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2020
Contents
About IOOF
Our diversified business model
Chairman's commentary
CEO’s commentary
2020 results at a glance
2020 strategic priorities
Directors
Environmental, Social and Governance report
Financial report
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4
5
7
9
10
11
14
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About IOOF
At IOOF, we have been helping Australians secure their financial independence for over
170 years.
Today, IOOF is one of the largest financial services groups in Australia. As an ASX top 200 company, and with more than $202.3 billion
in funds under management, administration and advice, we currently service over one million customers around Australia.*
Our broad range of products and services means that our ability to provide tailored solutions to help our clients achieve their
financial goals is unparalleled.
Our services
IOOF provides a range of wealth management solutions including:
Financial advice
Estate administration
We believe in the value of financial advice. Whether provided
through the organisations we partner with or our own
extensive network, we believe financial advisers provide
strong and enduring value to clients by helping them build,
maintain and protect their wealth.
Portfolio administration
We offer financial advisers, clients and thousands of
employers around Australia leading superannuation and
investment administration solutions. Our unique open
architecture model means we not only offer our products
but a selection of leading external products also to ensure
advisers and their clients can choose the solutions that
best suit their individual needs.
Australian Executor Trustees is part of the IOOF group and has
been providing estate and trustee services to Australians for
over 135 years. Trustee services offered by the Group include
estate planning and administration, compensation trusts,
personal trustee services, philanthropy, Small APRA Funds
(SAFs) and self-managed super fund (SMSF) solutions.
Investment Management
Our investment capabilities are driven by a highly skilled
investment team, with a proven investment process that is
focused on delivering strong, consistent returns. The team
accesses world-leading investment managers across a
broad range of highly rated single and multi-manger
funds, combining them with other attractive investment
opportunities to create carefully diversified portfolios.
* 30 June 2020
3
IOOF | annual report 2020 Our diversified business model
Salaried
advisers
Self-employed
advice
licensees
Clients
Adviser
support
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Asset
solutions
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(cid:24) (cid:19)(cid:25)(cid:18)(cid:17)(cid:25)(cid:22)(cid:16)
> (cid:24)(cid:15)(cid:14)(cid:14)(cid:13)(cid:24)(cid:31)(cid:30)(cid:29)(cid:28)(cid:20)(cid:26)(cid:24)(cid:31)(cid:20)(cid:22)(cid:30)(cid:26)(cid:16)(cid:12)
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> (cid:24)(cid:15)(cid:14)(cid:14)(cid:13)(cid:24)(cid:10)(cid:26)(cid:20)(cid:9)(cid:8)(cid:18)(cid:21)(cid:21)(cid:26)(cid:20)(cid:23)
> (cid:24)(cid:13)(cid:31)(cid:7)(cid:6)(cid:31)(cid:24)(cid:23)(cid:25)(cid:22)(cid:21)(cid:27)(cid:28)(cid:23)(cid:28)(cid:18)(cid:21)(cid:24)(cid:27)(cid:5)(cid:4)(cid:4)(cid:18)(cid:25)(cid:23)
Intergenerational
and estate
management
Best of breed
administration
As at 30 September 2020
4
IOOF | annual report 2020 Chairman's
Commentary
The 2020 Financial Year has been one of
volatility, change and disruption. Not only
the way we live our lives, but also the
ongoing COVID-19 pandemic has had
a significant impact on equity markets
and the economy as whole. To all of our
shareholders, thank you for your continued
support over this challenging year.
Our ClientFirst approach
IOOF was created 173 years ago with a
clear mission – to serve the community,
particularly those who are most vulnerable.
During the COVID-19 pandemic, this mission
to serve has only become more pertinent.
At IOOF we believe in the value of
financial advice. It is important for not
only our existing clients and members,
but also for the 80% of Australians who
currently do not have access to quality
financial advice. In support of this
commitment, in May 2020 we launched
the IOOF Community Offer, which saw
IOOF advisers offering at-no-cost financial
guidance to those who needed it most
in their local community, to assist them
through the personal and financial
challenges they face during COVID-19.
We also welcomed the Federal
Government’s Early Access to Super
initiative, which was designed to support
those in our community most impacted
financially by COVID-19. IOOF was and
remains well placed to support this initiative
with minimal business impact given our
high degree of liquidity and the diverse
demographic of our members and clients.
Adapting to change
A key priority for IOOF during the
COVID-19 pandemic has been the
health and wellbeing of our people.
I am incredibly proud of how all of our
talented people - led by Renato and
the Executive Team – have stepped up
to support and guide our clients and
members at this challenging time. As a
Board, we have been deeply impressed
by their commitment and flexibility,
and I thank them for their efforts.
This includes our network of advisers,
who have continued to offer their vital
services to clients. We have provided
them with the highest levels of support
and service, as they experience
increased workloads and intensified
client interactions. This support
includes access to our employee
assistance program, and free access
to a range of new technologies to
assist in remote advice delivery.
Additionally, as announced previously,
we as a Board and our Executive Team
recognise that COVID-19 has had an
impact on business outcomes and
returns to shareholders. In this context,
it is appropriate that no discretionary
bonuses were paid to the Executive
Team for the financial year. In addition,
Renato and I took a 20% reduction
in base pay for six months from
1 August 2020. All other Directors
and our CFO took a 10% reduction
in base pay for the same period.
Allan
Griffiths
Transforming our
business for the future
Despite the challenges IOOF has faced
during the year, we have remained
focused on our long-term strategy
to reshape our business to be at the
forefront of the wealth management
industry of the future.
This has seen our business being
transformed and streamlined
considerably over the last 12 months.
We completed the acquisition of
ANZ Pensions & Investments (P&I)
in February 2020 which bolsters our
advice-led business. We have also made
select divestments of businesses that are
no longer core to our advice-led business
model. We completed the divestment
of Ord Minnett, AET Corporate Trust
and IOOF's operations in New Zealand
during the year.
Post year-end, we also divested
our majority shareholding stake in
Australian Ethical Fund. These divestments
realised significant profits from sale and
allow us to focus on our core strategic
advice-led offerings.
This culminated in the announcement of
the transformational acquisition of MLC
Wealth, which will see IOOF become
the largest provider of financial advice in
Australia. This is an enviable position and
gives us significant additional scale for our
clients and ultimately, our shareholders.
5
IOOF | annual report 2020 The addition of MLC is a once in a
generation opportunity which we
believe will provide all of our shareholders
– retail and institutional – with long
term value creation. In determining the
funding structure for this acquisition,
we considered multiple options to
ensure equivalency for all shareholders
to participate equally. IOOF has a large
retail shareholder base and we were
determined to ensure loyal retail holders
had the opportunity to participate
in the capital raise at an equivalent
price to large institutions, which I
am pleased to say occurred.
Board changes
In February 2020, Jane Harvey retired from
the IOOF Holdings Ltd Board. She had
served on the Board for 12 years with
unwavering diligence and I would like to
thank her for her support and dedication
over those years. Fortunately, Jane has
remained as a member of a number of
IOOF subsidiary Boards so her immense
experience and knowledge of IOOF
will remain within the business.
Future outlook
I am immensely proud of the progress
we have made over the year and look
forward to continuing the hard work
to embed P&I and complete the MLC
acquisition by June 2021.
We are building scale in our business
for the benefit of the long term.
This includes two key strategic initiatives;
Evolve 21 which is simplifying our platform
suite down to one contemporary platform;
and Advice 2.0 which will allow us to
deliver more accessible and cost effective
financial advice to more Australians in
an economically viable way.
The completion of the acquisition of
MLC in the coming year heralds a new
era for IOOF providing scale, economic
diversification and business strength
to deliver better long-term outcomes
for our clients, members, advisers
and shareholders.
The new IOOF will have the ability to
offer unmatched choice and accessibility
of quality financial advisory and wealth
management services to all Australians.
We are a business with diversified income
streams and the scale and financial
strength to endure the present crisis
and be well positioned for the recovery.
In the current interest rate environment,
we recognise the importance of
dividends to our shareholders and we
will continue to prudently manage
capital to keep dividend payments
to shareholders front of mind.
We have a clear strategy in place
to transform our business which
will generate significant benefits
for all stakeholders including you
– our shareholders.
I thank you again for your
ongoing support.
Allan Griffiths
6
IOOF | annual report 2020 CEO's commentary
2020 has been one of the most
challenging and volatile years in recent
history. In the first half of the financial
year Australia experienced serious and
prolonged drought conditions; the bush
fires in early 2020 caused devastation
along the eastern seaboard, and since
then, the global COVID-19 pandemic has
been causing unprecedented disruption
and significant distress to many Australians.
Despite the significant challenges
the business has faced, we remain in
a strong position. We achieved the
milestone of $200 billion funds under
management, advice and administration
(FUMA) and made significant headway
in our transformation program as we
reshape IOOF to be Australia’s leading
advice-led wealth manager.
Supporting our clients
As our Chairman has noted, 2020 has
brought significant disruption, and it
continues to be an unprecedented and
concerning time for our clients, employees,
advisers, the community and our country.
IOOF has always had a clear mission
and purpose – to serve the community
and those who are most in need –
a purpose that is more important than
ever at this time. It’s pleasing to see our
people providing guidance and support,
and helping communities achieve peace
of mind and confidence about their own
futures. The value and importance of
quality financial advice, for all Australians,
has never been more evident.
I am extremely grateful for the hard work
and dedication of our people at what
has been a difficult time for them as
well. Our ClientFirst philosophy gives us
a competitive advantage, as we deliver
service excellence through a simpler,
more cost-effective business model.
At the height of the pandemic, our client
service team experienced a 250% increase
in call volume, yet call wait times peaked
at just 10 minutes, before quickly
returning to below just five minutes.
Payments made under the
Federal Government's Early Release of
Superannuation during the year totalled
$743 million across 99,174 requests.
Our ClientFirst approach ensured that
97% of all IOOF platform payments were
paid to clients within five business days.
For the newly acquired P&I business,
83% of payments were made within
five business days.
Financial performance
Against the COVID-19 backdrop,
IOOF’s business performance has
demonstrated strength and resilience in
the face of volatile market conditions.
Statutory net profit after tax was
$147.0 million, and included substantial
profit on sale of non-core businesses
as noted by the Chair.
IOOF has delivered an Underlying
Net Profit After Tax of $128.8 million.
A significant milestone for the business
was reaching $200 billion in total funds
under management, administration and
Renato
Mota
advice (FUMA), which was $202.3 billion
on 30 June 2020. We also continued to
see net inflows in platform of $1.3 billion
and advice net inflows of $730 million
which is a testament to the strength of
our advice-led offerings.
Transformation
through focus
During the year we welcomed a number
of new executives across Finance, Risk,
Legal and Company Secretariat after the
completion of my senior management
review. Each one of them has brought with
them a purpose-led mindset and a fresh
perspective to our behaviours and practices.
I believe we have the right team in place to
continue on our transformation journey.
In 2020, we made significant progress on our
long term strategic initiatives to transform
the business to be at the forefront of the
financial advice industry of the future.
We are at an inflection point of change
for the Australian advice landscape.
The value of quality financial advice
has never been more apparent than it
is today. Equally the need to create a
professional business model has never
been more apparent. Building an advice
business model that is sustainable in its
own right, without economic support
from other segments of the business
and supports ongoing investment in
technology and processes is critical.
While this industry-wide transformation
will challenge some in the industry, IOOF
is firmly of the view that it is critical for the
long-term benefit of the clients we serve.
7
IOOF | annual report 2020 We announced the next phase in our
Advice 2.0 transformation strategy –
which is IOOF’s long-term strategy to
reshape the Australian advice landscape
through the delivery of quality,
goals-based advice that is accessible
and affordable for all Australians.
In 2019, we committed to undertaking a
significant advice remediation program
and we commenced payments to
clients during the financial year.
In support of the transformation,
we acquired Wealth Central, a proprietary
financial advice and client engagement
technology platform. Additionally, IOOF’s
self-employed aligned adviser brands have
been reorganised into two core groups
that will allow IOOF to better and more
efficiently support the unique needs of
each advice brand, and drive them to
become self-sustaining by the end of 2022.
We also continued to make significant
progress on Project Evolve. Evolve is a cross
enterprise program of work to design, build
and deliver a contemporary and flexible
Platform technology capable of supporting
our existing and future product suites.
The Evolve platform administered
$12.9 billion as at 30 June 2020 and
continues to see significant inflows.
This demonstrates we are delivering
what advisers need from a platform to
look after their clients’ assets. We expect
our current platform consolidation to
be complete by the end of 2021.
Transformational
acquisitions
During FY20, we successfully completed
the acquisition of the P&I business,
which added significant scale. We have
made significant strides to integrate the
P&I business and we remain on track to
deliver $68 million in total synergies by
FY22 on an annualised basis.
Consolidating IOOF’s transformation
agenda, in August 2020, we announced
the acquisition of MLC for $1.44 billion
from the National Australia Bank (NAB).
MLC is a highly complementary wealth
management business which is a natural fit
with IOOF. It presents a unique opportunity
to create Australia’s leading wealth manager
along with significant opportunities for
synergies realisation, for the benefit of
clients and shareholders. The transaction is
expected to complete before June 2021.
In order to ensure we deliver on our
objectives with the integration of
both P&I and MLC, I have appointed a
Chief Transformation Officer who will
sit on the Executive Team and report
directly to me. The Executive team and
I are committed to delivering on the
value realisation opportunities these
transformational acquisitions present,
in a prudent and timely manner.
This has meant ensuring we have the
people, capabilities and accountabilities
in the coming years to support the
transformation of the business.
Outlook
The Australian wealth management
market is currently experiencing a
period of industry disruption, with new
industry structures forming over the
coming 12-24 months. To acquire a highly
complementary business of the quality
and size of a company such as MLC was a
once in a generation opportunity to create
the leading wealth manager of the future.
IOOF has a strong track record in relation to
integration of businesses. The acquisition of
MLC will deliver significant future benefits
for all of our stakeholders, including for you,
our shareholders. We expect to deliver in
excess of 20% earnings per share accretion
in future years, underpinned by $150 million
p.a. of targeted pre-tax synergies by the
third full year of ownership.
As the financial services industry reshapes,
a much bigger and better IOOF will be at the
forefront of industry transformation. In this
new era the new IOOF will have the ability
to offer unmatched choice and accessibility
of quality financial advice and wealth
management services to all Australians.
To our shareholders – Thank you for your
continued support in what has been an
extremely volatile year. I know we have
the right strategy, people, governance
and operational structures to continue
to deliver financially for years to come.
Renato Mota
8
IOOF | annual report 2020 2020 results at a glance
$128.8 million
Underlying NPAT
$147.0 million
Statutory NPAT
$202.3 billion FUMA
Up +46%
from 30 June 2019
$743.0 million
Assisting clients during COVID-19
Total Early Access to
Superannuation withdrawals
27.5 cps
Fully franked
dividends per share
($10.1 billion)
Market declines
primarily due to COVID-19
$77.1 billion FUMA
Growing the business
Completion of ANZ
Wealth Management
Pensions & Investments
Adviser NPS +141
Delivering for clients
Attracting net inflows
Platform $1.3 billion
Advice $730 million
1 Based on member NPS result June 2020.
9
IOOF | annual report 2020 2020 strategic priorities
Focusing on advice-led wealth management
Simplify
Consolidating to one platform
– Project Evolve on track for
completion by end 2021
Proprietary technology developed
in-house – ASIS technology
platform already servicing
$12.9 billion of FUMA
Deliver service excellence via
ClientFirst – Adviser NPS +411
Grow
Completion of P&I transaction
in February 2020 with P&I
integration tracking to plan
Step-change in scale drives
benefits for clients and
accretion for shareholders
Revised cost synergies
of $68 million pre-tax pa
(from $65 million pre-tax pa) to
be realised in full from 1 July 2023
Focus
Advice 2.0 will reshape the
delivery of financial advice for
the benefit of all Australians
Re-organisation of the
operating structure for IOOF
advice businesses – to meet the
changing needs of clients
Significant opportunity
to reinvent the advice
landscape in Australia
Creating strategic clarity
Net proceeds from divestments of
non-core subsidiaries – $105 million
total consideration from sale of
subsidiaries during FY2020.
Sale of 14.2 million shares in Australian
Ethical for total cash consideration of
$74.5 million post year end.
10
1 Based on member NPS result June 2020.
IOOF | annual report 2020 Directors
Allan
Griffiths
Renato
Mota
Qualifications and
independence status
• B.Bus, DipLI.
•
• Director since 2014
Independent Non-Executive Director
• BComm(Hons), B.Bus
• Chief Executive Officer
since 25 June 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 Pty 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. Mr Griffiths
is also Chair of the Group Nomination
Committee and member of the Group
Audit, Group Risk and Compliance 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.
11
IOOF | annual report 2020 Andrew
Bloore
Elizabeth
Flynn
Qualifications and
independence status
Independent Non-Executive Director
•
• Director since 2 September 2019
• LLB, Grad Dip App Corp Gov, FAICD,
FFin, FGIA, FCG
Independent Non-Executive Director
•
• Director since 2015
Experience, special
responsibilities, listed
and other significant
directorships
12
Andrew Bloore is an experienced
Non-Executive Director, Entrepreneur
and farmer. He has designed, built and
sold a number of businesses focussed
on the development of key disruptive
technologies and distribution services
in traditional markets, to create business
efficiencies. Businesses Mr Bloore
has been actively involved in, both
as an Executive and/or as a Director
and in the capacity of investment
funding, development and leadership,
include Smartsuper, SuperIQ and
Class Super. Mr Bloore has worked
on a range of Senate and Treasury
Committees, and with the Australian
Taxation Office Regulations Committee
on regulation of the superannuation
industry. In 2016, Mr Bloore sold
his superannuation administration
business to AMP, stepped down from
the Senate and Treasury Committees
and is now focussed on contributing
to organisations as a non-executive
director. Mr Bloore was a non-executive
director of FBR Ltd until November 2019.
