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2019
Contents
About IOOF
Our diversified business model
Chairman's commentary
CEO and Managing Director’s commentary
2019 results at a glance
2019 strategic priorities
Directors
Environmental, Social and Governance report
IOOF Foundation
Financial report
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About IOOF
At IOOF, we have been helping Australians secure their financial independence for over
170 years and have grown to become a leading Australian wealth management organisation.
Today, IOOF is one of the largest financial services groups in Australia. As an ASX top 200 company with $149.5 billion in funds
under management, administration and advice, we currently provide quality financial advice, products and services to more than
500,000 clients around Australia*.
Our broad range of 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 to 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,
our goal is to help clients build, maintain
and protect their wealth.
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 investment bond.
Portfolio and Estate Administration
We offer financial advisers, their clients and
thousands of employers around Australia
leading superannuation and investment
administration platforms. Our unique
open architecture model means we
not only offer our IOOF platforms but a
selection of leading external platforms
to ensure advisers and their clients can
choose the product and service solutions
that best suit their individual needs. Our
trustee business includes compensation
trusts, estate planning and administration,
personal trustee services, philanthropy,
Small APRA Funds (SAFs) and self-managed
super fund (SMSF) solutions.
* As at 30 June 2019
3
IOOF | annual report 2019 Our diversified business model
As at 30 September 2019
4
IOOF | annual report 2019> Wills and estate planning> Compensation trusts> Native Title services> Philanthropy> Adviser Assistance Program> IOOF Advice Academy> IOOF Alliances> IOOF TechConnect> FASEA transition supportSalariedadvisersSelf-employedadvicelicenseesIntergenerationaland estatemanagementBest of breed administrationAssetsolutionsAdvisersupportClients Chairman's
Commentary
Allan
Griffiths
2019 was a challenging year industry-wide and for IOOF. To our shareholders, on behalf of
the Board, thank you for your support.
Restoring trust
IOOF and all participants in the
wealth management industry have
faced significant scrutiny following
the Hayne Royal Commission.
External commentary has been
scathing of the industry generally,
giving us the important task of
regaining the trust of our stakeholders.
We are confident of doing so.
At Board level, a key focus over the
past year has been to entrench new
governance structures and introduce
higher standards. We believe that the
work being undertaken will leave us with
a governance model that is best practice
within the industry. We have taken very
positive steps to improve relationships
with all stakeholders, particularly with
our regulators.
Board and senior
management changes
Over the year, we saw a number of
changes to the IOOF executive team.
In April 2019, our former Managing Director,
Christopher Kelaher, departed the
company. Chris led the group through
periods of transformative growth which
brought IOOF to where we are today.
I would like to acknowledge his vision
and contribution to the Board and to
IOOF over the past ten years.
In appointing a successor for Chris,
we considered high quality candidates
from both within the company and
externally. Ultimately, the Board was
unanimous in its belief that Renato
Mota had the vision and industry
experience to lead us on our next phase
of transformative growth. Renato brings
to the role great energy and ambition
for the company and we have no doubt
that he is the right person for the job.
Renato also joined the IOOF Board
upon his appointment as CEO and
Managing Director.
Also, at Board level, we appointed
Andrew Bloore and Michelle Somerville
to the IOOF Board. With respective
experience as a technology entrepreneur
and as a partner at a Big 4 accounting
firm, they will contribute to the diversity
of thinking and experience on the Board.
On behalf of the Board, I would like to
thank the Executive Team and all IOOF
staff for their diligence and dedication
over the past year in the midst of
significant external pressure. As an
indication of their commitment to the
company and recognising the significant
impact on the share price over the
past year, the Executive Team refused
to accept short-term incentives for the
2018–19 year.
Reshaping the business
We remain committed to the completion
of the acquisition of ANZ’s Pensions
and Investments business, which will
deliver significant benefits for clients of
the combined group – and therefore to
our shareholders.
We also continue to focus on the core
assets that fit with our advice-led
strategy. This resulted in the successful
sale of our holdings in AET Corporate
Trust, Ord Minnett and Perennial
Value Management.
Outlook for the
year ahead
I am very proud to chair the Board
of IOOF and am excited by the
opportunities that lie ahead.
The difficulties experienced and
the lessons learned will only make
us stronger and better in serving
the hundreds of thousands of
Australians who depend upon us.
Our core purpose and our passion
– to provide prosperity and security
for Australians throughout their life
journey – remains unchanged.
On behalf of the Board, once again
thank you for your continuing support.
Allan Griffiths
5
IOOF | annual report 2019 CEO and Managing
Director’s commentary
Renato
Mota
In a year of significant change, our focus has been on stabilising the business and restoring
trust with the community. With significant progress already made and work continuing,
we are well placed to deliver for our shareholders into the future.
Stabilising our business
As our Chairman has noted, it was
a challenging year for IOOF. In very
sudden circumstances, I was appointed
Acting CEO in December 2018 and
permanent CEO in June of this year.
I was honoured to take on the role,
and well aware of the challenges that
lay ahead. My number one focus was
to stabilise and restore trust in our
business. To do this, we have focused on
engaging with all our stakeholders in a
transparent and purposeful manner; be
it internally with our people or externally
with shareholders, investors, advisers,
members and our regulators.
Uplifting our Governance standards was
a key part of this. We completed a review
of the Risk & Compliance function and
appointed a new Chief Risk Officer to lead
the team. We made significant progress
on the licence conditions imposed on us
by APRA and have met all required items
due by 30 June 2019. We continue to
work diligently to progress the remaining
conditions. One of the licence conditions
involved the establishment of an Office
of the Superannuation Trustee (OST). The
OST plays an important role in ensuring
members best interests are met and
that we continue to challenge ourselves
to deliver improved outcomes for
superannuation members.
Business performance
Despite the challenging operating
environment, our business performance
remained strong. Underlying net profit
after tax was $198.0 million, up 3.4%
from 2018 and we saw FUMA grow
18.7% to $149.5 billion – bolstered by the
successful addition of the ANZ advice
licensees. Importantly, we continued
to see positive net flows of $1.4 billion
into our proprietary platforms and
$520 million via our advice groups.
I was also encouraged to see that our
adviser net promoter score was +17%
vs an industry average of -30%. As an
advice-led business, to see our advisers
continuing to be positive about IOOF
during a particularly difficult time for the
advice industry was pleasing.
Advice review
Statutory net profit after tax of
$28.6 million was impacted by the advice
review that we undertook. The advice
review, resulted in a $223 million provision
for advice remediation. This was a
necessary exercise to identify any exposure
that we may have to instances of fees for
no service, inadequate documentation or
inappropriate advice. Having employed
expert industry knowledge in designing
and conducting the review, we are
confident that the review and resulting
outputs are robust and prudent .
Simplifying our core
advice-led offerings
We continue to lead the industry
in business simplification and cost
management. During the year, we
made a number of divestments of
non-core businesses in order to focus
on our core. We sold AET Corporate
Trust for $51.6 million, Ord Minnett
for $115 million and our associate
stake in Perennial Value Management.
We announced our intention to reduce
the number of platforms that we have
from 2 to 1 by 2021. For many years, we
have had a mantra of “spend money
like its our own” and as CEO, I intend to
preserve that discipline, as a key pillar of
our financial success.
6
IOOF | annual report 2019 In what has been an unprecedented
year for IOOF I am incredibly proud
and thankful for the commitment and
dedication of our people. All of our people
have worked incredibly hard over the
past year through intense scrutiny and
uncertainty. I want to thank them for their
efforts and also thank the Executive Team
for their personal support. It gives me great
confidence that we have an enthusiastic
and committed team to guide us to reach
the “Prosper” phase – the creation of an
industry leading business guided by a clear
sense of purpose.
To our shareholders – I thank you for
your continued support in what has
been a very trying year. I and the team
at IOOF are committed to restoring
and transforming the prospects of
our business, for the benefit of all
stakeholders including its owners
– our shareholders.
Renato Mota
ANZ Pensions &
Investments (ANZ P&I)
business acquisition
We continue to work towards completion
of the ANZ P&I acquisition. On 17 October
2019, we received "No Objection" notices
from One Path Custodians and ANZ
Banking Group Limited. We also announced
a revised price of $825 million, down
$125 million from the original agreed
price. APRA approval is the only remaining
condition for the acquisition to complete.
This will be transformational for IOOF and
I am excited by the significant benefits
that the combined group will deliver to
members and shareholders.
Outlook
At our results briefing in August 2019,
I announced a multi-year strategy
designed to deliver IOOF to a position of
industry leadership. Within this strategy
I described three discrete phases –
Stabilise, Transform, Prosper. We have
made significant progress to stabilise the
business over 2019 and work continues.
We have started our transformation with
platform simplification underway and
reinvention of our advice business. The
completion of the ANZ P&I acquisition will
complement this transformation .
7
IOOF | annual report 2019 2019 results at a glance
UP 3.4%
$198m
Underlying NPAT
$28.6m
Statutory NPAT,
including remediation
UP 18.7%
$149.5b
FUMA
Growing
the business
embedding ANZ
advice licencees
with contribution
of $16.1b FUMA
in nine months
Delivering
for clients
Adviser NPS
+17% (vs industry
average of -30%)1
Total fully franked
dividends per share
44.5cps
Attracting net inflows
Platform
$1.4b
Advice
$520m
Focusing
on core
• Divestment of AET
Corporate Trust for the
sale price of $51.6m
• Divestment of
Ord Minnett for the
sale price of $115m
Advice review
undertaken
Remediation cost
$182.7m
Program costs
$40.4m
Resilience and agility in
a changing environment
8
1 Investment Trends 2019 IOOF Licensee Satisfaction Report: Industry NPS Extract
IOOF | annual report 2019 2019 strategic priorities –
transforming with purpose
Stabilise
Progress made
Restoring trust
Accelerating
governance
• Completed review of Risk & Compliance function
• New Chief Risk Officer appointed
• Reset of engagement with stakeholders
•
Implemented all 30 June Australian Prudential Regulation Authority (APRA)
licence conditions
• All relevant Protecting your Super and Royal Commission recommendations
are ready for adoption
Advice review
Independent advice review undertaken
•
• Provision of $182.7m for remediation and $40.4m in program costs
Transform
Progress made
Building long-term
scale benefits
• Continuing to work towards completion of the ANZ P&I business acquisition
• Open dialogue with APRA regarding new APRA approval process for
change in control
Integration of ANZ advice licensees (ANZ ALs)
•
• Progressing rationalisation of platform administration systems –
end 2021 (Project Evolve)
Build client-centric
business model
• Commitment to reinvention of advice
• ClientFirst remains a competitive advantage
• Delivering choice through open architecture, scale and diversity
9
IOOF | annual report 2019 Directors
Allan
Griffiths
Renato
Mota
Qualifications and
independence status
Independent Non-Executive Director
• B.Bus, DipLI.
•
• Director since 2014
• Acting Chairman effective
10 December 2018
• Chairman effective 4 April 2019
Experience, special
responsibilities, listed
and other significant
directorships
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. Chair of the
Group Nominations Committee and
member of the Group Audit and Group
Remuneration Committees.
• BComm(Hons), B.Bus
• Chief Executive Officer and
Managing Director
• Chief Executive Officer
effective 25 June 2019
• Managing Director effective
25 June 2019
• Acting Chief Executive Officer
effective 10 December 2018
With more than 20 years’ experience
in financial services prior to being
appointed CEO, Mr Mota held a number
of senior executive roles within IOOF.
In December 2018, Mr Mota was
appointed Acting CEO and prior to
that was Group General Manager –
Wealth Management since January 2016.
During this time he was instrumental
in leading IOOF through a series of
forward-thinking, strategic initiatives
including IOOF’s advice-led strategy, the
group’s ClientFirst transformation and
establishing the IOOF Advice Academy.
Previously, he held numerous executive
roles as General Manager of Distribution,
Investor Solutions and Corporate
Strategy and Communications.
Before joining IOOF in 2003, Mr Mota
worked for Rothschild and NAB in
corporate finance roles with a focus
on mergers and acquisitions where he
was involved in wealth management
transactions including the demerger
of Henderson Group plc from AMP
in 2003 and NAB’s acquisition of MLC
and Deutsche Financial Planning.
10
IOOF | annual report 2019 Andrew
Bloore
Elizabeth
Flynn
Jane
Harvey
•
Independent Non-Executive Director
since 2 September 2019
• LLB, Grad Dip App Corp Gov, FAICD,
FFin, FGIA, FCIS
Independent Non-Executive Director
•
• Director since 2015
• B.Com, MBA, FCA, FAICD
•
• Director since 2005
Independent Non-Executive Director
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 Dulux Group Limited from
2018 to 2019, 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 entities. Ms Harvey is the Chair
of the Group Audit and Remuneration
Committees and member of the Group
Nominations and Group Risk and
Compliance Committees.
Andrew Bloore is an experienced
Non-Executive Director and
entrepreneur, having designed,
built and sold a number of businesses,
including the superannuation
administration businesses Smartsuper
and SuperIQ and the superannuation
software design business Class Super.
In these areas and other industries
Mr Bloore has focused on the
development of key disruptive
technologies and distribution
services in traditional markets to
create business efficiencies.
Mr Bloore is an Independent
Non-Executive Director on the Boards
of the following IOOF subsidiaries;
IOOF Investment Management Limited
(29 November 2018 to date) and IOOF
Limited (26 November 2018 to date
and Chairman until 29 August 2019)
and was on the Board of Australian
Executor Trustees Limited from
29 November 2018 to 29 August 2019,
also chairing that Board.
Mr Bloore is also a member of the IIML
and IOOF Limited Audit Committees.
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. Ms Flynn
is Chair of the Group Risk and Compliance
Committee and a member of the IOOF
Investment Management Limited (IIML)
and IOOF Limited Risk and Compliance
Committees and member of the IOOF
Ltd Risk and Compliance Committee,
and member of the APRA Regulated
Entity (ARE) Audit Committee until
28 November 2018. Member of the Group
Remuneration and ARE Remuneration
and Nominations Committees.
11
IOOF | annual report 2019 John
Selak
Michelle
Somerville
George
Venardos
• Dip Acc, FCA, FAICD
•
• Director since 2016
Independent Non-Executive Director
• BBus (accounting), M App Sc,
FCA, GAICD
•
Independent Non-Executive Director
since 1 October 2019
Independent Non-Executive Director
• BComm, FCA, FGIA, FAICD, FCIS
•
• Director since 2009
• Leave of absence commenced
10 December 2018
• Chair from 2016 to 2018
• Ceased as Chairman effective
4 April 2019
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, Turosi Food Solutions, and
the IOOF Foundation. Chair of the ARE
Audit Committee until 28 November
2018 and Chair of the Australian Executor
Trustees Limited Audit Committee.
Member of the Group Audit, Group Risk
and Compliance, and IOOF Ltd Audit
Committees. Member of the Group
Nominations Committee.
Michelle Somerville is an experienced
Non-Executive Director, bringing deep
and relevant finance, risk and governance
experience to the Board, having worked
in the financial services industry in both
her executive and non-executive roles.
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.
Ms Somerville currently sits on the
boards of The GPT Group, Bank Australia
and a number of smaller organisations.
Previously she was an audit partner
with KPMG Australia for nearly 14 years,
with a focus on the financial services
industry in both Australia and overseas.
Mr Venardos has 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.
Mr Venardos was Chair of the Nominations
Committee and member of the Group
Audit and Remuneration Committees
until 10 December 2018.
12
IOOF | annual report 2019 Environmental, Social and Governance report
Strong ESG practices and performance are critical to our continued success
Maintaining strong Environmental, Social & Governance (ESG)
practices enables us to manage risks and opportunities in
a way that balances the long-term needs of stakeholders,
including clients, employees, shareholders, suppliers,
the community and the environment.
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Shareh old
Understand me
Look after me
Secure my future
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Material exposure to Environmental, Social and Governance matters
Our reputation as a leading provider of quality financial services and ability to achieve our strategic aims could be damaged by
failing to identify, monitor and report material ESG risk exposures.
In determining our exposure, 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, clients,
members and analysts.
Material ESG matters are outlined below.
Governance
Stakeholder
Our business
e
r
u
t
l
u
C
Our clients
and community
Our people
Material ESG matter
• Accelerating corporate governance
• Advice review
• Cybersecurity and privacy
• Climate change and the environment
• Tax transparency
• Establishing trusted relationships with advisers
• Advocating for quality financial advice for all Australians
• Giving back to our communities
• Evolving our culture
• Leadership and capability
• Supporting our people
• Diversity and inclusion
13
IOOF | annual report 2019 Our business
ESG practices are deeply embedded in our day-to-day business operations and to the creation of long-term
financial outcomes for our advisers, clients, members and shareholders.
Accelerating corporate governance
In 2019, we have been focused on uplifting and strengthening
our governance framework. Central to this has been a full risk
and compliance review to help understand what areas we need
to improve and invest in as the financial services environment
continues to rapidly evolve.
In December 2018, APRA gave notice of additional
licence conditions on IOOF’s APRA regulated entities.
Broadly, these conditions require:
• separation of responsible entity and registrable superannuation
entity duties to separate independent corporate entities
Progress made on key APRA licence conditions
Summary description
Split RSE Licence (RSEL) and RE Licence functions into distinct legal entities
1
2
3
4
• IIML
• AET
• Hold separate board meetings to consider the interests of RSELs, separate from
board meetings held for RE functions
Implement and maintain a dedicated business function to support the AREs
5 Move to majority independent directors and Chair of the AREs
• the implementation and effective operation of an
independent member outcomes driven function
(the Office of the Superannuation Trustee or OST)
• monitoring and reporting on progress
via an independent expert.
On 20 August 2019, IOOF announced that it had met all its
30 June 2019 requirements to the satisfaction of the independent
expert and was on track to meet all remaining requirements by
the relevant deadlines. Further updates will be provided to the
ASX at www.asx.com.au, code: IFL.
Due date required by
a licence condition
31 December 2019
Implemented
Implemented, to be maintained
Implemented, to be maintained
Implemented, to be maintained
6
7
Appoint an independent expert to prepare an analysis in relation to the possible consolidation of RSEs
Subject to ANZ P&I acquisition
Amend the structure and composition of the ARE Board committees to comply with
Prudential Standards
Implemented, to be maintained
Clear action plan arising from the EY Independent Review into conflicts of interest and risk culture
8
• Complete actions with 31 December 2018 due dates
• Complete actions with 31 March 2019 due dates
9
10 • Complete actions with 30 June 2019 due dates
11 Provide regular reporting to APRA and meet monthly
Implemented
Implemented
Implemented
Ongoing
12 Appoint an Independent Reviewer to report to APRA quarterly
Appointed and ongoing
Separation of Responsible Entity and
Registerable Superannuation Entity
As noted above, in 2019, work began to separate IOOF’s
Responsible Entity (RE) and Registerable Superannuation
Entity (RSE) functions into distinct legal entities.
Separating these structures will reduce the potential for
conflicts of interest between our investment management
activities and superannuation services. This work will be
completed by the end of calendar 2019.
Three lines of defence
We apply a ‘three lines of defence’ model to the identification
and management of risk and compliance issues. Our first line
of defence is the operational areas of the business that are
responsible for developing, delivering and supporting products
and services for our clients. Our second line of defence develops,
maintains and enhances IOOF’s risk management framework.
Our third line of defence provides assurance on how effectively
we have assessed and managed any risk and compliance issues.
We have significantly increased the resources dedicated to our
three lines of defence and expect to see continued maturation
of our risk and compliance culture in 2020.
14
IOOF | annual report 2019 Risk and compliance function
APRA Federal Court proceedings
In 2019, we merged our risk and compliance functions to form the
Enterprise Risk and Compliance division, solely focused on our
second line of defence. Consisting of over thirty subject matter
experts (a majority of whom were recruited externally), this team
has made significant progress in uplifting our governance
activities as quickly and sustainably as possible.
We are using technology to support this process, by moving from
multiple legacy reporting systems to a single integrated system.
This will make it easier for our people to effectively manage
operational risk and compliance across multiple entity levels.
We have also amended our breach reporting and complaint
handling policies and procedures to enhance the identification,
management and monitoring of breaches and incidents.
In December 2018 APRA commenced Federal Court proceedings
against two IOOF entities, two directors and three employees.
The proceedings sought declarations that the corporate entities
breached trustee duties and contravened the Superannuation
Industry (Supervision) Act 1993 (Cth), and disqualification orders
against the five individuals from acting as trustees or a
responsible officer of a trustee.
On 20 September 2019, the Federal Court held that IOOF’s
APRA regulated entities and the five individuals did not
contravene the Superannuation Industry (Supervision) Act
1993 (Cth). The Federal Court also declined to make the
disqualification orders sought against the five individuals and
awarded costs in IOOF’s favour.
In addition, a number of executive and business level
forums have been established to improve accountability,
transparency and oversight of risk and compliance across the
organisation, and with external stakeholders.
Corporate governance statement
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/corporate_governance
Advice review
We are holding ourselves to higher standards and ensuring that our obligations to clients are met.
In February 2019, we committed to completing an advice review to identify any instances of fees for no service, fees for inadequate
documentation and inappropriate advice. An extensive review was undertaken by PwC which resulted in a provision for remediation
of $223.2 million (includes interest at RBA + 6% and $40 million in program costs). IOOF had also expensed $12.1 million of product
related remediation.
Advice review undertaken
Develop Key Risk Indicators
1
• 17 KRIs identified for:
– Fees for no service/
inadequate documentation
– Inappropriate advice
• External sources of
information to develop KRIs:
– ASIC Report 515
– KRIs utilised in the industry
– Other industry sources of
information relating to adviser
conduct and behaviour
4
Estimate remediation
• Expected provision rate
extrapolated across population
of all 788 advisers
• Consistent with RG 256, interest
on remediation payments has
been set at RBA cash rate + 6%
2
Identify target advisers
• 67 target advisers identified
across advice groups for
detailed sample testing
• Advice Groups included
in advice review:
– Bridges
– Consultum
– Lonsdale
– Shadforth
• Total adviser population:
788 advisers
5
Estimate program costs
• Program costs have been
calculated on a cost per
file review basis for both
inadequate documentation
and inappropriate advice
3
Independent review
of target advisers
• Over 1,200 client files from
2015–2019 independently
reviewed
• Independent review
conducted by PwC
– Sample size determined by
independent reviewer as
statistically significant
6
Assess period to complete
remediation payments
• Multi-year program of work
15
IOOF | annual report 2019 Advice review outcomes
$12.1m
Product remediation expensed
$40.4m
Program costs
Cybersecurity and privacy
In line with our purpose of understand me, look after me,
secure my future, we are committed to keeping our clients and
members personal data secure, by ensuring we have robust
and evolving cybersecurity and privacy controls in place.
Cybersecurity
Cyber risk is one of the top risks faced by the IOOF Group.
Five years ago, we established a dedicated cybersecurity
and technology risk team (Cybersecurity team) to ensure an
enhanced focus on cybersecurity controls. Cybersecurity
roles and responsibilities are clearly defined and documented.
Our cybersecurity strategy, policies, tactical initiatives and
operational controls are based on the National Institute of
Standards and Technology (NIST) cybersecurity framework
and comply with ISO27001 standard – an international
standard for information security management.
IOOF has a Cybersecurity Governance Forum that meets regularly
to ensure a cross business functional overview of cyber risks
and related controls. Our Cybersecurity team reports to the
Board every month on cyber incidents, events, readiness and
improvement projects. The Cybersecurity team also reports
to the Board’s Risk & Compliance committee on Key Risk
Indicators and the organisation’s performance against these.
The aim of our cybersecurity policies and frameworks is
to ensure that:
• appropriate controls are implemented
• our cyber risk exposure is minimised
• our risk management processes are effective.
Like all business operations, cybersecurity relies on people,
processes and technologies. We understand that the key to
a holistic, effective and lasting cybersecurity program is the
human element. Our people are our first line of defence and
IOOF has a considerable focus on enabling and embedding
a 'cybersecurity culture' throughout the business.
16
$182.7m
Remediation
(including interest)
Our people undergo various levels of awareness training,
including at induction, bi-annual face-to-face training,
mandatory annual online training, as well as personal one-on-one
training sessions where there is a high cyber risk. Training sessions
include awareness of cyber risks and behaviours, privacy
fundamentals and principles, fraud detection and reporting
and AML/CTF obligations. We use positive reinforcement in
our training programs to drive high levels of engagement.
Each month we reward employees who have been successful
in preventing cyber threats with enterprise-wide recognition
of their vigilance as well as an award for their efforts.
Phishing email simulation testing is conducted regularly to test
the effectiveness of training sessions. Results from the phishing
tests are used to further fine tune training opportunities.
Job specific security training is also embedded in our wider
teams. The training programs are constantly reviewed to ensure
relevance and to ensure latest concepts are covered. Our aim is
to ensure that our staff have leading edge knowledge in areas
of technology risk and cyber threats.
Third party risk management is of key importance for IOOF.
All third party relationships are established only after a
rigorous due diligence process governed by our Vendor
Management Policy. Security risk assessments are conducted
at the initiation of the contract, as well as on a regular
basis throughout the contract. This ensures that IOOF has
adequate assurance over the conduct and controls that third
parties have in place, for protection of information that is in
custody of the third party.
IOOF collaborates with both Government bodies and the
industry to keep abreast of cyber trends, developing cyber
threats and controls, as well as to discuss, collaborate and
share new strategies and tactics relating to cyber controls.
