or payment of advance consideration in a
foreign currency (issuance of IFRIC 22);
• Entity accounts for all income tax consequences of
dividend payments according to where the entity originally
recognised the past transactions or events that generated
the distributable profits (amendment to AASB 112);
• Treatment of any borrowings originally made to
develop a qualifying asset as part of general borrowings
when the asset is ready for its intended use or sale
(amendment to AASB 123);
• Accounting for income tax treatments that have yet to be
accepted by tax authorities (issuance of IFRIC 23 and the
consequential amendment to AASB 1); and
• Transfer of assets in transaction with associate or JV
(amendment to AASB 3).
7-5 Subsequent events
The Directors have declared the payment of a final dividend
of 27.0 cents per ordinary share franked to 100% based on tax
paid at 30%, to be paid on 4 September 2018.
On 7 August 2018, the IOOF Group announced, in accordance
with its continuous disclosure obligations, that it’s wholly-
owned subsidiary, Australian Executor Trustees Limited
(AET), agreed settlements in relation to certain of the legal
122
proceedings to which AET is party in connection with its role
as debenture trustee of Provident Capital Limited (Provident
and the Provident Proceedings).
AET entered into a settlement deed with Mr Creighton and
has now finalised and will shortly execute the terms of a
settlement deed with Mr and Mrs Smith, the representative
plaintiffs in the two proceedings brought against AET in
relation to Provident. Those settlements, when finalised, are
expected to result in full and final settlement, without any
admission as to liability, of all claims (including as to legal
costs) made against AET as part of the Provident Proceedings.
These settlements remain subject to approval by the Supreme
Court of New South Wales.
As a result, and subject to Court approval of the settlements
with Mr and Mrs Smith and Mr Creighton, the amount AET
is expected to be obliged to pay to the plaintiffs and group
members in the Provident Proceedings is $44.3m.
AET also agreed settlements with PwC and HLB Mann Judd
in respect of the cross-claims brought by AET against those
parties as part of the Provident Proceedings, which relate to
their role as auditors of Provident.
Subject to Court approval, these settlements are expected to
resolve all aspects of the Provident Proceedings other than
AET’s and the IOOF Group’s cross-claims against their insurers
and insurance broker.
The IOOF Group and AET will continue to vigorously pursue
their claims against their insurers and insurance broker to
judgment (if a satisfactory settlement cannot be achieved
prior). In pursuing those claims, AET and the IOOF Group are
seeking to recover from those parties up to the whole of
the amount that they are obliged to pay the plaintiffs and
group members in the Provident Proceedings (less amounts
recovered through the settlements with PwC and HLB Mann
Judd), together with their costs of those Proceedings.
The IOOF Group will continue to keep the market informed
in relation to the outcome of the Provident Proceedings and
any settlement discussions in accordance with its continuous
disclosure obligations.
The settlements with the representative plaintiffs amount to
$44.3m and have been provided for in the year ended 30 June
2018 as an adjusting event given the Provident Proceedings
were active throughout that financial year.
The Directors are not aware of any other event or circumstance
since the end of the financial year not otherwise dealt with in
this report or the consolidated financial report that has or may
significantly affect the operations of the consolidated entity,
the results of those operations or the state of affairs of the
consolidated entity in subsequent financial years.
IOOF annual report 2018Notes to the financial statementsFor the year ended 30 June 2018 IOOF annual report 2018
Shareholder information
Share Capital
IOOF has on issue 351,076,027 fully paid ordinary shares held by 61,706 holders as at 30 September 2018.
Voting Rights
IOOF’s fully paid ordinary shares carry voting rights of one vote per share.
Twenty largest shareholders as at 30 September 2018
The following table sets out the top 20 registered holders of shares.