Mr Bloore is a member of the Group
Audit, Group Risk and Compliance and
Group Remuneration 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,
the Colonial Mutual Life Assurance
Society and AIA Health Insurance Pty Ltd.
Ms Flynn is Chair of the Group Risk
and Compliance Committee and
a member of the Group Audit,
Group Remuneration and Group
Nomination Committees.
IOOF | annual report 2020 John
Selak
Michelle
Somerville
Qualifications and
independence status
• Dip Acc, FCA, FAICD
•
• Director since 2016
Independent Non-Executive Director
• BBus (Accounting), MApp Finance,
FCA, GAICD
Independent Non-Executive Director
•
• Director since 1 October 2019
Experience, special
responsibilities, listed
and other significant
directorships
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. From 2016
to 2020, Mr Selak was a non-executive
director of National Tiles.
Mr Selak is currently Chairman of
Corsair Capital and a non-executive
director of Turosi Food Solutions and
the IOOF Foundation.
Mr Selak is Chair of the Remuneration
Committee and a member of the Group
Audit, Group Nomination and the Group
Risk and Compliance Committees.
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.
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. Ms Somerville is currently
a non-executive director of The GPT
Group (since 2015), Bank Australia,
and ED Credit Services.
Ms Somerville is Chair of the Group
Audit Committee and a member of the
Group Risk and Compliance Committee.
13
IOOF | annual report 2020 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
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Our business
Our clients and community
Our people
Material ESG matter
Material ESG matter
Accelerating corporate governance
Advice review
Cyber security and privacy
Responsible investment
Our environmental impact
Tax transparency
Establishing trusted
relationships with advisers
Advocating for quality financial
advice for all Australians
Putting the best interests
of our clients first
Giving back to our communities
Material ESG matter
Our culture
Leadership and capability
Supporting our people
Diversity and inclusion
IOOF | annual report 2020
Our business
ESG practices are embedded in our day-to-day business operations and the creation of long-term financial
outcomes for our advisers, clients and shareholders.
Accelerating corporate governance
Three lines of defence
IOOF remains committed to uplifting and strengthening
our governance framework.
On 7 December 2018 APRA gave notice of additional
licence conditions on IOOF's APRA regulated entities.
These conditions required, 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 (OST)
• monitoring and reporting on progress via an
independent expert.
Effective 30 November 2019, IOOF met the requirement
under the licence conditions to separate the responsible
entity and registrable superannuation entities duties into
separate independent corporate entities. The OST was
implemented and continues to independently support
IOOF's APRA regulated entities drive member outcomes.
In October 2019, ASIC varied the AFS licence conditions of
IOOF’s responsible entity and IDPS operator, IOOF Investment
Services Limited (IISL). The licence conditions required IOOF to
establish an Office of the Responsible Entity (ORE), which is the
first of its kind in Australia. The ORE is an independent office
appointed by the licensee board of directors to undertake
specific tasks required by the licence and to help the licensee
meet its fiduciary and statutory obligations.
The ORE’s key strategic priorities are to uplift the monitoring
and assessment of scheme service providers, implement
strategies that advance investors’ interests, review and assess
the licensee’s compliance and risk management frameworks
and oversee all reporting to the IISL Board. Implementation of
these requirements will be reviewed by an independent expert
and reported to ASIC before the end of the 2020 calendar year.
Advice review
We are holding ourselves to higher standards and ensuring
that our obligations to clients are met.
IOOF is committed to completing a voluntary advice review
to identify any instances of fees for no service, fees for
inadequate documentation and inappropriate advice.
IOOF continues to make progress in relation to its advice
review and has commenced customer remediation payments.
IOOF has arrangements with ANZ with regard to remediation
relating to ex-ANZ Wealth Management Advice Licensees.
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 identifying, assessing, mitigating, monitoring
and reporting on risks within their area including the
development and operation of internal controls.
Our second line of defence is the Enterprise Risk and Compliance
Team, which provides oversight and challenge of risk management
and practices by first line, and provides advice and support on
the implementation of the risk and compliance frameworks.
Our third line of defence provides independent assurance on the
effectiveness of governance and risk management practices and
control environment across the whole organisation. We continue
to invest resources dedicated to our three lines of defence and
continue to see a maturing risk and compliance culture.
In addition, we continue to revisit our executive and business
level forums established to improve accountability, transparency
and oversight of risk and compliance across the organisation.
Corporate governance statement
IOOF has adopted ASX 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
Cyber security and privacy
In line with our purpose of understand me, look after me,
secure my future, we are committed to keeping our clients’
personal data secure, by ensuring we have robust and
evolving cybersecurity and privacy controls in place.
Cyber security
As with other participants in the financial services industry, cyber
risk is one of the top operational risks faced by the IOOF Group.
Six years ago, we established a dedicated cyber security and
technology risk team (Cyber Security Team) to ensure an
enhanced focus on cyber security controls. Cyber security
roles and responsibilities are clearly defined and documented.
Our cyber security strategy, policies, tactical initiatives and
operational controls are based on the National Institute of
Standards and Technology (NIST) cyber security framework
and comply with ISO27001 standard – an international
standard for information security management.
15
IOOF | annual report 2020 IOOF has a Cyber Security Governance Forum that meets
regularly to ensure a cross business functional overview
of cyber risks and related controls. Our Cyber Security
Team reports to the Board on cyber incidents, events,
readiness and improvement projects.
The aim of our cyber security 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, cyber security relies on people,
processes and technologies. We understand that the key to
a holistic, effective and lasting cyber security program is the
human element. Our people are our first line of defence and
IOOF has a considerable focus on enabling and embedding
a ‘cyber security culture’ throughout the business.
Our people undergo various levels of awareness training,
including at induction, 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 the
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, emerging cyber threats
and controls, as well as to discuss, collaborate and share new
strategies and tactics relating to cyber controls.
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 Cyber Security 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.
With the onset of COVID-19 pandemic, IOOF’s Business
Continuity Plan was enacted and the workforce switched to
work from home (WFH). A detailed threat risk assessment was
conducted in view of the rapidly changing threat universe.
Increase in COVID-19 related phishing emails and scams
was anticipated, and users/staff were made aware of the
increased threat level via multiple communications starting
from 27 February 2020.
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 robust 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. This year, we held a widely attended Q&A session
in which our Privacy Officer responded to on-the-spot privacy
questions and concerns. With our employees working from
home and an expectation that many will continue to do so
after COVID-19 restrictions are lifted, extra information has
been provided to keep our employees well informed and to
ensure they are implementing additional measures to keep
our clients protected.
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.
16
IOOF | annual report 2020 Integration is considered the most appropriate approach to
responsible investing given our objectives. All four approaches
may be deployed and deemed appropriate. Exclusion is
reserved for companies or industries where other approaches
cannot reasonably be expected to achieve our objectives.
IOOF Advice Research and ESG
IOOF consider ESG principles in both investment philosophy
and in the construction of ESG Model Portfolios, looking at
ethical and responsible investing to prioritise client choice.
The Research team ESG Model Portfolios utilise investment
strategies to effect change across ESG concerns.
Exclusion Strategies – this includes funds that negatively
screen investments which are associated with specific
industries. This includes such industries like tobacco, alcohol,
weapons, pornography, gambling, animal testing, genetic
engineering, deforestation, oil and gas, nuclear power,
mining, and climate change (just to name a few).
Impact investing – this includes funds that look to generate
positive returns while measuring an investment’s environmental
and social impact alongside its financial return. Funds in the
category tend to be more active when voting and advising
companies. They seek to positively reward firms which take
a proactive approach to improving their ESG footprint.
IOOF has taken the approach of integrating ESG in the
investment process holistically via tactical investing.
Over the investment horizon, we expect the ESG model
to have a different journey than that of a non-ESG model.
However, we anticipate that over the long term, the
client in either portfolio will achieve a broadly similar
investment outcome.
Our approach to ESG includes exclusion strategies,
impact strategies, and non-ESG strategies (for diversification).
ESG integration should not mean that an investor is
prohibited from investing in specific sectors, countries and
companies, or that portfolio returns are sacrificed to perform
ESG integration. By taking this approach, we hope to meet
the client's investment objectives.
Responsible investment
What we mean by ESG in the context
of responsible investment?
Environmental, social, and governance (ESG) are a set of
criteria that help constitute standards an investor can use to
analyse a company’s operations.
• Environmental refers to how conscious a
company/investment is towards their direct
environment and towards nature.
• Social refers to how a company/investment manages its
impact on people. This encapsulates employees, suppliers,
customers, and the communities it operates in.
• Governance focuses on the corporate structure of the
company/investment. This includes leadership, internal
controls, shareholder rights, executive pay, compliance
with the law.
IOOF Multi-Manager Investments and ESG
The management of IOOF's multi-manager investment
offering ensures ESG factors are considered in the investment
process in order to protect and manage investments for the
long term. In 2018, IOOF’s Investment Division developed a
Responsible Investing Statement of Principles. Approval and
the commencement of implementing the principles followed
in 2019. The Statement defines the role that responsible
investment plays in the assessment, selection and monitoring
process of externally appointed managers in the multi-manager
funds. Furthermore, it outlines the framework for identifying
and managing ESG impacts, risks and opportunities
across the various funds we manage.
ESG factors that form the basis of our statement are wide
ranging and their impact on our products’ risk and return
may vary.
A number of approaches can be taken in relation to ESG
issues including:
•
Integration: Inclusion of ESG factors in the investment
decision making process to improve investment outcomes.
• Active ownership: Engaging with companies (including via
proxy voting) to improve investment outcomes.
• Themed Investing: Targeting investment areas which
generate attractive returns with sustainability and social
improvement themes.
• 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.
17
IOOF | annual report 2020 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 $120.2m in taxes
to Australian, New Zealand and Hong Kong governments
(state and federal) in the 2020 tax year. $119.9m or 99.75% of
this amount was attributable to the Australian Government.
Further taxes paid by the IOOF Group on behalf of others,
including employees and clients, 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 $95m.
Model portfolio research and selection
IOOF applies a multi-manager approach to the construction
of the ESG Model Portfolios. This is based on the notion that
portfolio returns can be enhanced through considered and
skilful selection of investment managers whose processes
enable them to outperform the benchmark return of their
respective asset classes over different market conditions.
IOOF will continue to follow the existing process employed
when selecting managers and building its portfolio with the
added ESG integration which includes how the managers
conduct their:
• ESG scoring and approach
• Active engagement (voting) – including collaborative
investor engagement
•
Industries screened
• ESG profile and history
• ESG agenda when meeting with investment teams
• SWOT analysis on ESG factors
• ESG integrated research notes
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 has better enabled us to monitor
and manage our environmental impact. We are always looking
for new ways to improve our environmental impact, working
with our landlords on waste, water and energy reduction.
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.
18
IOOF | annual report 2020 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
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.
IOOF Community Offer
At IOOF, we have a rich history of helping Australians secure
their financial future. Living our purpose has meant looking
after and delivering what matters to our clients, people and
the wider community. That’s why we are digging back to our
roots, where the notion of helping Australians who have fallen
on tough times get back on their feet began. As an Advice led
company, we want to help those in need by making financial
guidance and support accessible to the community, free of
cost through the IOOF Community Offer.
Through the IOOF Community Offer we are helping everyday
Australians by providing the following support and guidance:
• Pro bono support – practical financial guidance and
support provided by a select group of IOOF aligned
advisers (at no cost)
• Educational videos and content – a series of video
education and support material.
• Wealth Report – online personal snapshot report
will be available to everyone to complete and keep.
We want to make sure that all Australians can talk to an adviser,
an expert that can help them through this difficult time, get
them back on their feet and plan for their future. The type
of help and support needed include simple conversations,
education sessions or general guidance on particular issues
– not always resulting in personal advice, that’s why we are
including this non-personal advice help and support into our
pro bono offering.
We have created www.ioof.com.au/community as a resource
for all Australians to access educational material or request
for pro-bono support. Across our national footprint we have
426 Advisers who have offered to provide guidance and
support to those who need it most within their communities
from 1 July 2020 to 30 September 2020. Many of our advisers
will continue to provide pro bono advice as part of their
standard value proposition for their community.
19
IOOF | annual report 2020 Our four-year investment in ClientFirst thinking, new ways
of working, and supporting systems and processes,
delivered scalable operations that allowed us to absorb wide
variations in client demands, deliver personalised service
tailored to individual client needs, and without location
being a barrier.
As a result of this, we have a high level of confidence and
trust in our ability to withstand and respond to disruption.
This is very important given we are entrusted with the life
savings and incomes of Australians, and even more so given
that our clients reflect a higher proportion of older and more
vulnerable Australians. We have been there when needed
on phones, making pension payments, and delivering early
release access quickly.
The speed and agility of our people, systems and processes
was further highlighted by our response to early access
to super. From 20 April to 28 June 2020, IOOF made
99,174 payments under the Early Release of Superannuation
scheme to satisfy requests totalling $743 million.
IOOF's ClientFirst approach ensured that 97% of all payments
were made to clients within 5 business days. The P&I business
made 83% of payments within 5 business days. This was
important because Early Release requests were being made
by clients with immediate and urgent needs. We also worked
together with Government and Regulators to provide feedback
on aspects of the Early Release of Superannuation scheme.
We continue to invest in growing robotics and artificial
intelligence capabilities to create more capacity for ClientFirst
specialists to speak to clients. Real people talking to real people
is a foundation of ClientFirst thinking. At times call volumes
were up by over 300% for sustained periods.
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.
Four 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.
Putting the best interests of
our clients first
IOOF continues to invest in, and mature its ClientFirst
strategy, under which we believe that focussing on client
experiences that deliver what matters to our clients will give
us a sustainable competitive advantage. We do this in the
context of robust corporate governance.
ClientFirst is about understanding client needs, reframing client
problems, and helping to rethink the entire client experience.
We look forward to rolling this model out to clients of our
recently acquired P&I business.
The strength of the ClientFirst operating model was
highlighted through our response to the covid-19 pandemic.
The pandemic brought twin challenges: prioritising the health
and safety of our people and communities, and at the same
time making sure there was minimal disruption to delivering
what matters to our clients.
20
IOOF | annual report 2020 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.
• 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 into these issues, we need to address this.
Integrated within our core programs is access to resources
that focus on early intervention and prevention.
Since its formal establishment in 2002 the IOOF Foundation has
donated more than $15 million to community groups across
Australia. The IOOF Foundation is funded by the income from
a $18 million plus corpus provided by IOOF. IOOF also funds
running costs, ensuring that all of the investment income goes
to supported community programs .
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.
2020 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
• Blaze Aid
• Giant Steps Australia
• Girl from Oz
• Kids Under Cover
• Let's Talk
• Life4Life
• Mama Lana's Community
Foundation
• Menzies Research Foundation
• Parkinsons Australia (WA)
• Red Dust Role Models
• Righteous Pups Australia
• Rural Aid
• Spinal Research Institute
• The Funding Network
• The Reach Foundation
• The Smith Family
• Very Special Kids
• Youth Focus WA
21
IOOF | annual report 2020 Our people
Our culture
At IOOF, our people are critical to our success. We strive to
create an environment where our employees are engaged,
inspired and growing with us. An environment where we are
living our purpose, understand me, look after me, secure
my future, and delivering what matters most to our clients
and our people.
IOOF’s culture is defined by putting at the centre of
everything we do. It’s why our organisational purpose is
written in the first-person ‘understand me, look after me,
secure my future’. This unique ClientFirst approach is about
everyone at IOOF putting themselves in the shoes of clients
or ‘outside-in thinking’. With this approach, we challenge
everything we do with a mind-set of understanding
‘what matters’ and finding the best way to deliver this value
to clients. It also means we empower our people to do what
they do best: have an impact and truly make a difference.
We innovate through finding different ways.
Employee engagement and alignment
In May 2020, we held our annual Alignment and Engagement
Survey (AES). We were pleased to see 83% of our people
respond to the survey and our results significantly improved
from 2019, with a 12-point uplift in our employee engagement
score and four-point increase in our alignment score. We are
now in the top quartile of the alignment industry benchmark.
There were significant increases in sentiment towards long-term
direction of the organisation and investment in our people.
People have clarity about where the organisation is headed
and feel they are contributing towards this. They also feel well
supported through the COVID-19 period and connected to
the organisation despite the challenges of remote working.
Pleasingly, all governance and risk indicators measured through
the survey also increased, reflecting our commitment to
embedding a strong governance and risk culture.
Following the survey, the Executive Team and leaders across
IOOF have committed to actions plans that will focus on
addressing key opportunities identified in the results.
Supporting our people through COVID-19
At IOOF we were an ‘early mover’ in response to COVID,
moving most of our people to working from home in a matter
of days, with minimal disruption to our business operations
and clients. Since that time our people have been fluently
working from home.
Supporting our people through this transition to remote
working, as well as the challenges of the external COVID
environment has been critically important for us since.
We’ve been focusing on remaining connected through
regular communications and events and giving our people
the tools and information, they need, when they need it.