IOOF | annual report 2019 IOOF is an active member of Joint Cyber Security Centre (JCSC)
and a partner with Australia’s national Computer Emergency
Response Team (CERT). IOOF is also a founding member of the
Australian Chapter of the Global Cybersecurity Alliance which
is an international, cross-sector effort designed to confront,
address, and prevent malicious cyber activity. The Cybersecurity
team at IOOF is also a member of industry groups such as
the CISO Lens, ISACA and the Australian Information Security
Association (AISA) which ensures that they are updated with
relevant knowledge and intelligence into latest trends and
threats, impacting the Australian and Global cyber landscape.
Privacy
Our clients trust us to look after them by ensuring that
their personal information is safe and secure. Any personal
information we collect is handled in accordance with the IOOF
Group Privacy Policy, which outlines how we manage personal
information. We have a program in place to ensure privacy
awareness remains at the forefront of our employees’ minds.
Since 2015, IOOF has been an active participant in the
Office of the Australian Information Commissioner’s annual
Privacy Awareness Week (PAW), during which employees
engage in initiatives and activities to reinforce the importance
of protecting information. In addition, online privacy awareness
training is provided to all employees annually and targeted
training is delivered several times a year. We support a
strong culture of privacy compliance, where reporting and
responding to privacy breaches is second nature.
We are continually looking for better ways to enhance our
capabilities, to ensure our controls remain effective and to
build privacy awareness.
Climate change and the environment
Climate change presents significant challenges for society
and generates both risks and opportunities for IOOF's
business and stakeholders.
Climate change forms part of our approach to ESG integration
and is incorporated into our Responsible Investment Position
Statement. Other environmental issues we consider include
energy efficiency, pollution, water management, biodiversity
and site restoration. We are committed to implementing the
following measures specifically to address climate change.
Task Force for Climate-Related
Financial Disclosures
In September 2018, IOOF announced its support for the
Task Force 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.
IOOF has joined a list of over 830 organisations worldwide
and over 50 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.
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
to integrate ESG practices into their investment process.
These managers must now identify and manage risks
and opportunities associated with ESG as part of their
investment process.
In 2018, the Investment Management Division developed a
Responsible Investing Statement of Principles, with approval
and commencement of the implementation of the statement
during 2019.
The Responsible Investment Position Statement was developed
with reference to current best practice described by the
Principles for Responsible Investment. It covers the mainstream
equities, property and infrastructure security assets in our
managed investment schemes and applies to our external fund
managers through our Investment Management Agreements.
We undertook a process to review our approaches to the
measurement and scoring of our multi-manager portfolios
against the Responsible Investing Statement of Principles
and are rolling out an investment database system to capture
individual security holdings of our investment managers within
our multi-manager funds. Once complete (expected in FY
2020), this will assist us in monitoring exposure to ESG sensitive
sectors and ultimately score funds on carbon exposure and
other dimensions of Responsible Investing.
A range of processes have been introduced to existing manager
due diligence, selection and monitoring practices, to include
an evaluation of each fund manager’s ESG methodologies and
capabilities. In house analysis is supplemented by independent
external research provided by our asset consultant (Mercer),
which analyse and rate fund managers’ ESG processes. The
Investment Management Division utilises Mercer to engage
with incumbent and prospective managers and to evaluate
the extent of integration of ESG criteria in their respective
investment process.
17
IOOF | annual report 2019 Environmental, Social, and Governance factors that form the basis of our statement are wide ranging and may have varying impacts
on risk and return on our products. The following table shows some examples of areas covered under ESG:
Environmental (E)
Social (S)
Governance (G)
Climate impact
Human capital management
Board experience, diversity, accountability, tenure and structure
Energy efficiency
Diversity and employee relations
Executive remuneration (short and long term)
Pollution
Working conditions
Bribery and corruption
Water management
Occupational health and safety
Anti-competitive behaviour
Biodiversity and site restoration
Labour standards
Political lobbying and donations
A number of approaches can be taken to include ESG issues including:
•
Integration: Inclusion of ESG factors in the investment
companies to pose considerable financial risk to the
decision making process to improve investment outcomes.
tobacco industry and challenge the business model.
• Active ownership: Engage with companies (including via
proxy voting) to improve investment outcomes.
• Supply chain risk: Tobacco industry use of child labour
is under the spotlight as supply chains are analysed.
• Themed: Impact investing targeting areas
which generate attractive returns with
In addition, IOOF has an 18% shareholding in Australian
Ethical (ASX: AEF); Australia’s largest dedicated ESG investment
sustainability social improvement themes.
manager. This represents a long-standing commitment
• Exclusions: Screen out companies or industries
assessed to represent a long-term risk to returns due
to negative ESG factors that cannot be mitigated via
Integration, Active Ownership, or Themed Investing.
Integration is considered the most appropriate approach to
responsible investing given our objectives. All four approaches
may be deployed as deemed appropriate. Exclusion is reserved
for companies or industries where other approaches cannot
reasonably be expected to achieve our objectives.
This year we modified Investment Management Agreements
to exclude Tobacco Manufacturers from portfolios, with a
plan to the end of September 2019 for managers to transition
tobacco manufacturing companies out of our portfolios.
Our Responsible Investing Statement of Principles allows
for the exclusion of individual companies or sectors where
the principle of engagement is unlikely to be successful in
achieving Responsible Investing objectives.
to responsible investing with our initial investment dating
back to 2005.
Our 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 November 2018 we
moved all of our Hobart based staff to 59 Liverpool Street.
In September 2017, we moved all Melbourne based staff
to work in one energy efficient office building. A Four Star
NABERS Energy Rating and Three Star NABERS Water Rating are
targeted by the Building managers. In addition, there is a fully
digitised Building Management System which will monitor air
temperature and quality, 24/7, to maximise efficiency across
the building, and utilise outside air to supplement the in-house
In the case of tobacco, the engagement with management
system when suitable. Combined, this will make the building
of tobacco manufacturers was viewed as unlikely to result in
one of the most environmentally responsible commercial
reducing long term investment risks specific to this sector
addresses in Melbourne CBD.
that may reasonably be expected to emerge, due to the high
proportion of total revenue generated by tobacco companies
through the sale of tobacco products.
Long-term investment risks associated with Tobacco
Manufacturers are:
• Regulatory risk: Unprecedented global
cooperation to reduce tobacco use
• Litigation risk: Challenging the business model of
externalising costs. Major class actions against tobacco
18
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 three
and a half Star NABERS water rating and a Five Green Star
rating, meaning it is currently one of the most environmentally
sustainable buildings in Sydney.
IOOF | annual report 2019 We also continue to seek better ways to minimise our
environmental impact, including working with contractors,
landlords and service providers to increase waste recycling.
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.
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. We changed
our corporate air travel arrangements to a single
provider for all domestic and international travel.
• Upgraded our internal communications system to better
facilitate video conferencing in all of our office locations.
• Encouraging employee work practices that
reduce environmental impacts.
• To encourage a move to a paperless environment, we
implemented 'Follow Me' printing to reduce unnecessary
printing of documents and paper wastage.
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.
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 Group's 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 (now a discontinued operation).
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
Tax contribution analysis
The IOOF Group contributed a total of $160.6m in taxes
to Australian, New Zealand and Hong Kong governments
(state and federal) in the 2019 tax year. $160.2m or 99.75% of
this amount was attributable to the Australian Government.
The below graphs provide an analysis of the types of taxes the
IOOF Group is liable for and those payable in Australia versus
those in foreign jurisdictions. 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 $133m.
2019 tax
contribution
by type (total
$160.6m)
Income Tax $95.3m
GST $46.4m
Payroll Tax $14.9m
Fringe Benefits Tax $1.2m
Other $2.8m
2019 tax
contribution by
country (total
$160.6m)
Australia $160.2m
Other $0.4m
Fiduciary oversight of superannuation
IOOF received the latest ATO Large Fund Diagnostic Report for
the superannuation funds which IOOF Investment Management
Limited administers. The ATO uses the outcome of these
reports to categorise the risk of incorrect ATO reporting and
direct compliance activity. The ATO has noted in past years that
“very few funds met more than eight of the 13 benchmarks”.
IOOF has met, or exceeded all 13 benchmark tests for its flagship
product, continuing the excellent results received in each of
the last four years. It continues to be ranked as one of the best
performing funds in Australia in respect of ATO reporting.
The super funds administered by IOOF Investment Management
Limited were the first funds in Australia to successfully
implement the newly introduced Member Account Attribute
Service (MAAS) and Member Account Transaction Service
(MATS). These initiatives ensure real time reporting, and aid in
excellent member outcomes.
Further detail on tax paid by the IOOF Group can be found in
note 2–6 to the financial statements within this Annual Report.
19
IOOF | annual report 2019 Our clients and community
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.
Establishing trusted relationships
with advisers
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.
Three 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.
The IOOF Advice Academy supports advice businesses and
their clients to 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.
At IOOF, we believe in the value of financial advice.
We currently employ or licence approximately 1,500 advisers
and also have trusted relationships with financial advisers who
operate independently.
We also believe in setting the highest standards in advice.
Advisers joining one of IOOF’s advice groups are subject to
meeting minimum adviser education standards and undergo
rigorous compliance and on-boarding processes, to ensure
that the quality of financial advice IOOF is offering our clients
is uncompromised.
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. Advice also
extends beyond measurable financial gains, to improved physical
health, stronger relationships and personal happiness.
20
1 IOOF: The true value of advice (2015)
IOOF | annual report 2019 Our Advice Academy
Enabling advice businesses and their clients to achieve their ultimate measure of success.
Objectives
and outcome-
based advice
framework
Developing
industry
talent
Practice
support and
team member
training
Integrated
advice
philosophies
Coaching
focused on client
progression
Tools,
templates
and education
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.
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 experience.
Deep alignment on culture and new
operating model around our clients
Trusted by clients and partners as a leader
in advice and financial services.
Our people
Are embracing our ClientFirst strategy.
It is driving empowerment and enablement.
New methods and measures emerging.
R I B
I O N
U T
Vision and
Leadership
ADVICE
Leadership development
Investing in our leaders to help
them better support our people.
Our leaders meet quarterly to
discuss progress.
T & DIS T
Celebrate
success
C
U
D
O
R
P
System
capability
Operating
rhythm
G
O
V
E
M
E
A
S
U
P U RPOSE
Clients
O
Coaching
and capability
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
Knowledge and documentation
R
N
We have documented processes
from a client perspective. This is
revealing significant opportunities to
innovate and redesign the way our
clients interact with us.
A
N
C
E
R
ES
Visual
Management
M ET
Improvement
Knowledge and
documentation
TEC
F I N A N C
E
S
E
R
VICES
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.
21
IOOF | annual report 2019
Giving back to our communities
Our RAP seeks to:
IOOF Foundation
Since its formal establishment in 2001, the IOOF Foundation
has donated more than $14 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 25 of this report.
Reconciliation Action Plan
We believe that all Australians can contribute to the
reconciliation of the nation. We remain committed to the
Reconciliation Action Plan (RAP) that was put in place across
two of our businesses, AET and Shadforth Financial Group
(SFG). We continue to take steps forward to leverage 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.
Our RAP helps 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 culture that is
respectful towards Aboriginal and Torres Strait Islander peoples
and their unique place in society.
• break down stereotypes and discrimination
• show respect and appreciation for Aboriginal and Torres
Strait peoples’ strengths, values and traditions
• engage actively with Aboriginal and Torres Strait Islander
peoples to gain a deeper understanding
• offer our expertise and influence to assist Aboriginal and
Torres Strait Islander peoples to understand their rights
• create opportunity for Aboriginal and Torres Strait
Islander peoples.
Some of our key achievements under the RAP for the past
year include:
• extending national reconciliation week activities across
the business and creating awareness by providing a
company-wide webinar and guest speaker to promote
National Reconciliation week.
• recognising NAIDOC week
•
increasing the number of employees completing online
cultural competency training
• staff attending the Madallah ball (organisation that provides
Aboriginal scholarships for private education)
• continuing to partner with local indigenous suppliers
• attending national native title conference
• continuing to provide opportunity to partner with local ATSI
group by holding an official acknowledgment to country.
22
IOOF | annual report 2019 Our people
At IOOF, our people are critical to our success and we want them to be engaged, motivated and empowered to
succeed. Living our purpose of understand me, look after me and secure my future, is key to our success and we
challenge each other to bring this to life in our everyday interactions.
Evolving our culture
The wellbeing of our clients is paramount to us at IOOF.
Embedding a ClientFirst way of thinking, where we put the client
at the centre of all we do, will help strengthen our culture.
Our Senior Leader Forum also brings together key leaders from
across the business regularly to ensure they are aligned on key
issues and focus areas.
Our culture is underpinned by four core values
• 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 exceed expectations.
• Empathy – We listen, we feel and we care.
We treat each other with respect.
• Trust – We act honestly, openly and reliably.
We nurture positive working relationships.
Employee engagement and alignment
In 2019, we again undertook a survey to assess our employee
engagement and alignment and our key indicators have
remained stable since last years’ survey. The transformation of
our industry and the challenges that we have worked through
over the past 12 months, has reaffirmed the resilience of our
teams as we remained focused on our clients, advice-led
strategy and purpose. Our biggest areas of strength were in
perceptions of senior leadership and team leadership.
Our recent initiatives to improve employee engagement include:
•
•
•
fortnightly CEO webinars
improved parental leave policy including 12 weeks’ paid
parental leave, a $4,000 childcare bonus and super paid for
the duration of parental leave
focused on health and wellbeing through a number of
educational webinars and wellbeing initiatives
launched My IOOF, our integrated people platform
•
•
introduced formal recognition programs across the business
• strong focus on strengthening risk and compliance culture.
Leadership and capability
Strong and inspiring leadership is critical to achieving our
strategic and cultural objectives. Developing, aligning and
empowering leaders has been a key focus of the last 12 months.
IOOF is committed to developing our existing and future leaders
and our Leading@IOOF and Leadership Foundation programs
continued to strengthen our leadership capability.
We’re keenly aware that our reputation is built on the specialist
knowledge and the expertise of our people, so we go to great
lengths to maintain the quality of the people we employ and to
ensure our IOOF values underpin everything we do.
We aim to create an environment where our people have
the tools and support to own and drive their professional
development. We adopt the 3E Framework - Experience,
Education and Exposure, and encourage managers and
employees to have conversations about career development
on an ongoing basis. We offer study and study leave and
professional membership support.
As we continue to grow, we want to make sure our systems
provide a positive experience for our people. In April 2019,
we launched ‘My IOOF’, a user-friendly platform replacing multiple
HR systems and forms, driving better capability in areas like
performance, talent management, recruitment and development.
Supporting our people
We offer some of the best benefits in the industry for our
people. We also understand that everyone is different, so the
benefits we offer meet a range of diverse needs, including:
IOOF Staff Super Plan
• service awards
• recruitment referral bonus
•
• regular connection and recognition events
• social clubs
•
•
• discounted public transport tickets (Victoria).
• salary packaging
•
IOOF Staff Super
IOOF Day
IOOF benefits program - exclusive access to discounted
gift cards, e-gift cards and discounts at large retailers and
leisure outlets.
23
IOOF | annual report 2019 Flexibility
We know that life is busy and want to help our people to
manage life commitments, stay healthy and recharge. We are
respectful that people have different commitments and
lifestyle circumstances and therefore fully support workplace
flexibility. We also appreciate that one size doesn’t fit all and
understand individuals and teams have diverse needs, so offer a
range of formal and informal work arrangements including:
• part-time work
• working remotely
• flexible start and finish times
• purchased leave
• time off in lieu
•
job sharing.
Wellbeing
We believe in promoting a healthy work life balance and
support our people to achieve this through a number of
initiatives. Access to a confidential Employee Assistance
Program (EAP) and wellbeing offerings include flu vaccinations,
gymnasium discounts and preferred health insurance rates
with select insurers.
We also support our advisers and their businesses and as an
example of the support we offer, financial advisers who are
licensed with IOOF can now access confidential support and
advice, 24 hours per day, 365 days a year through our EAP.
We have also been running wellbeing workshops at licensee
professional development days. We will continue to introduce
more wellbeing support, which will include practical tools
and resources.
Diversity and inclusion
IOOF understands that diversity and inclusion are core
components of embracing the different talents and backgrounds
of our employees. We view our diversity of skills and experience
as qualities which strengthen us to support our purpose and
achieve the best outcome for our team and customers.
IOOF 2019/2020 Diversity and Inclusion Action Plan aims to
embrace our differences and ensure employees can operate
at their potential by reducing barriers and adopting Equal
Employment Opportunity principles. 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 have a Diversity and Inclusion Committee in place,
chaired by the CEO, which reviews and proposes initiatives
through a consultation process, to help drive our Diversity
and Inclusion agenda.
Whilst we embrace difference in all forms, we have a keen
focus on supporting more women into senior leadership
roles in our organisation. We continue to take steps to address
issues of gender pay equality and offering opportunities for
networking inside the organisation and more broadly. We also
offer 12 weeks paid parental leave, 10 ‘keeping in touch’ days,
a child care bonus and superannuation continues to be paid
during parental leave.
The table below sets out female representation at board,
senior management and all staff levels:
Group
Sept 2018 Oct 2019
Women in executive/board positions
Women in senior management
4
29
6
29
Women on the IOOF Holdings
Limited Board
33%
2 of 6
38%
3 of 8
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 have 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,
The Salvation Army and Easy Gardens.
Our people actively support a number of key community
initiatives in our offices throughout the year.
Our Workplace Giving program encourages 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.
24
IOOF | annual report 2019 Established as a not-for-profit organisation in June 2002, at the time of IOOF’s
demutualisation, the IOOF Foundation recognises the historical origins of IOOF
and the important role it has played in the Australian community since 1846.
Since its formal establishment in 2002 the IOOF Foundation has
donated more than $14 million to community groups across
Australia. The IOOF 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:
• Aged care – The IOOF Foundation gives priority to
programs that are committed to providing the quality
of life for individuals and their families with progressive
neurological and physical diseases.
• Families – Our basic needs program, supports community
groups that are assisting families that are struggling to be
self-sufficient and support long-term solutions that help
families move out of poverty or avoid a crisis.
• Children and youth – The IOOF Foundation supports
education projects that help break the cycle of disadvantage
and empower young Australians to reach their potential.
Priority is given to programs addressing prevention and
early intervention and education, employment and training
for young people.
• Mental health – All people, regardless of where they live
or economic status should have access to quality mental
health care. We have seen that impacts of mental health
may have flow on effects with many experiencing poverty,
homelessness and unemployment as a result. To make
inroads in to these issues, we need to address this. Integrated
within our core programs is access to resources that focus on
early intervention and prevention.
25
IOOF | annual report 2019 2019 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.
• Aboriginal Literacy Foundation
• Ardoch Youth Foundation
• Central Australian Youth Link
Up Service
• Colman Foundation
• Giant Steps Australia
• Girls from Oz
• Mama Lanas
Community Foundation
• Menzies Institute for
Medical Research
• MND & Me Foundation
• Parkinsons Australia
• Reach Foundation
• Spinal Research Institute
• The Smith Family
• Very Special Kids
• Youth Focus WA
• Zephyr Foundation
• Wintringham
Very Special Kids (VSK)
Ardoch Youth Foundation
VSK is an organisation with a passion for supporting families
throughout the entire journey of caring for children with
life-threatening conditions, from diagnosis to adulthood or
bereavement. VSK has been providing hope, support, respite and
specialised care to families with terminally ill children for over
24 years. VSK runs Victoria’s only children’s Hospice (located in
Malvern), where families and children with life-threatening
conditions can go for respite and end-of-life care. It helps families
see beyond their worst fears providing comfort through a
very difficult experience. The IOOF Foundation supports their
regional program contributing more than $85,000 over the
last two years. Our staff supported this partnership with their
own fundraising efforts as part of the VSK Treadmill Challenge.
The team ran (and walked) for 24 hours throughout the day and
night fundraising for VSK an inspiring charity and the terminally
ill children they support. The team raised more than $60,000.
The Reach Foundation
This year we commenced a new partnership with The Reach
Foundation (Reach). Reach is a not-for-profit organisation that
works with young people to improve their emotional intelligence,
self-awareness and resilience through workshops designed and
delivered by their peers – fellow young people. The initial two-year
partnership will see IOOF supporting Reach’s grassroots programs.
As a major focus of this partnership, we will be supporting
Heroes Day. Heroes Days are a crucial part of the Reach calendar,
run in Vic and NSW. At each Heroes Day, Reach brings together
up to 500 Year nine students to a workshop that is designed to
build their social and emotional skills, develop their resilience,
and motivate them to make more positive life choices.
Heroes Day are designed and delivered by a dynamic team of
Reach crew, ensuring a relevant, challenging and captivating day
for students. This highly experiential workshop uses the powerful
metaphor of the ‘Heroes Journey’ to help young people explore
their own lives and reframe challenges they may be facing.
Ardoch is a children’s education charity focused on improving
educational outcomes for children and young people in
disadvantaged communities. Our Brisbane and Perth offices
are involved in the Ardoch’s ‘Literacy Buddies’ – a program that
matches primary school students and corporate volunteers to
improve literacy and inspire their learning through the art of
letter writing.
A team of Big Buddies and classes of up to 25 Little Buddies
(primary school students) exchange letters throughout the
school year. The program is welcomed by schools and teachers
not only for the positive impact on students’ literacy but for the
social and aspirational outcomes that result from the connection
between the Buddies. The goal of the program is to connect
children from disadvantaged backgrounds with positive
working role models. Throughout the course of the school year,
the Big Buddy encourages and supports their Little Buddy's
individual academic achievement. These experiences can
motivate educational engagement and boost self-esteem for
children at critical stages of their lives. The IOOF Foundation
is looking to continue supporting this program in Brisbane,
Perth and Sydney in 2020.
Girls From Oz
The IOOF Foundation has funded the Girls from Oz (g-oz)
program for the last two years. G-oz provides high-quality
performing arts education to engage girls and young women in
remote and regional Australia. 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. This year, the girls travelled from rural Australia
for the opportunity to perform at the Arts Centre Melbourne
with the Australian Girls Choir. We are delighted to partner with
the team at g-oz and look forward to hosting the choir in our
Sydney office this year.
26
IOOF | annual report 2019 The Smith Family
At IOOF, we recognise that financial competency is not only
an essential life skill, but also important in building strong
communities. One of our core programs provides grants to
community groups that are committed to educating and
promoting the development of money management skills
amongst those considered least financially literate.
A large component of our program is done in
partnership with the Smith Family. Together each year
we educate 4,000 disadvantaged young people across
Australia by financially supporting them to obtain a
Certificate 1 in Financial Services.
“A big thank you to The Smith Family! Before this course
I spent my money willy nilly and didn't think saving was
important. The lady that ran the course was lovely and
I would definitely recommend to others.”
NSW Certificate 1 in Financial Services participant
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.
MS currently has no cure, and the symptoms can include
fatigue, bladder and bowel changes, difficulty concentrating,
difficulties with walking and balance, and a sensitivity to heat
and cold. In a report for MS Research Australia released in 2018
Menzies researchers calculated that the number of people living
with MS in Australia increased by just over 20 per cent from 2010
to 2017, from 21,283 to 25,607. The report found an economic
cost of MS to the Australian community of $1.75 billion.
The IOOF Foundation supports the research led by Professor
Ingrid van der Mei, the MS WorkSmart Program. The program is
focused on developing a Cognitive Behavioural Intervention for
people with MS in the workforce.
Aboriginal Literacy Foundation
One out of five people in the world cannot read or write.
At IOOF, we are part of the journey to change that. We support
the beliefs of the Aboriginal Literacy Foundation – that positive
and practical change to closing the gap between Indigenous
and non-Indigenous young people starts with literacy
and numeracy.
The IOOF Foundation is committed to supporting the
Literacy and Employment Readiness Program aimed at
preparing potential employees and members of the wider
community for employment by improving their literacy
and numeracy competency. This program has the potential
to effect real change in society, and especially in the lives
of many Indigenous men and women, and consequently
their families and communities.
The Aboriginal Literacy Foundation is an independent,
not-for-profit, charitable organisation that relies on the
generous support of the community to achieve its work.
27
IOOF | annual report 2019 We’re committed
to providing quality
financial advice to
all Australians.
28
IOOF | annual report 2019 IOOF | annual report 2019
financial
report
for the year ended
30 June 2019
Contents
Directors’ Report
Remuneration Report
Directors’ Declaration
Lead Auditor’s Independence Declaration
Independent Auditor’s Report to the Members
Consolidated Statement of Comprehensive Income
Consolidated Statement of Financial Position
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Notes to the Financial Statements
30
45
63
64
65
69
70
71
73
74
29
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 2019 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 Allan Griffiths
B.Bus, DipLI.
Independent Non-Executive
Director
Director since 2014
Acting Chairman effective
10 December 2018
Chairman effective 4 April 2019
Mr Renato Mota
BComm(Hons), B.Bus
Chief Executive Officer and
Managing Director
Chief Executive Officer effective
25 June 2019
Managing Director effective
25 June 2019
Acting Chief Executive Officer
effective 10 December 2018
Mr George Venardos
BComm, FCA, FGIA, FAICD, FCIS.
Independent Non-Executive
Director
Director since 2009
Leave of absence commenced
10 December 2018
Chair from 2016 to 2018
Resigned as Chairman effective
4 April 2019
Mr Christopher Kelaher
B.Ec, LL.B, F Fin.
Managing Director
Director from 2009 to 2019
Leave of absence commenced
10 December 2018
Resigned from Board effective
4 April 2019
Resigned from Company
effective 2 July 2019
Ms Jane Harvey
B.Com, MBA, FCAANZ, FAICD
Independent Non-Executive
Director
Director since 2005
Experience, special responsibilities, listed and other significant directorships
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. Chair of the Group Nominations Committee and member
of the Group Audit and Group Remuneration Committees.