Rank Holder Name
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
CITICORP NOMINEES PTY LIMITED
J P MORGAN NOMINEES AUSTRALIA LIMITED
THE TRUST COMPANY (AUSTRALIA) LIMITED
BNP PARIBAS NOMS PTY LTD
NATIONAL NOMINEES LIMITED
BNP PARIBAS NOMINEES PTY LTD
UBS NOMINEES PTY LTD
SAM GANNON PTY LTD
MILTON CORPORATION LIMITED
MRS SALLY KELAHER
MR IAN GREGORY GRIFFITHS
MR BRUCE WILLIAM NEILL
WPQ HOLDINGS PTY LTD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
THANECORP AUSTRALIA PTY LTD
MR IAN GREGORY GRIFFITHS
AMP LIFE LIMITED
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2
CITICORP NOMINEES PTY LIMITED
Total Securities of Top 20 Holdings
Total of Securities
Balance at
30-Sep-18
50,855,913
33,008,390
32,309,878
24,414,295
12,329,623
9,377,567
8,247,655
4,299,502
2,265,506
2,009,086
1,928,518
1,750,419
1,351,428
1,133,098
1,089,843
1,000,000
1,000,000
982,758
959,003
945,533
191,258,015
351,076,027
% of issued
capital
14.49
9.40
9.20
6.95
3.51
2.67
2.35
1.22
0.65
0.57
0.55
0.50
0.38
0.32
0.31
0.28
0.28
0.28
0.27
0.27
54.48
123
IOOF annual report 2018 Distribution of members and their holdings
The following table summarises the distribution of our listed shares as at 30 September 2018.
Range
1-1,000
1,001-5,000
5,001-10,000
10,001-100,000
100,001+
Totals
No of Holders
No of Units
% Issued Capital
34,715
21,303
3,696
1,864
128
61,706
13,776,234
50,053,700
26,306,261
38,518,103
222,421,729
351,076,027
3.92
14.26
7.49
10.97
63.35
100.00
There were 1,289 shareholders holding less than a marketable parcel of shares based on a market price of $8.18 at the close of trading
on 5 October 2018 and there were 19 per cent of shareholders with registered addresses outside Australia.
Substantial Shareholdings
Substantial shareholders as at 30 September 2018 are shown below, with the date of their last notice lodged in accordance with
section 671B of the Corporations Act:
Name
Date of
last notice
No of
Ord Shares
% of Issued Share Capital
as at date of last notice
Sumitomo Mitsui Trust Holdings, Inc. (SMTH) and its Subsidiaries
14-Aug-2018 22,904,585
UBS Group AG and its related bodies corporate
Bruce Neill
Legg Mason Asset Management Australia Limited
8-Aug-2018 27,392,375
21-Nov-2017
26,217,151
30-Oct-2017 25,402,073
6.52%
7.80%
7.47%
7.39%
Share register and other enquiries
If you have any questions in relation to your shareholding, share transfers or dividends, please contact our share registry:
Boardroom Pty Limited
Level 12, 225 George Street
Sydney NSW 2000
1300 737 760 (Australia only)
Phone:
Phone: + 612 9290 9600
Email:
IOOF@boardroomlimited.com.au
Website: www.boardroomlimited.com.au
Please include your shareholder reference number (SRN) or holder identification number (HIN) in all correspondence to
the share registry.
124
IOOF annual report 2018Notes to the financial statementsFor the year ended 30 June 2018
Corporate directory
(as at 30 September 2018)
Directors
Mr George Venardos
B.Com, FCA, FGIA, FAICD, FCIS
Chairman
Mr Christopher Kelaher
B.Ec, LL.B, F Fin.
Managing Director
Ms Elizabeth Flynn
LL.B, Grad Dip AppCorpGov, FAICD, FFin, FGIA, FCIS.
Ms Jane Harvey
B.Com, MBA, FCA, FAICD
Mr Allan Griffiths
B.Bus, DipLi
Mr John Selak
Dip Acc, FCA, FAICD
Company Secretary
Mr A Paul M Vine
LL.B, FGIA, FCIS, GAICD
Notice of Annual General Meeting
The Annual General Meeting of IOOF Holdings Ltd
will be held at:
Level 7, 161 Collins Street
Melbourne, Victoria 3000
Time 9.30am
Date 28 November 2018
A formal notice of meeting is available on our website
and has been sent to shareholders
Principal registered office in Australia
Level 6, 161 Collins Street
Melbourne, VIC 3000
(03) 8614 4400
Share registry
Boardroom Pty Limited
Level 12, 225 George Street
Sydney NSW 2000
Auditor
KPMG
Tower Two, Collins Square, 727 Collins Street
Docklands VIC 3008
Solicitors
King & Wood Mallesons
Level 50, Bourke Place
600 Bourke Street
Melbourne VIC 3000
Bankers
Commonwealth Bank Limited
Tower 1, 201 Sussex Street, Sydney NSW 2000
Securities exchange listing
IOOF Holdings Ltd shares are listed on the
Australian Securities Exchange
(ASX: IFL)
Website address
www.ioof.com.au
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