We created of a well-being hub to support our people across
physical, mental and emotional wellbeing. We’ve also run
educational sessions on topics like balancing work and care,
work health and safety from home, financial well-being and
resilience in addition to supporting people to manage their
energy through exercise programs that can be completed
at home. Our people and their families also get access to
confidential coaching 24/7 through our Employee Assistance
Program (EAP). Our EAP program offers support on a broad
range of topics including nutrition and financial wellbeing.
We are conducting regular pulse surveys to get feedback
on how our people are feeling and what support they need
during this period. Feedback from these pulse surveys indicates
our people are feeling supported and are connected to what
we are working to achieve. The sentiment around working from
home has been extremely positive with 87% of respondents
saying they have had a positive experience overall and most
eager to continue balancing office and remote working
in the future. IOOF has seen this period as an opportunity
for reshaping the way we work and introducing more
flexibility on an ongoing basis.
22
IOOF | annual report 2020 Planning for the future of work
To help define and plan for our post-COVID work environment,
we’ve launched a project called ‘Our Work Life’.
The Our Work Life project is about rethinking the way we
work longer term. Focusing on technology, home and office
environments and ways of working, the Our Work Life project
will enable continued flexible working and ensure collaboration
and connection across teams and with clients wherever our
people work.
Diversity and Inclusion
IOOF is committed to creating an environment where everyone
can bring their whole self to work and where diversity is
celebrated across all areas of difference, including gender, age,
cultural identity, ethnicity, disability, sexual orientation, religious
beliefs, family/lifestyle needs, personal styles and backgrounds.
IOOF has a Diversity and Inclusion Action Plan to support this
commitment. The plan sets out the diversity and inclusion
initiatives for the IOOF Group to help drive progress against
key focus areas.
We have a Diversity and Inclusion Advisory Committee in place
made up of a cross-representation of our people, chaired by
Renato Mota, our CEO. The Diversity and Inclusion Advisory
Committee reviews and proposes initiatives through a
consultation process, to help drive our Diversity and Inclusion
agenda at IOOF and in the broader community.
Our current key areas of focus include gender diversity,
creating a strong and diverse pipeline of talent for critical roles,
financial wellbeing, flexible working, fostering a culture of
belonging and leadership capability.
Some of the key achievements over
2019/2020 include:
• Launch of the ‘Our Leading Women’
female development program.
• Campaign to educate and raise awareness
on all forms of flexible working.
• Launch of the Growing Together
mentoring program.
• Free financial advice offer for all employees,
whatever their life stage.
• Signed a partnership with Financial Executive
Women which provides education and
support which all our employees can access.
• Refresh of the Diversity and Inclusion Advisory
Committee who act as a representative
body on behalf of all employees and a
sounding board for matters related to the
Diversity and Inclusion Action Plan.
• Capturing employee perceptions about
Diversity and Inclusion and demographic
data through the annual engagement survey.
• Creation of a wellbeing hub to support
employees across physical, mental and
emotional wellbeing.
The table below sets out the number of women in board,
executive, senior management positions, and across the
whole workforce:
Category
Board (excluding CEO)
Executives (including CEO)
Senior Managers1
Other Managers2
Other
Total
Female
Representation
40.00%
27.27%
36.27%
40.53%
51.61%
49.12%
1 Senior Managers includes all roles reporting to an Executive,
excluding administrative support roles.
2 Other Managers includes all other managers.
23
IOOF | annual report 2020 Growth and development of our
people and leaders
Ensuring our people, at all levels, are growing with us is
critical to us achieving our strategic and cultural objectives.
We strive to create an environment where our people have
the tools and support to own and drive their own growth.
We adopt the 3E Framework – Experience, Education and
Exposure and encourage our people to display learning
behaviours to foster their own growth and contribute to
the growth of others.
We encourage leaders and team members to have
conversations about career development on an ongoing
basis ensuring our people are actively working towards their
goals. We contribute to the development of our people
though structured mentoring relationships, a study support
program and access to professional memberships.
At IOOF we know great leadership is fundamental to our
success. 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 are
designed to strengthen our leadership capability across
the organisation.
We have also launched a targeted communications strategy
for our people leaders to ensure they receive key messages,
information and education that is specific to their role as
a leader of others.
Graduate program
We value the new ideas, skills and energy graduates bring to
IOOF. In 2019 we launched a refreshed graduate program which
aims to provides graduates with a structured 12-month learning
path to accelerate their transition to the workforce and get an
understanding of IOOF holistically.
Volunteering and giving
For the last decade, we have supported employees who are
interested in volunteering through the use of paid volunteer
leave. This year we expanded our support to the community
offering significant changes to the program:
• Support for emergency volunteers: To make it easier
for you to support communities during emergencies,
IOOF introduced crisis leave to assist our employees that are
members of a volunteer organisation such as the Rural Fire
Service (RFS), Country Fire Authority (CFA) or State Emergency
Service (SES) and are called to assist during a declared
emergency, or in other exceptional circumstances.
• Support for community volunteers: To acknowledge the
need for volunteers in a range of areas, IOOF are now
providing all eligible permanent staff the opportunity
to increase their volunteer leave to any charitable
organisation from the current one day to two days.
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 2020Growth mindsetHaving the belief that you are in control of your own ability and there is no end to how much you can learn and developCuriosityCuriosity is driven by the desire to learn and acquire informationFeedbackActively, confidently and continuously seeking feedback on performance and development to continue to grow IOOF | annual report 2020
financial
report
for the year ended
30 June 2020
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
26
42
59
60
61
67
68
69
71
72
25
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 (“IOOF Group” or the “Group”)
for the financial year ended 30 June 2020 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
and Chairman
Director since 2014
Mr Renato Mota
BComm(Hons), B.Bus
Chief Executive Officer and Managing
Director
Mr Andrew Bloore
Independent Non-Executive Director
Director since 2 September 2019
Ms Elizabeth Flynn
LLB, Grad Dip App Corp Gov, FAICD,
FFin, FGIA, FCIS.
Independent Non-Executive Director
Director since 2015
Ms Jane Harvey
B.Com, MBA, FCAANZ, FAICD
Independent Non-Executive Director
Director since 2005
Resigned effective 18 February 2020
26
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.
Mr Griffiths is also Chair of the Group Nominations Committee and a member of the
Group Audit, Group Risk and Compliance and Group Remuneration Committees.
With more than 20 years’ experience in financial services, prior to being appointed CEO
in June 2019, 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.
Mr Bloore is an experienced Non-Executive Director, entrepreneur and farmer. He has
designed, built and sold a number of businesses, focussed on the development of key
disruptive technologies and distribution services in traditional markets, to create business
efficiencies. Businesses Mr Bloore has been actively involved in, both as an Executive and/
or as a Director and in the capacity of investment funding, development and leadership,
include Smartsuper, SuperIQ, and Class Super. Mr Bloore has worked on a range of Senate
and Treasury Committees, and with the Australian Taxation Office (ATO) Regulations
Committee on regulation for the superannuation industry. In 2016, Andrew sold his
superannuation administration business to AMP, stepped down from the Senate and
Treasury Committees and is now focussed on contributing to organisations as a Non-
Executive Director. Mr Bloore was a non-executive director of FBR Ltd until November 2019.
Mr Bloore is a Board Member and a Member of the Group Risk and Compliance, Group
Audit, and Group Remuneration 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, 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 and The Colonial Mutual Life Assurance
Society Limited.
Ms Flynn is Chair of the Group Risk and Compliance Committee, and member of the
Group Audit and Group Remuneration and Nomination Committees.
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 was the Chair of the Group Audit and Remuneration Committees and member
of the Group Nominations and Group Risk and Compliance Committees until her
resignation effective 18 February 2020.
IOOF | annual report 2020 Name, qualifications and
independence status
Mr John Selak
Dip Acc, FCA, FAICD
Independent Non-Executive Director
Director since 2016
Experience, special responsibilities, listed and other significant directorships
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. From 2016 to 2020 Mr Selak
was a non-executive director of National Tiles. Mr Selak is currently Chair of Corsair
Capital, a non-executive director of Turosi Food Solutions and the IOOF Foundation.
Mr Selak is Chair of the Group Remuneration Committee and a member of Group
Nominations, Group Audit and Group Risk and Compliance Committees.
Ms Michelle Somerville
B Bus (Accounting), FCA, GAICD, Master
Applied Finance
Independent Non-Executive Director
Director since 1 October 2019
Mr George Venardos
BComm, FCA, FGIA, FAICD, FCIS.
Independent Non-Executive Director
Director since 2009
Resigned effective 28 November 2019
Ms 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. 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. Ms Somerville is currently a non-executive
director of The GPT Group (since 2015), Bank Australia, ED Credit Services, and Save the
Children (Australia).
Ms Somerville is the Chair of the Group Audit Committee and a member of Group Risk
and Compliance Committee.
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.
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 – financial advisers provide strong and enduring value to clients by helping clients build, maintain
and protect their wealth, helping clients navigate their way through a range of financial products and services, and by educating
clients, contributing to financial literacy in Australia and giving clients and their families peace of mind about their financial future;
• Portfolio and estate administration – IOOF Employer Super is one of Australia’s leading superannuation solutions, offering a wide
choice of investments, tailored insurance options, competitive fees, and personalised advice. The IOOF Pursuit platform offers
multiple retail insurers, group insurance, tax effective features, and smart online trading and transacting capabilities;
•
Investment management – through our investment management expertise, we offer a range of highly rated multi-manager funds
that offer an easy and effective way to diversify investment portfolios;
• Ex-ANZ Advice Licensees (Ex-ANZ AL) – Acquired from ANZ in October 2018, they provide financial planning advice services to
clients. As part of the Advice 2.0 strategy, these businesses are in the process of being integrated with heritage IOOF Advice
division with a focus of embedding IOOF’s ClientFirst methodology throughout; and
• Ex-ANZ pensions and investments (Ex-ANZ P&I or P&I)– Acquired from ANZ in January 2020, the P&I business provides platform
services across retail and corporate, and an in-house multi-asset management team with OptiMix as flagship product. The P&I
integration strategy is focussed on ensuring efficient integration of the P&I business with IOOF’s existing Portfolio and Investment
management businesses.
27
IOOF | annual report 2020 Directors’ report (cont’d)
Operating and financial review
In accordance with current Australian Accounting Standards,
the audited financial results of the benefit funds1 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 (2019: $nil) but results in offsetting pre-tax
profit and income tax amounts not available to shareholders.
The following table 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 and non-recurring, 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
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
Unwind of deferred tax liability recorded on intangible assets
Acquisition costs – Acquisition advisory
Acquisition costs – Integration preparation
Acquisition costs – Finance costs
Termination payments
Profit on divestment of assets
Non–recurring professional fees paid
Impairment of goodwill
Remediation costs
Governance uplift costs
Other
Income tax attributable
UNPAT from continuing operations
UNPAT from discontinued operations
UNPAT
Further detail on UNPAT is provided in Notes 2-1 to 2-4 of the financial statements.
Note
2–2
2–4
2–4
2–4
2–4
2–4
2–3
2–4
2–4
2–4
2–4
2020
$'000
146,964
(88,166)
58,798
36,749
(9,717)
6,010
24,955
65
2,865
(1,528)
6,426
4,344
1,511
4,461
1,444
(12,337)
124,046
4,788
128,834
2019
$'000
28,560
(58,374)
(29,814)
37,651
(9,881)
2,488
20,766
416
2,043
(368)
2,027
–
235,278
–
875
(78,180)
183,301
14,688
197,989
1 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.
28
IOOF | annual report 2020 UNPAT adjustments:
Amortisation of intangible assets (excluding software
development): Non-cash entry reflective of the value
of intangible assets diminishing over their useful lives.
While intangible assets are continuously generated within
the IOOF Group they are only able to be recognised when
acquired, such as brand names and customer relationships.
The absence of a corresponding entry for intangible asset
creation results in a one-sided decrement to profit as the
acquired intangible assets are amortised. The amortisation of
software development costs is not excluded from UNPAT as it
represents the utilisation of these assets within the business.
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.
Acquisition costs – Acquisition advisory: One off payments
to external advisers assisting in corporate transactions, such as
the acquisition of the ANZ OnePath Pensions and Investments
(ANZ P&I) business (prior comparative period (pcp): ANZ Advice
Licensees (ANZ ALs)), which were not reflective of conventional
recurring operations.
Acquisition costs – Integration preparation: Staff and
specialist contractor costs related to integration preparation
for the acquisition the ANZ P&I business (pcp: ANZ ALs). Costs
include project labour costs, IT and other consultancy fees,
outsourced hosting services, and Advisor recognition accruals
Acquisition costs – Finance costs: Costs of securing finance
for the acquisition of the ANZ P&I business.
Termination payments: Represents termination payments
to staff which facilitates restructuring to ensure long term
efficiency gains.
Profit on divestment of assets: Divestments of non-core
businesses, client lists and associates.
Non-recurring professional fees (recovered)/paid: Payment
of specific legal costs that are not reflective of conventional
recurring operations. Includes costs associated with assistance
with APRA and ASIC related matters
Impairment of goodwill: A non-cash impairment of $4.3m
has been recognised in relation to goodwill allocated to the
Consultum business. Reduced profitability from lower revenue
led to its expected fair value less costs to sell declining to
below the carrying value of the goodwill. Revenue decline
has arisen due to changes in the regulatory landscape and
the impacts of COVID-19.
Remediation costs: Remediation costs that arose
predominantly as a result of fees for no service and quality
of advice remediation programs.
Governance uplift costs: Costs incurred in undertaking
projects that are outside the ordinary course of business.
Activities undertaken during the year that have resulted in
governance uplift can be found in the Governance Uplift
section on the following page. Costs predominantly relate to
project labour costs and consultancy fees in relation to APRA
MAP costs and RE/RSE separation costs.
Other: Impairment of customer related intangibles and losses
on divestment of non-current assets.
Income tax attributable: This represents the income tax
applicable to certain adjustment items outlined above.
Review of strategy
The IOOF Group currently has a transformational strategic
focus. The key pillars to this are Advice 2.0, Evolve21 and P&I
integration. These pillars are designed to focus, simplify and
grow the business to deliver on the strategy of ‘advice-led
wealth management’ with IOOF’s ClientFirst methodology
underpinning every aspect of the business.
Advice 2.0
The Advice 2.0 project is focussed on the long-term
sustainability of the Advice division, an initiative that focusses
on redesigning the advice experience. The core benefits of
this project are to deliver more accessible and cost-effective
financial advice, improve adviser efficiency and ensure a
profitable division that is independent from product.
Changes in 2020 that have been building the foundation
for Advice 2.0 are:
• acquisition of advice businesses to seed the expansion
of the employed channel, such as Buyer of Last Resort
Acquisitions in Bridges as well as embedding the purchases
of Bendigo and financial arm of IMB Bank.
• Critical governance harmonisation work across each of
the Licensees has been completed to ensure a consistent
operating model, across multiple brands.
• Critical optimisation work across the self-employed
Australian Financial Service Licensees has been rolled out
that underpins the sustainability and future state of advice.
29
IOOF | annual report 2020 Directors’ report (cont’d)
Operating and financial review (cont’d)
Evolve21
Evolve21 is a key enabler to IOOF’s group strategy supporting
the three business pillars, being our clients, our business, and
our people. It is a programme of work that will simplify the
platform suite to one contemporary and simplified platform
offering by the end of the 2021 calendar year.
Evolve21 will enable significant simplification of our business,
support the ClientFirst methodology and deliver for our
people by reducing waste and complexity, allowing greater
focus on service excellence. Evolve21 is critical to IOOF’s
ability to deliver improved client outcomes through efficiency,
sustainability and our ability to innovate.
In 2020, the delivery of enhanced features has continued with
the release of IDPS SMSF account structures, online corporate
actions and Managed Discretionary Accounts functionality.
These enhancements are important milestones to enable
the ultimate consolidation. A dedicated Steering Committee
made up of members of the IOOF Executive Team has been
established. Several work streams are in operation to support
the project and a dedicated project manager and engagement
and communications manager have been recruited to help
lead and support the project as activities ramp up.
P&I Integration
In January 2020 IOOF completed the purchase of ANZ’s
OnePath Pensions and Investments business. In doing so,
IOOF has now moved to the next phase of separating the
business from ANZ and realising the expected benefits via
meaningful operating cost synergies. The Integration Program
is responsible for managing and overseeing the delivery
of these activities.
The separation from ANZ is primarily reliant on system
separation, which is currently forecast to be delivered
in early 2022. Until this time ANZ is supporting IOOF by
providing transitional services under a Transitional Services
Agreement (TSA). Key functions and staff under this TSA
will be progressively transitioned on an as ready basis. This
will ensure functions are both bedded down as early as
possible and IOOF’s reliance on the TSA services is reduced
as soon as possible.
In parallel, IOOF are working towards realising the benefits
of joining the businesses. Key areas of focus include
rationalisation of products and services, optimisation of
organisational structure, elimination of duplicate back office
functions and leveraging the benefits of increased scale.
Governance and executive oversight have been implemented,
with the key forums including (a) Executive Transformation
and Integration Steering Committee and (b) Design
Integration Group.
Right sized stream delivery teams have been, or are in the
process of being, mobilised, with key milestones such as
finalisation of the Joint Project Separation Planning and Phase
1 of an organisational redesign, system separation, transition
of additional ANZ staff to IOOF, phase 2-3 of organisational
redesign, product rationalisation roadmap and the entity
rationalisation strategy. Underlying this is ensuring that IOOF’s
ClientFirst strategy is embedded in all aspects of integration.