With more than 20 years’ experience in financial services, prior to being appointed CEO,
Mr Mota held a number of senior executive roles within IOOF. In December 2018, Mr Mota was
appointed Acting CEO and prior to that was Group General Manager – Wealth Management
since January 2016. During this time he was instrumental in leading IOOF through a series of
forward-thinking, strategic initiatives including IOOF’s advice-led strategy, the group’s ClientFirst
transformation and establishing the IOOF Advice Academy. Previously, he held numerous
executive roles as General Manager of Distribution, Investor Solutions and Corporate Strategy
and Communications. Before joining IOOF in 2003, Mr Mota worked for Rothschild and NAB
in corporate finance roles with a focus on mergers and acquisitions where he was involved in
wealth management transactions including the demerger of Henderson Group plc from AMP
in 2003 and NAB’s acquisition of MLC and Deutsche Financial Planning.
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
until 10 December 2018.
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.
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 Dulux Group
Limited from 2018 to 2019, 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 entities. Ms Harvey is the Chair of the Group
Audit and Remuneration Committees and member of the Group Nominations and Group Risk
and Compliance Committees.
30
IOOF | annual report 2019 Name, qualifications and
independence status
Ms Elizabeth Flynn
LLB, Grad Dip App Corp Gov,
FAICD, FFin, FGIA, FCIS.
Independent Non-Executive
Director
Director since 2015
Mr John Selak
Dip Acc, FCA, FAICD
Independent Non-Executive
Director
Director since 2016
Experience, special responsibilities, listed and other significant directorships
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. Ms Flynn is Chair of the Group,
IOOF Investment Management Limited (IIML) and Australian Executor Trustees Limited (AET) Risk and
Compliance Committees, member of the IOOF Ltd Risk and Compliance Committee, and member
of the APRA Regulated Entity (ARE) Audit Committee until 28 November 2018. Member of the Group
Remuneration and ARE Remuneration and Nominations 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, Turosi Food Solutions, and the IOOF Foundation.
Chair of the ARE Audit Committee until 28 November 2018, and member of the IIML and
AET Audit Committees thereafter. Member of the Group Audit, Group Risk and Compliance,
and IOOF Ltd Audit Committees. Member of the Group Nominations Committee.
All Directors held office during and since the end of the financial year, unless otherwise noted.
The Group 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 and distribution;
• portfolio and estate administration;
•
investment management; and
• ex-ANZ wealth management.
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
(2018: $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
31
IOOF | annual report 2019 Directors’ report (cont’d)
Operating and financial review (cont’d)
Profit attributable to Owners of the Company
(Profit)/Loss from discontinued operations
Profit/(Loss) from continuing operations 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 assets
Non-recurring professional fees (recovered)/paid
Impairment of goodwill and related investment
Unwind of deferred tax liability recorded on intangible assets
IOOF ADG remediation costs
Other
Income tax attributable
UNPAT from continuing operations
UNPAT from discontinued operations
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: Payments to
external advisers for corporate transactions, such as the
acquisition of the ANZ Aligned Dealer Groups (ANZ ADGs)
(prior comparative period (pcp): AET Services (AETS)) and
planned acquisition of the ANZ OnePath Pensions and
Investments (ANZ P&I) business, 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 the ANZ ADGs and planned
acquisition of the ANZ P&I business.
32
Note
2-2
2-4
2-4
2-4
2-4
2-4
2-4
2-3
2-4
2-4
2-4
2-4
2019
$’000
28,560
(70,682)
(42,122)
2018
$’000
88,301
17,106
105,407
37,651
2,488
20,766
416
–
2,043
(368)
2,027
13,920
(10,200)
235,278
875
(77,829)
184,944
13,045
197,989
37,378
5,367
4,973
6,725
2,345
2,033
(2,786)
(902)
28,339
(10,195)
–
1,244
(4,181)
175,747
15,670
191,417
Acquisition costs – Finance costs: Costs of securing finance
for the acquisition of the ANZ ADGs and substantial economic
completion of the ANZ P&I business.
Onerous contracts: A pcp non cash entry to record the
estimated present value of expected costs of meeting
the obligations 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 assets: Divestments of non-core
businesses, client lists and associates.
Non-recurring professional fees (recovered)/paid:
Payment of certain legal costs that are not reflective of
conventional recurring operations.
Impairment of goodwill and related investment: A non-
cash impairment of $9.5m has been recognised in relation to
goodwill allocated to Perennial Investment Partners Limited
(pcp: $28.4m). Additionally, an impairment of $4.4m has
been recognised in relation to the Group’s equity accounted
investment in Perennial Value Management Limited. Reduced
profitability from lower revenue led to its expected fair value
less costs to sell declining to below the carrying value of the
IOOF | annual report 2019 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.
IOOF ADG remediation costs: Remediation costs identified
as significant due to being large and one-off in nature,
largely longstanding historic structural issues identified in
the current year.
Other: Deferred consideration devaluation relating to prior
periods’ divestment of Perennial and other businesses.
Income tax attributable: This represents the income tax
applicable to certain adjustment items outlined above.
Review of Strategy
The IOOF Group has developed an advice-led strategy
as a means of creating and delivering differentiated and
competitive services to meet the need of its clients and
the community at large. This is delivered through a range
of different, complementary offerings, operated through
a series of licensed and regulated entities. These include,
financial advice through Australian Financial Services licenses,
superannuation services, through Registrable Superannuation
Entity and investment services through Responsible Entity and
trustee related entities.
IOOF’s strategy is centred around the value of financial advice
in helping empower Australians by improving their financial
decision making. IOOF believes this has direct benefits in terms
of people’s financial wellbeing and indirect benefits in terms
of minimising other forms of mental and physical distress.
IOOF is one of Australia’s largest providers of financial advice,
through its 12 licenses, which account for 1,495 advisers
nationally. In exchange for these licensing services,
IOOF generates revenue from self employed advisers for
the provision of licensing, governance and broader business
support. IOOF also operated financial advice businesses
through salaried financial advisers.
Through relationships associated with Financial advice,
or employer sponsored superannuation plans, IOOF attracts
investable funds from clients (or intermediaries) from which
it then charges fees in exchange for administration or
management services. 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 $2.8 trillion as at
31 March 2019. Over the 12 months to March 2019 there was
a 6.7% increase in total superannuation assets and retail
providers had a market share of approximately 22%. The IOOF
Group’s market share of that sub-set was just under 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.
33
IOOF | annual report 2019 Directors’ report (cont’d)
Operating and financial review (cont’d)
As published in APRA’s March 2019 Quarterly Superannuation
Performance Statistics, the following were the asset allocation
metrics for funds with greater than four members: 50.5% of
investments were invested in equities; with 22.1% in Australian
listed equities, 24.4% in international listed equities and 4.0%
in unlisted equities; Fixed income and cash investments
accounted for 31.4% of investments; 21.2% in fixed income
and 10.1% in cash; Property and infrastructure accounted for
14.2% of investments and 3.9% were invested in other assets,
including hedge funds and commodities.
IOOF’s strategy has been designed to deliver growth,
through servicing and meeting a range of needs of investors,
supported by the expected continued growth in the Australian
savings pool. 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:
• ensuring that our culture, governance and people
initiatives underpin and promote an organisational
capability that builds and protects a highly regarded and
trusted reputation;
• responding to market dynamics, including client
and adviser feedback, to ensure products and
services are priced appropriately for the service and
functionality offered;
• 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.
Governance uplift
On 7 December 2018 APRA gave notice of additional licence
conditions on IOOF’s APRA regulated entities. These conditions
require, inter-alia:
• separation of responsible entity and registrable
superannuation entity duties to separate independent
corporate entities;
• the implementation and effective operation of an
independent member outcomes driven function
(the Office of the Superannuation Trustee or OST); and
• monitoring and reporting on progress via an
independent expert.
On 20 August 2019, IOOF announced that it had met all
its 30 June 2019 requirements to the satisfaction of the
independent expert and was on track to meet all remaining
requirements by the relevant deadlines.
In addition to the licence conditions discussed above,
APRA commenced Federal Court proceedings against
two IOOF entities, two directors and three employees on
7 December 2018. The proceedings seek declarations that the
corporate entities breached trustee duties and contravened
the Superannuation Industry (Supervision) Act 1993 (Cth) and
disqualification orders against the five individuals from acting
as trustees or a responsible officer of a trustee. At that time,
IOOF announced that the allegations were misconceived and
that it would vigorously defend the entities and individuals
concerned. The matter was heard before the Honourable
Justice Jayne Jagot from 1 to 17 July 2019. As the matter
has been adjourned pending judgment by her honour,
IOOF will not comment further.
The Final Report of the Royal Commission into Misconduct
in the Banking, Superannuation and Financial Services
Industry was presented to the Governor-General on
Friday 1 February 2019. On Monday 4 February 2019 the
Hon Josh Frydenberg released the Government’s Response
to the Royal Commission. The report itself runs to 496 pages,
not including case studies and appendices. Findings and
matters specific to IOOF were before the Federal Court,
as noted above, hence the report was limited to republishing
APRA’s original allegations. Some of these allegations were
amended in subsequent amendments to the Statement of
Claim by APRA filed in the Federal Court.
34
IOOF | annual report 2019 The Federal Government has committed to adopting all
recommendations of the Royal Commission. IOOF is highly
supportive of these changes. The most financially significant
is the cessation of grandfathering conflicted remuneration to
financial advisers effective from 1 January 2021. Remuneration
under these arrangements represented $7.2m revenue to IOOF
in the year to 30 June 2019.
Lastly, the Royal Commission outcome in respect of
vertical integration, IOOF’s business model, was favourable.
The Commissioner concluded he was not persuaded
that it was necessary to mandate structural separation
between product and advice. The final report at p196 stated,
”Enforced separation of product and advice would be a very
large step to take. It would be both costly and disruptive.
I cannot say that the benefits of requiring separation would
outweigh the costs”, and the Productivity Commission
concluded that ’forced structural separation is not likely
to prove an effective regulatory response to competition
concerns in the financial system’.
Subsequent to these events, the Treasurer announced an
”implementation road map” for the 54 recommendations from
the Royal Commission which called for Government action.
The implementation road map will see 50 recommendations
implemented or before Parliament by mid-2020, with the
remaining four recommendations needing legislation
introduced to Parliament by the end of 2020. IOOF will
assess the impact of this legislation when it is released
for public scrutiny and inform stakeholders of that
assessment as required.
Acquisitions and divestments
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.
On 2 July 2018, IOOF completed the acquisition of 100% of the
shares of Ability One (WA/SA) Pty Ltd, a specialist financial and
life planning advisory business, based in Western Australia and
South Australia.
On 2 October 2018, IOOF and Australia and New Zealand
Banking Group Limited (ANZ) finalised legally binding
arrangements to give effect to the following:
• Full legal ownership of the ANZ ADGs transferred to IOOF
effective 1 October 2018.
• Substantial ’economic’ completion of the ANZ P&I business
effective 2 October 2018 through:
– an initial payment by IOOF of $800m to ANZ to
subscribe for a debt note;
– payment by ANZ to IOOF of a coupon rate of 14.4%,
which is broadly equivalent to 82% of the economic
interests in the ANZ P&I business, from 2 October 2018
until 11 May 2019. From this date, the rate reduced to
2.0% until the debt note is redeemed (expected to be at
completion of the acquisition of the ANZ P&I business).
Final completion of the P&I Acquisition remains conditional
on the receipt of notices from OnePath Custodians (OPC)
and ANZ that each have no objection to the P&I Acquisition
proceeding. IOOF continues to work co-operatively with OPC
and ANZ to provide the information and resources necessary
to facilitate those notices being given. From 5 July 2019,
recent amendments to the Superannuation Industry
(Supervision) Act 1993 (Cth) came into force, giving APRA an
approval power in respect of the acquisition of controlling
stakes in Registrable Superannuation Entity licensees (such as
OPC). As such, receipt of such an approval from APRA is now
also a condition to completion of the P&I Acquisition. IOOF is
well advanced in preparation and submission of material to
APRA for due consideration of the matter.
Assuming stable economic conditions more generally, the
accelerated completion date for the ADGs and the substantial
’economic’ completion is expected to deliver Earnings Per
Share accretion as per the forecasts previously disclosed in
the initial announcement of the transaction. The accelerated
completion date for the ADGs and the substantial ’economic’
completion of the ANZ P&I business have contributed an
additional $26.6m UNPAT net of related financing costs.
On 1 November 2018, IOOF completed the divestment of the
AET Corporate Trust business to Sargon Capital Pty Ltd (Sargon)
for a total purchase consideration of $51.6m. AET Corporate
Trust’s post-tax contribution to IOOF’s underlying net profit
after tax for the year to 30 June 2018 was $1.1m.
35
IOOF | annual report 2019 Directors’ report (cont’d)
Operating and financial review (cont’d)
$41.3m, or 80% of the purchase price, was received upon
completion, however the full consideration amount was used
to determine an overall pre-tax gain on sale of discontinued
operation of $49.0m. $10.3m in deferred consideration has
since been deemed as unlikely to be received, and therefore
written back in the current financial year. The write back arises
from an inability to novate certain residual contract revenue
to the business entities being acquired by Sargon. The results
of the AET Corporate Trust business have been disclosed as
discontinued operations in the financial statements.
IOOF has retained its AET Private Trust business; a core
part of IOOF’s diversified business model which focuses
on private client trustee services, estate planning and
compensation trusts.
On 27 June 2019, IOOF announced the divestment of its 70%
holding in Ord Minnett Holdings Pty Ltd (Ord Minnett) to a
consortium of private investors led by current Ord Minnett
management (Consortium). Concurrently, the Consortium will
also acquire JP Morgan’s 30% stake in Ord Minnett, enabling it
to take full ownership. Completion of the sale is expected to
occur on or around 24 September 2019. The sale consideration
for IOOF’s 70% stake is $115.0m, which is expected to result in
a post-tax profit of approximately $83m.
Analysis of financial results – IOOF Group
On a continuing operations basis, the IOOF Group’s UNPAT
of $184.9m represented a $9.2m (5.2%) increase on prior year.
Inclusive of discontinued operations – Ord Minnett and AET
Corporate Trust – UNPAT increased $6.6m (3%) to $198.0m.
The variances below compare only the continuing operations
of the IOOF Group.
Gross margin increased by $2.7m
Excluding the $12.5m gross margin contribution from the
ex-ANZ ADGs, gross margin declined by $9.8m. The following
analysis discusses gross margin ex-ANZ ADGs.
During the current year, average Funds Under Management,
Administration and Advice (FUMA) were $115.4b, an increase of 3.6%
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. Platform flows of $1.4b were broadly
equivalent to $1.6b in the prior year. This segment benefited from
enhanced capture of funds from other IOOF Group segments,
principally trustee and Shadforth, and better penetration of the
IOOF Group’s existing client base. Financial advice flows of $0.5b
were down significantly on prior year. IOOF has a significant third
party administration arrangement with BT. BT reduced its fees
on an equivalent offering which left IOOF out of market on price,
and therefore exposed to outflow to BT, temporarily. There was also
an outsize low-margin inflow from a single client in the prior year.
Investment management outflows of $0.6b were largely derived
from pension payment based redemptions.
36
The higher level of average funds boosted gross margin
by $18.4m, but was partly offset by the more rapid growth
in products with lower earning rates or margins (impact of
-$28.1m 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. In addition, contributions from
relatively high balance clients in compensation trust and
Shadforth relationships generally attract much lower fees per
dollar of FUA. Investment management margins were relatively
stable which is reflective of the steady state maturity and
complementary nature of that segment. In financial advice,
price competition from BT and the need to re-set fees in
response, was dilutive on segment margin overall.
Other revenue increased by $5.8m
There was no significant uplift absent the ANZ
ADG contribution.
Operating expenditure increased by $44.1m
ANZ ADGs contributed an additional $41.7m in operating
expenditure. Outside the ANZ ADG impact, operating
expenditure increased $2.4m or 1% on prior year.
Labour costs are the IOOF group’s most material at 68% of
operating expenditure overall. These costs, ex-ANZ ADG,
have declined by $0.6m chiefly due to lower numbers of staff
employed on underlying recurring activity given significant
diversion of effort to preparing for the integration of ANZ
and on one-off APRA licence condition related activity.
Administration costs increased $2.5m principally due to
increased non-recoverable debts and professional indemnity
insurance premiums. Computer related expenditure increased
$1.9m due largely to an increased number of efficiency
enhancing collaboration applications being deployed.
Occupancy related expenses decreased $1.5m in the wake of
significant prior year reconfiguration of the property footprint
which resulted in certain one-off service fees and short term
duplication in that period.
Net interest income increased by $57.7m
For the first four months of the year, financing costs were
eliminated by applying approximately $557m of newly issued
capital and surplus cash to extinguish $207m in borrowings.
The residual was initially applied to certificates of deposit.
On 2 October 2018, the Group entered into the substantial
economic completion arrangements described in acquisitions
and divestments above. This resulted in significant interest
income partly offset by financing costs on borrowings
drawn to ensure $800m in funds were available to ANZ.
IOOF | annual report 2019 Other impacts decreased UNPAT by $5.1m
Income tax expense increased by $7.9m
Share of associates’ profits declined $1.5m relative to prior
year as a result of mandate outflows within the Perennial
Value Management Group (PVM). Share-based payments
expense was $2.0m higher due to a new opt-in plan allowing
employees to receive performance rights in lieu of cash
for short-term incentives. Depreciation and amortisation
increased in line with additional, largely ANZ integration
and new office fit-out related, capital expenditure.
Income tax expense relative to prior year principally reflected
the IOOF Group’s improved profitability and decreased
research and development (R&D) tax offsets. This was partly
offset by a $5m higher spend on treasury shares to fulfil
employee share plans ($3.5m positive tax impact), most
particularly a new opt-in plan allowing employees to receive
performance rights in lieu of cash for short-term incentives.
Analysis of financial results – Segments (excl Ex-ANZ wealth management and
discontinued operations)
Financial advice and distribution
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
2019
$’000
191,898
4,007
(108,185)
128
(4,363)
(25,343)
58,149
2018
$’000
199,607
3,847
(109,175)
108
(3,570)
(27,311)
63,499
Movement
$’000
(7,709)
160
990
20
(793)
1,968
(5,350)
%
(3.9%)
4.2%
0.9%
18.5%
(22.2%)
7.2%
(8.4%)
• Average funds’ growth through the addition of advisers has been more than offset by the impact of repricing downwards on third
party administered advice funds. The repricing was a necessary response to halt fund outflows to an equivalent service with the
same administrator.
• Operating expenditure has decreased slightly in line with labour expenditure constraint.
• Net non-cash items increased in line with group share based payment and depreciation impacts noted above.
Portfolio and estate 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
2019
$’000
2018
$’000
233,991
237,177
–
75
(108,932)
(104,935)
5
(7,702)
(35,885)
81,479
3
(5,079)
(38,450)
88,791
Movement
$’000
(3,186)
(75)
(3,997)
2
(2,623)
2,565
(7,312)
%
(1.3%)
(100.0%)
(3.8%)
66.7%
(51.6%)
6.7%
(8.2%)
• Net operating revenue 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.
•
Increased operating expenditure resulted primarily from technology support enhancements and higher corporate recharges given
efficiencies realised in other segments.
• Net non-cash items increased in line with group share based payment and depreciation impacts noted above.
37
IOOF | annual report 2019 Directors’ report (cont’d)
Operating and financial review (cont’d)
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
2019
$’000
63,144
956
(10,698)
–
(1,799)
(15,538)
36,065
2018
$’000
61,881
1,811
(11,376)
–
(621)
(14,993)
36,702
Movement
$’000
1,263
(855)
678
–
(1,178)
(545)
(637)
%
2.0%
(47.2%)
6.0%
n/a
(189.7%)
(3.6%)
(1.7%)
• 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 lower IT investment given deployment to platform segment.
• Net non-cash items increased in line with group share based payment and depreciation impacts noted above.
Financial Position
The IOOF Group held cash and cash equivalents of $97.4m at
30 June 2019 (30 June 2018: $125.6m). 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. This includes $5.8m cash
held by the Group’s statutory benefit funds at 30 June 2019
(30 June 2018: $4.2m) which is not available to shareholders.
The overall debt to equity ratio stood at 21% at 30 June 2019
(30 June 2018: 0%) following the issue of a debt note to ANZ,
partly debt funded, as described in detail above.
Cash flow forecasting and monitoring of lending covenants
is conducted monthly. This is principally to ensure sufficient
liquidity for future needs and to monitor adherence to
licence conditions.
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,
38
policies and procedures which are subject to continuous
monitoring and oversight.
(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
IOOF | annual report 2019 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.
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 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.
(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.
39
IOOF | annual report 2019 Directors’ report (cont’d)
Operating and financial review (cont’d)
(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 the suspension or cancellation of the licence. 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.
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.
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
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:
• accurately assessing the value, strengths, weaknesses,
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;
• decline in the value of, and unanticipated costs, problems
or liabilities associated with, the acquired business; and
• potential for regulators to deny approval of acquisitions.
40
IOOF | annual report 2019 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
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 an appropriately skilled and
experienced staff and holds relationships with specialist
advisers to minimise this risk.
(xx) 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.
(xxi) Financing risk
Financing risk refers to the IOOF Group’s inability to refinance debt
facilities or to secure new financing on satisfactory terms which
could adversely affect the IOOF Group’s financial performance
and prospects. To the extent that additional equity or debt
funding is not available from time to time on acceptable terms,
or at all, the IOOF Group may not be able to take advantage
of acquisition and other growth opportunities, develop new
ideas or respond to competitive pressures. If at any time the
IOOF Group requires an extension to a facility but is unable
to obtain it and is unable to repay the relevant facility, this will
constitute a default under the other existing facilities and enable
the financiers to demand immediate repayment and cancel
the facilities. Cancellation of the debt financing arrangements
would have an adverse impact on the IOOF Group’s financial
position and performance. This risk is minimised via a dedicated
Treasury function with established policies and procedures
which are subject to continuous monitoring and oversight.
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. The Board has determined that
a dividend of 12.0 cents per share, and an additional special
dividend of 7.0 cents; totalling 19.0 cents per share and resulting
in a total payout ratio of 68%, is appropriate. Current year
profits and additional funding capacity from divestment
profits support the payout, more than offsetting cash outflow
on one-off ANZ integration and governance uplift costs.
Also, advice remediation costs are expected to have a multiple
future years cash outflow profile. This will be factored into
payout capacity in in each of those years.
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 2019 was -38.3% with a dividend yield
of 5.7% (based on the financial year volume weighted average
price) more than offset by share price decline of 42.4%.
The market valuation of the IOOF Group remains reflective of
uncertainty over the long term effects of adoption of Royal
Commission recommendations on wealth management,
the acceleration of margin compression in administration
and the yet to be realised potential for institutions to unlock a
profitable business model in non-salaried advice businesses.
TSR in the 5 year period from 1 July 2014 was -1.8% on a
compounding annualised basis. The IOOF Group is in a strong
financial position with borrowings within covenants, a low
interest rate environment which reduces borrowing costs and
significant free cash. All TSR figures quoted above include the
final 2019 dividend but no other dividends that have been
declared to be paid.
41
IOOF | annual report 2019 Directors’ report (cont’d)
Operating and financial review (cont’d)
Profit attributable to owners of the Company ($’000s)1
Profit for the year for 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
2019
28,560
(42,301)
8.1
8.1
(12.0)
2018
88,301
105,358
26.4
26.4
31.6
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
197,989
191,417
169,357
173,367
173,758
56.5
52.8
57.3
52.6
56.5
56.5
57.8
57.1
59.9
58.6
131,653
189,582
159,071
163,573
159,070
37.5
$8.99
$5.17
10.9%
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%
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 2019 and prior years
were fully franked.
Dividends
In respect of the financial year ended 30 June 2019,
the Directors declared the payment of a final dividend
of 12.0 cents per share franked to 100% at 30% corporate
income tax rate to the holders of fully paid ordinary shares
to be paid on 27 September 2019. This dividend will be paid
to all shareholders recorded on the Register of Members on
13 September 2019.
In respect of the financial year ending 30 June 2020, the
Directors declared the payment of a special dividend
of 7.0 cents per share franked to 100% at 30% corporate
income tax rate to the holders of fully paid ordinary shares
to be paid on 27 September 2019. This dividend will be paid
to all shareholders recorded on the Register of Members on
13 September 2019.
The Directors declared the payment of an interim dividend
of 25.5 cents per share franked to 100% at 30% corporate
income tax rate to the holders of fully paid ordinary shares
paid on 15 March 2019.
In respect of the financial year ended 30 June 2018, 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 4 September 2018.
Environmental regulation
The IOOF Group is not subject to significant
environmental regulation.
Events occurring after balance date
The Directors have declared the payment of a final dividend
of 12.0 cents per ordinary share franked to 100% based on tax
paid at 30%, to be paid on 27 September 2019.
The Directors have declared the payment of a special 2020
dividend of 7.0 cents per ordinary share franked to 100% based
on tax paid at 30%, to be paid on 27 September 2019.
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 2019 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 64 of the annual financial report and forms part of the
Directors’ Report for the year ended 30 June 2019.
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.