Governance uplift
On 7 December 2018, APRA gave notice of additional licence
conditions on IOOF’s APRA regulated entities. These conditions
required, inter-alia:
• separation of responsible entity and registrable
superannuation entity duties to separate independent
corporate entities;
•
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.
Effective 30 November 2019, IOOF met the requirement
under the licence conditions to separate the Responsible
Entity and Registrable Superannuation Entities duties into
separate independent corporate entities. The OST was
implemented and continues to independently support IOOF’s
APRA regulated entities and advance member outcomes,
supporting SPS515.
The Australian Financial Services Licence of the newly
appointed IOOF Responsible Entity and Service Operator
contains additional conditions imposed by ASIC. These
conditions included the establishment of the Office of
Responsible Entity (ORE) and monitoring and reporting
on progress on the conditions via an independent expert.
The newly established ORE is an independent function
focused on assessing service providers to IOOF’s investment
schemes, uplifting the investment governance framework
and ensuring that IOOF’s investment schemes are operated in
the best interests of investors. IOOF is tracking well towards
meeting all of its licensing conditions as required by ASIC and
under the independent review process.
Response to COVID-19 pandemic
The IOOF Group Crisis Management Team (CMT) was convened
in February 2020 to manage the Group’s response to the
COVID-19 global pandemic. The CMT undertook a review of
critical processes, systems, third party providers and capital
management to ensure continuity of business operations.
30
IOOF | annual report 2020 The CMT facilitated communication with IOOF Group staff to,
among other things, impose restrictions on staff attending
work premises, highlight increased risks of cybercrime during
the pandemic, suspend work travel, and implement working
from home arrangements as the Australian Federal and State
Government responses to the pandemic progressed.
The IOOF Group quickly responded to the requirement to
work from home and successfully maintained client service
standards in line with the ClientFirst methodology while
moving to and maintaining work from home arrangements.
While the IOOF Group has seen reduced revenues flowing
from market volatility and Federal Government initiatives
related to the pandemic, the Group has been able to manage
operations without impacting debt covenants or longer-
term viability. The Group has assessed sensitivities of key
assumptions considering the impacts of market volatility and
disclosed these where appropriate.
IOOF welcomed the Federal Government’s initiatives to
support those in our community most impacted by the
current environment. This includes the ability to withdraw up
to $20,000 from superannuation over two financial years. IOOF
was well placed to support this initiative given high levels of
investment liquidity as well as the diversified demographic
nature of our members and clients.
Payments made under the Early Release of Superannuation
scheme from 20 April to 28 June 2020 have impacted Q4
2020 net flows. IOOF (including P&I) has paid 99,174 requests
totalling approximately $743 million in relation to the Early
Access to Superannuation scheme:
•
IOOF (excluding P&I) has paid 21,818 requests
totalling $170 million.
• The P&I business has paid 77,356 requests
totalling $573 million.
IOOF’s ClientFirst approach ensured that 97% of all payments
were paid to clients within 5 business days. For P&I, 83% of
payments were made within 5 business days.
Remediation Provisions
Work has been progressing throughout the year as IOOF
reviews advice remediation provisions and remediates clients.
Information available to date indicates that:
• The current provisions around the IOOF advice remediation
have not changed materially from the prior year, however,
have reduced as a result of payment of program costs and
customer remediation payments during the financial year.
• An increase in the ex-ANZ AL remediation provision of
$80m is required, in addition, the provision has been
drawn down by client remediation payments and program
costs paid throughout the year. This increase is driven by
a change in methodology relating to adviser categorisation,
now aligning to that used by IOOF, and this is offset by a
corresponding increase in the equivalent receivable from
ANZ. The provision remains under the financial cap of the
remediation program arrangements with ANZ.
As part of the acquisition of the ex-ANZ P&I business,
additional remediation provisions have been taken on.
Acquisitions and divestments
The IOOF Group has a long-term strategy of pursuing growth
through acquisitions and has completed several acquisitions
in recent years. The IOOF Group will continue to pursue
acquisitions within the Wealth Management sector on an
opportunistic basis. Acquisitions will only be considered where
they present a logical strategic fit with existing operations and
are priced reasonably.
The following are material acquisitions and divestments in the
2019/20 financial year.
ANZ P&I acquisition
Final completion of the acquisition of the ANZ P&I business
occurred on 31 January 2020. A renegotiated sale price of
$850m (subject to net asset adjustment), down $125m (14.7%)
from the original $975m, was announced on 17 October 2019.
Since completion on 31 January 2020, the P&I business has
been impacted by the market volatility and government
policy decisions in relation to the COVID-19 pandemic. Market
volatility is highly correlated to revenue volatility in the P&I
business, with market shocks causing equivalent percentage
movements in net operating revenue in this business.
Estimated cost synergies were revised to $68m pre-tax per
annum (from $65m pre-tax per annum) in January 2020,
with $13m of those savings having been achieved prior to
completion. The Group has committed to achieving these
synergies and delivering on them in full from 1 July 2023.
Ord Minnett divestment
On 24 September 2019, IOOF completed the divestment of its
70% holding in the Ord Minnett business for a total purchase
consideration of $115.0m, $10.0m of which was received in the
previous financial year as a non-refundable deposit. The Group
recognised a post-tax profit on divestment of $83.7m.
Further detail on these divestments is provided at Note 2-2
of the financial statements.
31
IOOF | annual report 2020 Directors’ report (cont’d)
Operating and financial review (cont’d)
Analysis of financial results – IOOF Group
On a continuing operations basis, the IOOF Group’s UNPAT of $124.0m represented a $59.3m (32%) decrease on prior year. Inclusive of
discontinued operations – Ord Minnett and AET Corporate Trust – UNPAT decreased by $69.2m (35%) to $128.8m. The variances below
compare only the continuing operations of the IOOF Group.
Gross margin
Other 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
2020
$’000
2019
$’000
577,597
496,780
2,063
7,417
3,268
11,079
(384,382)
(307,223)
(1,621)
(26,931)
(50,097)
65,558
(13,874)
(72,287)
Movement
$’000
80,817
1,205
(3,662)
(77,159)
(67,179)
(13,057)
22,190
Underlying Profit after Tax
124,046
183,301
(59,255)
Gross margin increased by $80.8m
Other revenue decreased by $3.7m
%
16.3%
(36.9%)
(33.1%)
(25.1%)
(102.5%)
(94.1%)
(30.7%)
(32.3%)
Excluding the $118.5m gross margin contribution from the
ex-ANZ P&I business, gross margin declined by $37.7m. The
following analysis discusses gross margin ex-ANZ P&I.
During the current year, average Funds Under Management,
Administration and Advice (FUMA) were $136.7b, an increase of
21.3% on prior year. This increase was derived largely from the
inclusion of the ex-ANZ AL average FUMA of $16.2b, excluded
in the prior year due to its acquisition in October 2018 skewing
the average. Equity market performance, driven by market
volatility as a result of the COVID-19 pandemic has resulted in
FUM outflows of $2.6b in the current year offsetting organic
growth in advice and platform funds. Platform flows of $1.3b
were broadly equivalent to $1.4b in the prior year. Financial
advice flows of $0.7b were slightly up on the prior year ($0.5b).
Investment management outflows of $0.4b were largely
derived from pension payment based redemptions.
The higher level of market volatility impacted revenues across
the entire business through lower FUMA. Within platform,
the lower rates also reflected the continuing trend for funds
to be directed towards more contemporary platforms with
lower fees, but commensurately lower attributable overheads.
Investment management margins were relatively stable which
is reflective of the steady state maturity and complementary
nature of that segment. In financial advice, price competition
and the need to re-set fees in response had a negative impact
on segment margin overall.
The reduction in other revenue relates predominantly to lower
conference revenue received as a result of the cancellation of
conferences due to COVID-19 restrictions. Lower conference
revenue is predominantly offset by lower conference costs
included in operating expenditure.
Operating expenditure increased by $77.1m
ANZ P&I contributed an additional $64.0m in operating
expenditure since completion on 31 January 2020.
In addition to this, the full year impact of the ex-ANZ AL
business contributed an additional $8.2m of costs compared
to 9 months in the prior year. Outside the impact of the
ex-ANZ P&I and ALs, operating expenditure increased
$4.9m or 2% on prior year. The modest increase in operating
expenditure excludes the impact of expenditure items
reversed when calculating UNPAT. The introduction of AASB
16 meant there was a $13.9m favourable reclassification of
occupancy expenses to interest ($2.8m) and depreciation
($15.8m) charges. Labour costs are the IOOF Group’s
most material at 73% of operating expenditure overall.
These costs, ex-ANZ P&I and ALs, have increased by $9.2m
chiefly due to an increased number of high salary employees
required to uplift our governance activity in the Office
of the Superannuation Trustee as well as a higher cohort
of risk, compliance and governance professionals added.
IT expenditure increased $3.0m due to the implementation
of new systems in preparation for the acquisition of ANZ P&I
and enhanced governance monitoring. Administration costs
increased $1.4m principally due to increased licence fees and
subscriptions. Professional fees increased $5.0m driven by
increases in consultants and legal costs as a result of activity
to uplift governance.
32
IOOF | annual report 2020 Net interest income decreased by $67.2m
Net interest income decreased largely in line with the
11 May 2019 12.4% step down of the coupon rate on the debt
note of $800m issued to ANZ and an additional $2.8m in
interest charges under AASB16.
Other impacts decreased UNPAT by $13.1m
Depreciation expenses have increased by $14.8m,
predominantly reflecting the impact of adoption of AASB16.
Share-based payments expense was $1.9m lower due to
non-vesting of previously expensed grants.
Income tax expense decreased by $22.2m
Income tax expense relative to prior year principally reflects
the decline in the IOOF Group’s profitability driven in large
part due to the reduction in interest revenue on the $800m
debt note and the market volatility as a result of COVID-19.
IOOF’s effective tax rate is 32.5% (pcp 34.5%).
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
2020
$’000
179,514
2,884
2019
$’000
191,522
4,009
(103,572)
(106,863)
(534)
(9,690)
(20,175)
48,427
130
(4,320)
(25,117)
59,361
Movement
$’000
(12,008)
(1,125)
3,291
(664)
(5,370)
4,942
(10,934)
%
(6.3%)
(28.1%)
(3.1%)
(510.8%)
124.3%
(19.7%)
(18.4%)
• Average funds growth through net inflows have been more than offset by the impact of market volatility through the COVID-19
pandemic and compounded by competitive pricing from third party administrators which IOOF has since matched with an
equivalent offer. In addition, Shadforth advisers have increased their clients’ weighting to IOOF administration. This results in
the portfolio administration fee being increasingly apportioned to that segment whereas margin revenue from third party
administration platforms was previously recognised in the advice segment.
• Operating expenditure has decreased slightly in line with an increasing share of managerial and compliance oversight occurring
within the ex-ANZ segment.
• 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
2020
$’000
211,430
–
2019
$’000
231,952
–
(115,005)
(108,932)
(34)
(11,385)
(26,918)
58,088
–
(7,700)
(35,932)
79,388
Movement
$’000
(20,522)
–
(6,073)
(34)
(3,685)
9,014
(21,300)
%
(8.8%)
n/a
5.6%
(100.0%)
47.9%
(25.1%)
(26.8%)
• Net operating revenue decreased as a result of net funds diminution as a result of market volatility through the COVID-19
pandemic, in addition to funds movement from higher priced legacy and transition platforms to contemporary platforms
with competitive fees.
•
Increased operating expenditure resulted primarily from increased governance via implementation of the Office of the
Superannuation Trustee and additional Risk and Compliance FTE.
• Net non-cash items increased in line with depreciation impacts noted above.
33
IOOF | annual report 2020 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
• Net operating revenue improved in line with higher
average FUMA for the year. Volatility due to COVID-19
in Q4 did not offset the impact of higher FUMA for the
majority of the year.
• Net non-cash items increased in line with depreciation
impacts noted above.
Financial Position
The IOOF Group held cash and cash equivalents of $374.7m
at 30 June 2020 (30 June 2019: $97.4m). 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. Restricted cash
of $145.6m, relating to the Operating Risk Financial Reserve
(ORFR) cash reserves, acquired as part of the net assets of the
ex-ANZ P&I acquisition included on the corporate balance
sheet and $3.7m cash held by the Group’s statutory benefit
funds at 30 June 2020 (30 June 2019: $5.8m) both of which
are not available to shareholders.
On 27 October 2019, IOOF Group amended the syndicated
facility agreement (SFA) with lenders to reduce the available
facilities to reflect the reduced consideration for the ANZ P&I
business. The amended SFA consists of the following facilities
with the repayment term effective from 27 September 2018:
• $240m revolving cash advance facility with a 3-year
repayment term, amended to 4 years post 30 June 2020.
• $375m revolving cash advance facility with a 5-year
repayment term.
• $60m multi-option facility with a 3-year repayment term.
Proceeds from SFA borrowings were initially applied towards
the subscription of a debt note with face value $800m from
ANZ. The debt note was redeemed on 31 January 2020
and applied against the consideration owing for the
ANZ P&I business.
The overall net debt to equity ratio stood at 25% at 30 June
2020 (30 June 2019: 0%) reflecting a net $430.9m in borrowings
(including lease liabilities), principally $460m under the SFA.
2020
$’000
66,451
–
2019
$’000
63,144
–
(10,537)
(10,698)
–
(1,863)
(16,396)
37,655
–
(1,799)
(15,538)
35,109
Movement
$’000
3,307
–
161
–
(64)
(858)
2,546
%
5.2%
n/a
(1.5%)
n/a
3.6%
5.5%
7.3%
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 exposure to risks in the course of
conducting our everyday operations and implementing our
strategy. The material risks faced by the IOOF Group include,
but may not be limited to:
Strategic and Tactical
(i) Competition
In the markets in which the IOOF Group operates a variety of
participants compete for investments from clients and for the
provision of wealth management services. Competitive market
conditions may limit the level of assets managed and earnings
available to us. We manage this risk by continuously investing
in client service, product design and stakeholder relationships,
among other improvements.
(ii) Dependence on key personnel
The IOOF Group’s continued ability to compete effectively
depends on our capacity to attract, retain and motivate
our employees. The loss of key executives or staff without
suitable replacements could cause material disruption to
our operations in the short to medium term. We undertake
succession planning and offer competitive employment
conditions and benefits to manage this risk.
(iii) Dependence on financial advisers
The success of the IOOF Group’s advice and platform business
is dependent on the quality of our relationships with financial
advisers and, in turn, the quality of their relationships with their
clients. Our ability to maintain productive adviser relationships
is managed by monitoring and, where necessary, enhancing
our service levels, technological capability, product offerings
and professional training.
34
IOOF | annual report 2020 (iv) Acquisitions
Acquisitions involve inherent risks which could negatively
impact the potential benefits of a new business and could
have a material effect on the IOOF Group’s financial position.
Our prior experience with acquisitions means that we
have a significant complement of experienced staff and
relationships with specialist advisers to support the assessment
of acquisition opportunities. This ensures the Board is fully
informed of the risks and opportunities associated with any
potential individual acquisition.
(v) Environmental, social and governance (ESG)
ESG risks can have a material impact on our ability to deliver
good long-term outcomes for our clients, investors and the
community. To ensure we fulfil our purpose, we consider a
broad range of ESG risks and opportunities, including climate
change, human capital management, modern slavery, diversity
and inclusion and tax transparency, among others. Our ESG
activities are discussed in the ESG section of the annual report.
Governance
(vi) Governance
IOOF applies the Three Lines of Defence governance model to
govern risk management and compliance activities across the
Group. All IOOF entities, including IOOF Holdings Ltd and its
controlled entities are supported by a number of committees,
including their respective designated Risk and Compliance and
Audit Committees. These committees provide the required
structure to manage governance issues such as conflicts of
interest, board independence, appropriate audit and review,
among others. If these are inadequate, we may not meet our
legal, compliance and regulatory responsibilities, and the
expectations the community has of a listed company.
In addition, IOOF has strengthened governance
activities through the establishment of the OST and the
ORE. As independent functions, they are focussed on
uplifting governance and ensuring member and investor
driven outcomes.
Reputation
(vii) Brand and reputation
Actions which damage the IOOF Group’s brand and reputation
may impact our ability to attract and retain the support of
clients, employees, financial advisers, and employers, as well
as our future profitability and financial position. We actively
monitor media and other public domain commentary on
our affairs, proactively promote the value of our services,
products and community initiatives and focus on building
a ClientFirst culture.
Conduct
(viii) Conduct risk
Conduct risk is the risk of intentionally or unintentionally
delivering poor outcomes for stakeholders (including clients,
staff and shareholders) as a result of improper conduct (including
conduct that is not consistent with our values, Code of Conduct
and ClientFirst philosophy) or inadequate systems (including
complexity). Conduct risk goes beyond our legal and regulatory
obligations. It is about how we treat our stakeholders
(includes fairness of outcomes) and whether our products and
services meet our stakeholders’ needs and expectations. Our
management of conduct risk is supported by the IOOF Group
Code of Conduct, which sets out the tenets of professional and
personal conduct which apply to all our people. These include
acting at all times within the law and in the best interests of our
members, clients, shareholders and the IOOF Group.
(ix) Provision of investment advice
The IOOF Group’s financial advisers and authorised
representatives provide advice to clients and may be exposed
to regulatory action or litigation if the advice is judged to be
incorrect, if the authorised representative otherwise becomes
liable for client losses, and in certain other circumstances.
This risk is managed by having high professional, educational,
compliance, assurance and training standards for our advisers.
The potential financial impact is mitigated by taking out
appropriate insurance cover.
The assurance and governance framework, used to monitor
and supervise advisers, has been enhanced to ensure
compliance with ASIC’s 515 Report. It has also been assured
by an external independent expert.
Financial and Liquidity
(x) Credit
Credit risk refers to the risk that a counterparty will fail to meet
its contractual obligations, resulting in financial loss that arises
from loans and other receivables. Our counterparties generally
do not have an independent credit rating except for ANZ.
The IOOF Group assesses the credit quality of each debtor
considering its financial position, past experience with the
debtor, and other available credit risk information.
(xi) Interest rate and cash flow
Interest rate risk is the risk to the IOOF Group’s earnings and
capital arising from changes in market interest rates. Financial
instruments that may 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 may expose the Group to cash flow interest rate risk.
35
IOOF | annual report 2020 Directors’ report (cont’d)
Operating and financial review (cont’d)
(xii) Liquidity
Liquidity risk relates to the IOOF Group having insufficient
liquid assets to cover cash flow requirements. We manage
liquidity risk by maintaining sufficient liquid assets and an
ability to access a committed line of credit. The liquidity
requirements for our licensed entities are regularly
reviewed and carefully monitored in accordance with
their licence requirements.
(xiii) 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 examining the
relevant factors and circumstances prevailing at that time.
(xiv) Financing
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 our financial performance
and prospects. To the extent that this occurs, we may not
be able to take advantage of acquisition and other growth
opportunities, develop new ideas or respond to competitive
pressures, which may have an adverse impact on our
financial position and performance. This risk is minimised
through oversight by a dedicated Treasury function with
established policies and procedures which are subject to
continuous monitoring and review. Banking covenants
are regularly reviewed to ensure any potential issues are
identified well in advance.
Investment Governance
(xv) Changes in investment markets
The IOOF Group derives a significant proportion of its
earnings from fees and charges based on the level of funds
under management, administration, advice, and supervision
(FUMAS). Among other factors, the level of FUMAS reflects the
performance of investment markets. Changes in domestic or
global investment market conditions could lead to a decline
in FUMAS, adversely impacting the amount we earn in fees
and charges, as well as reduced client interest in our financial
products and services. To manage this risk, we offer a range
of products and services suitable for different investment
markets and establish comprehensive investment governance
committees, policies and procedures that are subject to
continuous monitoring and oversight.
Operational
(xvi) Operational
Operational risks may arise in the daily functioning of the
IOOF Group’s businesses, in connection with, investment
management, tax and financial advice, legal and regulatory
compliance, product commitments, process error, system
failure, failure of security and unit pricing errors, among
other functions. These risks are managed through IOOF’s Risk
Management Framework which includes systems, structures,
policies, procedures and staff to identify, measure, evaluate,
monitor, report, control and mitigate internal and external risks.
IOOF’s response to the COVID-19 crisis resulted in the
execution of the organisation’s Crisis Management Plan,
including pandemic planning process, which resulted in the
deployment of the organisation’s work from home strategy
and has now become part of ‘Our Work Life’.
(xvii) Unit pricing errors
A unit pricing error by the IOOF Group or its service providers
could cause financial or reputation loss. This risk affects
the broader funds management industry and may result
in significant financial losses and brand damage to several
financial services organisations. We minimise this risk through
controls, procedures and contractual enforcement which are
subject to continuous monitoring and oversight. We maintain
a significant complement of experienced staff and utilise
specialist service providers to maintain robust systems and
accurate inputs.
(xviii) Information technology
The IOOF Group relies heavily on information technology
(IT). A significant or sustained failure in the core technology
systems could materially affect our operations, which could
impact our future profitability and financial position. We have
implemented a next-generation firewall, pursue continuous
improvements to protect user devices and impose segregation
of duties between technology environments. More broadly,
we apply controls (including disaster recovery testing) and
procedures which are subject to continuous monitoring and
oversight, maintain a significant complement of experienced
staff and employ specialist IT advisers. Our IT controls are
aligned with our management of cyber security risks (below).
(xix) Cyber security
There is a risk of significant failure in the IOOF Group’s
operations or material financial loss as a result of cyber-attacks.
We have implemented measures and controls that cover
identification, detection, monitoring and response in relation
to cyber threats. Cyber security controls are aligned with those
employed to minimise IT risks.
36
IOOF | annual report 2020 (xx) COVID-19
(xxiii) Regulatory and legislative reform
The existence of COVID-19 was confirmed in early 2020 and
in March 2020 was declared a pandemic by the World Health
Organisation. This has resulted in significant volatility in global
and domestic financial markets.
There is still significant uncertainty on the likely duration and
the ultimate impact COVID-19 will have on world economies.
Given the high degree of correlation between IOOF’s revenue
and movements in the stock markets, there are potential
unpredictable short or longer term financial impacts
on the Company.
Insurance
(xxi) Insurance
If the IOOF Group incurs uninsured losses or liabilities,
its assets, profits and prospects may be adversely affected.
To protect against this risk, we hold insurance policies,
including 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 our assets, liabilities,
officers and employees. However, there are some risks that
are uninsurable (e.g. nuclear, chemical or biological incidents)
and risk incidents where the insurance coverage is reduced
(e.g. cyclone, earthquake, flood, fire). In addition, we face risks
associated with the financial strength of our insurers to meet
indemnity obligations when called on which could have an
adverse effect on earnings.
Legal and Compliance
(xxii) Reliance on licences and authorities
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. Failure to comply with the general obligations and
conditions of a licence could result in the suspension or
cancellation of a licence, which would have a material adverse
effect on our 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. Policies and procedures are
in place across the organisation to ensure compliance with
licences is monitored closely.
The financial services sector in which the IOOF Group
operates is subject to extensive legislation, regulation and
supervision by regulatory bodies across multiple jurisdictions.
The regulatory regimes governing our business activities
are complex and subject to change. If the amount and
complexity of new regulation increases, so too may the costs
of compliance and risks of non-compliance. We maintain an
appropriately skilled and experienced staff and relationships
with specialist advisers to minimise this risk.
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 11.5 cents per share, resulting in
a total payout ratio of 75% for the financial year, is appropriate.
Current year profits support the payout.
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 2020 was 1.8%, with a dividend yield of 6.7% (based
on the financial year volume weighted average price) which
was partially offset by share price decline of 4.8%. The market
valuation of the IOOF Group remains reflective of uncertainty
over the impacts of COVID-19 in addition to the long term
effects of adoption of Royal Commission recommendations
for 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 2015 was -4.2% 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.
TSR figures for 2020 include the special dividend paid on
27 September 2019.
37
IOOF | annual report 2020 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) (2)
Dividends per share (cents per share) (2)
Opening share price
Closing share price at 30 June
Return on equity (non-statutory measure) (3)
2020
146,964
58,629
42.0
41.9
16.8
2019
28,560
(29,993)
8.1
8.1
(8.5)
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
128,834
197,989
191,417
169,357
173,367
36.8
36.7
56.5
56.3
57.3
52.6
56.5
56.5
57.8
57.1
121,121
131,653
189,582
159,071
163,573
34.5
$5.17
$4.92
7.59%
37.5
$8.99
$5.17
54
$9.80
$8.99
53
$7.83
$9.80
54.5
$8.99
$7.83
10.90%
11.30%
12.10%
12.30%
(1) Profit attributable to owners of the Company has been calculated in accordance with Australian Accounting Standards.
(2) Dividends declared and dividends per share are on an accruals basis.
(3) 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 2020
and prior years were fully franked.
Dividends
In respect of the financial year ended 30 June 2020, the
Directors declared the payment of a final dividend of
11.5 cents per share franked to 100% at 30% corporate
income tax rate to the holders of fully paid ordinary shares
to be paid on 22 September 2020. This dividend will be paid
to all shareholders recorded on the Register of Members on
8 September 2020.
The Directors declared the payment of an interim dividend
of 16.0 cents per share franked to 100% at 30% corporate
income tax rate to the holders of fully paid ordinary shares
paid on 16 March 2020 and 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, which was paid on
27 September 2019.
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, which was
paid on 27 September 2019.
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
11.5 cents per share franked to 100% at 30% corporate income
tax rate to the holders of fully paid ordinary shares to be paid
on 22 September 2020.
On 31 August 2020 the IOOF Group announced that it has
entered into transaction agreements with National Australia
Bank (NAB) to acquire 100% of NAB’s wealth management
business (MLC) for $1,440 million, (subject to completion
adjustments) and upfront integration and transaction costs
(approximately $90 million). The acquisition is expected to be
completed before 30 June 2021 and is subject to a number
of conditions precedent including regulatory approvals from
APRA and ACCC. This acquisition will be funded through
a combination of:
• $1,040 million fully underwritten institutional placement
and accelerated non-renounceable entitlement offer,
launched on 31 August 2020;
• $250 million of incremental senior debt via an underwritten
syndicated debt facility;
• $200 million in a subordinated loan note issued to NAB; and
• $40 million of existing IOOF cash.
The existing $670 million syndicated facility is expected to
remain in place and IOOF will seek consent from its lender
group in relation to the acquisition. As part of the transaction,
IOOF will expand its total debt facilities by $250 million in
total facility limits. IOOF is confident of receiving lender group
support for this transaction. To ensure funding certainty, IOOF
has engaged Citi and NAB to underwrite $920 million of total
debt facilities as a backstop to the syndicated facility.
38
IOOF | annual report 2020 The $200 million of subordinated loan note issued to NAB has
the following key components:
• Coupon of 1% per annum. Steps up to 4% p.a. if the
subordinated loan note is not redeemed prior to 42 months
post completion
• Five year maturity date with an early redemption start
period of the later of three years from Completion and
30 September 2024
• Redemption amount equal to principal plus accrued
interest plus additional amount equal to any uplift in
notional securities over a reference price (being a 15%
premium to the theoretical ex-rights price for the Equity
Offer) and subject to adjustment
• Structurally subordinated to senior secured creditors
On 7 August 2020, the IOOF Group sold approximately 14.2
million shares of its total minority holding of 19.7 million shares
in Australian Ethical Investment Ltd (ASX:AEF) for total cash
consideration of $74.5 million (purchase cost $5.2 million).
This sale has reduced IOOF’s stake to approximately 5.5 million
shares (4.9%) of AEF. The proceeds from the divestment will be
used to reduce debt and provide strategic flexibility for growth
opportunities. The impact on underlying net profit after
tax is immaterial.
Subsequent to the end of the financial year, the IOOF Group
has renegotiated the terms of its borrowings. This has
extended the repayment term of its 3 year facility to be a
4 year repayment term from 27 September 2018, which is the
SFA effective date.
On 21 August 2020, ASIC commenced proceedings against
RI Advice Group Pty Limited (RI Advice), a wholly-owned
subsidiary of IOOF. ASIC makes complaints relating to
RI Advice’s management of cybersecurity and cyber
resilience risk, some of which relate back to events from
2016. No provision has been recorded at this point as
ultimately the quantum of penalty (if any) is not reliably
estimable at this point.
As part of the Advice 2.0 strategy, it is estimated that the
Group will acquire practices through Buyer of Last Resort
agreements due to the conversion of Bridges to a fully salaried
network. The estimated spend is $15 million to $20 million
for the 2021 financial year. In addition, on 28 August 2020,
the Board approved the 100% acquisition of Wealth Central
for $30 million, an online client engagement tool that creates
a better and more transparent advice experience as well
as delivering practitioners a more streamlined exchange
of client data.
IOOF evaluates potential opportunities for investments or
divestments on a regular basis. IOOF has received an approach
from a third party (who has commenced due diligence),
relating to the potential divestment of its professional trustee
services business, Australian Executor Trustees Limited. While
discussions are on-going, there is no assurance that any
divestment will occur, or if so, on what terms.
The existence of COVID-19 was confirmed in early 2020 and
in March 2020 was declared a pandemic by the World Health
Organisation. This has resulted in significant volatility in global
and domestic financial markets. Refer to note 1–1 for the
sensitivity analysis of risks.
At the date of signing of the financial statements, there is still
significant uncertainty on the likely duration and the ultimate
impact COVID-19 will have on world economies. Given the
high degree of estimation uncertainty, management cannot
reasonably assess or quantify the potential short or longer
term financial impact on the Company.
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 2020 that has significantly affected, or may
significantly affect:
• the IOOF Group’s operations in future financial years;
• 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 59 of the annual financial report and forms part of the
Directors’ Report for the year ended 30 June 2020.
Company secretary
The Company Secretary is Ms Adrianna Bisogni LLB (Hons)
BA GAICD. Ms Bisogni was appointed to the position in
November 2019. She is a lawyer with over 25 years’ experience
in corporate law.
Prior to Ms Bisogni’s appointment, the Company Secretary
was Mr A Paul M Vine LLB FGIA FCIS GAICD. Mr Vine held the
position from December 2015 until March 2020.
39
IOOF | annual report 2020 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
Status
Meetings
attended
Meetings
held
A Griffiths
Chair
R Mota
Managing
Director
G Venardos (1) Director
J Harvey
E Flynn
J Selak
A Bloore
Director to
18 Feb 2020
Director
Director
Director from
2 Sep 2019
M Somerville Director from
1 Oct 2019
19
19
1
11
19
19
15
14
19
19
8
11
19
19
16
14
Remuneration Committee
Status
Meetings
attended
Meetings
held
A Griffiths
Member
J Harvey
E Flynn
J Selak
A Bloore
Chair to
18 Feb 2020
Member
Member from
16 Oct 2019;
Chair from
18 Feb 2020
Member from
16 Oct 2019
G Venardos (1) Member to
28 Nov 2019
4
3
4
2
2
0
4
3
4
2
2
2
Director
Committee Meetings
Director
Committee Meetings
Nominations Committee
Status
Meetings
attended
Meetings
held
A Griffiths
Chair
J Harvey
E Flynn
Member to
18 Feb 2020
Member from
14 Feb 2020
J Selak
Member
G Venardos (1) Member to
28 Nov 2019
5
4
1
5
0
5
4
1
5
3
Director
Committee Meetings
Group Audit Committee
Status
Meetings
attended
Meetings
held
A Griffiths
Member
J Harvey
E Flynn
J Selak
A Bloore
Chair to
18 Feb 2020
Member from
26 May 2020
Member
Member from
16 Oct 2019
M Somerville Member from
16 Oct 2019;
Chair from
30 Apr 2020
G Venardos (1) Member to 28
Nov 2019
8
6
1
8
4
5
0
8
6
1
8
5
5
5
Risk and Compliance Committee
Status
Meetings
attended
Meetings
held
J Harvey
E Flynn
J Selak
A Bloore
Member to
18 Feb 2020
Chair
Member
Member from
16 Oct 2019
M Somerville Member from
16 Oct 2019
4
5
5
3
3
4
5
5
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.
40
(1) Leave of absence from 10 December 2018 until resignation on 28 November 2019.
IOOF | annual report 2020 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
30-Jun-21
30-Jun-22
Deferred shares
Vesting date
24-Apr-19
8-Apr-20
Number of
rights
351,617
367,757
719,374
Number of
shares
42,020
57,592
99,612
Shares allocated on vesting will rank equally with all other
ordinary shares on issue.
These performance rights do not entitle the holder
to participate in any share issue or receive dividends
of the Company.
Indemnification and insurance
Rule 84 of the IOOF Holdings Ltd Constitution requires the
Company to indemnify to the extent permitted by law, each
Director and Secretary against liability incurred in, or arising
out of the conduct of the business of the Company or the
discharge of the duties of the Director or Secretary. The
Directors and Secretary named in this Directors’ Report have
the benefit of this requirement, as do individuals who formerly
held one of those positions.
In accordance with this requirement the Company has
entered into Deeds of Access, Indemnity and Insurance
(Deeds of Indemnity) with each Director and Secretary.
During the financial year, the IOOF Group paid insurance
premiums to insure against amounts that the IOOF Group
may be liable to pay the Directors and Secretary pursuant to
Rule 84. The insurance policy also insures the Directors and
Secretary of the Company and its controlled entities, and
the general officers of each of the companies in the IOOF
Group. Details of the amount of the premium paid in respect
of the insurance contract have not been disclosed as such
disclosure is prohibited under the terms of the contract.
The liabilities insured are legal costs that may be incurred in
defending civil or criminal proceedings that may be brought
against the officers in their capacity as officers of entities
in the IOOF Group and any other payments arising from
liabilities incurred by the officers in connection with such
proceedings, other than where such liabilities arise out of
conduct involving a wilful breach of duty by the officers or the
improper use by the officers of their position or of information
to gain advantage to themselves or someone else or to cause
detriment to the Company.
Rounding off of amounts
The Company is a company of the kind referred to in ASIC
Corporations Instrument 2016/191, dated 24 March 2016,
and in accordance with that Instrument amounts in the
financial report are rounded off to the nearest thousand
dollars, narrative disclosures are expressed in whole dollars
or as otherwise indicated.
Non-audit services
The Directors are satisfied that the provision of non-audit
services during the year of $1,476,265 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 0.5 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.
41
IOOF | annual report 2020 Remuneration report
Letter from the Remuneration
Committee Chair
Dear Shareholder
On behalf on the IOOF Board, I am pleased to present our
Remuneration Report for 2020.
The IOOF Group strives to have a remuneration philosophy
and practices which evolve with the market. In the current
environment, this means ensuring we continue to meet
shareholder, community, and regulatory expectations.