42
IOOF | annual report 2019 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
Committee Meetings
G Venardos1
A Griffiths
C Kelaher2
R Mota3
J Harvey
E Flynn
J Selak
Director
G Venardos1
A Griffiths
Status
Chair to
10 Dec 2018
Acting Chair/
Chair from
10 Dec 2018
Managing
Director
Managing
Director
Director
Director
Director
Meetings
attended
Meetings
held
12
25
11
–
25
25
24
12
25
12
–
25
25
25
Committee Meetings
Nominations Committee
Status
Chair to
10 Dec 2018
Chair from
10 Dec 2018
J Harvey
Member
C Kelaher
J Selak
J Selak
E Flynn
Member to
10 Dec 2018
Member from
11 Feb 2019
In attendance
In attendance
Meetings
attended
Meetings
held
2
6
6
2
4
2
5
2
6
6
2
4
2
6
Director
Committee Meetings
Group Audit Committee
Status
Meetings
attended
Meetings
held
J Harvey
Chair
G Venardos1 Member
A Griffiths
J Selak
Member
Member
7
5
7
7
7
5
7
7
Remuneration Committee
A Griffiths
J Harvey
Status
Chair to
11 Feb 2019
Chair from
11 Feb 2019
G Venardos1 Member
E Flynn
J Selak
Member
In attendance
Meetings
attended
Meetings
held
5
3
2
4
2
5
3
2
5
2
Director
Committee Meetings
Risk and Compliance Committee4
E Flynn
J Selak
D Oldham
M Walsh
J Harvey
Status
Chair
Member
Member to
21 Aug 2018
Member
20 Sep 2018 only
Member from
11 Sep 2018
G Venardos1
In attendance
A Griffiths
In attendance
M Walsh
J Harvey
In attendance
In attendance
Meetings
attended
Meetings
held
5
6
1
1
2
4
6
3
3
6
6
1
1
2
4
6
3
3
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.
Leave of absence commenced 10 December 2018.
Leave of absence commenced 10 December 2018. Resigned as of 4 April 2019.
1
2
3 Appointed Managing Director effective 25 June 2019.
4 Committee included, for a period, additional members who are not Directors of IOOF Holdings Ltd but are Directors of APRA regulated subsidiaries.
43
IOOF | annual report 2019
Directors’ report (cont’d)
Unexercised options over shares,
performance rights and deferred shares
At the date of this report, performance rights on issue are:
Performance rights
Vesting date
31 Dec 19
30 Jun 20
30 Jun 21
Deferred shares
Vesting date
31 Jul 18
31 Jul 19
31 Jul 20
Number
of rights
30,000
170,891
458,461
659,352
Number
of shares
35,420
93,746
93,746
222,912
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
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.
Upon his resignation on 4 April 2019, 383,285 performance
rights granted to Christopher Kelaher lapsed.
Non-audit services
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
44
The Directors are satisfied that the provision of non-audit
services during the year of $678,780 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;
• services have been reviewed and approved to ensure
that they do not impact the integrity and objectivity
of the auditor; and
• services do not 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 2019 Remuneration report
Letter from the Remuneration
Committee Chair
Dear Shareholder
I am pleased to present our Remuneration Report for 2019.
The IOOF Group’s aim 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.
Our remuneration philosophy remained consistent with
the approach described in last year’s Remuneration Report,
which provides consistency, transparency and comparability
in the presentation of remuneration outcomes for the year
to 30 June 2019.
2019 was a year of significant change at the KMP level for IOOF.
On 4 April 2019, the Company announced that Christopher
Kelaher, Managing Director would leave by mutual agreement.
A termination payment was made during the year, in accordance
with the terms of his employment contract. All of Christopher’s
unvested long-term incentive performance rights lapsed as a
result of his cessation of employment. His short-term incentive
deferred shares remain subject to ’look-back’.
On 25 June 2019, the Company announced the appointment
of Renato Mota as the Group’s Chief Executive Officer, and that
Renato also joined the Board as Managing Director. Renato was
Acting Chief Executive Officer from December 2018, and prior
to that was the Group’s General Manager Wealth Management.
His remuneration arrangements are described in detail in
this report. A key feature of the remuneration arrangements
of his CEO role is the removal of a discretionary short-term
incentive component.
On 10 December 2018, George Venardos took a leave
of absence from the IOOF Board. As he stepped aside as
Chairman, Allan Griffiths was appointed Acting Chairman
on this date and was appointed Chairman on 4 April 2019.
In addition, on 10 December 2018, Frank Lombardo, Group
General Manager, Client & Process was appointed KMP.
Outcomes for the year ended 30 June 2019
As described in our Directors’ Report, 2019 was a year of solid
financial performance from an UNPAT perspective for the
Group. However, our shareholders were adversely affected
by share price underperformance experienced at IOOF and
across the financial services sector during the year. As a result,
there have been no discretionary short term incentives
awarded to any KMP or certain other senior management
personnel for the 2019 year.
The share price underperformance is also reflected in
the long term incentives which were tested during the
year, with the outcome of the Total Shareholder Return
(TSR) hurdles being well below target performance levels.
Accordingly, the executive performance rights subject to a
TSR performance hurdle did not vest.
Looking ahead to 2020
Following a review of the current remuneration framework
by the Group Remuneration Committee, with independent
input provided by KPMG 3dc (executive remuneration and
performance advisory), there will be significant changes to
remuneration framework, policies and practices in future
years. 2020 will be a transitional year in which we will finalise
our longer term remuneration framework, reflecting both
regulatory and market expectations from 2021.
The Group Remuneration Committee is currently considering
removing short term incentives for all KMP. Long term
incentives are also expected to change to a minimum four
year vesting period with a range of financial and non-financial
performance measures to be included in vesting conditions
when awarding these. However, we intend to increase
the focus on non-financial performance metrics. This is to
encourage long-term decision making in the interest of the
Group’s clients, shareholders and other stakeholders.
We will continue to review our remuneration framework to
ensure that it supports our direction, culture, behaviours and
expectations of our various internal and external stakeholders.
Yours sincerely
Jane Harvey
Remuneration Committee Chair
26 August 2019
45
IOOF | annual report 2019 Remuneration report (cont’d)
Contents
1.
Year to 30 June 2019 remuneration key features
Changes in Key Management Personnel (KMP)
Key Features of the year to 30 June 2019
KMP remuneration
Changes to remuneration framework
Summary of KMP remuneration received in 2019
47
47
47
47
48
10. Company performance and remuneration impacts 58
5 year Group performance
Impact of Group performance on STIs
Impact of Group performance on LTIs
11. Key Management Personnel remuneration –
Additional statutory disclosure
58
59
59
60
60
61
61
62
62
2. Key Management Personnel covered by this report 49
Additional statutory disclosure
12. Other information
Equity holdings
Contract terms
Payments to persons before taking office
3. New CEO remuneration
CEO remuneration arrangements
4. Year to 30 June 2019 Key Management Personnel
remuneration summary
Year to 30 June 2019 remuneration framework
performance periods
5. Year to 30 June 2019 Key Management Personnel
variable remuneration targets and outcomes
STIs
LTIs
6. Remuneration governance
Remuneration Framework
The Group Remuneration Committee
7. Year to June 2020 remuneration arrangements
Performance rights – 2020 LTI performance rights
8. Non Executive Director remuneration
NED fees
2019 Statutory Remuneration – NEDs
Equity holdings of NEDs
Terms of appointment
9. Former Managing Director remuneration
arrangements
LTI performance rights lapsed
STI deferred shares subject to ’look back’
Equity holdings
50
50
50
51
52
52
52
54
54
54
55
55
56
56
56
57
57
57
57
57
58
46
IOOF | annual report 2019
1. Year to 30 June 2019 remuneration
key features
Key features of the year to 30 June 2019
KMP remuneration
Changes In Key Management Personnel (KMP)
Short term incentive (STI)
New Chief Executive Officer and Managing Director
R Mota
Chief Executive Officer and Managing
Director (CEO) 25 Jun 2019 – present
Renato Mota was appointed CEO on 25 June 2019. Key features
of Renato’s remuneration package as CEO are $1.2 million total
fixed remuneration (TFR), no short-term incentive component
and a maximum long-term incentive from the 2020 financial
year of 100% of TFR to vest after four years.
Full details of R Mota’s remuneration arrangements
are included in section 3 of this report.
Former Managing Director
C Kelaher
Employment ceased 2 Jul 2019
As Christopher Kelaher ceased employment effective
2 July 2019, his remuneration arrangements are included in this
report for the full year.
Christopher received a termination payment of $1,273,379 in
lieu of his contractual notice period, along with accrued leave
entitlements. He was not awarded any STI or LTI for the 2019
financial year.
All of his unvested LTI performance rights lapsed as a result
of his cessation of employment. His deferred STIs granted
in the 2017 and 2018 financial years remain subject to
’look-back’ provisions.
Full details of C Kelaher’s remuneration arrangements
are included in section 9 of this report.
Additions to KMP during 2019
There has been 1 addition to KMP during the year:
F Lombardo
Group General Manager Client & Process
Appointed as KMP 10 Dec 2018
Full details of KMP remuneration arrangements are
included in section 4 of this report.
As noted in the Committee Chair’s introduction to the
Remuneration Report on page 45, it was determined that no
discretionary STIs were to be awarded to KMP or certain other
senior management personnel for the 2019 financial year due
to share price underperformance during the year.
Full details of STIs are included in section 4 of this report.
Long term incentive (LTI)
The 2017 LTI performance rights hurdles were tested during
the year. 50% did not vest and lapsed for all KMP due to the
TSR hurdle relative to the ASX 200 not being met. 50% vested
based on the three year tenure hurdle being met for all KMP.
Full details of LTIs vested during the year are included in
section 4 of this report.
Non-Executive Director (NED) remuneration
For the second year in a row, the Board has determined that
no increases in NED fees would be applied for the 2020 year.
Full details of NED remuneration arrangements are
included in section 8 of this report.
Changes to remuneration framework
Following a review of the current remuneration framework
by the Group Remuneration Committee, with independent
input provided by KPMG 3dc (executive remuneration and
performance advisory), there will be significant changes to
remuneration framework, policies and practices in future
years. 2020 will be a transitional year in which we will finalise
our longer term remuneration framework, reflecting both
regulatory and market expectations from 2021.
The Group Remuneration Committee is currently considering
removing short term incentives for all KMP. Long term
incentives are also expected to change to a minimum four
year vesting period with a range of financial and non-financial
performance measures to be included in vesting conditions
when awarding these. This is to encourage long-term decision
making in the interest of the Group’s clients, shareholders and
other stakeholders.
Further details of remuneration framework changes are
included in section 7 of this report.
47
IOOF | annual report 2019 Remuneration report (cont’d)
1. Year to 30 June 2019 remuneration key features (continued)
Summary of KMP remuneration received in 2019
Taking into account the above changes to KMP and remuneration arrangements, this table shows a summarised year-on-year
comparison of the value of remuneration received by KMP.
Financial year
Fixed
Variable
Total value of
remuneration received
Name
R Mota
D Coulter
G Riordan
D Farmer3
KMP appointed during 2019
F Lombardo4
Former KMP
C Kelaher
1 Cash STI awarded during the year.
2019
2018
2019
2018
2019
2018
2019
2018
2019
2019
2018
TFR
788,644
525,363
474,868
467,249
485,958
475,960
341,668
335,526
295,192
1,330,403
1,275,480
STI1
–
225,000
–
225,000
–
142,841
142,713
116,025
–
–
LTI2
68,475
222,025
68,475
222,025
68,475
222,025
–
–
–
–
628,604
977,927
857,119
972,388
543,343
914,274
554,433
840,826
484,381
451,551
295,192
1,330,403
2,882,011
2 Tenure-based LTI value calculated using closing share price at date of issue of shares. 08/08/2017 – $10.70. 01/08/2018 – $9.13.
3 50% of D Farmer’s STI is determined based on investment performance relative to relevant composite benchmark. 50% is discretionary and as with other KMP,
it has been determined that no discretionary STIs are to be awarded.
4 Appointed as KMP from 10 December 2018.
This table supplements, and is different to, the Statutory Remuneration table which presents the accounting expense for both vested
and unvested awards in accordance with the Australian Accounting Standards.
48
IOOF | annual report 2019 2. Key Management Personnel covered by this report
The KMP whose remuneration is disclosed in this year’s report are:
Name
R Mota
Role
Group General Manager – Wealth Management
1 July 2018 – 9 December 2018
Acting Chief Executive Officer
10 Dec 2018 – 24 June 2019
Chief Executive Officer and Managing Director (CEO)
25 Jun 2019 – present
D Coulter
G Riordan
D Farmer
Chief Financial Officer
Group General Counsel
Chief Investment Officer
Term as KMP
Full year
Full year
Full year
Full year
F Lombardo
Group General Manager Client & Process
Appointed as KMP 10 Dec 2018
NEDs
A Griffiths
J Harvey
E Flynn
J Selak
G Venardos
Independent Non-Executive Director
1 July 2018 – 9 December 2018
Acting Chairman
10 Dec 2018 – 3 April 2019
Chairman
4 April 2019 – present
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director & Chairman
1 July 2018 – 9 December 2018
Leave of absence 10 December 2018 – present
Resigned as Chairman 4 April 2019
Full year
Full year
Full year
Full year
Full year
Andrew Bloore will be appointed a Non-Executive Director (NED) from 2 September 2019 as disclosed to the ASX on 25 June 2019.
Michelle Somerville will be appointed a NED from 1 October 2019 as disclosed to the ASX on 20 August 2019.
Former KMP
Managing Director
C Kelaher
Managing Director
1 July 2018 – 9 December 2018
Leave of absence
10 December 2018 – 2 July 2019
Resigned as Managing Director
4 April 2019
Employment ceased
2 July 2019
Full year
The Remuneration Report is prepared, and audited, in accordance with the requirements of the Corporations Act 2001. It forms part of
the Directors’ Report.
The Remuneration Report is designed to provide shareholders with an understanding of the Group’s remuneration principles, policies,
and programs, and their link with the Group’s strategy and financial performance.
49
IOOF | annual report 2019 Remuneration report (cont’d)
3. New CEO remuneration
Renato Mota was appointed as the CEO of the Group effective 25 June 2019.
CEO remuneration arrangements
R Mota is on a contract with no fixed term. His remuneration package includes a fixed remuneration element, with an LTI including
financial and non-financial hurdles, with no STI.
Component of remuneration
Fixed remuneration
Salary (including superannuation)
Variable remuneration
STI
LTI
Value
$1.2 million
$nil
100% of total fixed remuneration maximum
Subject to approval at the 2019 AGM, the Board has approved a grant of 75,000 LTI performance rights to Mr Mota based on his
previous roles as described in section 2, and on the terms set out in section 4.
Termination
Either IOOF or Renato may terminate the contract on 12 months’ notice.
The Group may immediately terminate the contract for cause in a number of specified circumstances, including material breach
of contract, serious or persistent misconduct or wilful neglect of duty.
Entitlements to any LTI on cessation of employment will be determined in accordance with the relevant plan rules.
Restraint
For 12 months from the date of termination of employment, Renato must not work for a competitor or solicit clients,
prospective clients, suppliers, staff or contractors.
4. Year to 30 June 2019 Key Management Personnel remuneration summary
2019 remuneration comprises both “fixed” and “variable” components. The remuneration arrangements for KMP comprise three
key components:
Component
Performance Conditions
Remuneration Principle
Fixed
TFR
Base salary, employer
superannuation
contributions and other
fringe benefits.
TFR is determined by taking into consideration
expertise, responsibility, knowledge,
experience and market competitiveness.
Attract, motivate and retain ambitious
and motivated executives.
Reflect employee’s contribution,
skills and qualifications.
Reflect market benchmarks and
remuneration environment.
50
IOOF | annual report 2019 Component
Performance Conditions
Remuneration Principle
Support the financial and strategic direction of the
Group, and in turn, translate to shareholder return.
Targets for each measure are set by the Board to
provide a challenging but purposeful incentive.
Individual performance measures are specific to
the KMP’s role.
Variable
STI
50% cash.
50% deferred shares,
vesting over 2 years,
subject to ’look back’.
Maximum is 100% of TFR.
STIs are discretionary and determined for each
individual KMP based on a balanced scorecard
which includes:
Customer: Net Promoter Score,
Wealth Insights rankings
Financial: Total Shareholder Return (TSR),
Return on Equity (RoE), underlying profitability
Business Excellence: Balance sheet and liquidity
initiatives, expense management
Strategy: Regulatory adherence, acquisitions,
divestment of non-core assets
Governance: Risk management,
regulatory compliance
People and Culture: Action plans from
employee Engagement and Alignment survey.
Chief Investment Officer – D Farmer only
50% determined based on investment
performance relative to relevant composite
benchmarks
50% discretionary based on balanced scorecard
LTI
100% share-based
arrangements.
Maximum is 100% of TFR.
50% performance rights – relative TSR against ASX
200 – 3 year vesting period subject to retesting if
some or all of the rights do not vest
50% tenure-based – 3 year vesting period subject
to an additional 1 year holding lock
TSR focuses on the delivery of shareholder value.
The tenure based LTI element assists the Group to
attract and retain quality people and aligns future
performance with shareholders’ expectations.
Incentives to remain with the Group to enhance
sustainable performance over the long term.
As noted in the Committee Chair’s letter on page 45, 2020 will be a transitional year in which the above arrangements will be
considered as part of our overall remuneration framework review with significant changes expected from 2021 onwards.
Year to 30 June 2019 remuneration framework performance periods
TFR
STI – Cash (50%)
STI – Deferred Shares (50%)
LTI – tenure based rights (50%)
LTI – performance rights (50%)
Year 0
Year 1
Year 2
Year 3
Year 4
Performance period
Vesting period
Holding lock/retest period
51
IOOF | annual report 2019 Remuneration report (cont’d)
5. Year to 30 June 2019 Key
Management Personnel variable
remuneration targets and outcomes
Remuneration of KMP (excluding the CEO) is determined
by the CEO, recommended by the Committee and
approved by the Board.
STIs
STI: targets and outcomes
At the end of the year, STIs were considered and assessed
by the Board. As discussed in the Committee Chair’s letter
on page 45, it was determined that no discretionary STIs
were to be awarded to any KMP or certain other senior
management personnel .
’Look back’ events
In 2018, the Board implemented a two year ’look back’ on
a portion of STIs to ensure events that are found to have
occurred after determination of incentives are appropriately
factored into the allocation of those awards.
’Look back’ events:
• the KMP engages or has engaged in fraud, dishonesty
or gross misconduct;
• the financial results that led to the KMP’s reward
being provided are subsequently shown to be
materially misstated;
• the KMP behaves or has behaved in a manner which brings
the IOOF Group into disrepute; or
• the Board determines, in its absolute discretion, that the
KMP’s reward is an inappropriate benefit.
The ’look back’ on STI deferred shares granted in 2018 was
performed, and a summary of deferred shares allocated to
KMP is included in section 12 of this report. Consideration of
’look back’ events in relation to the two current KMP involved
in the current APRA litigation was postponed until after
judgement in that case is known.
LTIs
LTI: targets and outcomes
The Board considers a long-term performance-related
incentive component to be an important element of the
KMP reward framework.
Year ended 30 June 2019
Vesting of 50% 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 over three years. TSR was chosen as the most
appropriate comparative measure as it focuses on the delivery
of shareholder value. TSR represents the change in the value
of a share plus the value of dividends paid.
The tenure based element for KMP assists the IOOF Group
to attract and retain quality people and aligns future
performance with shareholders’ expectations.
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 employment due to death or
permanent disability; or
•
in other exceptional circumstances where the Board
determines appropriate.
The Committee engaged the services of an independent
external organisation (Deloitte) to calculate the IOOF Group’s
performance against the TSR performance hurdles.
Subject to further Board consideration, the above terms will
apply to any LTI grants for the year ended 30 June 2020.
52
IOOF | annual report 2019 The below LTI performance rights are in place at the date of this report:
Year
Performance
period
Grant date
IOOF TSR for the period
%
Ranking
relative to
ASX200
Vesting status
at 30 Jun 2019
Vesting
date
2019 LTI
performance rights
2018 LTI
performance rights
2017 LTI
performance rights
– D Farmer
2017 LTI
performance rights
2019-2021
17 Aug 18
Performance period not complete
2018-2020
21 Aug 17
Performance period not complete
2018-2020
01 Mar 17
Performance period not complete
30 Jun 21
30 Jun 20
31 Dec 19
2017-2019
9 Sep 16
-21.64%
149th
0% vested
30 Jun 19
Refer to section 7 for discussion on 2020 LTI performance rights.
The performance period for the 2017 LTI performance rights was completed in 2019. With a TSR ranking of 149th relative to the
ASX 200, no performance rights vested under the TSR performance hurdle for any KMP. All KMP remained employed during the
three year period.
Accordingly, the following shares vested for KMP under the 2017 LTI performance rights:
Name
Type of instrument
Employment
condition – 50%
TSR
performance
hurdle – 50%
% vested
in year
% forfeited
in year
R Mota
D Coulter
G Riordan
2017 LTI performance rights
2017 LTI performance rights
2017 LTI performance rights
Change of control and cessation of employment
Number of shares
vested
15,000
15,000
15,000
–
–
–
50.0%
50.0%
50.0%
50.0%
50.0%
50.0%
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
Unvested performance rights and share options are forfeited
Dismissal for serious misconduct (eg fraud)
Unvested performance rights and share options are forfeited
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.
53
IOOF | annual report 2019 Remuneration report (cont’d)
6. Remuneration governance
Remuneration Framework
The Board oversees the IOOF Group’s remuneration policies
on recommendation from the Committee. The Committee
reviews 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 Committee, considers the adequacy of remuneration
policies and practices within the IOOF Group on an annual
basis, including:
• ensuring remuneration practices enable realisation
of IOOF’s purpose;
• determination of CEO and other KMP
remuneration arrangements;
• ensuring that succession planning and development plans
are in place for KMP and their potential successors;
• on-going review and monitoring of STI and LTI schemes;
• setting key performance indicators and assessment of the
CEO and the IOOF Group’s performance against those key
performance indicators;
• overall compensation arrangements of the IOOF Group;
• ensuring remuneration policies are appropriate for NEDs;
• ongoing review of the composition, skill base and
performance of NEDs;
• compliance with regulatory requirements including
the ASX Listing Rules and the associated ASX Corporate
Governance Principles and meeting both ASIC and APRA
requirements; and
• ensuring remuneration practices support the sound
management of financial as well as non-financial risk.
The Group Remuneration Committee
The Committee reviews and makes recommendations to the
Board on the remuneration structure and policies applicable
to the KMP and NEDs of the IOOF Group, as well as the wider
IOOF employee population.
The Committee’s charter is available on the Corporate
Governance page of the Company’s website at
www.ioof.com.au
The Committee is comprised solely of NEDs, all of whom are
independent. The members of the Committee for the year
ended 30 June 2019 were A Griffiths (Chair) from 1 July 2018 to
10 December 2018 and member from 11 December to present,
J Harvey (Chair) from 10 December 2018 to present, G Venardos
(leave of absence commenced 10 December 2018) and E
Flynn (full year).
The Board considers that the members of the 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.
Reviews and makes recommendations
to the Board on remuneration policies,
to ensure that they support the
Group’s objectives and comply with
regulatory requirements.
IOOF Holdings Ltd Board
Group Remuneration Committee
Establishment and maintenance
of the IOOF Group’s Remuneration
Framework, including determination
of KMP remuneration arrangements,
ongoing review of STI and LTI schemes,
and assessment of performance
against key performance indicators.
Ensuring remuneration policies are
appropriate for NEDs, and the ongoing
review of the composition, skill base
and performance of NEDs.
In order to ensure that it is fully informed when making remuneration decisions, the Committee receives regular reports and updates
from the Company Secretary, Chief Risk Officer, and Group General Manager, People and Culture and other members of management
invited by the Committee to attend meetings when appropriate. The 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.
The Committee seeks and considers advice from independent, external remuneration consultants where appropriate. KPMG 3dc
was engaged during the year to provide remuneration-related advice in respect of senior executives. The advice did not constitute
a remuneration recommendation for the purposes of the Corporations Act 2001.
54
The Committee’s charter is available on the Corporate Governance page of the Company’s website at www.ioof.com.au
IOOF | annual report 2019 7. Year to June 2020 remuneration arrangements
Key objectives for the 2020 KMP reward framework are:
Attraction and retention
of the best talent
Attract, motivate and retain world-class talent to drive the performance of the Company for
our shareholders
Strategy-led
Promote a sound risk
management culture
Shareholder alignment
Anticipate regulatory
developments and impacts
on remuneration
Support our advice-led approach to delivering customer outcomes
Emphasis on delivering quality advice rather than selling financial products
Support IOOF’s ClientFirst philosophy to deliver a sustainable competitive advantage
Sound management of non-financial and financial risk and individual and collective accountability
Meet the expectations of stakeholders in a post Royal Commission world
Align outcomes with the shareholder experience through allocation of equity and delivery
of shareholder returns
Facilitate an ’ownership mindset’ and long-term focus among participants
Consider potential BEAR requirements and changes to APRA standards and their impact on
remuneration
Performance rights – 2020 LTI performance rights
The Board will consider 2020 LTI rights later in 2019 following the Senior Management review which was announced to the ASX
on 25 June 2019.
As 2020 is a transitional year, the 2020 LTI performance rights performance hurdle will be 50% tenure based and 50% relate to the
IOOF Group’s TSR over a three year period from 1 July 2019 to 30 June 2022 measured against the TSR of a group of companies
comprising the S&P ASX 200 as at 1 July 2019. The performance rights will be 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.
55
IOOF | annual report 2019 Remuneration report (cont’d)
8. Non Executive Director remuneration
NEDs receive a fixed fee including superannuation for being a Director of the Board, with an additional fee for the Chairman of the
Board. No additional fees are paid for service on Board Committees or subsidiary company Boards.
In setting fees, the Board considers general industry practice; best principles of corporate governance; the responsibilities and
risks attached to the NED role; the time commitment expected of NEDs on Group and Company matters; and fees paid to NEDs
of comparable companies.
In order to ensure NED independence and impartiality, fees are not linked to Company performance and NEDs are not eligible
to participate in any of the Group’s incentive arrangements.
The Board has reviewed NED fees for 2020 and, for the second year, has determined not to increase their fees.
NED fees
Elements
NED fees
(no change to 2018)
Details
2018/19 Fees per annum were:
IOOF Holdings Board Chair fee
IOOF Holdings Board NED fee
$285,000
$170,000
Post-employment benefits
Superannuation contributions are made at a rate of 9.5% (up to the Government’s
prescribed maximum contributions limit) and are included in the NED fee.
The current aggregate fee pool for NEDs of $1.25 million was approved by shareholders at the 2013 Annual General Meeting.
The annual total of NEDs’ fees, including superannuation contributions, is within this agreed limit.
Andrew Bloore will be appointed a NED from 2 September 2019 as disclosed to the ASX on 25 June 2019. Michelle Somerville will
be appointed a NED from 1 October 2019 as disclosed to the ASX on 20 August 2019.
2019 Statutory Remuneration – NEDs
NED
A Griffiths1
G Venardos1
J Harvey
E Flynn
J Selak
Total
Short-term benefits
Post-employment
Directors’ fees2
$
Superannuation
$
216,272
155,251
239,265
264,951
155,251
155,251
155,251
155,251
155,251
155,251
921,290
885,955
17,863
14,749
20,531
20,049
14,749
14,749
14,749
14,749
14,749
14,749
82,641
79,045
Total
$
234,135
170,000
259,796
285,000
170,000
170,000
170,000
170,000
170,000
170,000
1,003,931
965,000
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
2019
2018
1 A Griffiths was appointed Acting Chairman on 10 December 2018 and Chairman on 4 April 2019. G Venardos has been on leave from the Board since 10 December.
He resigned as Chairman effective 4 April 2019 and remains a Non-Executive Director. The variation in fees year-on-year reflects these changes.
2 Directors’ fees includes any fees sacrificed into superannuation funds.
56
IOOF | annual report 2019 Equity holdings of NEDs
The relevant interest of each NED in the shares issued by the Company is as follows:
Name
A Griffiths
G Venardos
J Harvey
E Flynn
J Selak
Balance as at
1 Jul 2018
Changes
during
the year
Balance as at
30 Jun 20191
Balance as at
report
sign-off date
41,428
74,244
29,856
26,428
55,000
–
17,185
5,400
–
–
41,428
91,429
35,256
26,428
55,000
41,428
91,429
35,256
26,428
55,000
Terms of appointment
All NEDs 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.
9. Former Managing Director remuneration arrangements
C Kelaher’s resignation was announced on 4 April 2019. The resignation was effective 2 July 2019. C Kelaher received a termination
payment of $1,273,379 in lieu of his contractual notice period, along with accrued leave entitlements. C Kelaher’s unvested LTI
performance rights lapsed as a result of his cessation of employment. His STI deferred shares remain subject to ’look-back’.
LTI performance rights lapsed
A summary of the LTI performance rights that lapsed is as follows:
Year
Performance Hurdle
Grant
date
Performance
period
2019
2018
2017
TSR greater than median TSR of the S&P/ASX200
28 Nov 18
2019-2021
TSR greater than median TSR of the S&P/ASX200
23 Nov 17
2018-2020
TSR greater than median TSR of the S&P/ASX200
24 Nov 16
2017-2019
Rights
lapsed
140,785
122,500
120,000
Lapse
date
4 Apr 19
4 Apr 19
4 Apr 19
STI deferred shares subject to ’look back’
A summary of the STI deferred shares which remain subject to ’look back’ is as follows:
Instrument
Grant
date
Number
granted
1
Balance at
1 Jul 18
Granted as
compen-
sation
Exercised/
Vested
Forfeited/
Lapsed
Balance at
30 Jun 19
2018 deferred shares
30-Jun-18
2018 deferred shares
30-Jun-18
2017 deferred shares
30-Jun-17
18,316
18,316
35,420
18,316
18,316
35,420
72,052
–
–
–
–
–
–
–
–
–
–
–
–
18,316
18,316
35,420
72,052
Financial
year of
vesting
2021
2020
2019
As was the case in the prior year, the ’look back’ relating to deferred shares of C Kelaher, that were due to vest in July 2019 has been
postponed. The Board took into account the external events that have been ongoing throughout the 2019 financial year and the share
price performance and determined it appropriate to reserve its decision in connection with the ’look back’.
57
IOOF | annual report 2019 Remuneration report (cont’d)
Equity holdings
The relevant interest of C Kelaher in the shares issued by the Company, is as follows:
Ordinary shares
Former KMP
C Kelaher
2019
2018
Balance at
1 July
No.
Received on
vesting of
performance
rights
No.
Net other
change
No.
Balance at
30 June1
No.
3,566,381
3,443,449
–
–
3,566,381
91,395
31,537
3,566,381
1 The equity holding for the above individuals is inclusive of both direct and indirect shareholdings.
C Kelaher’s final Directors interest notice was lodged with the ASX on 4 April 2019 with 3,566,381 shares.
10. Company performance and remuneration impacts
In considering the IOOF Group’s financial performance and impacts on shareholder wealth for STI and LTI determination,
the Committee has regard to the following metrics in respect of the current financial year and the previous four financial years.
5 year Group performance
Profitability measures
Profit attributable to owners of the Company ($’000s)
UNPAT ($’000s)1
UNPAT EPS (cents per share)
Share information
Basic EPS (cents per share)
Basic EPS (continuing operations) (cents per share)
Share price at start of year
Share price at end of year
Change in share price
2019
2018
2017
2016
2015
28,560
197,989
56.5
88,301
191,417
57.3
115,990
169,357
56.5
196,846
173,367
57.8
138,371
173,758
59.9
8.1
(12.0)
8.99
5.17
(3.82)
26.4
31.6
9.80
8.99
(0.81)
38.7
38.7
7.83
9.80
1.97
65.7
46.0
8.99
7.83
(1.16)
47.7
45.8
8.40
8.99
0.59
Dividends per share (cents per share)
37.5
54.0
53.0
54.5
53.0
Ratios
Return on equity (non-statutory measure)(2)
Total shareholder return
Total shareholder return – three year cumulative
10.9%
(36.8)%
(21.6)%
11.3%
(2.8)%
11.8%
12.1%
31.9%
36.9%
12.3%
(6.8)%
29.3%
13.4%
20.6%
85.3%
STIs paid to KMP
Total STIs paid to KMP ($’000s)
143
2,046
1,900
1,813
1,573
1 UNPAT is reconciled to profit attributable to owners of the Company in the Operating and Financial Review on page 32 within the Directors’ Report.
2 RoE is calculated by dividing UNPAT by average capital on issue during the year.
58
IOOF | annual report 2019 UNPAT vs STI vs TSR (cumulative)
UNPAT $’000
210,000
200,000
190,000
180,000
170,000
160,000
150,000
2015
2016
2017
2018
2019
UNPAT ($’000s)
STIs paid to KMP ($’000s)
TSR – 3 yr cumulative (%)
TSR %
STI $’000
100
80
60
40
20
0
(20)
(40)
2,500
2,000
1,500
1,000
500
–
-500
-1,000
Impact of Group performance on STIs
As discussed in section 4, no discretionary STIs were paid to KMP in 2019.
Impact of Group performance on LTIs
As discussed in section 5, TSR performance over the three years to 30 June 2019 was -21.6%, placing it at the 149th relative to the
ASX 200. As a result, none of the TSR hurdle based 2017 performance rights vested in July 2019.
59
IOOF | annual report 2019 11. Key Management Personnel remuneration – Additional statutory disclosure
Additional statutory disclosure
The following table sets out the remuneration received by KMP for the year ended 30 June 2019. 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.
Short-term benefits
Post-
employ-
ment
Share-based
payments3
Element of
Remuneration
Component of
Remuneration
R Mota1
D Coulter1
G Riordan1
D Farmer1
2019
2018
2019
2018
2019
2018
2019
2018
Salary
Bonus -
cash1
Fixed
$
Variable
$
762,065
–
499,951
225,000
451,119
–
439,951
225,000
465,426
–
455,911
142,841
317,919
142,713
311,451
116,025
F Lombardo1,5 2019
283,347
Former Managing Director
C Kelaher6
2019 1,303,163
–
–
2018
1,236,286
314,302
Non-
mone-
tary2
Fixed
$
6,048
5,363
3,218
7,249
–
–
3,218
4,026
–
3,467
19,145
Super-
annu-
ation
Fixed
$
20,531
20,049
20,531
20,049
20,531
20,049
20,531
20,049
11,845
Perform-
ance
rights
Bonus -
deferred
shares
Termin-
ation
benefits
Variable
$
Variable
$
Fixed
$
Component as
a % of total
remuneration
Total
Fixed
%
Variable4
%
$
446,166
–
169,039
225,000
446,166
–
169,039
225,000
307,499
–
144,710
142,841
179,479
–
29,584
116,025
104,331
–
–
–
–
–
–
–
–
–
–
1,234,810
1,144,402
921,034
1,086,288
793,456
906,352
663,860
597,160
399,523
23,774
(204,460)
– 1,268,129 2,394,073
20,049
893,487
314,302
–
2,797,571
64
46
52
43
61
53
51
56
74
109
46
36
54
48
57
39
47
49
44
26
(9)
54
Total
2019 3,583,039
142,713
15,951
117,743
1,279,181
– 1,268,129
6,406,756
2018
2,943,550 1,023,168
35,783
100,245
1,405,859 1,023,168
–
6,531,773
1 The 2018 bonus reflects amounts provided under the STI program in relation to the 2018 financial year. One half of the bonuses awarded to KMP is paid in cash and
one half is 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.
2 Non-monetary benefits include company funded benefits and fringe benefits tax payable on those benefits, typically car parking.
3 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.
4 As payment of the variable component is at the discretion of the Board, the minimum value is nil and the maximum is the total amount paid.
5 Amounts represent payments relating to the period during which the individuals were identified as KMP.
6 Total termination payment of $1,273,379 as disclosed to the ASX includes $5,250 of annual leave and long service leave entitlements which are included in salary for
accounting purposes. The remaining termination payment as disclosed above being $1,268,129.
60
IOOF | annual report 2019Remuneration report (cont’d) 12. Other information
Equity holdings
The table below sets out details of deferred shares and rights that were granted to KMP:
• during the 2019 financial year; or
•
in prior years and that then vested, were exercised/sold or which lapsed/were forfeited during the 2019 financial year.
F Lombardo was appointed KMP after the grant of 2019 LTI performance rights. Therefore, he is not included in the below table.
Name
Type of instrument
Grant
date
Number
granted1
Balance
at
1 Jul 18
Granted
as
compen-
sation
Exercised
/Vested
Forfeited/
Lapsed
Balance
at
30 Jun 19
Financial
year of
vesting
R Mota
2018 deferred shares2
30-Jun-18
2018 deferred shares2
30-Jun-18
13,112
13,112
13,112
13,112
–
–
26-Sep-18
50,000
–
50,000
1-Sep-17
30,000
30,000
–
–
–
–
–
–
–
–
13,112
13,112
50,000
2021
2020
2021
–
30,000
2020
9-Sep-16
30,000
30,000
–
(15,000)
(15,000)
–
2019
Total R Mota
86,224
50,000
(15,000)
(15,000) 106,224
D Coulter
2018 deferred shares3
30-Jun-18
2018 deferred shares3
30-Jun-18
13,112
13,112
13,112
13,112
–
–
26-Sep-18
50,000
–
50,000
1-Sep-17
30,000
30,000
–
–
–
–
–
–
–
–
13,112
13,112
50,000
2021
2020
2021
–
30,000
2020
9-Sep-16
30,000
30,000
–
(15,000)
(15,000)
–
2019
Total D Coulter
86,224
50,000
(15,000)
(15,000) 106,224
G Riordan
2018 deferred shares3
30-Jun-18
2018 deferred shares3
30-Jun-18
8,324
8,324
8,324
8,324
–
–
26-Sep-18
30,000
–
30,000
1-Sep-17
20,000
20,000
–
–
–
–
–
–
–
–
8,324
8,324
30,000
2021
2020
2021
–
20,000
2020
2019 LTI
performance rights
2018 LTI
performance rights
2017 LTI
performance rights
2019 LTI
performance rights
2018 LTI
performance rights
2017 LTI
performance rights
2019 LTI
performance rights
2018 LTI
performance rights
2017 LTI
performance rights
9-Sep-16
30,000
30,000
–
(15,000)
(15,000)
–
2019
Total G Riordan
66,648
30,000
(15,000)
(15,000)
66,648
D Farmer
2018 deferred shares3
30-Jun-18
2018 deferred shares3
30-Jun-18
6,761
6,761
6,761
6,761
–
–
2019 LTI
performance rights
2017 LTI
performance rights
26-Sep-18
25,000
–
25,000
1-Mar-17
15,000
15,000
–
–
–
–
–
–
–
–
–
–
6,761
6,761
25,000
2021
2020
2021
15,000
2020
–
53,522
28,522
25,000
267,618 155,000
(45,000)
(45,000)
332,618
Total D Farmer
Total KMP
1 Exercise price at grant date is $nil.
2
In August 2018, KMP were awarded STIs for the 2018 financial year, of which one half was settled in cash and the remaining half in the form of deferred shares.
Half of the deferred shares vested in July 2019 with the remaining half in July 2020 subject to Board ’look back’ provisions.
3 Consideration of ’look back’ has been postponed until after judgement in the current APRA litigation is known.
61
IOOF | annual report 2019 12. Other information (continued)
The relevant interest of KMP in the shares issued by the Company, is as follows:
Ordinary shares
R Mota
D Coulter
G Riordan
D Farmer
F Lombardo2
2019
2018
2019
2018
2019
2018
2019
2018
2019
Balance at
1 July 2018
Received
on vesting of
performance
rights
Net other
change
Balance at
30 June 2019
1
No.
108,115
103,009
293,471
271,293
65,000
44,250
–
–
–
No.
7,500
20,750
7,500
20,750
7,500
20,750
–
–
–
No.
6,500
(15,644)
–
1,428
–
–
–
–
–
No.
122,115
108,115
300,971
293,471
72,500
65,000
–
–
–
1 The equity holding for the above individuals is inclusive of both direct and indirect shareholdings.
2 Opening balance is number of shares held at the time of appointment as KMP.
Contract terms
The term of each KMP’s contract is ongoing. Either IOOF or the individual KMP (excluding the CEO) can terminate their contract on
6 months notice.
In the case of termination of employment, 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). The Board has discretion regarding treatment
of unvested short and long-term incentives.
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.
Jane Harvey
Remuneration Committee Chair
26 August 2019
62
IOOF | annual report 2019Remuneration report (cont’d) Directors’ declaration
For the year ended 30 June 2019
1
In the opinion of the Directors of the Company:
a the consolidated financial statements and notes set out on pages 69 to 130, and the Remuneration Report, set out on pages
45 to 62 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 2019 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 2019.
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 Allan Griffiths
Chairman
Melbourne
26 August 2019
63
IOOF | annual report 2019 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 2019 there have been:
no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
i.
ii.
KPM_INI_01
PAR_SIG_01
PAR_NAM_01
PAR_POS_01
PAR_DAT_01
PAR_CIT_01
KPMG
KPMG
Chris Wooden
Partner
Melbourne
26 August 2019
Rachel Milum
Partner
Melbourne
26 August 2019
64
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.
39
IOOF | annual report 201939 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 2019 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 PAR_SIG_01 PAR_NAM_01 PAR_POS_01 PAR_DAT_01 PAR_CIT_01 KPMG Chris Wooden Partner Melbourne 26 August 2019 KPMG Rachel Milum Partner Melbourne 26 August 2019
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 2019 there have been:
no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the audit; and
no contraventions of any applicable code of professional conduct in relation to the audit.
i.
ii.
KPM_INI_01
PAR_SIG_01
PAR_NAM_01
PAR_POS_01
PAR_DAT_01
PAR_CIT_01
KPMG
KPMG
Chris Wooden
Partner
Melbourne
26 August 2019
Rachel Milum
Partner
Melbourne
26 August 2019
39
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.
65
IOOF | annual report 201940 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. Independent Auditor’s Report To the shareholders 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 2019 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 2019; 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. Key Audit Matters The Key Audit Matters we identified are: Valuation of Goodwill and Intangible Assets. Provisions for client remediation and related costs. Information technology related controls. 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 - $936.9m and $364.7m Refer to Note 4-3 Goodwill and 4-2 Intangible Assets to the Financial Report
66
IOOF | annual report 2019 41 The key audit matter How the matter was addressed in our audit A key audit matter was whether the Group’s recoverable amount for goodwill and intangible assets, including key assumptions 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 25% and 10% of total assets respectively) and the level of judgment required by the Group, contributed to this being a key audit matter. The models and forecast assumptions incorporated significant judgment in respect of key factors such as: discount rates, revenue growth, and forecast 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 assets and can therefore give rise to impairment. The Group recorded an impairment charge of $9.5m against goodwill. This related to the Perennial Cash Generating Unit (“CGU”) as a result of reduced profitability from lower revenues. Revenue decline for this CGU has arisen due to institutional outflows. We involved valuation specialists to supplement our senior audit team members in assessing this key audit matter. 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 process for assessing the recoverable amount of goodwill and intangible assets. 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, we challenged the Group’s key assumptions, in particular those relating to discount rates, revenue growth and forecast 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: o We compared relevant data in the models to the latest Board approved forecasts. o We assessed the accuracy of previous Group forecasts to inform our evaluation of forecasts incorporated in the models. o We independently developed a discount rate range using publicly available data for comparable entities, adjusted by risk factors specific to the Group’s CGUs and the industry they operate in. o We assessed the integrity of the value in use models used, including the accuracy of the underlying formulas in the calculations. o We considered the sensitivity of the models by varying key assumptions such as revenue growth and discount rates, within a reasonably possible range, to identify those CGUs at higher risk of impairment and to further focus our procedures. o We assessed the key assumptions for consistent application across the Group. We recalculated the impairment charge from the Perennial CGU against the recoverable amount and reconciled it to the amount disclosed. 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. Provisions for client remediation and related costs - $392.0m Refer to Note 4-4 Provisions and 3-4 Capital Commitments and Contingencies to the Financial Report The key audit matter How the matter was addressed in our audit The Group has assessed the need to recognise provisions in relation to certain client remediation activities arising from both internal and external reviews. The provisions for client remediation activities is a Key Audit Matter due to the judgments required by us in assessing the Group’s determination of: The existence of a present legal or constructive obligation arising from a past event using the conditions of the event against the criteria in the accounting standards. Working with our Regulatory Specialists, our procedures included: Obtaining an understanding of the Group’s process for identifying and assessing the potential impact of the review into client remediation activities. Enquiring with the Group regarding ongoing reviews into other remediation activities. Reading the minutes and other relevant documentation of the Company’s Board of Directors, Board Committees, various management committees, and attending the Company’s Audit and Risk Committee meetings. Inspecting any correspondence with regulatory bodies and reading reports provided to the Group. Challenging reports provided and management’s basis for recognition of a provision and associated costs against the requirements of the accounting standards. We did this by understanding and challenging the provisioning methodologies and underlying assumptions. 67
IOOF | annual report 2019 42 Reliable estimates of amounts which may be paid arising from the present obligation, including estimates of related costs. The potential for legal proceedings and reviews leading to a wider range of estimation outcomes for us to consider. We involved Regulatory Specialists to supplement our senior audit team members in assessing this key audit matter. Testing completeness by evaluating where exposures may have arisen based upon our knowledge and experience of broader industry matters, the Group’s documentation and the current regulatory environment. We also checked these features against the criteria defining a provision or a contingency in the accounting standards Assessing the appropriateness of the Group’s conclusions against the requirements of the accounting standards where estimates were unable to be reliably made for a provision to be recognised. Assessing the disclosures in the financial report using our understanding of the issue obtained from our testing and against the requirements of the accounting standards. Information Technology related controls The key audit matter How the matter was addressed in our audit The Group’s key financial accounting and reporting processes are highly dependent on the automated controls over the Group’s IT systems. There is a risk that gaps in the change management, segregation of duties or user access management controls (in relation to key financial accounting and reporting systems) may undermine our ability to place some reliance thereon in our audit. We involved IT specialists to supplement our senior audit team members in assessing this key audit matter. Working with our IT specialists, our procedures included: General IT controls design, observations and operation: Sample testing of key controls operating over the information (in relation to financial accounting and reporting systems), including change management, segregation of duties and user access management controls. Change management control operation: Obtained and inspected the change management policies and, for a sample of system changes during the year (in relation to financial accounting and reporting systems), checked that changes had been performed in line with policy. Segregation of duties control operation: Sample testing of key automated controls (in relation to financial accounting and reporting systems) that are designed to enforce appropriate segregation of duties. User access management controls operation: We obtained the Group’s evaluation of the access rights, including privileged access rights, granted to applications relevant to financial accounting and reporting systems and tested the resolution of a sample of exceptions. We also assessed the operating effectiveness of controls over granting, removal and appropriateness of access rights, including privileged access rights. 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. 68
IOOF | annual report 201943Responsibilities 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 Standardsand the Corporations Act 2001;implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fairview and is free from material misstatement, whether due to fraud or error; andassessing the Group’s ability to continue as a going concern and whether the use of the going concern basis ofaccounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using thegoing concern basis of accounting unless they either intend to liquidate the Group or to cease operations, or haveno realistic alternative but to do so.Auditor’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 materialmisstatement, whether due to fraud or error; andto 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 2019, 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 45 to 62 of the Directors’ report for the year ended 30 June 2019. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMGKPMGChris Wooden Partner Melbourne 26 August 2019 Rachel Milum Partner Melbourne 26 August 2019 Consolidated statement of comprehensive income
For the year ended 30 June 2019
Revenue
Expenses
Share of profits of associates accounted for using the equity method
Finance costs
Profit/(Loss) before tax
Income tax (benefit)/expense
Statutory fund
Statutory fund revenue*
Statutory fund expenses*
Income tax (expense)/benefit – statutory*
Statutory fund contribution to profit, net of tax
Profit/(Loss) for the year from continuing operations
Discontinued operations
Profit/(Loss) for the year from discontinued operations
Profit for the year
Other comprehensive income
Items that may be reclassified subsequently to profit or loss:
Net change in fair value of financial assets through other comprehensive income
Exchange differences on translating foreign operations
Income tax on other comprehensive income
Other comprehensive income 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 – continuing and discontinued operations:
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
Earnings per share – continuing operations:
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
2019
$’000
1,063,257
(1,109,007)
986
(12,884)
(57,648)
15,347
62,269
(52,110)
(10,159)
–
2018
$’000
758,080
(602,734)
2,524
(2,103)
155,767
(50,409)
61,798
(44,401)
(17,397)
–
(42,301)
105,358
75,708
33,407
(11,732)
93,626
7,888
(6)
(2,374)
5,508
8,185
(89)
(2,444)
5,652
38,915
99,278
28,560
4,847
33,407
34,068
4,847
38,915
8.1
8.1
(12.0)
(12.0)
88,301
5,325
93,626
93,953
5,325
99,278
26.4
26.4
31.6
31.5
Note
2-3
2-4
4-1
2-6
5-1
5-1
5-1
2-2
2-8
2-8
2-8
2-8
Notes to the consolidated financial statements are included on pages 74 to 130.
* 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.
69
IOOF | annual report 2019 Consolidated statement of financial position
As at 30 June 2019
Assets
Cash
Certificates of deposit
Receivables
Debt note
Other financial assets
Current tax assets
Prepayments
Deferred acquisition costs
Associates
Property and equipment
Intangible assets
Goodwill
Assets classified as held for sale
Total assets
Liabilities
Payables
Other financial liabilities
Borrowings
Current tax liabilities
Provisions
Deferred tax liabilities
Deferred revenue liability
Lease incentives
30-Jun 2019
30-Jun 2018**
1-Jul 2017
Note
$’000
$’000
$’000
1-1(d)
1-1(d)
1-1(d)
1-1(d)
1-1(d)
4-1
4-2
4-3
2-2
1-1(d)
1-1(d)
3-2
4-4
2-6
97,442
–
328,691
800,000
1,047,137
3,897
15,307
1,182
21,509
36,010
364,707
936,891
125,619
407,443
154,353
–
211,881
–
141,248
–
1,025,551
943,038
–
17,307
1,552
24,002
19,339
408,310
940,226
–
14,403
1,913
21,081
21,480
441,079
954,867
3,652,773
3,123,702
2,750,990
52,474
–
–
3,705,247
3,123,702
2,750,990
90,235
1,038,118
426,503
–
453,332
5,895
1,121
5,752
75,094
1,015,273
–
25,615
116,335
73,755
1,413
3,530
73,519
920,138
206,948
25,813
64,639
95,256
1,800
2,429
2,020,956
1,311,015
1,390,542
Liabilities directly associated with assets classified as held for sale
2-2
27,434
–
–
Total liabilities
Net assets
Equity
Share capital
Reserves
Accumulated losses
Total equity attributable to equity holders of the Company
Non-controlling interest
Total equity
2,048,390
1,311,015
1,390,542
1,656,857
1,812,687
1,360,448
3-3
3-5
1,963,109
1,967,023
1,434,459
25,225
(339,140)
19,413
(184,169)
13,349
(97,048)
1,649,194
1,802,267
1,350,760
7,663
10,420
9,688
1,656,857
1,812,687
1,360,448
Notes to the consolidated financial statements are included on pages 74 to 130.
* 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.