In doing so, we can attract and retain the best talent and drive
strong alignment between business purpose and strategy and
individual behaviours and outcomes. In 2020, I am pleased
to say we have taken significant steps in transforming our
framework to better achieve these goals.
A year of significant change
The 2020 financial year has been one of significant change,
adaptation and consolidation for IOOF.
As a result of the CEO’s management review, there was
transition in five executive team roles, including Chief Financial
Officer, Chief Legal Officer, Chief Risk Officer, Company
Secretary and Chief People Officer. This has resulted in
changes to our KMP as outlined in section 1 of this Report.
The reshaping of the executive team and changes in Board
compositions across the Group has provided strong business
and cultural foundations and the impetus for the organisation
to move forward.
The ANZ P&I acquisition was completed at the end of January
with the transition of hundreds of employees from ANZ
to IOOF. This has resulted in significant change and new
challenges as we integrate these businesses together.
IOOF was impacted by the COVID-19 pandemic, as were
many organisations. The workforce transitioned seamlessly
to a remote working environment and continued to support
our customers at a challenging time for them. The uncertain
environment coupled with the early release of super
scheme saw high demand on our teams, to which they
responded strongly.
Reshaping of the Executive Remuneration
Framework
As foreshadowed in last year’s remuneration report, the
executive remuneration framework was redesigned
in 2020. The Group Remuneration Committee, with
independent recommendations provided by KPMG 3dc
(executive remuneration and performance advisory), have
designed a framework that supports IOOF’s cultural and
remuneration principles.
The following considerations were central to the design
of the new framework:
• supporting IOOF’s strategic, cultural and talent agendas
including the “advice-led” strategy and ClientFirst culture;
• aligning with best practice and stakeholder expectations
post the Royal Commission; and
• considering pending regulatory developments.
The new framework, known as the Executive Equity Plan (EEP),
removed STI and LTI for the CEO and Executive Team. The new
incentive framework balances financial and non-financial
priorities and is delivered wholly in equity, vesting over
a four-year performance period to encourage long term,
sustainable decision making.
The measures underpinning the framework are aligned with
key strategic value drivers of the business, both short and long
term, to enable enduring performance.
Executive Remuneration Outcomes
With the redesign of the framework, the 2020 financial year
has been a transitionary one for the CEO and Executive Team.
No STIs were awarded to the current executive team for
the second year in succession. This is with the exception of
the Chief Investment Officer who maintains a portion of his
remuneration as STI (as explained in section 1 of this Report).
The EEP commenced on 1 July 2021 and is relevant for the
2021 performance year. It is a prospective plan, with equity
applied at the commencement of the four-year period.
Testing of the 2018 LTI saw the Total Shareholder Return
(TSR) hurdles not meeting target performance levels and
accordingly, the executive performance rights subject to this
hurdle have not vested.
In relation to Non-Executive Director (NED) remuneration,
no increases were made to NED fees for the fifth year in a row.
In addition, to reflect the current economic environment, the
Chairman and CEO took a 20% reduction in pay for 6 months
from 1 August 2020. All other IOOF Holdings Ltd Directors and
the CFO took a 10% reduction in pay for the same period.
We are proud of our people and the progress we have
made in 2020 and we will continue to monitor our
remuneration arrangements to ensure they are meeting the
standards we have set.
On behalf of the Board, I thank you for your support and
feedback, and commend this report to you.
Yours sincerely
42
John Selak
Remuneration Committee Chair
31 August 2020
IOOF | annual report 2020 Contents
1. Year to 30 June 2020 remuneration key features
Changes to the 2020 remuneration framework
Changes in Key Management Personnel (KMP)
Key features of the year to 30 June 2020 KMP
remuneration
Summary of KMP remuneration received in 2020
44
44
44
44
45
7. Company performance and remuneration impacts 53
5 year Group performance
Impact of Group performance on LTIs
8. Key Management Personnel remuneration –
Additional statutory disclosure
Additional statutory disclosure
2. Key Management Personnel covered by this report 46
9. Other information
Equity holdings
Contract terms
Payments to persons before taking office
3. Year to 30 June 2021 Key Management Personnel
remuneration
Year to 30 June 2021 remuneration framework
performance periods
4. Year to 30 June 2020 Key Management Personnel
variable remuneration targets and outcomes
STIs
LTIs
5. Remuneration governance
Remuneration Framework
The Group Remuneration Committee
6. Non-Executive Director remuneration
NED fees
2020 Statutory Remuneration – NEDs
Equity holdings of NEDs
Terms of appointment
47
47
53
49
49
51
51
51
56
52
52
53
53
53
54
55
55
56
56
58
58
43
IOOF | annual report 2020
1. Year to 30 June 2020 remuneration
key features
Changes to the 2020
remuneration framework
Following a full review of the remuneration
framework by the Group Remuneration Committee,
with independent recommendations provided by KPMG
3dc (executive remuneration and performance advisory),
in February 2020, the Remuneration Committee approved
the redesign of the executive remuneration framework.
This included a review and benchmarking of fixed salaries
and a new incentive framework called the Executive
Equity Plan (EEP).
The EEP framework has replaced the LTI and STI programs
for the CEO, Key Management Personnel (KMP) and the
remaining Executive Team. The STI is removed under the
framework except for the Chief Investment Officer who will
retain a short term incentive which will closely tie a portion
of his variable remuneration to the performance of IOOF’s
investment portfolio.
The EEP is delivered wholly in equity to closely align Executives
with shareholders and encourage long-term sustainable
decision making in the interests of shareholders.
The changes were implemented from 1 July 2019 for KMP and
the current Executive Team, with STI and LTI removed for the
2020 performance year. The EEP commenced from 1 July 2020.
The framework encompasses financial and non-financial
measures. All amounts under the EEP are provided in equity
(there are no cash components) and the EEP comprises:
The first allocation of EEP rights relating to the 2020
financial year (to be assessed against the above measures)
will be granted post the release of IOOF’s full-year results
(expected to be in September 2020) and will be eligible to
vest on 30 June 2024.
Further details of remuneration framework changes
are included in section 3 of this report.
Changes in Key Management Personnel
(KMP)
Post the appointment of R Mota in June 2019, the Executive
Team has been restructured resulting in the following
additions to KMP.
D Chalmers
D Whereat
M Oliver
A Noble
L Stewart
Chief Financial Officer
Appointed 16 March 2020
Chief Advice Officer
Appointed 1 February 2020
Chief Distribution Officer
Appointed 1 February 2020
Chief Risk Officer
26 July 2019 to 12 November 2019
Chief Risk Officer
Appointed 15 June 2020
The following ceased to be KMP during 2020:
D Coulter
G Riordan
Chief Financial Officer
Ceased 28 February 2020(1)
Group General Counsel
Ceased 28 February 2020
(1) Following his cessation as KMP, D Coulter was on gardening leave which
• A four year performance measure (40%) This will be
ceased 28 August 2020.
based on Relative Total Shareholder Return (TSR), assessed
at the end of the four year performance period.
• Annual performance measures with no vesting of any
amounts until the end of the four year performance
period (60%) Targets will be set and assessed annually
against five key areas, one of which is financial and four
non-financial metrics.
However vesting does not occur until the end of the four-year
performance period.
• The areas assessed, which align with the key strategic
drivers of the business, are:
– Financial (10%)
– Non-financial measures (50%) comprised of:
– Environment, Social & Governance (ESG) (10%)
– Client (10%)
– People (10%)
– Individual, role specific measures (20%)
44
Key features of the year to 30 June 2020
KMP remuneration
Short term incentive (STI)
There were no STIs awarded to KMP during 2020 with the
exception of D Farmer of $173,036 under the specific terms
of his contract as Chief Investment Officer, and G Riordan of
$75,000. There will be no STIs for KMP as part of the EEP. The
first tranche of the 2018 deferred STI component was tested
during the period and 52,847 shares were transferred to KMP.
Full details of STIs vested during the year are included
in section 4 of this report.
IOOF | annual report 2020Remuneration report (cont’d) Long term incentive (LTI)
The 2017 performance rights – D Farmer 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.
The 2018 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 R Mota,
F Lombardo, D Coulter and G Riordan.
D Coulter remained employed during the three year period.
G Riordan is considered a “good leaver” and remained eligible
for the 2018 LTI performance rights.
Full details of LTIs vested during the year are included
in section 4 of this report.
Non-Executive Director (NED) remuneration
Full details of NED remuneration arrangements are
included in section 6 of this report.
Summary of KMP remuneration received in 2020
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
Total Fixed
Remuneration
Variable
Total value of
remuneration received
Name
R Mota
D Farmer
F Lombardo(3)
2020
2019
2020
2019
2020
2019
KMP appointed during 2020
D Chalmers(4)
D Whereat(5)
M Oliver(5)
A Noble(6)
L Stewart(7)
Former KMP
D Coulter(8)
G Riordan(8)
C Kelaher
2020
2020
2020
2020
2020
2020
2019
2020
2019
2019
TFR
STI(1)
1,206,778
788,644
433,218
341,668
550,000
295,192
215,385
211,541
219,286
143,147
23,846
320,773
474,868
336,565
485,958
1,330,403
–
–
173,036
142,713
–
–
–
–
–
–
–
–
–
75,000
–
–
LTI(2)
152,594
68,475
90,163
–
102,502
–
–
–
–
–
–
185,636
68,475
148,386
68,475
–
1,359,372
857,119
696,417
484,381
652,502
295,192
215,385
211,541
219,286
143,147
23,846
506,409
543,343
559,951
554,433
1,330,403
(1) Cash STI awarded during the year.
(2) Tenure-based LTI value calculated using closing share price at date of issue of shares.
(3) Appointed as KMP from 10 December 2018.
(4) Appointed as KMP from 16 March 2020.
(5) Appointed as KMP from 1 February 2020.
(6) Appointed as KMP from 26 July 2019 to 12 November 2019.
(7) Appointed as KMP from 15 June 2020.
(8) Operated as KMP to 28 February 2020.
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. Outside of remuneration, there were no other
transactions with key management personnel of the IOOF Group during the 2020 and 2019 financial years.
45
IOOF | annual report 2020 2. Key Management Personnel covered by this report
The KMP whose remuneration is disclosed in this year’s report are:
Name
R Mota
D Coulter
D Chalmers
G Riordan
D Farmer
F Lombardo
D Whereat
M Oliver
A Noble
L Stewart
NEDs
A Griffiths
E Flynn
J Selak
A Bloore
M Somerville
J Harvey
G Venardos
Role
Chief Executive Officer and Managing Director (CEO)
Chief Financial Officer
Chief Financial Officer
Group General Counsel
Chief Investment Officer
Chief Operating Officer
Chief Advice Officer
Chief Distribution Officer
Chief Risk Officer
Chief Risk Officer
Independent Non-Executive Director & Chairman
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Independent Non-Executive Director
Term as KMP
Full year
1 Jul 2019 to 28 Feb 2020
16 Mar 2020 to present
1 Jul 2019 to 28 Feb 2020
Full year
Full year
1 Feb 2020 to present
1 Feb 2020 to present
26 Jul 2019 to 12 Nov 2019
15 Jun 2020 to present
Full year
Full year
Full year
2 Sep 2019 to present
1 Oct 2019 to present
To 18 Feb 2020
To 28 Nov 2019
Disclosures of remuneration and other transactions with KMP who were appointed or ceased during the year are limited to those
transactions occurring the in period of appointment as KMP.
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.
46
IOOF | annual report 2020Remuneration report (cont’d) 3. Year to 30 June 2021 Key Management Personnel remuneration
In determining the key objectives of the KMP and Executive reward framework, the Remuneration Committee gave consideration
to the following objectives:
Attraction and retention
of the best talent
Strategy-led and
supporting IOOF's purpose
Promote a sound risk
management culture
Shareholder alignment
Meeting regulatory and
governance expectations
and impacts on
remuneration
Attract, motivate and retain world-class talent to drive the performance of the Company
Support our advice-led approach to delivering customer outcomes
Emphasis on delivering quality advice
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 fast-paced regulatory environment and upholding the
highest governance standards
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 the draft Financial Accountability Regime ("FAR") proposals and APRA's draft Prudential
Standards CPS 511 standards and their potential impact on remuneration
In recognition of the impact that COVID-19 has had on business outcomes and returns to shareholders, the Chief Executive Officer will
take a 20% reduction in base pay for 6 months from 1 August 2020. The Chief Financial Officer will take a 10% reduction in base pay for
the same period.
Year to 30 June 2021 remuneration framework performance periods
A summary of the Executive team remuneration framework is as follows:
d
e
x
i
F
P
E
E
Fixed salary
Annual review process with adjustments only for change in role or promotion,
internal relativities and significant market changes (not CPI/wage growth increases)
Relative TSR against ASX 200 (40%) assessed over 4 years
Financial measure (10%) measured by achievement of annual UNPAT target (released after 4 years)
Non-financial component (50%) - set and assessed annually (released after 4 years) with one measure in each
category being (1) ESG (2) client (3) people (4) individual
Year 0
Year 1
Year 2
Year 3
Year 4
Further detail on each measure is included on the following page.
47
IOOF | annual report 2020
Area
Measure & Description
D
E
X
I
F
d
e
x
i
F
y Base salary plus super
r
a
l
a
s
Determined annually
Adjustments only made for changes in role or promotion, internal relativities and significant
market changes.
s Financial (40%)
e
r
u
s
a
e
m
r
a
e
y
4
e
c
n
a
m
r
o
f
r
e
p
Delivering to shareholders
Long-term shareholder return as measured by TSR percentile ranking >50%
N
A
L
P
Y
T
I
U
Q
E
E
V
I
T
U
C
E
X
E
s
e
r
u
s
a
e
M
e
c
n
a
m
r
o
f
r
e
P
l
a
u
n
n
A
y
l
l
a
u
n
n
a
d
e
s
s
e
s
s
a
d
n
a
t
e
S
s
r
a
e
y
4
r
e
t
f
a
d
e
s
a
e
l
e
r
–
Financial (10%)
Achieving the Annual Financial Plan
Measured by achievement of an annual UNPAT target
Non-financial performance measures
Environment, Social &
Governance (ESG) (10%)
Strengthening sustainability
Delivery against board endorsed ESG scorecard
Client (10%)
People (10%)
Individual (20%)
Delivering what matters to Clients
Improving service delivery to members and advisors as measured through advisor and
member Net Promoter Scores (NPS)
Connecting with employees
Uplift in employee engagement and experience to achieve top quartile engagement score
Transforming the Organisation
Measures to be set on an individual basis. Will predominantly link to the successful delivery
of key transformation programs against FY21 milestones, namely: Evolve 21, P&I Integration,
and Advice 2.0.
Consistent with best practice and to further strengthen the alignment between executives and shareholders, a minimum
shareholding requirement will be in place for participants of the EEP. Participants will be required to accumulate shares in IOOF equal
to 100% of TFR for the CEO and 50% of TFR for other participants. Participants will need to meet this requirement by 30 June 2024.
For comparative purposes and for the LTI issued in December 2019, the previous variable remuneration framework is outlined below.
The 2019 remuneration framework for KMP comprised STI and LTI components.
Component
Performance Conditions
Remuneration Principle
Variable
STI
50% cash.
50% deferred
shares, vesting
over 2 years,
subject to
'look back'.
Maximum is
100% of TFR.
LTI
100%
share-based
arrangements.
Maximum is
100% of TFR.
48
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
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.
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.
IOOF | annual report 2020Remuneration report (cont’d)
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 2020
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 was determined to assist
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.
4. Year to 30 June 2020 Key
Management Personnel variable
remuneration targets and outcomes
Remuneration of KMP is proposed by the CEO, recommended
by the Remuneration Committee and approved by the Board.
As noted, the first allocation of EEP will be granted post the
release of IOOF’s full-year results (expected to be in September
2020) and will be eligible to vest after a 4 year period
on 30 June 2024.
As 2020 was a transitional period while the final EEP was
being determined, LTIs relating to the 2019 financial year
were allocated on 17 December 2019 to R Mota, F Lombardo,
and D Farmer. This was the final grant of LTIs to KMP before
implementation of the EEP.
Full details of all outstanding LTI performance rights for each
KMP are set out in section 8 of this report.
STIs
STI: targets and outcomes
No discretionary STIs were awarded to any KMP or certain
other senior management personnel. An STI of $75,000 was
paid to G Riordan at the time of his exit.
‘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 include:
• 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 9 of this report.
49
IOOF | annual report 2020 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 June 2020
Vesting
date
2020 LTI
performance rights
2019 LTI
performance rights
2018 LTI
performance rights
2017 LTI
performance rights
– D Farmer
2020-2022
17 Dec 19
Performance period not complete
2019-2021
17 Aug 18
Performance period not complete
30 Jun 22
30 Jun 21
2018-2020
21 Aug 17
-37.86%
2018-2020
01 Mar 17
7.02%
150th
124th
0% vested
30 Jun 20
0% vested
31 Dec 19
The performance period for the 2017 performance rights – D Farmer was completed in 2020. With a TSR ranking of 124th relative
to the ASX 200, no performance rights vested under the TSR performance hurdle. D Farmer remained employed during the
three year period.
The performance period for the 2018 LTI performance rights was completed in 2020. With a TSR ranking of 150th relative to
the ASX 200, no performance rights vested under the TSR performance hurdle for any KMP. R Mota, F Lombardo, and D Coulter
remained employed during the three year period. G Riordan is considered a “good leaver” and remained eligible for the 2018
LTI performance rights.
Accordingly, the following shares vested for KMP under 2017 and 2018 LTI performance rights:
Name
Type of instrument
R Mota
2018 LTI performance rights
F Lombardo
2018 LTI performance rights
D Farmer
Former KMP
D Coulter
G Riordan
2017 LTI performance rights – D Farmer
2018 LTI performance rights
2018 LTI performance rights
Change of control and cessation of employment
Employment
condition -
50%
TSR
Performance
hurdle - 50%
Number of shares vested
% vested
in year
% forfeited
in year
15,000
15,000
7,500
15,000
10,000
–
–
–
–
–
50.0%
50.0%
50.0%
50.0%
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.
50
IOOF | annual report 2020Remuneration report (cont’d) 5. 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;
• on-going review and monitoring of the total Executive
award framework;
• setting key performance indicators and assessment of the
Managing Director and the IOOF Group’s performance
against those key performance indicators;
• overall compensation arrangements of the IOOF Group;
• 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
relating to remuneration; 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 2020 were J Harvey (Chair) to 18 February 2020,
J Selak member from 16 October 2019 and Chair from
18 February 2020, A Griffiths (full year), E Flynn (full year),
A Bloore member from 16 October 2019, and G Venardos
(member until 28 November 2019).
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 incentive 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 Chief People Officer 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.
The Committee’s charter is available on the Corporate Governance page of the Company’s website at www.ioof.com.au
51
IOOF | annual report 2020 6. 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 2021 and, for the fifth year, has determined not to increase their fees. In recognition of the impact
that COVID-19 has had on business outcomes and returns to shareholders, the Group Chairman will take a 20% reduction in base pay
for 6 months from 1 August 2020. All other NEDs will take a 10% reduction in base pay for the same period.
NED fees
Elements
NED fees
(no change to 2019)
Details
2019/20 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.
2020 Statutory Remuneration – NEDs
NED
Short-term benefits
Post-employment
Total
Directors' fees(5)
Superannuation
A Griffiths(1)
G Venardos(1)
J Harvey(2)
E Flynn
J Selak
A Bloore(3)
M Somerville(4)
Total
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2020
2020
2019
$
274,499
216,272
65,086
239,265
99,259
155,251
162,626
155,251
155,251
155,251
152,185
113,453
1,022,359
921,290
$
$
10,501
285,000
17,863
7,597
20,531
9,430
14,749
7,374
14,749
14,749
14,749
14,458
10,778
74,887
82,641
234,135
72,683
259,796
108,689
170,000
170,000
170,000
170,000
170,000
166,643
124,231
1,097,246
1,003,931
(1) A Griffiths was appointed Acting Chairman on 10 December 2018 and Chairman on 4 April 2019. G Venardos was on leave from the Board from 10 December 2018.
He resigned as Chairman effective 4 April 2019 and resigned as a Non-Executive Director on 28 November 2019. The variation in fees year-on-year reflects these
changes.
(2) Resigned as a Non-Executive Director on 19 February 2020.
(3) Appointed 2 September 2019.
(4) Appointed 1 October 2019.
(5) Directors’ fees include any fees sacrificed into superannuation funds.
52
IOOF | annual report 2020Remuneration report (cont’d) Equity holdings of NEDs
Name
A Griffiths
G Venardos
J Harvey
E Flynn
J Selak
A Bloore
M Somerville
Balance
as at
1 July 2019 (1)
Changes
during
the year
Balance
as at
30 June 2020 (2)
Balance as at
report
sign-off
41,428
91,429
35,256
26,428
55,000
–
–
–
–
–
6,729
–
5,830
–
41,428
91,429
35,256
33,157
55,000
5,830
–
date (2)
41,428
n/a
n/a
33,157
55,000
5,830
–
(1) Balance at date of appointment for NEDs appointed during the year.
(2) Balance at date of cessation for NEDs resigning during the year.
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.
7. Company performance and remuneration impacts
In considering the IOOF Group’s financial performance and impacts on shareholder wealth for STI, for LTI (excluding for the 2020
financial year as no LTI is being awarded in respect of the year ended 30 June 2020), and in future for EEP determination, the
Committee has regard to the following financial 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
2020
2019
2018
2017
2016
146,964
128,834
36.8
28,560
197,989
56.5
88,301
191,417
57.3
115,990
169,357
56.5
196,846
173,367
57.8
42.0
16.8
5.17
4.92
(0.25)
8.1
(8.5)
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
53.0
12.1%
31.9%
36.9%
65.7
46.0
8.99
7.83
(1.16)
54.5
12.3%
(6.8)%
29.3%
Dividends per share (cents per share)
34.5
37.5
54.0
Ratios
Return on equity (non-statutory measure)(2)
Total shareholder return
Total shareholder return – three year cumulative
7.6%
1.8%
(37.9)%
10.9%
(36.8)%
(21.6)%
11.3%
(2.8)%
11.8%
STIs paid to KMP
Total STIs paid to KMP ($'000s)
173
143
2,046
1,900
1,813
(1) UNPAT is reconciled to profit attributable to owners of the Company in the Operating and Financial Review at page 28 of the Directors’ Report.
(2) RoE is calculated by dividing UNPAT by average capital on issue during the year.
53
IOOF | annual report 2020 UNPAT vs STI vs TSR (cumulative)
UNPAT $'000
250,000
200,000
150,000
100,000
50,000
0
2016
UNPAT ($'000s)
2017
STIs paid to KMP ($'000s)
2018
2019
TSR - 3 yr cumulative (%)
2020
STIs $’000
TSR %
2,500
2,000
1,500
1,000
500
0
-500
-1,000
-1,500
100%
80%
60%
40%
20%
0%
--20%
--40%
--60%
Impact of Group performance on LTIs
As discussed in section 4, TSR performance over the three years to 30 June 2020 was -37.9%, placing it at the 150th position relative
to the ASX 200. As a result, none of the TSR hurdle based 2018 performance rights vested in July 2020.
54
IOOF | annual report 2020Remuneration report (cont’d) 8. 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 2020. 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
payments(2)
Salary
Bonus -
cash
Non-
mone-
tary(1)
Super-
annu-
ation
Perform-
ance
rights
Bonus -
deferred
shares
Termin-
ation
benefits
Total
Component
as a % of
total
remuneration
Fixed Variable
Fixed
Fixed Variable Variable
Fixed
Fixed Variable(3)
Element of
Remuneration
Component of
Remuneration
R Mota
2020 1,182,459
2019
762,065
$
$
–
–
D Farmer
2020
403,997
173,036
2019
317,919
142,713
F Lombardo(4) 2020
528,997
2019
283,347
KMP appointed during 2020
D Chalmers(4) 2020
209,730
D Whereat(4)
2020
203,461
M Oliver(4)
2020
209,392
A Noble(4)
2020
132,076
L Stewart(4)
2020
23,038
Former KMP
D Coulter(4)
2020
303,321
2019
451,119
–
–
–
–
–
–
–
–
–
G Riordan(4)
2020
322,025
75,000
2019
465,426
C Kelaher(5)
2019
1,303,163
–
–
$
3,316
6,048
8,218
3,218
–
–
–
2
1,008
–
–
$
$
21,003
280,677
20,531
446,166
21,003
93,908
20,531
179,479
21,003
227,484
11,845
104,331
5,655
8,078
8,886
11,071
808
–
17,936
17,936
–
–
3,316
3,218
14,136
(8,783)
20,531
446,166
–
–
14,540
75,121
20,531
307,499
$
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
$
$
– 1,487,455
– 1,234,810
–
–
–
–
–
–
–
700,162
663,860
777,484
399,523
215,385
229,477
237,222
57,212
200,359
–
23,846
472,165
784,155
–
921,034
438,312
924,998
–
793,457
3,467
23,774
(204,460)
– 1,268,129 2,394,072
%
81
64
62
51
71
74
100
92
92
100
100
101
52
84
61
109
%
19
36
38
49
29
26
–
8
8
–
–
(1)
48
16
39
(9)
Total
2020 3,518,496
248,036
15,860
126,183
704,279
–
967,689 5,580,543
2019 3,583,039
142,713
15,950
117,744
1,279,181
– 1,268,129
6,406,756
(1) Non-monetary benefits include company funded benefits and fringe benefits tax payable on those benefits, typically car parking. There are no other monetary nor
non-monetary short term benefits for KMP.
(2) 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.
(3) 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.
(4) Amounts represent payments relating to the period during which the individuals were identified as KMP.
(5) 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.
55
IOOF | annual report 2020 9. Other information
Equity holdings
The table below sets out details of deferred shares and rights that were granted to KMP during the 2020 financial year or in prior years
and that then vested, were exercised/sold or which lapsed/were forfeited during the 2020 financial year.
Type of instrument
Grant date
Fair value per
right at grant date
Number granted(1)
Balance at
1 July 2019
Granted as
compensation
Exercised/
Vested
Forfeited/
Lapsed
Balance at
30 June 2020
Financial year
of vesting
Name
KMP
R Mota
Total R Mota
D Farmer
Total D Farmer
F Lombardo
2018 deferred shares(2)
2018 deferred shares(2)
2020 LTI performance rights
2019 LTI performance rights
2018 LTI performance rights
2018 deferred shares(2)
2018 deferred shares(2)
2020 LTI performance rights
2019 LTI performance rights
2017 LTI performance rights
2018 deferred shares(2)(4)
2018 deferred shares(2)(4)
2020 LTI performance rights
2019 LTI performance rights(4)
2018 LTI performance rights
Total F Lombardo
D Whereat
2020 LTI performance rights(4)
2019 LTI performance rights(4)
Total D Whereat
M Oliver
Total M Oliver
Former KMP
D Coulter
Total D Coulter
G Riordan
Total G Riordan
Total KMP
2020 LTI performance rights(4)
2019 LTI performance rights(4)
2018 deferred shares(2)
2018 deferred shares(2)
2019 LTI performance rights
2018 LTI performance rights
2018 deferred shares(2)
2018 deferred shares(2)
2019 LTI performance rights
2018 LTI performance rights
30-Jun-18
30-Jun-18
17-Dec-19
26-Sep-18
1-Sep-17
30-Jun-18
30-Jun-18
17-Dec-19
26-Sep-18
1-Mar-17
30-Jun-18
30-Jun-18
17-Dec-19
26-Sep-18
1-Sep-17
17-Dec-19
26-Sep-18
17-Dec-19
26-Sep-18
30-Jun-18
30-Jun-18
26-Sep-18
1-Sep-17
30-Jun-18
30-Jun-18
26-Sep-18
1-Sep-17
$8.58
$8.58
$5.90
$4.93
$8.32
$8.58
$8.58
$5.90
$4.93
$5.72
$8.58
$8.58
$5.90
$4.93
$8.32
$5.90
$4.93
$5.90
$4.93
$8.58
$8.58
$4.93
$8.32
$8.58
$8.58
$4.93
$8.32
13,112
13,112
75,000
50,000
30,000
6,761
6,761
25,000
25,000
15,000
11,538
11,538
44,000
44,000
30,000
10,000
10,000
10,000
10,000
13,112
13,112
50,000
30,000
8,324
8,324
30,000
20,000
13,112
13,112
–
50,000
30,000
106,224
6,761
6,761
–
25,000
15,000
53,522
11,538
11,538
–
–
–
44,000
30,000
97,076
10,000
10,000
10,000
10,000
13,112
13,112
50,000
30,000
106,224
8,324
8,324
30,000
20,000
66,648
449,694
75,000
75,000
25,000
25,000
44,000
44,000
10,000
10,000
10,000
10,000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
164,000
(13,112)
(15,000)
(28,112)
(6,761)
(7,500)
(14,261)
(11,538)
(15,000)
(26,538)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(13,112)
(15,000)
(28,112)
(8,324)
(10,000)
(18,324)
(115,347)
(15,000)
(15,000)
(7,500)
(7,500)
(15,000)
(15,000)
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(50,000)
(15,000)
(65,000)
(10,000)
(10,000)
(112,500)
13,112
75,000
50,000
138,112
6,761
25,000
25,000
56,761
11,538
44,000
44,000
99,538
10,000
10,000
20,000
10,000
10,000
20,000
13,112
–
–
–
–
–
–
–
–
–
–
–
13,112
8,324
30,000
38,324
385,847
2021
2020
2022
2021
2020
2021
2020
2022
2021
2020
2021
2020
2022
2021
2020
2022
2021
2022
2021
2021
2020
2021
2020
2021
2020
2021
2020
(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) D Chalmers and L Stewart were appointed KMP after the grant of 2020 LTI performance rights. A Noble was not awarded any deferred shares or rights in her time
56
as KMP. Therefore, these individuals are not included in the above table.
(4) In existence upon appointment as KMP.
IOOF | annual report 2020Remuneration report (cont’d) 9. Other information
Equity holdings
The table below sets out details of deferred shares and rights that were granted to KMP during the 2020 financial year or in prior years
and that then vested, were exercised/sold or which lapsed/were forfeited during the 2020 financial year.
Type of instrument
Grant date
Fair value per
Number granted(1)
right at grant date
Balance at
1 July 2019
Granted as
compensation
Exercised/
Vested
Forfeited/
Lapsed
Balance at
30 June 2020
Financial year
of vesting
13,112
13,112
–
50,000
30,000
106,224
6,761
6,761
–
25,000
15,000
53,522
11,538
11,538
–
44,000
30,000
97,076
–
10,000
10,000
–
10,000
10,000
13,112
13,112
50,000
30,000
106,224
8,324
8,324
30,000
20,000
66,648
449,694
–
–
75,000
–
–
75,000
–
–
25,000
–
–
25,000
–
–
44,000
–
–
44,000
10,000
–
10,000
10,000
–
10,000
–
–
–
–
–
–
–
–
–
–
164,000
–
(13,112)
–
(15,000)
(28,112)
–
(6,761)
–
–
(7,500)
(14,261)
–
(11,538)
–
–
(15,000)
(26,538)
–
–
–
–
–
–
–
(13,112)
–
(15,000)
(28,112)
–
(8,324)
–
(10,000)
(18,324)
(115,347)
–
–
–
(15,000)
(15,000)
–
–
–
–
(7,500)
(7,500)
–
–
–
–
(15,000)
(15,000)
–
–
–
–
–
–
–
–
(50,000)
(15,000)
(65,000)
–
–
–
(10,000)
(10,000)
(112,500)
13,112
–
75,000
50,000
–
138,112
6,761
–
25,000
25,000
–
56,761
11,538
–
44,000
44,000
–
99,538
10,000
10,000
20,000
10,000
10,000
20,000
13,112
–
–
–
13,112
8,324
–
30,000
–
38,324
385,847
2021
2020
2022
2021
2020
2021
2020
2022
2021
2020
2021
2020
2022
2021
2020
2022
2021
2022
2021
2021
2020
2021
2020
2021
2020
2021
2020
57
Name
KMP
R Mota
Total R Mota
D Farmer
Total D Farmer
F Lombardo
Total D Whereat
M Oliver
Total M Oliver
Former KMP
D Coulter
Total D Coulter
G Riordan
2018 deferred shares(2)
2018 deferred shares(2)
2020 LTI performance rights
2019 LTI performance rights
2018 LTI performance rights
2018 deferred shares(2)
2018 deferred shares(2)
2020 LTI performance rights
2019 LTI performance rights
2017 LTI performance rights
2018 deferred shares(2)(4)
2018 deferred shares(2)(4)
2020 LTI performance rights
2019 LTI performance rights(4)
2018 LTI performance rights
2020 LTI performance rights(4)
2019 LTI performance rights(4)
2018 deferred shares(2)
2018 deferred shares(2)
2019 LTI performance rights
2018 LTI performance rights
2018 deferred shares(2)
2018 deferred shares(2)
2019 LTI performance rights
2018 LTI performance rights
30-Jun-18
30-Jun-18
17-Dec-19
26-Sep-18
1-Sep-17
30-Jun-18
30-Jun-18
17-Dec-19
26-Sep-18
1-Mar-17
30-Jun-18
30-Jun-18
17-Dec-19
26-Sep-18
1-Sep-17
17-Dec-19
26-Sep-18
17-Dec-19
26-Sep-18
30-Jun-18
30-Jun-18
26-Sep-18
1-Sep-17
30-Jun-18
30-Jun-18
26-Sep-18
1-Sep-17
Total F Lombardo
D Whereat
2020 LTI performance rights(4)
2019 LTI performance rights(4)
$8.58
$8.58
$5.90
$4.93
$8.32
$8.58
$8.58
$5.90
$4.93
$5.72
$8.58
$8.58
$5.90
$4.93
$8.32
$5.90
$4.93
$5.90
$4.93
$8.58
$8.58
$4.93
$8.32
$8.58
$8.58
$4.93
$8.32
13,112
13,112
75,000
50,000
30,000
6,761
6,761
25,000
25,000
15,000
11,538
11,538
44,000
44,000
30,000
10,000
10,000
10,000
10,000
13,112
13,112
50,000
30,000
8,324
8,324
30,000
20,000
Total G Riordan
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) D Chalmers and L Stewart were appointed KMP after the grant of 2020 LTI performance rights. A Noble was not awarded any deferred shares or rights in her time
as KMP. Therefore, these individuals are not included in the above table.
(4) In existence upon appointment as KMP.