** Restated – refer to note 7-3.
70
IOOF | annual report 2019 Consolidated statement of changes in equity
For the year ended 30 June 2019
For the year ended
30 June 2019
Ordinary
shares
Treasury
shares
Reserves
Accu–
mulated
losses
Total
Non–
controlling
interest
Total
equity
$’000
1,971,648
$’000
(4,625)
$’000
19,413
$’000
$’000
(184,169)
1,802,267
$’000
10,420
$’000
1,812,687
Balance at 1 July 2018**
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
Return of capital to non–
controlling interest
Share–based payments expense
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
Additional non–controlling
interest arising upon acquisition
Total transactions with owners
Balance at 30 June 2019
–
–
–
–
–
–
4,000
–
–
–
–
–
–
–
–
–
–
(649)
1,970,999
(7,914)
–
(3,265)
(7,890)
Notes to the consolidated financial statements are included on pages 74 to 130.
(4,649)
4,649
–
–
(524)
524
–
28,560
28,560
4,847
33,407
5,508
–
5,508
–
5,508
5,508
28,560
34,068
4,847
38,915
–
–
4,828
(4,000)
(184,055)
(184,055)
–
–
–
–
–
4,828
–
–
–
–
–
–
–
(7,914)
–
(6,947)
(1,201)
(191,002)
(1,201)
–
–
–
–
–
544
4,828
–
–
–
(7,914)
544
304
(183,531)
(187,141)
(7,604)
(194,745)
25,225
(339,140)
1,649,194
7,663
1,656,857
71
IOOF | annual report 2019 Consolidated statement of changes in equity
For the year ended 30 June 2019
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
(97,048)
1,350,760
$’000
9,688
$’000
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
Total transactions with owners
Balance at 30 June 2018**
–
–
–
–
–
539,264
(5,917)
2,093
–
–
–
–
–
–
–
–
–
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)
–
–
–
(2,393)
2,393
–
–
(223)
223
–
–
533,047
1,971,648
(2,876)
(483)
(4,625)
–
412
(175,422)
357,554
(4,593)
352,961
19,413
(184,169)
1,802,267
10,420
1,812,687
–
(2,876)
–
–
–
–
–
–
–
2,728
539,264
(5,917)
–
–
–
(2,876)
Notes to the consolidated financial statements are included on pages 74 to 130.
72
IOOF | annual report 2019 Consolidated statement of cash flows
For the year ended 30 June 2019
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)
Legal settlements paid
Legal settlements recovered
Termination payments
One off remediation costs
Coupon interest received on debt note
Income taxes paid
Contributions received – statutory
Withdrawal payments – statutory
Dividends and distributions received – statutory
Proceeds from divestment of financial instruments – statutory
Payments for financial instruments – statutory
Amounts (advanced to)/borrowed from other entities – statutory
Net cash (used in)/provided by operating activities
Cash flows from investing activities
Dividends and distributions received
Interest received
Acquisition transition costs
Interest and other costs of finance paid
Redemption/(purchase) of certificates of deposit
Purchase of debt note
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
Proceeds from divestment 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
Borrowings repaid
Drawdown of borrowings
Purchase of treasury shares
Proceeds from issue of shares
Transaction costs of issuing new shares
Capital return to non-controlling interest
Dividends paid:
– members of the Company
– non-controlling members of subsidiary entities
Net cash (used in)/provided by financing activities
Net increase/(decrease) in cash and cash equivalents
Cash and cash equivalents at the beginning of year
Effects of exchange rate changes on cash and cash equivalents
Reclassification to assets held for sale
Cash and cash equivalents at the end of year
Note
2-5
2019
$’000
1,211,456
(990,573)
358
612
–
(47,928)
37,070
(769)
(4,071)
67,910
(130,023)
112,292
(139,398)
6,200
291,688
(239,209)
(3,432)
172,183
1,238
9,448
(18,485)
(16,372)
407,443
(800,000)
41,251
(8,176)
(2,750)
707
351
580
(26,199)
47
(3,775)
(414,692)
(240,619)
670,000
(7,914)
–
–
(1,201)
(184,055)
(6,947)
229,264
(13,245)
125,619
31
(14,963)
97,442
2018
$’000
960,541
(680,691)
1,753
(142)
902
–
–
(2,304)
–
–
(86,613)
175,598
(126,549)
1,928
152,272
(172,069)
(8,238)
216,388
1,115
8,051
(16,609)
(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
(86,243)
211,881
(19)
–
125,619
Notes to the consolidated financial statements are included on pages 74 to 130.
73
IOOF | annual report 2019
Notes to the financial statements
For the year ended 30 June 2019
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
Financial risk
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.
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, includes the benefit funds and the controlled unit
trusts. 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 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.
74
IOOF | annual report 2019 (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 financial assets at fair value
through other comprehensive income (OCI).
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.
Financial assets at fair value through OCI are exposed to price
risk as the share price fluctuates.
IOOF Group sensitivity
At 30 June 2019 had the price of the units / shares held by the
IOOF Group in unlisted unit trusts / shares in other entities
increased / decreased by 1% (2018: 1%) with all other variables
held constant, gains / losses recorded through profit or loss
would increase / decrease by $6,748,000 (2018: $6,668,000),
and financial assets at fair value through OCI reserves would
increase / decrease by $291,000 (2018: $236,000).
(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.
IOOF Group sensitivity
At 30 June 2019, if interest rates had changed by +/- 100 basis
points (2018: +/- 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 $2.2 million (2018: $nil).
Equity would have been higher/lower by the same amount.
(b) Credit risk
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,
debt note, 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.
The Company has a concentration of credit risk to ANZ for the
value of the debt note ($800m).
75
IOOF | annual report 2019 Expected credit loss assessment
(c) Statutory Fund Risk
As at 30 June 2019, $2,873,000 trade receivables of the IOOF Group
were past due but not impaired (2018: $2,671,000). The amount
of the impairment provision was $585,000 (2018: $607,000).
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. In relation to the
impairment of financial assets, AASB 9 requires an expected
credit loss model as opposed to an incurred credit loss model
under AASB 139. The expected credit loss model requires the
Group to account for expected credit losses and changes in
those expected credit losses at each reporting date to reflect
changes in credit risk since initial recognition of the financial
assets. In other words, it is no longer necessary for a credit
event to have occurred before credit losses are recognised.
Credit risk assessments are performed based on data that is
determined to be predictive of the risk of loss and applying
experienced credit judgement. Expected credit losses are a
probability-weighted estimate of credit losses. Credit losses
are measured as the present value of all cash shortfalls (i.e.
the difference between the cash flows due to the entity
in accordance with the contract and the cash flows that
the Group expects to receive). Expected credit losses are
discounted at the effective interest rate of the financial asset.
Loss allowances for financial assets measured at amortised cost
are deducted from the gross carrying amount of the assets.
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.
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
2019
2018**
$’000
$’000
607
(22)
585
22
Carrying value at 30 June
585
607
Ageing of trade receivables
that were not impaired at
30 June
Neither past due nor impaired
45,950
49,390
Past due 31-60 days
Past due 61-90 days
Past due 91-120 days
Trade receivables past due
but not impaired
1,402
468
1,003
48,823
2,873
665
511
1,495
52,061
2,671
76
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.
These funds are not available to shareholders. Balances relating
to statutory funds in the table below are disclosed inclusive
of amounts collected/receivable from or paid/payable to
IOOF Group entities.
(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.
Maturities of financial liabilities
The following tables 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.
IOOF | annual report 2019 Notes to the financial statements For the year ended 30 June 2019 2019
Carrying Amount
Contractual cash flows
Financial liabilities
Payables – corporate
Payables – statutory
Total payables
Ex-ANZ ADG remediation provision
– corporate
IOOF adviser remediation provision
– corporate
Other financial liabilities – corporate
Ex-ANZ ADG remediation settlements
liability
Contingent consideration
Other financial liabilities – statutory
Insurance contract liabilities
Investment contract liabilities
Current
Non-
Current
Total
$’000
$’000
$’000
86,360
3,875
90,235
24,116
–
–
–
86,360
3,875
90,235
144,694
168,810
1 year
or less
$’000
86,360
3,875
90,235
24,116
1-5 years
5+ years
Total
$’000
$’000
$’000
–
–
–
–
–
–
86,360
3,875
90,235
96,463
48,231
168,810
31,881
191,284
223,165
31,881
127,523
63,761
223,165
2,073
12,437
14,510
2,073
8,291
4,146
14,510
837
202,434
820,337
–
–
–
837
837
202,434
820,337
202,434
820,337
–
–
–
–
–
–
837
202,434
820,337
Total other financial liabilities
1,025,681
12,437
1,038,118
1,025,681
8,291
4,146
1,038,118
Borrowings – corporate
–
426,503
426,503
–
426,503
–
426,503
1,171,912
774,919 1,946,8311
1,171,912
658,780
116,139
1,946,831
Financial assets available to meet the above financial liabilities
Financial assets at amortised cost
Cash – corporate
Cash – statutory
Total cash
Receivables – corporate
Trade receivables
Other receivables
Ex-ANZ ADG remediation
indemnity
Security bonds
Receivables – statutory
Trade receivables
Other receivables
Dividends and distributions receivable
Total receivables
Fair value through profit or loss
Debt note – corporate
Other financial assets
Fair value through profit or loss
Unlisted unit trusts – corporate
Unlisted unit trusts – statutory
Equity investments at FVOCI – corporate
Loans and other receivables
Loans to directors and executives of
associated entities – corporate
Loans to policyholders – statutory
Total other financial assets
91,687
5,755
97,442
46,260
59,095
26,189
–
–
–
–
681
91,687
5,755
97,442
46,260
59,776
157,131
183,320
91,687
5,755
97,442
46,260
59,095
26,189
–
250
250
–
1,978
10,540
26,567
–
–
–
1,978
10,540
26,567
1,978
10,540
26,567
–
–
–
–
681
–
–
–
–
–
91,687
5,755
97,442
46,260
59,776
104,754
52,377
183,320
–
–
–
–
250
250
–
–
–
1,978
10,540
26,567
170,629
158,062
328,691
170,629
105,435
52,627
328,691
800,000
–
800,000
800,000
–
–
963,373
641
–
641
–
641
963,373
963,373
–
–
41,627
41,627
7,298
7,298
–
–
34,198
997,571
–
34,198
49,566
1,047,137
34,198
997,571
–
–
–
41,627
800,000
641
963,373
41,627
7,298
7,298
–
34,198
–
–
–
–
641
48,925
1,047,137
Net financial assets/(liabilities)
893,729
(567,290)
326,439
893,729
(552,704)
(14,586)
326,439
2,065,642
207,628
2,273,270
2,065,642
106,076
101,552
2,273,270
77
IOOF | annual report 2019 2018**
Carrying Amount
Contractual cash flows
Current
Non-
Current
Total
$’000
$’000
$’000
Financial liabilities
Payables – corporate
Payables – statutory
Total payables
Other financial liabilities – corporate
Contingent consideration
Other financial liabilities – statutory
Insurance contract liabilities
Investment contract liabilities
Total other financial liabilities
65,136
9,955
75,091
392
240,379
774,502
1,015,273
1,090,364
Financial assets available to meet the above financial liabilities
Financial assets at amortised cost
121,441
4,178
125,619
407,443
48,049
50,465
–
757
–
5,392
Cash – corporate
Cash – statutory
Total cash
Certificates of deposit – corporate
Receivables – corporate
Trade receivables
Other receivables
Security bonds
Receivables – statutory
Trade receivables
Other receivables
Dividends and distributions receivable
3
–
3
–
–
–
–
3
–
–
–
–
1 year
or less
$’000
65,136
9,955
75,091
65,139
9,955
75,094
392
392
240,379
240,379
774,502
774,502
1,015,273
1,015,273
1,090,367
1,090,364
121,441
121,441
4,178
4,178
125,619
125,619
407,443
407,443
48,049
51,222
5,392
48,049
50,465
–
1-5 years
5+ years
Total
$’000
$’000
$’000
3
–
3
–
–
–
–
3
–
–
–
–
–
757
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5,392
–
–
–
65,139
9,955
75,094
392
240,379
774,502
1,015,273
1,090,367
121,441
4,178
125,619
407,443
48,049
51,222
5,392
3,405
4,434
41,851
3,405
4,434
41,851
–
–
–
3,405
4,434
3,405
4,434
41,851
41,851
Total receivables
148,204
6,149
154,353
148,204
757
5,392
154,353
Fair value through profit or loss
Shares in listed companies
Unlisted unit trusts – corporate
18
–
Unlisted unit trusts – statutory
951,855
–
768
–
18
768
18
–
951,855
951,855
Equity investments at FVOCI – corporate
Loans and other receivables
Loans to directors and executives of
associated entities – corporate
–
–
33,739
33,739
8,404
8,404
–
–
Loans to policyholders – statutory
30,767
–
30,767
30,767
Total other financial assets
982,640
42,911
1,025,551
982,640
Net financial assets/(liabilities)
573,542
49,057
622,599
573,542
1,663,906
49,060
1,712,966
1,663,906
–
768
–
–
–
–
768
1,525
1,522
–
–
–
18
768
951,855
33,739
33,739
8,404
8,404
–
30,767
42,143
1,025,551
47,535
1,712,966
47,535
622,599
78
IOOF | annual report 2019 Notes to the financial statements For the year ended 30 June 2019 (e) Accounting policies and fair value estimation
Financial assets at fair value through profit or loss
The fair values of financial assets and liabilities are equal to the
carrying amounts shown in the statement of financial position.
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.
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 financial assets:
• cash;
• debt note;
• 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.
Debt note
The debt note is initially recognised at cost, and subsequently
revalued to fair value at balance date. The debt note is
valued via a discounted cash flow, which incorporates
unobservable inputs such as discount rates, counterparty
credit, and probability-adjusted revenues expected to be
received under the arrangement.
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.
Equity investments at FVOCI
Equity investments at fair value through other comprehensive
income 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.
Equity investments at FVOCI are recognised initially at
fair value plus any directly attributable transaction costs.
Dividends are recognised in profit or loss unless it clearly
represents a recovery of part of the cost of the investment.
Other net gains and losses are recognised in OCI and are
never reclassified 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 if it is held to collect contractual
cash flows and its contractual terms give rise to cash flows that
are solely payments of principal and interest on the principal
amount outstanding.
Certificates of deposit
Certificates of deposit held during the current year and in the
prior year include deposits with original maturities of more
than three months.
79
IOOF | annual report 2019 Financial liabilities
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.
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.
Payables
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.
Assets and liabilities relating to statutory funds
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.
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.
Assets relating to statutory funds
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.
Liabilities relating to statutory funds
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.
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 a discretionary participation
feature (’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.
80
IOOF | annual report 2019 Notes to the financial statements For the year ended 30 June 2019 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.
(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:
•
• distributed at the discretion of the insurer; and
• are based on the performance of a specified pool of assets.
likely to be a significant portion of the total benefits;
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.
1-2 Financial instruments
Fair value hierarchy
The fair values of financial assets and liabilities are equal to the carrying amounts shown in the statement of financial position.
The table below analyses financial instruments carried at fair value, by valuation method.
30 June 2019
Financial assets measured at fair value
FVOCI
Unlisted unit trusts
Debt note
Financial liabilities measured at fair value
Contingent consideration
30 June 2018
Financial assets measured at fair value
FVOCI
Shares in listed companies
Unlisted unit trusts
Financial liabilities measured at fair value
Contingent consideration
Level 1
$’000
41,627
–
–
Level 2
$’000
–
964,014
–
41,627
964,014
Level 3
$’000
–
–
800,000
800,000
–
–
33,739
18
–
33,757
–
–
–
–
–
–
952,623
952,623
–
–
837
837
–
–
–
–
392
392
Total
41,627
964,014
800,000
1,805,641
837
837
33,739
18
952,623
986,380
392
392
81
IOOF | annual report 2019 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 2019.
Reconciliation of movements in level 3 financial liabilities
Debt note
Contingent consideration
Opening balance as at 1 July
Issuance of debt note
Fair value gain from derecognition of contingent consideration
payable
Take up of deferred consideration liability
Unwinding of discount
Settlement of contingent consideration
Closing balance as at 30 June
2019
$’000
–
800,000
–
–
–
–
800,000
2018
$’000
–
–
–
–
–
–
–
2019
$’000
392
–
–
2,907
8
(2,470)
837
2018
$’000
1,839
–
(805)
–
22
(664)
392
Level 3 financial assets consist of a debt note carried at fair value. The debt note is valued via a discounted cash flow, which
incorporates unobservable inputs such as discount rates, counterparty credit, and probability-adjusted revenues expected to be
received under the arrangement. An increase in the discount rate used in isolation would result in a decrease to the fair value of the
debt note. An increase in the probability adjusted revenues in isolation would result in an increase in the fair value of the debt note.
Level 3 financial liabilities consist of deferred purchase consideration in respect of client lists purchased by the IOOF Group, which is
valued at the maximum deferred consideration amount payable under the relevant contracts. The amount of deferred consideration
payable is linked to the retention of clients, which is an unobservable output and may decrease the value of the liability.
82
IOOF | annual report 2019 Notes to the financial statements For the year ended 30 June 2019 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
Ex-ANZ wealth management
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 Chief
Executive Officer 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 and distribution
The provision of financial planning advice and stockbroking
services supported by services such as investment research,
training, compliance support and access to financial products.
Portfolio and estate 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.
Aligned Dealer Groups (ADGs) acquired from ANZ during the
period, which provide financial planning advice services. This is
also inclusive of the debt note revenue which represented
proportionate economic contribution from the P&I business.
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
(excluding the benefit funds) 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.
83
IOOF | annual report 2019 Financial advice
and distribution
Portfolio
and estate
administration
Investment
management
Ex-ANZ wealth
management
Corporate and
other
Total
2019
$’000
2018
$’000
2019
$’000
2018
$’000
2019
$’000
2018
$’000
2019 ii
$’000
2018
$’000
2019
$’000
2018
$’000
2019
$’000
2018
$’000
Management
and service fees
revenue
External other
fee revenue
Service fees and
other direct costs
Deferred
acquisition costs
286,117 228,808 403,482
409,118
95,694
70,968 145,861
15,690
15,272
8,427
8,735
7,049
2,427
6,290
(195,446) (121,806)
(98,197) (108,958)
(36,696)
(8,542) (139,650)
(18)
(179)
(155)
(141)
–
–
–
Gross Margin
106,343 122,095
313,557 308,754
66,047
64,853
12,501
Stockbroking
revenue
Stockbroking
service fees
expense
4,508
4,349
(1,285)
(1,249)
Stockbroking net
contribution
3,223
3,100
–
–
–
–
–
–
84,455
76,764
2,689
2,861
–
–
–
–
–
–
–
–
38
–
38
–
–
(2,123)
(2,352)
(82,255)
(74,438)
(2,903)
(2,972)
191,898 199,607 233,991
237,177
63,144
61,881
12,539
3,976
146
–
31
3,126
140
8
713
–
5
–
–
75
3
–
–
–
–
–
–
–
–
956
1,811
6,204
72,377
–
(1)
(108,185)
(109,175) (108,932) (104,927)
(10,698)
(11,376)
(41,725)
(1,749)
(1,263)
(1,903)
(409)
(1,146)
(95)
(18)
–
(32)
–
–
–
–
(8)
–
–
–
–
(2,607)
(2,314)
(5,082)
(4,146)
(653)
(526)
–
45
–
(715)
(524)
49
–
–
–
–
–
–
(14)
(49)
–
(56)
–
134
(25,388)
(27,360)
(35,885)
(38,450)
(15,538)
(14,993)
(13,820)
58,149
63,499
81,479
88,791
36,065
36,702
35,589
Inter-segment
revenuei
Inter-segment
expensesi
Net Operating
Revenue
Other revenue
Finance income
Inter-segment
revenuei
Share of profits
of associates
Operating
expenditure
Share-based
payments expense
Finance costs
Inter-segment
expensesi
Depreciation
of property &
equipment
Amortisation of
intangible assets
– IT Development
Non-controlling
interest
Income tax
expense
UNPAT from
continuing
operations
Discontinued operations
UNPAT
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
931,154 708,894
353
401
–
407
37,809
26,841
384 (469,588) (238,922)
–
(173)
(320)
754
791 499,202 496,493
–
–
–
–
–
–
4,546
4,349
(1,285)
(1,249)
3,261
3,100
137
137
87,281
79,762
–
–
(87,281)
(79,762)
891
928 502,463 499,593
756
5,916
2,054
9,812
10,936
78,444
–
–
–
–
5,255
9,955
8
–
986
2,524
(39,048)
(39,025) (308,588) (264,503)
15
(961)
(4,797)
(2,728)
(12,817)
(2,071)
(12,884)
(2,103)
–
–
–
–
–
–
–
–
–
(8)
(8,398)
(6,986)
(715)
(524)
179
49
17,949
16,018
(72,682)
(64,785)
(26,338)
(13,245) 184,944
175,747
13,045
15,670
197,989 191,417
i
ii
Segment revenues, expenses and results include transfers between segments. Such transfers are priced on a commercial basis and are eliminated on consolidation.
For the period 1 October 2018 to 30 June 2019.
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.
84
IOOF | annual report 2019 Notes to the financial statements For the year ended 30 June 2019 Reconciliation of reportable segment revenues and expenses
Profit attributable to Owners of the Company
Discontinued operations
Profit/(Loss) from continuing operations 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 assets
Non-recurring professional fees (recovered)/paid
Impairment of goodwill and related investment
Unwind of deferred tax liability recorded on intangible assets
IOOF ADG remediation costs
Other
Income tax attributable
UNPAT from continuing operations
UNPAT from discontinued operations
UNPAT
Note
2-2
2-4
2-4
2-4
2-4
2-4
2-4
2-3
2-4
2-4
2-4
2-4
2019
$’000
28,560
(70,682)
(42,122)
37,651
2,488
20,766
416
–
2,043
(368)
2,027
13,920
(10,200)
235,278
875
(77,829)
184,944
13,045
197,989
2018
$’000
88,301
17,106
105,407
37,378
5,367
4,973
6,725
2,345
2,033
(2,786)
(902)
28,339
(10,195)
–
1,244
(4,181)
175,747
15,670
191,417
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.
2-2 Discontinued operations
(a) Divestment of AET Corporate Trust business
On 1 November 2018, the IOOF Group completed the divestment of the AET Corporate Trust business to Sargon Capital Pty Ltd
(Sargon) for an upfront consideration of $41.3m and a deferred component of $10.3m dependent on the novation of certain contract
revenue to Sargon. An additional $1.6m consideration relating to a net asset adjustment was received in January 2019. At 30 June 2019,
the deferred consideration has been written back as it is considered unlikely that the performance hurdles will be met and
the deferred consideration will be received.
The recovery of legal claims relates to recoveries as a result of agreed settlements with PwC, HLB Mann Judd, IOOF’s insurers and
insurance broker, in respect of the cross-claims brought by Australian Executor Trustees Limited against those parties as part of the
proceedings related to Provident Capital Limited. Settlement of legal claims expenditure of $44.3m was recognised in June 2018
in relation to the Provident proceedings.
(b) Divestment of Ord Minnett business
On 27 June 2019, the Directors announced the divestment of the Group’s 70% holding in Ord Minnett Holdings Pty Ltd (Ord Minnett).
The disposal is consistent with the Group’s long-term strategy to focus on its core wealth management capabilities. The Group
entered into a contract with a consortium of private investors led by current Ord Minnett management to dispose of its stake in
Ord Minnett for sale consideration of $115m. The Group expects to recognise a post-tax profit on sale of approximately $83m in
respect of the Ord Minnett business upon completion of the transaction. Completion of the sale is expected to occur on or around
24 September 2019.
85
IOOF | annual report 2019 (c) Analysis of profit for the year from discontinued operations
Revenue, expenses and associated income tax in the financial statements and notes have been restated to a continuing basis,
where applicable, and therefore exclude the below results of the discontinued operation.
Year ended
30 Jun 19
Year ended
30 Jun 18
$’000
$’000
174,449
(150,181)
36,000
60,268
(18,526)
41,742
48,959
(14,993)
33,966
75,708
70,682
5,026
75,708
20.1
20.1
(29,690)
24,027
(5,662)
70,682
1,553
61
(58,959)
10,329
(36,000)
25,378
13,045
161,065
(133,103)
(44,250)
(16,288)
4,556
(11,732)
–
–
–
(11,732)
(17,106)
5,374
(11,732)
(5.1)
(5.1)
(16,007)
228
(15,779)
(17,106)
2,022
95
–
–
44,250
(13,591)
15,670
Results of discontinued operations
Revenue
Expenses
Legal settlement recovery/(expense)
Results from operating activities
Income tax
Results from operating activities, net of tax
Gain on sale of discontinued operation
Income tax on gain on sale of discontinued operation
Gain on disposal of discontinued operation, net of tax
Profit for the period
Profit for the period attributable to:
Owners of the entity
Non-controlling interest
Profit for the period
Basic earnings per share (cents per share)
Diluted earnings per share (cents per share)
Cash flows from discontinued operations
Net cash (used in)/provided by operating activities
Net cash provided by investing activities
Net cash flow for the period
Profit for the period from discontinued operations
Underlying net profit after tax pre-amortisation (UNPAT) adjustments:
Amortisation of intangible assets
Termination payments
Profit on divestment of assets
Impairment of non-current assets
Provident legal settlement/(provision)
Income tax attributable
UNPAT from discontinued operations
86
IOOF | annual report 2019 Notes to the financial statements For the year ended 30 June 2019 (d) Assets and liabilities of discontinued operations
Assets and liabilities of disposal group
The net assets of the AET Corporate Trust disposal group at the date of disposal are shown below.
Assets
Cash
Receivables
Prepayments
Plant & equipment
Intangible assets
Deferred tax assets
Total assets
Liabilities
Payables
Provisions
Deferred tax liabilities
Total liabilities
Net assets and liabilities
Consideration received in cash
Income tax paid
Cash and cash equivalents disposed of
Net cash inflow
1 Nov 18
$’000
1,605
3,127
53
5
279
188
5,257
453
456
4
913
4,344
41,316
(14,993)
(1,605)
24,718
87
IOOF | annual report 2019 Assets classified as held for sale
The Ord Minnett business has been classified and accounted for at 30 June 2019 as a disposal group held for sale.
Assets related to Ord Minnett business
Liabilities associated with assets held for sale
Amounts recognised directly in equity associated with assets held for sale
30 Jun 19
30 Jun 18
$’000
52,474
27,434
–
$’000
–
–
–
As described above, the Group plans to dispose of its Ord Minnett business and anticipates that the disposal will be completed
by 24 September 2019. The Group has entered into an agreement with a consortium of private investors and the directors of the
Company expect that the fair value less costs to sell of the business will be higher than the aggregate carrying amount of the related
assets and liabilities. Therefore, no impairment loss was recognised on reclassification of the asset and liabilities as held for sale nor as
at 30 June 2019. The major classes of assets and liabilities of the Ord Minnett business at the end of the reporting period are as follows:
Assets
Cash
Receivables
Current tax asset
Deferred tax assets
Property, plant & equipment
Other intangible assets
Other assets
Total assets
Liabilities
Trade payables
Provisions
Other liabilities
Total liabilities
Net assets of Ord Minnett business attributable to non-controlling interests
Net assets of Ord Minnett business classified as held for sale
30 Jun 19
$’000
14,963
13,310
219
2,623
2,093
9,555
9,711
52,474
7,546
19,573
315
27,434
(7,512)
17,528
88
IOOF | annual report 2019 Notes to the financial statements For the year ended 30 June 2019 2-3 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
Other
Total revenue
Accounting policies
Policy
note
(i)
(ii)
(ii)
(iii)
2019
2018
$’000
931,154
4,546
37,809
249
76,830
1,256
109
78,444
368
10,936
11,304
$’000
708,894
4,349
26,841
260
8,485
1,122
88
9,955
2,786
5,255
8,041
1,063,257
758,080
Revenue is measured based on the consideration specified in a contract with a customer. The Group recognises revenue when
it transfers control over a good or service to a customer.
(i) Management and service fees revenue
The IOOF Group provides 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 as a performance obligation satisfied over time.
(ii) Stockbroking revenue and external other fee revenue
Other fee revenue and stockbroking revenue from the rendering of services are recognised as a performance obligation
satisfied over time.
(iii) Finance income
Finance income comprises interest income on funds invested (including financial assets at fair value through OCI), dividend income,
gains on the divestment of financial assets at fair value through OCI 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.
89
IOOF | annual report 2019 Policy
note
2019
2018
$’000
$’000
(i)
(ii)
(iii)
(iv)
(v)
(v)
(v)
(vi)
444,270
219,731
1,285
25,318
1,249
19,191
470,873
240,171
211,402
36,660
9,748
10,607
15,740
18,321
6,037
72
187,888
28,249
8,090
7,528
10,198
18,005
4,507
38
308,588
264,503
4,797
2,488
20,766
416
2,043
8,398
37,651
715
13,920
173
2,027
235,278
–
875
329,547
1,109,007
2,728
5,367
4,973
6,725
2,033
6,986
37,378
524
28,339
320
(902)
–
2,345
1,244
98,060
602,734
2-4 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 and related investment
Deferred acquisition costs
Non-recurring professional fees (recovered)/paid
IOOF ADG remediation costs
Onerous contracts
Other
Total expenses
90
IOOF | annual report 2019 Notes to the financial statements For the year ended 30 June 2019 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.
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.
(ii) Salaries and related employee expenses
Employee defined contribution plan expense
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.
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.
91
IOOF | annual report 2019 (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.
The fair value at grant date is independently determined
where considered appropriate.
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.
(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.
92
IOOF | annual report 2019 Notes to the financial statements For the year ended 30 June 2019 2-5 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
Impairment of other non-current assets
Profit on divestment of assets
Profit on divestment of subsidiary
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 transition 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 policyholder liabilities
Increase/(decrease) in other liabilities
Increase/(decrease) in deferred taxes
Net cash provided by operating activities
2019
$’000
33,407
9,045
39,919
9,490
14,759
(109)
(48,959)
12,884
(5,516)
(1,238)
358
(986)
4,828
23,670
(111)
(2,422)
(13,429)
(2,243)
370
2,134
(292)
190,230
(93,418)
7,889
218
(8,295)
172,183
2018
$’000
93,626
7,640
39,924
28,339
–
(2,643)
–
2,103
(9,388)
(1,115)
1,753
(2,524)
2,728
17,065
(327)
(5,788)
(1,171)
(86,287)
361
8,695
(387)
51,464
(112)
96,582
(974)
(23,176)
216,388
93
IOOF | annual report 2019 2-6 Income taxes
Current tax expense
Current year
Adjustment for prior years
Taxable losses not recognised
Deferred tax expense
Origination and reversal of temporary differences
Adjustments recognised in the current year in relation to the deferred tax of prior years
Recognition of tax losses and deferred tax balances
Total income tax (benefit)/expense
Income tax recognised in other
comprehensive income
2019
$’000
2019
$’000
65,297
(85)
47
2018
$’000
65,995
(3,495)
–
65,259
62,500
(80,394)
(11,882)
(209)
–
(12,091)
50,409
(40)
(172)
(80,606)
(15,347)
2018
$’000
Financial assets through OCI
Exchange differences on translating
foreign operations
Before tax
Tax expense
Net of tax
Before tax
Tax expense
Net of tax
7,888
(6)
(2,366)
(8)
5,522
(14)
8,185
(89)
(2,456)
12
5,729
(77)
7,882
(2,374)
5,508
8,096
(2,444)
5,652
Reconciliation of effective tax rate
Profit/(Loss) 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 profits of associates
Assessable associate and subsidiary dividends
Revenue loss not recognised
Imputation credits
Recognition of deferred tax balances
Other
Under/(over) provided in prior years
2019
%
30.0
(1.7)
0.1
(4.9)
0.5
(0.3)
(0.1)
0.9
0.3
1.7
0.2
$’000
(57,648)
(17,294)
982
(61)
2,847
(296)
201
47
(517)
(172)
(959)
(125)
2018
%
30.0
0.7
(0.3)
5.5
(0.5)
0.4
–
(0.6)
–
(0.4)
(2.4)
26.6
(15,347)
32.4
$’000
155,767
46,730
1,032
(506)
8,502
(757)
583
–
(859)
–
(612)
(3,704)
50,409
For statutory reporting purposes, the Group had an effective tax rate of 26.6% on its continuing operations for the year ended
30 June 2019 (2018: 32.4%) compared to a statutory corporate tax rate of 30%. This rate difference is primarily due to impairment
of goodwill, impairment of investment in associates, research and development (R&D) tax offsets and tax offsets for fully franked
dividend income. For the year ended 30 June 2018, the rate difference was 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. 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 25.4%, and 5.4% respectively for the year ended 30 June 2019 (2018: 28.7% and
11.8% respectively).
94
IOOF | annual report 2019 Notes to the financial statements For the year ended 30 June 2019 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
Capital gains on disposal of subsidiaries
Property and equipment
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:
Unrealised gains – corporate
Unrealised gains – statutory*
Customer relationships
Property and equipment
Customer remediation indemnity
Other
Deferred tax liability balance as at 30 June
Set-off of deferred tax assets 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
Credited/(charged) to profit or loss – statutory*
Temporary differences directly attributable to equity
Discontinued operations
Reclassification to held for sale
Carrying amount at the end of the year
Unrecognised deferred tax assets
Tax losses
Potential tax benefit at the Australian tax rate of 30%
2019
$’000
2018
$’000
17,758
121,625
94
9,679
964
2,056
152,177
(152,177)
–
9,951
8,612
88,166
–
50,643
699
158,072
(152,177)
5,895
(73,755)
696
80,607
(4,112)
(2,371)
(4,337)
(2,623)
(5,895)
4,905
1,472
20,234
17,690
97
–
–
3,067
41,088
(41,088)
–
7,566
4,501
98,940
130
–
3,706
114,843
(41,088)
73,755
(95,256)
(1,663)
12,091
(2,192)
79
13,186
–
(73,755)
–
–
* 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.
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.
95
IOOF | annual report 2019 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:
• 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 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.
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 (now a discontinued operation).
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.
Tax contribution analysis
The IOOF Group contributed a total of $160.6m in taxes
to Australian, New Zealand and Hong Kong governments
(state and federal) in the 2019 tax year. $160.2m or 99.75% 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.
96
IOOF | annual report 2019 Notes to the financial statements For the year ended 30 June 2019 2019 tax
contribution
by type (total
$160.6m)
Income Tax $95.3m
GST $46.4m
Payroll Tax $14.9m
Fringe Benefits Tax $1.2m
Other $2.8m
2019 tax
contribution by
country (total
$160.6m)
Australia $160.2m
New Zealand $0.415m
Hong Kong $0.006m
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 $133m.
2-7 Dividends
After 30 June 2019 the following fully franked dividends were declared by the directors. The dividends have not been provided for
and there are no income tax consequences.
Final 2019 dividend
Special 2020 dividend
Cents per
share
12.0
7.0
Total
$’000
42,129
24,575
Date of payment
Franked/
unfranked
27 September 2019
27 September 2019
Franked
Franked
Dividend franking account
30 per cent franking credits available to shareholders of IOOF Holdings Ltd
for subsequent financial years
2019
$’000
2018
$’000
93,032
77,399
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
$28,587,000 (2018: $40,625,000).
The following dividends were declared and paid by the IOOF Group during the current and preceding financial year:
2019
Interim 2019 dividend
Final 2018 dividend
2018
Interim 2018 dividend
Final 2017 dividend
Cents per
share
25.5
27.0
52.5
27.0
27.0
54.0
Total
$’000
89,524
94,791
184,315
94,791
81,036
175,827
Date of payment
Franked/
unfranked
15 March 2019
04 September 2018
Franked
Franked
14 March 2018
01 September 2017
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.
97
IOOF | annual report 2019 2-8 Earnings per share
Basic earnings per share
From continuing operations
From discontinued operations
Total basic earnings per share
Diluted earnings per share
From continuing operations
From discontinued operations
Total diluted earnings per share
2019
2018
Cents per
share
Cents per
share
(12.0)
20.1
8.1
(12.0)
20.1
8.1
31.6
(5.1)
26.4
31.5
(5.1)
26.4
Basic and diluted earnings per share
The earnings and weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share
are as follows:
Profit for the year attributable to owners of the Company
Earnings used in the calculation of basic and diluted EPS
Profit for the year from discontinued operations used in the calculation of basic and diluted EPS from
discontinued operations
2019
$’000
28,560
28,560
75,708
2018
$’000
88,301
88,301
(11,732)
Earnings used in the calculation of basic and diluted EPS from continuing operations
(47,148)
100,033
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
2019
2018
No. ’000
No. ’000
350,456
334,072
982
750
351,438
334,822
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 2019, there were no options outstanding (2018: nil).
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.
98
IOOF | annual report 2019 Notes to the financial statements For the year ended 30 June 2019 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 debt note;
• 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 5-4
Capital adequacy position.
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.
During the period, IOOF Group executed a syndicated facility
agreement (SFA) with lenders (effective 27 September 2018
(SFA effective date)), with an initial drawdown made on
2 October 2018. The SFA consists of the following facilities:
• $300m revolving cash advance facility with a 3 year
repayment term from the SFA effective date.
• $450m revolving cash advance facility with a 5 year
repayment term from the SFA effective date.
• Multi-option facility with a 3 year repayment term from the
SFA effective date, including a $20m revolving cash advance
facility (interest-bearing borrowing) and a guarantee facility.
The current interest-bearing borrowings have a debt duration
profile of approximately 3.4 years (calculated on a facility limit
basis). Proceeds from SFA borrowings were applied towards
the subscription of a debt note with a face value of $800m
from ANZ, which reflects substantial economic completion
of the ANZ P&I business.
99
IOOF | annual report 2019 (a) Cash advance & working capital facility
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
2019
$’000
770,000
430,000
340,000
2018
$’000
–
–
–
The financial liability under the facility has a fair value equal to its carrying amount.
(b) Other facilities
In addition to the revolving cash advance facilities, the IOOF Group has contingent liability facilities and had a commercial loan held by
one of its subsidiaries that was repaid in full during the period. The aggregate of the contingent liability facilities is $71.3m (2018: $40m)
of which $67.8m was used at 30 June 2019 (30 June 2018: $38.9m).
Revolving Cash Advance Facility
Opening balance 1 July 2018
Net borrowings drawn/(repaid)
Amortised capitalised establishment fees
Closing balance 30 June 2019
Other facilities
Opening balance 1 July 2018
Acquisition through business combination
Net borrowings repaid
Closing balance 30 June 2019
Total
Accounting policies
2019
$’000
–
430,000
(3,497)
426,503
–
597
(597)
–
426,503
2018
$’000
206,908
(207,424)
516
–
–
–
–
–
–
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.
100
IOOF | annual report 2019 Notes to the financial statements For the year ended 30 June 2019 3-3 Share capital
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 (2018: 351,076,027)
1,237,144 treasury shares (2018: 484,964)
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
Accounting policies
Ordinary shares
2019
$’000
2018
$’000
1,970,999
1,971,648
(7,890)
(4,625)
1,963,109
1,967,023
2019
2018
No. ’000
$’000
No. ’000
$’000
351,076
1,971,648
–
–
–
–
–
–
4,000
(4,649)
300,134
50,942
1,438,601
539,264
–
–
–
(5,917)
2,093
(2,393)
351,076
1,970,999
351,076
1,971,648
(485)
(1,240)
488
(1,237)
(4,625)
(7,914)
4,649
(7,890)
(476)
(287)
278
(485)
(4,142)
(2,876)
2,393
(4,625)
349,839
1,963,109
350,591
1,967,023
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.
101
IOOF | annual report 2019 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:
2019
Premises – continuing operations
Premises – discontinued operations
Total
2018
Premises
Guarantees and underwriting commitments
Rental bond guarantees
ASX settlement bond guarantee
ASIC bond guarantees
Other guarantees
< 1 year
1 to 5 years
$’000
8,786
3,602
12,388
$’000
43,896
7,831
51,727
< 1 year
1 to 5 years
$’000
17,967
$’000
54,114
Later than
5 years
$’000
29,068
–
29,068
Later than
5 years
$’000
34,904
2019
$’000
10,773
500
40
453
11,767
Total
$’000
81,750
11,433
93,183
Total
$’000
106,985
2018
$’000
12,256
1,000
20
3,000
16,276
On 10 April 2019, the Group announced that its subsidiary, Bridges Financial Services Group Pty Ltd, had entered into a strategic
partnership with Bendigo and Adelaide Bank Ltd (Bendigo) to acquire Bendigo Financial Planning Ltd’s (Bendigo FP) client book and
servicing rights for cash consideration of $3 million, plus a further payment of $2 million on the first anniversary of completion, subject
to maintaining an agreed ongoing service client retention rate. The transaction completed on 31 July 2019.
Final completion of the ANZ P&I Acquisition remains conditional on the receipt of notices from OnePath Custodians (OPC) and
ANZ that each have no objection to the P&I Acquisition proceeding. IOOF continues to work co–operatively with OPC and ANZ to
provide the information and resources necessary to facilitate those notices being given. From 5 July 2019, recent amendments to the
Superannuation Industry (Supervision) Act 1993 (Cth) came into force, giving APRA an approval power in respect of the acquisition of
controlling stakes in Registrable Superannuation Entity licensees (such as OPC). As such, receipt of such an approval from APRA is now
also a condition to completion of the P&I Acquisition. IOOF is well advanced in preparation and submission of material to APRA for
due consideration of the matter.
IOOF has agreed to purchase the P&I business for a cash consideration of A$975m, subject to a completion adjustment.
Two subsidiaries of the Group have contractual agreements with its planners to provide a put option “Buyer of Last Resort Facility”
should a planner wish to sell their business and on the satisfaction of certain specific requirements. The terms and conditions provide
that where the specific requirements have been met, a predetermined purchase price will be payable for the business as agreed by
all parties over a predetermined period. Where certain terms and conditions have not been met, the predetermined purchase price
will be discounted accordingly. As at 30 June 2019, the Group had received requests from planners which satisfied requirements to
exercise its obligation. The resale value of such businesses purchased may differ from the cost to the Group. Where confirmation
notices have been received, the Group has a fixed obligation to purchase the businesses at market value, the aggregate value of
this fixed obligation is $3.00m (2018: $2.53m).
102
IOOF | annual report 2019 Notes to the financial statements For the year ended 30 June 2019 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
Equity investment revaluation reserve(i)
Business combinations reserve(ii)
Foreign currency translation reserve(iii)
Operating risk financial reserve(iv)
Share-based payments reserve(v)
Nature and purpose of reserves
2019
$’000
24,326
(326)
30
2,655
(1,460)
25,225
2018
$’000
18,804
(326)
44
2,655
(1,764)
19,413
(i) Equity investment revaluation reserve comprises the cumulative net change in fair value of equity securities designated at FVOCI (2018: available-for-sale
financial assets).
(ii) Business combinations reserve reflects historic acquisitions of non-controlling interests.
(iii) Foreign currency translation reserve comprises foreign currency differences arising from the translation of the financial statements of the Group’s foreign operations.
(iv) The operating risk financial reserve is held for certain superannuation products that were previously held under AET and have been transferred to IIML as
Superannuation Trustee in the current year. Other similar reserves exist within the IOOF Group, however these are generally held by the relevant funds.
(v) The equity-settled employee benefits reserve arises on the grant of performance rights and share options to executives and senior employees under the employee
share plan. Amounts are transferred out of the reserve and into issued capital when the shares are transferred to employees.
103
IOOF | annual report 2019 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% (2018: 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. In addition, the IOOF Group owns 56.7% (2018: 43.1%) of the equity interests of Thornton Group (SA) Pty Ltd. The Group
has determined that it does not have control of this investee as it has no representation on the Board and does not have power over
the investee to direct its operations.
The table below discloses material associates individually:
Associate
Country of
incorporation
Ownership interest
2019
2018
Carrying
value
IOOF Group’s
share of
profit/(loss)
Perennial Value Management Ltd
Thornton Group (SA) Pty Ltd
Grow Super
Other associates
Australia
Australia
Australia
%
52.4
56.7
12.1
%
52.4
43.1
7.1
$’000
6,800
6,129
4,155
4,425
21,509
$’000
956
127
(298)
201
986
Associates had a carrying value of $24,002,000 and share of profit of $2,524,000 in 2018. All significant associates have a 30 June
financial year end.
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%)
Total profit and total comprehensive income (42.4%)
Dividends received by the IOOF Group
104
2019
$’000
42.4%
19,477
8,219
(7,050)
(361)
20,285
8,591
(1,791)
–
6,800
24,787
2,258
956
–
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
IOOF | annual report 2019 Notes to the financial statements For the year ended 30 June 2019 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 $358,000 (2018: $1,753,000) from its associates.
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)
Cost
Accumulated amortisation
IT
development
Computer
software
Customer
relationships
$’000
$’000
$’000
Carrying value at 1 July 2018
Acquisition through business
combination
Additions
Divestments
Amortisation expense – continuing
operations
Amortisation expense – discontinued
operations
Reclassification to held for sale
1,284
–
1,654
–
(715)
–
–
4,267
–
1
(9)
(915)
(38)
(24)
331,936
1,382
33
(260)
(1,515)
(2,758)
Carrying value at 30 June 2019
2,223
3,282
294,284
Accounting policies
(34,534)
(801)
2019
$’000
652,248
(287,541)
364,707
Other
intangibles
2018
$’000
677,147
(268,837)
408,310
Total
$’000
$’000
3,878
–
3,070
–
(1,401)
–
–
408,310
1,382
4,758
(269)
(38,366)
(1,553)
(9,555)
5,547
364,707
Brand
names
$’000
66,945
–
–
–
–
(6,773)
59,371
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.
105
IOOF | annual report 2019 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
• contract agreements 9 – 10 years
Amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted if appropriate.
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 $7.9m 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 – reclassified to held for sale
Lonsdale
2019
$’000
51,000
–
500
2018
$’000
51,000
6,773
500
51,500
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 13.3% (2018: 12.7%) 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
2019
$’000
2018
$’000
1,030,321
1,024,166
(93,430)
936,891
940,226
6,155
(9,490)
(83,940)
940,226
954,867
13,698
(28,339)
936,891
940,226
Impairment of $9.5m has been recognised in 2019 in relation to goodwill allocated to Perennial Investment Partners Limited
(2018: impairment of $28.3m in relation to goodwill allocated to Perennial Investment Partners Limited). Reduced profitability from
lower revenue led to its expected fair value less costs to sell declining to below the carrying value of the aggregate goodwill and
investment balances.
106
IOOF | annual report 2019 Notes to the financial statements For the year ended 30 June 2019
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:
2019
2018
Cash
inflows
yrs 1-5
Cash
outflows
yrs 1-5
Cash flows – perpetuity
Value in Use element
Shadforth
Portfolio and estate administration
Perennial
DKN
Multi manager
IOOF Ltd
Consultum
Bridges
Australian Executor Trustees
Ex-ANZ ADGs
$’000
431,191
347,509
–
80,339
39,735
11,970
4,344
1,950
19,773
80
$’000
431,191
347,509
9,490
80,339
39,735
11,970
4,344
1,950
13,698
–
936,891
940,226
A Reserve Bank of Australia forecast GDP growth rate1
B Blended rate of the 2020 budgeted rates by asset class and business unit
C Forecast for Perennial Value Management Limited
B
B
C
B
B
D
A
B
F
F
E
E
E
E
E
D
E
E
F
F
2.0% growth from yr 5
2.0% growth from yr 5
2.0% growth from yr 5
2.0% growth from yr 5
2.0% growth from yr 5
2.0% growth from yr 5
2.0% growth from yr 5
2.0% growth from yr 5
2.0% growth from yr 5
2.0% growth from yr 5
D Observed Australian friendly societies annual compounding growth for March 2014 to March 20192
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 source – RBA Statement of Monetary Policy
2 source – ABS 5655.0 Managed Funds Australia
107
IOOF | annual report 2019 The recoverable amounts for goodwill allocated to all CGUs have been determined based on value-in-use calculations using 2019
actual balances to forecast 2020 and beyond cash flows.
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 13.3% (2018: 12.7%) 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. Any reasonably
possible changes to assumptions used in management’s assessment is not expected to result in impairment.
Management has applied a post tax WACC increment of 3.5% for Consultum (2018: 3.5%) to reflect a specific company risk premium.
In prior year, a post tax WACC increment of 2.5% was also applied for Perennial. These incremental amounts are judgement based
and consistent with accepted valuation industry practice.
Sensitivity analysis
At 30 June 2019, if pre-tax discount rates had increased by 4%, and terminal value growth rates had decreased from 2% to 0%,
no further impairment would have been identified in connection with goodwill allocated to any cash generating unit.
4-4 Provisions
Onerous contracts
Employee entitlements
Ex-ANZ ADG remediation provision
IOOF ADG remediation provision
Other
Onerous
contracts
Employee
entitlements
Ex-ANZ ADG
remediation
provision
IOOF ADG
remediation
provision
Balance at 1 July 2018
Acquisition through business
combination1
Provisions made during the year
Provisions utilised during the year2
Derecognised on disposal of subsidiary
or reclassification to held for sale
Balance at 30 June 2019
$’000
985
–
–
(985)
–
–
$’000
67,487
3,640
48,198
(40,049)
(19,964)
$’000
–
168,100
15,220
(14,510)
–
$’000
–
–
223,165
–
–
2019
$’000
–
59,312
168,810
223,165
2,045
453,332
2018
$’000
985
67,487
–
–
47,863
116,335
Other
Total
$’000
47,863
12
1,950
(47,755)
(25)
$’000
116,335
171,752
288,533
(103,299)
(19,989)
59,312
168,810
223,165
2,045
453,332
1 Provisions totalling $168.1m have been recognised in respect of the ANZ ADGs acquired on 1 October 2018. These provisions relate to customer remediation during
the period that the relevant entities were owned by ANZ. The sale agreement indemnified the acquired entities in relation to customer remediation and accordingly,
a corresponding receivable from ANZ has been recognised.
2 Other includes $44.3m settlements with the representative plaintiffs in the Provident Proceedings.
108
IOOF | annual report 2019 Notes to the financial statements For the year ended 30 June 2019 Accounting policies
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.
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.
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.
Client remediation provision
ASIC, as part of its Wealth Management Project, has conducted
investigations into financial advice fees paid pursuant to
ongoing service arrangements, focused on major Wealth
Management institutions with financial advice arms. IOOF
has a significant number of self-employed and salaried
financial advisers and, having noted the ongoing impact of
the investigation on clients, has voluntarily undertaken its own
review. The review seeks to determine whether fee paying
clients under its licenses were: a) provided with agreed services
and/or advice; b) supported with documentation evidencing
appropriate provision of service and/or advice; and c) received
advice appropriate to their circumstances.
IOOF engaged an expert consultant to design the review
methodology and estimate financial compensation impact
for this matter, in line with observed industry practise to
date. IOOF has used sampling of cohorts of financial advisers,
based on key risk indicators, to establish possible incidents
of inappropriate advice or instances of fees for no service (or
no evidence of service). The results of that sampling have
been extrapolated across the financial adviser cohorts in
accordance with observed likelihood of occurrence within that
cohort. Where client compensation is probable and able to be
reliably estimated, provisions have been taken. Compensation
costs include return of service fees, estimated client loss for
inappropriate advice, interest for time value of money at ASIC’s
directed rate of RBA cash rate + 6% and committed costs to
resource the compensation program.
As of 30 June 2019, the Group has recognised provisions of
$391,975,000 (2018: nil) in respect of client remediation and
related costs. Of this amount, $168,810,000 is indemnified
by the ANZ Banking Group and an offsetting receivable has
also been recognised. There is no material cash flow impact
arising from that component of the provision. Determining
the amount of the provision, which represents management’s
best estimate of the costs of settling the identified matters,
requires the exercise of significant judgement. It will often
be necessary to form a view on a number of different
assumptions, including the number of impacted clients,
the average refund per client, and associated remediation
costs. Consequently, the appropriateness of the underlying
assumptions is reviewed on a regular basis against actual
experience and other relevant evidence, and adjustments
are made to the provisions where appropriate.
109
IOOF | annual report 2019 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.
Details of the assets and liabilities of the statutory funds are included in Section 1. Statutory funds are not available
to shareholders.
5-1 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
Accounting policies
Investment contracts with DPF
Statutory
2019
$’000
1,006
47,170
5,183
2,104
37,945
(33,447)
2,308
62,269
9,917
5
2018
$’000
794
58,035
13,488
5,701
26,841
(45,192)
2,131
61,798
10,533
5
42,032
33,732
33
123
52,110
10,159
–
58
73
44,401
17,397
–
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.
110
IOOF | annual report 2019 Notes to the financial statements For the year ended 30 June 2019 Insurance contract liabilities and claims expense
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 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.
5-3 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.
(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.
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.
5-2 Actuarial assumptions and methods
The effective date of the actuarial report on the policy liabilities
and capital adequacy reserves is 30 June 2019. The actuarial
report for IOOF Ltd was prepared by Mr Andrew Mead, FIAA,
and was dated 23 August 2019. 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.
Processes used to select assumptions
Mortality and Morbidity
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.
111
IOOF | annual report 2019 5-4 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
Tier 2 Capital
Regulatory adjustment applied in calculation of Tier 2 capital
(C) Total Tier 2 Capital
Total capital base
Statutory
2019
$’000
16,027
7,241
8,786
221%
16,027
–
16,027
–
–
–
–
2018
$’000
16,749
7,534
9,215
222%
16,749
–
16,749
–
–
–
–
16,027
16,749
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.
112
IOOF | annual report 2019 Notes to the financial statements For the year ended 30 June 2019 Section 6 – Other disclosures
6-1 Parent entity financials
As at and throughout the financial year ended 30 June 2019, 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
There are currently no complaints or claims made against the parent entity.
Guarantees and underwriting commitments
Rental bond guarantees
2019
$’000
165,610
165,610
2018
$’000
189,175
189,175
8,227
428,765
2,410,131
2,017,841
8,558
435,061
24,244
24,245
1,970,999
1,971,648
2,777
1,294
2,473
19,475
1,975,070
1,993,596
2019
$’000
2018
$’000
3,997
3,406
113
IOOF | annual report 2019 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.
Options granted under the plan carry no dividend or voting rights. All plans are equity-settled. There were no options granted in
2019 (2018: nil).
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.
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 Executive STIs awarded from
2018 onwards. 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.
Perform-
ance Rights
Deferred
Shares
Number of
rights
Number of
shares
No.
652,958
(408,285)
(296,249)
890,495
838,919
–
No.
316,768
–
–
42,020
358,788
–
Total
Number of
rights &
shares
No.
969,726
(408,285)
(296,249)
932,515
1,197,707
–
Opening balance at 1 July 2018
Forfeited or lapsed during the year
Exercised during the year
Granted during the year
Outstanding at 30 June 2019
Exercisable at 30 June 2019
114
IOOF | annual report 2019 Notes to the financial statements For the year ended 30 June 2019 Disclosure of share-based payment plans
Series – Recipient
Performance rights
2016-01 Executives
2017-01 Executives
2017-02 Managing Director
2017-03 Executives
2017-04 Other Key Stakeholders
2018-01 Executives
2018-02 Managing Director
2018-04 Other Key Stakeholders
2018-07 Other Key Stakeholders
2019-01 Executives
2019-02 Other Key Stakeholders1
2019-03 Managing Director
2019-04 Other Key Stakeholders
2019-05 Other Key Stakeholders
Deferred shares
2017-05 Managing Director
2018-03 Other Key Stakeholders
2018-05 Managing Director
2018-06 Executives
2019-02 Other Key Stakeholders
Exercise
price
Opening
balance
1 July 2018
Granted
Forfeited
or lapsed
Exercised
Closing
balance
30 June 2019
$nil
$nil
$nil
$nil
$nil
$nil
$nil
$nil
$nil
$nil
$nil
$nil
$nil
$nil
$nil
$nil
$nil
$nil
$nil
30,000
150,000
120,000
30,000
29,567
155,000
122,500
15,891
–
–
–
–
–
–
652,958
35,420
89,777
36,632
154,939
–
316,768
969,726
–
–
–
–
–
–
–
–
224,229
294,000
42,020
140,785
46,961
142,500
890,495
–
–
–
–
42,020
42,020
–
–
(120,000)
–
–
–
(122,500)
–
–
(30,000)
–
–
–
–
–
–
–
(224,229)
–
150,000
–
30,000
29,567
155,000
–
15,891
–
(15,000)
–
279,000
–
(42,020)
(140,785)
–
(10,000)
(408,285)
–
–
–
(296,249)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
46,961
132,500
838,919
35,420
89,777
36,632
154,939
42,020
358,788
932,515
(408,285)
(296,249)
1,197,707
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 2019.
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
2018-07 Other Key Stakeholders
2019-01 Executives
2019-02 Other Key Stakeholders
2019-03 Managing Director
2019-04 Other Key Stakeholders
2019-05 Other Key Stakeholders
Fair value
Grant date
share price
Expected
volatility
Expected life
(years)
Dividend
yield
Risk-free
interest rate
$8.04
$4.93
$7.58
$2.04
$3.54
$4.93
$8.15
$8.00
$7.84
$6.80
$4.73
$8.00
n/a
24%
24%
23%
37%
24%
n/a
3
1
3
3
3
n/a
6.8%
6.9%
7.9%
11.4%
6.8%
n/a
2.2%
2.1%
2.1%
2.0%
2.2%
115
IOOF | annual report 2019 The following share-based payment arrangements were in existence during the current and comparative reporting years:
Performance Rights Series – Recipient
2019-05 Other Key Stakeholders
2019-04 Other Key Stakeholders
2019-03 Managing Director
2019-02 Other Key Stakeholders1
2019-01 Executives
2018-07 Other Key Stakeholders
2018-04 Other Key Stakeholders
2018-03 Other Key Stakeholders
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
Exercise
price
Earliest
vesting date
Last tranche
vesting date
Performance
related
vesting
conditions
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
30-Jun-21
30-Jun-21
n/a
24-Apr-19
30-Jun-21
n/a
n/a
n/a
n/a
n/a
20-Sep-18
20-Sep-18
30-Jun-20
19-Apr-18
n/a
30-Jun-20
30-Jun-19
31-Dec-19
n/a
30-Jun-19
30-Jun-18
30-Jun-18
n/a
19-Apr-18
n/a
n/a
30-Jun-19
n/a
n/a
30-Jun-19
30-Jun-18
30-Jun-18
TSR
n/a
Lapsed
n/a
TSR
n/a
n/a
n/a
Lapsed
TSR
n/a
TSR
Lapsed
TSR
TSR & RoE
TSR
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
Former Managing Director
Executives
Other Key Stakeholders
Attributable to discontinued operations
Accounting policies
2019
$’000
(204)
2,548
2,484
4,828
(31)
4,797
2018
$’000
893
833
1,002
2,728
–
2,728
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.
116
IOOF | annual report 2019 Notes to the financial statements For the year ended 30 June 2019 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
IOOF Investment Management Limited
IOOF Ltd
IOOF Equity Plan Trust
IOOF NZ Ltd
IOOF Service Co Pty Ltd
IOOF Investment Services Ltd
Lonsdale Financial Group Limited
SFG Australia Limited
Financial Acuity Limited
Shadforth Financial Group Limited
Actuate Alliance Services Pty Ltd
Financial Investment Network Group Pty Limited
RI Advice Group Pty Ltd
FSP Group Pty Limited
Millennium 3 Financial Services Group Pty Ltd
Millennium 3 Financial Services Pty Ltd
Millennium3 Professional Services Pty Ltd
Financial Lifestyle Solutions Pty Limited
Financial Services Partners Management Trust
Ord Minnett Limited
Ord Minnett Financial Planning Pty Limited
Ord Minnett Management Limited
Country of incorporation
Ownership interest
2019
%
2018
%
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
New Zealand
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
–
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
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
100.0
–
–
–
–
–
–
–
–
70.0
70.0
70.0
117
IOOF | annual report 2019 Unconsolidated structured entities
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 and seed capital. 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 fees 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.
6-4 Acquisition of subsidiary
On 1 October 2018, the ADGs formerly owned by ANZ joined the IOOF Group following the completion of a share sale agreement
between IOOF and ANZ. The ADGs provide services to clients including strategic financial advice and risk insurance solutions.
The IOOF Group acquired all of the ordinary shares in the parent entity of the ADGs for a total cash consideration of $25.1m.
In the period from acquisition to 30 June 2019, the ADGs contributed revenue of $158.8m and a loss of $16.1m to the IOOF Group’s
UNPAT results. This excludes integration preparation costs of $20.8m in relation to the acquisition of the ADGs and scheduled
acquisition of the ANZ P&I business.
If the acquisition had occurred on 1 July 2018, management estimates that the consolidated revenue from continuing operations
for the Group would have been $1,116.2m and consolidated loss from continuing operations for the year would have been $47.2m.
In determining these amounts, management has assumed that the fair value adjustments, determined provisionally, that arose
on the date of acquisition would have been the same if the acquisition had occurred on 1 July 2018.
The following summarises the major classes of consideration transferred, and the recognised amounts of assets acquired and
liabilities assumed at the acquisition date:
Consideration transferred
Cash
Deferred consideration
Total consideration
Cash balances acquired
Consideration, net of cash acquired
$’000
23,000
2,128
25,128
(24,240)
888
The impact on cash flows for the Group for the year was an outflow of $0.9m.
Acquisition-related costs
The IOOF Group has incurred acquisition-related costs of $23.7m in the financial year, on acquisition advisory, integration preparation
and finance costs in relation to the acquisition of the ADGs and scheduled acquisition of the ANZ P&I business. These costs have been
included in the Other Expenses in note 2-4.
118
IOOF | annual report 2019 Notes to the financial statements For the year ended 30 June 2019 Identifiable assets acquired and liabilities assumed
The following table summarises the recognised amounts of assets acquired and liabilities assumed at the date of acquisition.
Cash
Receivables
Prepayments
Investments accounted for using the equity method
Property and equipment
Deferred tax assets
Payables
Borrowings
Current tax liabilities
Provisions
Non-controlling interest
Total identifiable net assets acquired
*
$168.1m customer remediation provision acquired is wholly offset by the indemnity receivable under the sale agreement.
Goodwill and intangibles
Goodwill and intangibles have been recognised as a result of the acquisition as follows:
Total consideration
Fair value of assets assumed
Goodwill and intangibles acquired
$’000
24,240
3,744
579
368
1,600
1,033
(2,103)
(618)
242
(3,493)*
(544)
25,048
$’000
25,128
(25,048)
80
The goodwill is attributable mainly to the skills and technical talent of the ADGs’ work force and the synergies expected to be
achieved from integrating the ADGs into the IOOF Group’s existing business. None of the goodwill recognised is expected to be
deductible for tax purposes.
119
IOOF | annual report 2019
6-5 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.
6-6 Key management personnel
The key management personnel compensation comprised:
Short-term employee benefits
Post-employment benefits
Share-based payments
Termination benefits
Key management personnel compensation reconciles to disclosures in the remuneration report as follows:
Executive key management personnel
Non-executive Directors
Bonus deferred shares – at risk
Total
2019
$
2018
$
3,147,729
1,016,270
2,721,222
1,010,007
4,163,999
3,731,229
82,551
567,189
29,040
678,780
271,280
122,488
417,427
811,195
4,842,779
4,542,424
2019
$
2018
$
4,662,992
4,888,457
200,385
1,279,181
1,268,129
179,289
2,429,027
–
7,410,687
7,496,773
6,406,756
4,102,746
1,003,931
965,000
7,410,687
5,067,746
–
2,429,027
7,410,687
7,496,773
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.
120
IOOF | annual report 2019 Notes to the financial statements For the year ended 30 June 2019 6-7 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
30 June
Interest paid/
payable
during year
Interest free loans
Perennial Value Management Limited
Interest bearing loans
Perennial Value Management Limited
2019
2018
2019
2018
Highest
balance
during the
year
$
2,286,717
2,286,717
$
$
2,286,717
1,944,381
2,286,717
2,286,717
$
–
–
6,402,062
5,794,350
228,939
6,505,622
6,267,091
6,402,062
239,898
6,402,062
The amounts above were advanced by Perennial Investment Partners Pty Ltd and IOOF 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 $5,794,350 were made on commercial terms and conditions and loans totalling $1,944,381 are unsecured
interest free loans.
(c) Investment in related entities
Through one of its subsidiaries, the Group (excluding benefit funds) holds investments in managed investment schemes that meet
the definition of related parties.
Investment in related party schemes
(d) Transactions with key management personnel
i. Key management personnel compensation
2019
$
2018
$
279,662
407,517
Details of key management personnel compensation are disclosed in section 6-6 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
There were no other transactions with key management personnel of the IOOF Group during the 2019 and 2018 financial years.
121
IOOF | annual report 2019 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 2019 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
(b) Basis of measurement
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 2019 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 26 August 2019.
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
• equity investments are fair value through other
comprehensive income are measured at fair value.
• assets (or disposal groups) that are classified as held for sale
in accordance with AASB 5 Non-current Assets Held for Sale
and Discontinued Operations are measured in accordance
with that Standard.
The statement of financial position is presented in
order of liquidity.
(c) Functional and presentation currency
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.
122
IOOF | annual report 2019 Notes to the financial statements For the year ended 30 June 2019 (e) Use of estimates and judgements
7-3 Other significant accounting policies
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 1-1 – Contingent consideration;
• section 2-4 – (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.
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
A subsidiary of the Company, IOOF limited, is a friendly
society in accordance with the Life Insurance Act 1995
(the ’Act’). The funds operated by IOOF Limited, and any trusts
controlled by those Funds, are treated as statutory funds in
accordance with the Act. These statutory funds continue to
be consolidated in accordance with accounting standards.
For the year ended 30 June 2019 and going forward, the
assets, liabilities, income and expenses of these statutory funds
have been included on a line by line basis in the financial
statements. Where relevant, comparative primary financial
statements and disclosures have been restated to ensure
consistency in presentation of financial information across the
applicable comparative periods. This change has been made
as it provides information on a basis consistent with broader
industry and does not give rise to a change in net profit or net
assets of the Group.
The table below shows how the comparative balances of
these statutory funds have been reclassified.
123
IOOF | annual report 2019 Statement of Financial Position
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
Other financial liabilities
Borrowings
Current tax liabilities
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
2018
2018
previously
reported
adjustment
2018
revised
$’000
$’000
$’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
392
25,615
–
116,335
69,255
1,413
3,530
1,036,491
1,318,170
1,812,687
1,967,023
19,413
(184,169)
1,802,267
10,420
1,812,687
4,178
–
54,694
970,464
–
–
–
–
–
–
(1,036,491)
125,619
407,443
154,353
1,025,551
17,307
1,552
24,002
19,339
408,310
940,226
–
(7,155)
3,123,702
9,955
75,094
1,014,881
1,015,273
(25,615)
25,615
–
4,500
–
–
(1,036,491)
–
25,615
116,335
73,755
1,413
3,530
–
(7,155)
1,311,015
–
–
–
–
–
–
–
1,812,687
1,967,023
19,413
(184,169)
1,802,267
10,420
1,812,687
The IOOF Group has consistently applied the accounting policies to all years presented in these consolidated financial statements,
except as identified at note 7-4.
124
IOOF | annual report 2019 Notes to the financial statements For the year ended 30 June 2019 (b) Basis of consolidation
(ii) Non-controlling interests (NCI)
The consolidated financial statements incorporate the
assets and liabilities of all subsidiaries of the Company as at
30 June 2019 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 1-1 Assets and 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.
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.
(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.
125
IOOF | annual report 2019 (c) Foreign currency
(iii) Depreciation
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.
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.
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
•
• equipment under finance lease 3-10 years
leasehold improvements 3-10 years
Depreciation methods, useful lives and residual values are
reviewed at each reporting date, and adjusted if appropriate.
(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.
126
IOOF | annual report 2019 Notes to the financial statements For the year ended 30 June 2019 Financial assets measured at amortised cost
Associates
The Group recognises loss allowances for expected credit
losses on financial assets measured at amortised cost.
When determining whether the credit risk of a financial
asset has increased significantly since initial recognition and
when estimating expected credit losses, the Group considers
reasonable and supportable information that is relevant and
available without undue cost or effort. This includes both
quantitative and qualitative information and analysis, based
on the Group’s historical experience and informed credit
assessment and including forward-looking information.
The Group considers a financial asset to be in default when the
borrower is unlikely to pay its credit obligations to the Group in
full, without recourse by the Group to actions such as realising
security, or the financial asset is more than 90 days past due.
The maximum period considered when estimating expected
credit losses is the maximum contractual period over which
the Group is exposed to the credit risk.
Expected credit losses are a probability-weighted estimate of
credit losses. Credit losses are measured as the present value
of all cash shortfalls (i.e. the difference between the cash flows
due to the entity in accordance with the contract and the
cash flows that the Group expects to receive). Expected credit
losses are discounted at the effective interest rate of the
financial asset. Loss allowances for financial assets measured
at amortised cost are deducted from the gross carrying
amount of the assets.
Financial assets and liabilities at fair value through OCI
Impairment losses on equity investments at fair value through
OCI 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 debt investment at fair value through OCI
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 debt investment at fair value through OCI is
recognised in other comprehensive income.
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.
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.
127
IOOF | annual report 2019 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.
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.
(h) Non-current assets held for sale
Non-current assets and disposal groups are classified as held
for sale if their carrying amount will be recovered principally
through a sale transaction rather than through continuing
use. This condition is regarded as met only when the asset
(or disposal group) is available for immediate sale in its present
condition subject only to terms that are usual and customary
for sales for such asset (or disposal group) and its sale is highly
probable. Management must be committed to the sale, which
should be expected to qualify for recognition as a completed
sale within one year from the date of classification.
When the Group is committed to a sale plan involving loss
of control of a subsidiary, all of the assets and liabilities of
that subsidiary are classified as held for sale when the criteria
described above are met.
Non-current assets (and disposal groups) classified as held
for sale are measured at the lower of their previous carrying
amount and fair value less costs to sell.
7-4 Adoption of new and revised Standards
New and amended Standards that are effective
for the current year
Impact of initial application of AASB 9 Financial
Instruments
In the current year, the Group has applied AASB 9
Financial Instruments (as revised in July 2014) and the
related consequential amendments to other Standards that
are effective for an annual period that begins on or after
1 January 2018. The transition provisions of AASB 9 allow
an entity not to restate comparatives. AASB 9 introduced
the following new requirements:
(a) Classification and measurement of financial assets
The date of initial application (i.e. the date on which the
Group has assessed its existing financial assets and financial
liabilities in terms of the requirements of AASB 9) is 1 July 2018.
Accordingly, the Group has applied the requirements
of AASB 9 to instruments that continue to be recognised
as at 1 July 2018 and has not applied the requirements
to instruments that have already been derecognised as at
1 July 2018. Comparative amounts in relation to instruments
that continue to be recognised as at 1 July 2018 have been
restated where appropriate.
All recognised financial assets that are within the scope
of AASB 9 are required to be measured subsequently at
amortised cost or fair value on the basis of the entity’s business
model for managing the financial assets and the contractual
cash flow characteristics of the financial assets.
128
IOOF | annual report 2019 Notes to the financial statements For the year ended 30 June 2019 The directors of the Company reviewed and assessed the
Group’s existing financial assets as at 1 July 2018 based on
the facts and circumstances that existed at that date and
concluded that the initial application of AASB 9 has had the
following impact on the Group’s financial assets as regards
their classification and measurement:
The Group’s equity investments were classified as
available-for-sale financial assets under AASB 139 Financial
Instruments: Recognition and Measurement. The investments
have been reclassified as financial assets at fair value through
Other Comprehensive Income under AASB 9 because they are
held for long-term strategic purposes. The change in fair value
on these equity instruments continues to be accumulated in
the investments revaluation reserve.
(b) Impairment of financial assets
In relation to the impairment of financial assets, AASB 9
requires an expected credit loss model as opposed to an
incurred credit loss model under AASB 139. The expected
credit loss model requires the Group to account for expected
credit losses and changes in those expected credit losses
at each reporting date to reflect changes in credit risk since
initial recognition of the financial assets. In other words, it is
no longer necessary for a credit event to have occurred before
credit losses are recognised.
The adoption of AASB 9 has not had a significant impact
on the recognition and measurement of the IOOF Group’s
financial instruments.
Impact of initial application of AASB 15 Revenue
from Contracts with Customers
In the current year, the Group has applied AASB 15 Revenue
from Contracts with Customers (as amended in April 2016)
which is effective for an annual period that begins on or after
1 January 2018. AASB 15 introduced a 5-step approach to
revenue recognition. Far more prescriptive guidance has been
added in AASB 15 to deal with specific scenarios. Details of
the new requirements as well as their impact on the Group’s
consolidated financial statements are described below.
The Group’s accounting policies for its revenue streams are
disclosed in detail in note 2-3. The application of AASB 15 has
not had a significant impact on the financial position and/or
the net profit/loss of the Group.
The IOOF Group previously recognised investment manager
fees and adviser payments as a reduction to management
and service fees revenue. Upon adoption of AASB 15 these
costs are now recognised in service and marketing fees
expense. This change does not impact the IOOF Group’s profit.
If the Standard had been applied in the 2018 financial year,
the Group’s reported revenues and expenses would have
been as follows:
2018
2018
previously
reported
AASB 15
adjustment
$’000
708,894
$’000
98,200
2018
revised
$’000
807,094
26,841
(271)
26,570
(219,731)
(97,929)
(317,660)
516,004
–
516,004
Management
and service
fees revenue
External other
fee revenue
Service and
marketing fees
expense
The IOOF Group previously recognised insurance revenue
when it was received. Upon adoption of AASB 15 revenue is
now 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 has an immaterial impact.
(i) Management and service fees revenue
The IOOF Group provides 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
recognises management and service fees revenue at the time
the service is provided. There has been no significant change
to this treatment under AASB 15.
(ii) Other revenue
Stockbroking revenue and external other fee revenue are also
recognised at the time the service is provided. There has been
no significant change to this treatment under AASB 15.
129
IOOF | annual report 2019 The IOOF Group will apply the standard using a modified
retrospective approach and plans to adopt AASB 16
in the consolidated financial statements for the year
ended 30 June 2020.
AASB 17 Insurance Contracts
AASB 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 AASB 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 the impact
has not yet been determined. The IOOF Group plans to adopt
AASB 17 in the consolidated financial statements for the year
ended 30 June 2022.
7-5 Subsequent events
The Directors have declared the payment of a final dividend
of 12.0 cents per ordinary share franked to 100% based on tax
paid at 30%, to be paid on 27 September 2019.
The Directors have declared the payment of a special 2020
dividend of 7.0 cents per ordinary share franked to 100% based
on tax paid at 30%, to be paid on 27 September 2019.
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 2019 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.
New and revised Standards in issue but not
yet effective
At the date of authorisation of these financial statements,
the Group has not applied the following new and revised IFRS
Standards that have been issued but are not yet effective:
AASB 16
AASB 17
Amendments to AASB 128
Annual Improvements to
IFRS Standards 2015–2017
Cycle
Leases
Insurance Contracts
Long-term Interests in Associates
and Joint Ventures
Amendments to IFRS 3 Business
Combinations, IFRS 11 Joint
Arrangements, IAS 12 Income
Taxes and IAS 23 Borrowing Costs
AASB 10 Consolidated
Financial Statements and
AASB 128 (amendments)
Sale or Contribution of Assets
between an Investor and its
Associate or Joint Venture
IFRIC 23
Uncertainty over Income Tax
Treatments
The directors do not expect that the adoption of the
Standards listed above will have a material impact on the
financial statements of the Group in future periods, except
as noted below:
AASB 16 Leases
AASB 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.
AASB 16 replaces existing leases guidance including AASB 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 AASB 15 Revenue from Contracts with Customers
at or before the date of initial application of AASB 16.
The IOOF Group has prepared calculations of the initial impact
of implementing the Standard in its consolidated financial
statements. The most significant impact identified is that the
IOOF Group will recognise new assets and liabilities for its
property operating leases of $81.7m. The nature of expenses
related to those leases will now change as AASB 16 replaces
the straight-line operating lease expense with a depreciation
charge for right-of-use assets and interest expense on
lease liabilities.
130
IOOF | annual report 2019 Notes to the financial statements For the year ended 30 June 2019 Shareholder information
Share Capital
IOOF has on issue 351,076,027 fully paid ordinary shares held by 56,006 holders as at 17 October 2019.
Voting Rights
IOOF’s fully paid ordinary shares carry voting rights of one vote per share.
Twenty largest shareholders as at 17 October 2019
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 PTY LIMITED
THE TRUST COMPANY (AUSTRALIA) LIMITED
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