IOOF | annual report 2020 The relevant interest of KMP in the shares issued by the Company, is as follows:
Ordinary shares(1)
R Mota
D Farmer
F Lombardo(2)
KMP appointed during 2020
D Chalmers(2)
D Whereat(2)
M Oliver(2)
A Noble(2)(3)
L Stewart(2)
Former KMP
D Coulter(3)
G Riordan(3)
C Kelaher(3)
Balance at
1 July 2019
Received on
vesting of
performance
rights(4)
Net other
change
Balance at
30 June 2020
No.
122,115
108,115
–
–
–
–
–
–
–
–
–
300,971
293,471
72,500
65,000
3,566,381
No.
28,112
7,500
14,261
–
19,038
–
–
–
–
–
–
28,112
7,500
23,324
7,500
–
No.
54,000
6,500
–
–
–
–
–
–
–
–
–
–
–
–
–
–
No.
204,227
122,115
14,261
–
19,038
–
–
–
–
–
–
329,083
300,971
95,824
72,500
3,566,381
2020
2019
2020
2019
2020
2019
2020
2020
2020
2020
2020
2020
2019
2020
2019
2019
(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.
(3) Closing balance is number of shares held at the time of cessation as KMP.
(4) 2018 LTI performance rights that vested on 30 June 2020 were not transferred to participants until July 2020 and are therefore not included in this table.
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 the CEO, either IOOF or the CEO can terminate his contract on 12 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 EEP (if applicable). The Board has discretion regarding
treatment of unvested short and long-term incentives received under the previous remuneration framework.
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 report is signed in accordance with a resolution of the Directors made pursuant to s.298(2) of the Corporations Act 2001.
John Selak
Remuneration Committee Chair
31 August 2020
58
IOOF | annual report 2020Remuneration report (cont’d) Directors’ declaration
For the year ended 30 June 2020
1
In the opinion of the Directors of the Company:
a the consolidated financial statements and notes set out on pages 67 to 130 and the Remuneration Report, set out on pages 42
to 58 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 2020 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 Chief Executive
Officer and Chief Financial Officer for the financial year ended 30 June 2020.
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
31 August 2020
59
IOOF | annual report 2020 60
IOOF | annual report 2020 Liability limited by a scheme approved under Professional Standards Legislation.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.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 2020 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. KPMG Chris Wooden Partner Melbourne 31 August 2020 Liability limited by a scheme approved under Professional Standards Legislation.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.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 2020 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. KPMG Chris Wooden Partner Melbourne 31 August 2020 61
IOOF | annual report 2020 Liability limited by a scheme approved under Professional Standards Legislation.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.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 2020 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 2020; • 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 (including Independence Standards) (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. 62
IOOF | annual report 2020 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 - $1,596.0m and $344.0m Refer to Note 4-3 Goodwill and 4-2 Intangible Assets to the Financial Report The key audit matter How the matter was addressed in our audit A key audit matter for us was the Group’s testing of goodwill and intangible assets for impairment, given the: •Size of the balance (being 38% and 8% of total assets respectively); and •Increased estimation uncertainty continuing from the impact of the COVID-19 global pandemic. This increased the level of judgement applied by us when evaluating the evidence available. We focussed on the significant forward-looking assumptions the Group applied in their value in use models, including: •Forecast cash flows, growth rates and terminal growth rates – the Group has experienced reduced FUMA in the current year, as a result of COVID-19. This impacted the Group through a reduction in revenue. These conditions and the uncertainty of their continuation increase the possibility of goodwill and intangible assets being impaired, plus the risk of inaccurate forecasts or a significantly wider range of possible outcomes for us to consider. •Discount rate – this is complicated in nature and varies according to the conditions and environment the specific Cash Generating Unit (CGU)/intangible is subject to from time to time as well as the approach to incorporating risks into the cash flows or discount rates. Working with our valuation specialists, our procedures included: •We considered the appropriateness of the value in use method applied by the Group to perform the test of goodwill and intangibles impairment against the requirements of the accounting standards. •We assessed the integrity of the value in use models used, including the accuracy of the underlying calculation formulas. •We met with management to understand the impact of COVID-19 on the Group’s FY20 results and related forecasts. •We challenged the forecast cash flows, growth rates and terminal value contained in the value in use model against our understanding of the relevant CGU/intangible and externally sourced industry based growth rates. We assessed the application of key forecast cash flow assumptions for consistency across the Group’s CGUs/intangibles. •We independently developed a discount rate range using publicly available data for comparable entities, adjusted by risk factors specific to the Group’s CGUs/intangibles and the industry they operate in. •We assessed the accuracy of previous Group forecasts to inform our evaluation of forecasts incorporated in the models. •We considered the sensitivity of the models by varying key assumptions, such as forecast growth rates and discount rates, within a reasonably possible range. We considered key assumptions when performing the sensitivity analysis and what the Group consider to be reasonably possible. We did this to identify those CGUs at higher risk of 63
IOOF | annual report 2020 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 - $1,596.0m and $344.0m Refer to Note 4-3 Goodwill and 4-2 Intangible Assets to the Financial Report The key audit matter How the matter was addressed in our audit A key audit matter for us was the Group’s testing of goodwill and intangible assets for impairment, given the: •Size of the balance (being 38% and 8% of total assets respectively); and •Increased estimation uncertainty continuing from the impact of the COVID-19 global pandemic. This increased the level of judgement applied by us when evaluating the evidence available. We focussed on the significant forward-looking assumptions the Group applied in their value in use models, including: •Forecast cash flows, growth rates and terminal growth rates – the Group has experienced reduced FUMA in the current year, as a result of COVID-19. This impacted the Group through a reduction in revenue. These conditions and the uncertainty of their continuation increase the possibility of goodwill and intangible assets being impaired, plus the risk of inaccurate forecasts or a significantly wider range of possible outcomes for us to consider. •Discount rate – this is complicated in nature and varies according to the conditions and environment the specific Cash Generating Unit (CGU)/intangible is subject to from time to time as well as the approach to incorporating risks into the cash flows or discount rates. Working with our valuation specialists, our procedures included: •We considered the appropriateness of the value in use method applied by the Group to perform the test of goodwill and intangibles impairment against the requirements of the accounting standards. •We assessed the integrity of the value in use models used, including the accuracy of the underlying calculation formulas. •We met with management to understand the impact of COVID-19 on the Group’s FY20 results and related forecasts. •We challenged the forecast cash flows, growth rates and terminal value contained in the value in use model against our understanding of the relevant CGU/intangible and externally sourced industry based growth rates. We assessed the application of key forecast cash flow assumptions for consistency across the Group’s CGUs/intangibles. •We independently developed a discount rate range using publicly available data for comparable entities, adjusted by risk factors specific to the Group’s CGUs/intangibles and the industry they operate in. •We assessed the accuracy of previous Group forecasts to inform our evaluation of forecasts incorporated in the models. •We considered the sensitivity of the models by varying key assumptions, such as forecast growth rates and discount rates, within a reasonably possible range. We considered key assumptions when performing the sensitivity analysis and what the Group consider to be reasonably possible. We did this to identify those CGUs at higher risk of The Group uses complex models to perform their annual testing of goodwill and intangibles for impairment. The models are largely manually developed, adjusted for historical performance, and use a range of internal and external sources as inputs to the assumptions. Complex modelling, using forward-looking assumptions, tends to be prone to greater risk for potential bias, error and inconsistent application. These conditions necessitate additional scrutiny by us, in particular to address the objectivity of sources used for assumptions, and their consistent application. We involved valuation specialists to supplement our senior audit team members in assessing this key audit matter. impairment and to focus our further procedures. •We assessed the disclosures in the financial report using our understanding obtained from our testing, discussions with management and the Board and against the requirements of the accounting standards. Provisions for client remediation and related costs - $630.6m Refer to Note 4-4 Provisions to the Financial Report The key audit matter How the matter was addressed in our audit The provisions for client remediation and related costs 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 as a basis for recognition of a provision against the criteria in the accounting standards. •Reliable estimates of amounts which may be paid arising from the present obligation, including estimates of the number of affected customers, expected average remediation payments and related costs. •The potential for legal proceedings and external reviews leading to a wider range of estimation outcomes for us to consider. The Group uses a complex model to estimate the amount which may be paid in future periods. The model is manually developed and uses a range of internal and external sources as inputs to the assumptions. Complex modelling, using forward-looking assumptions, tends to be prone to greater risk for potential bias, error Working with our regulatory specialists, our procedures included: •We obtained an understanding of the Group’s process for identifying and assessing the potential impact of the ongoing reviews into client remediation activities. •We assessed the integrity of the model used, including the accuracy of the underlying calculation formulas •We inquired with the Group regarding ongoing reviews into other remediation activities. •We read the minutes and other relevant documentation of the Company’s Board of Directors, Board Committees, various management committees, and attended the Company’s Audit Committee and Risk and Compliance Committee meetings. •We inspected correspondence with regulatory bodies and reports from external consultants provided to the Group. •We challenged the Group’s basis for recognition of a provision and associated costs against the requirements of the accounting standards. We did this by understanding the provisioning methodologies and challenging underlying 64
IOOF | annual report 2020 and inconsistent application. These conditions necessitate additional scrutiny by us, in particular to address the objectivity of sources used for assumptions, and their consistent application. We involved regulatory specialists to supplement our senior audit team members in assessing this key audit matter. assumptions including expected average remediation payments and related costs. •We tested a sample of customer files to assess the accuracy of the Group’s expected number of affected customers included in the provisions. •We assessed 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. •We assessed the disclosures in the financial report using our understanding obtained from our testing, discussions with management and the Board 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 Information Technology (IT) related controls are a key audit matter as 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. Our audit approach could significantly differ depending on the effective operations of the Group’s IT controls. We involved IT specialists to supplement our senior audit team members in assessing this key audit matter. Working with our IT specialists we challenged the design of General IT controls and sample tested the operation of key controls (in relation to financial accounting and reporting systems) including: •Change management control operation: Inspected the Group’s change management policies and for a sample of system changes during the year checked consistency of the system changes to the Group’s policy. •Segregation of duties control operation: Sample tested key automated controls designed to enforce segregation of duties. •User access management controls operation: We assessed the Group’s evaluation of the user access rights, including privileged user access rights, granted to application systems. We checked for evidence of resolution of exceptions. We also assessed the operating effectiveness of management approval controls over the granting and removal of access rights, including privileged access rights. 65
IOOF | annual report 2020 and inconsistent application. These conditions necessitate additional scrutiny by us, in particular to address the objectivity of sources used for assumptions, and their consistent application. We involved regulatory specialists to supplement our senior audit team members in assessing this key audit matter. assumptions including expected average remediation payments and related costs. •We tested a sample of customer files to assess the accuracy of the Group’s expected number of affected customers included in the provisions. •We assessed 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. •We assessed the disclosures in the financial report using our understanding obtained from our testing, discussions with management and the Board 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 Information Technology (IT) related controls are a key audit matter as 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. Our audit approach could significantly differ depending on the effective operations of the Group’s IT controls. We involved IT specialists to supplement our senior audit team members in assessing this key audit matter. Working with our IT specialists we challenged the design of General IT controls and sample tested the operation of key controls (in relation to financial accounting and reporting systems) including: •Change management control operation: Inspected the Group’s change management policies and for a sample of system changes during the year checked consistency of the system changes to the Group’s policy. •Segregation of duties control operation: Sample tested key automated controls designed to enforce segregation of duties. •User access management controls operation: We assessed the Group’s evaluation of the user access rights, including privileged user access rights, granted to application systems. We checked for evidence of resolution of exceptions. We also assessed the operating effectiveness of management approval controls over the granting and removal of access rights, including privileged access rights. Other Information Other Information is financial and non-financial information in IOOF Holdings 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 Diversified Business Model, Chairman’s Commentary, CEO and Managing Directors Commentary, 2020 Results At A Glance, 2020 Strategic Priorities, Environmental, Social & Governance Report, IOOF Foundation and Shareholder Information and is expected to be made available to us after the date of the Auditor’s Report. Our opinion on the Financial Report does not cover the Other Information and, accordingly, we do not and will not express an audit opinion or any form of assurance conclusion thereon, with the exception of the Remuneration Report and our related assurance opinion. In connection with our audit of the Financial Report, our responsibility is to read the Other Information. In doing so, we consider whether the Other Information is materially inconsistent with the Financial Report or our knowledge obtained in the audit, or otherwise appears to be materially misstated. We are required to report if we conclude that there is a material misstatement of this Other Information, and based on the work we have performed on the Other Information that we obtained prior to the date of this Auditor’s Report we have nothing to report. Responsibilities of the Directors for the Financial Report The Directors are responsible for: •Preparing the Financial Report that gives a true and fair view in accordance with Australian Accounting Standards and the Corporations Act 2001; •Implementing necessary internal control to enable the preparation of a Financial Report that gives a true and fair view and is free from material misstatement, whether due to fraud or error; and •Assessing the Group and Company's ability to continue as a going concern and whether the use of the going concern basis of accounting is appropriate. This includes disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless they either intend to liquidate the Group and Company or to cease operations, or have no 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 material misstatement, whether due to fraud or error; and •To issue an Auditor’s Report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Australian Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error. They are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the Financial Report. A further description of our responsibilities for the audit of the Financial Report is located at the Auditing and Assurance Standards Board website at: https://www.auasb.gov.au/admin/file/content102/c3/ar1_2020.pdf. This description forms part of our Auditor’s Report. 66
IOOF | annual report 2020 Report on the Remuneration Report Opinion In our opinion, the Remuneration Report of IOOF Holdings Ltd for the year ended 30 June 2020, 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 the Directors’ report for the year ended 30 June 2020. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG KPMG Chris Wooden Rachel Milum Partner Partner Melbourne Melbourne 31 August 2020 31 August 2020 Consolidated statement of comprehensive income
For the year ended 30 June 2020
Revenue
Expenses
Share of profits/(losses) 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
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)
2020
$’000
2019**
$’000
1,168,930
1,058,763
(1,067,351)
(1,091,494)
(479)
(14,259)
86,841
(28,212)
21,583
(31,624)
10,041
–
30
(12,881)
(45,582)
15,589
62,269
(52,110)
(10,159)
–
58,629
(29,993)
89,776
148,405
63,400
33,407
95,677
(50)
(28,711)
66,916
7,888
(6)
(2,374)
5,508
215,321
38,915
146,964
1,441
148,405
213,880
1,441
215,321
42.0
41.9
16.8
16.8
28,560
4,847
33,407
34,068
4,847
38,915
8.1
8.1
(8.5)
(8.5)
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 72 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 2–2.
67
IOOF | annual report 2020 Report on the Remuneration Report Opinion In our opinion, the Remuneration Report of IOOF Holdings Ltd for the year ended 30 June 2020, 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 the Directors’ report for the year ended 30 June 2020. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with Australian Auditing Standards. KPMG KPMG Chris Wooden Rachel Milum Partner Partner Melbourne Melbourne 31 August 2020 31 August 2020 Consolidated statement of financial position
As at 30 June 2020
Note
1–1(d)
1–1(d)
1–1(d)
1–1(d)
4–1
4–5
2–6
4–2
4–3
2–2
1–1(d)
1–1(d)
3–2
4–4
2–6
2020
$’000
374,730
612,777
–
2019*
$’000
97,442
328,691
800,000
1,116,773
1,047,137
–
16,265
994
12,946
134,443
49,738
343,958
1,596,042
4,258,666
–
3,897
15,307
1,182
21,509
36,010
–
364,707
936,891
3,652,773
52,474
4,258,666
3,705,247
120,566
90,235
1,065,340
1,038,118
572,252
756,314
–
931
–
426,503
453,332
5,895
1,121
5,752
2,515,403
2,020,956
2–2
–
27,434
2,515,403
2,048,390
1,743,263
1,656,857
3–3
3–5
1,965,824
1,963,109
91,272
(313,604)
25,225
(339,140)
1,743,492
1,649,194
(229)
7,663
1,743,263
1,656,857
Assets
Cash
Receivables
Debt note
Other financial assets
Current tax assets
Prepayments
Deferred acquisition costs
Associates
Property and equipment
Deferred tax assets
Intangible assets
Goodwill
Assets classified as held for sale
Total assets
Liabilities
Payables
Other financial liabilities
Loans and borrowings
Provisions
Deferred tax liabilities
Deferred revenue liability
Lease incentives
Liabilities directly associated with assets classified as held for sale
Total liabilities
Net assets
Equity
Share capital
Reserves
Accumulated losses
Total equity attributable to equity holders of the Company
Non-controlling interest
Total equity
Notes to the consolidated financial statements are included on pages 72 to 130.
*Restated – refer to note 2–2.
68
IOOF | annual report 2020 Consolidated statement of changes in equity
For the year ended 30 June 2020
For the year ended
30 June 2020
Ordinary
shares
Treasury
shares
Reserves Accumulated
losses
Total
Non–
controlling
interest
Total
equity
$’000
1,970,999
$’000
(7,890)
$’000
25,225
$’000
$’000
(339,140)
1,649,194
$’000
7,663
$’000
1,656,857
Balance at 1 July 2019
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
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
Divestment of non-controlling
interest
–
–
–
–
–
2,715
–
–
–
–
–
–
–
146,964
146,964
1,441
148,405
66,916
–
66,916
–
66,916
66,916
146,964
213,880
1,441
215,321
–
(122,514)
(122,514)
(16)
(122,530)
2,932
(2,715)
–
–
–
(2,867)
2,867
–
–
–
–
–
(1,086)
1,086
–
–
2,932
–
–
–
–
–
–
–
–
2,932
–
–
–
(9,317)
(9,317)
Total transactions with owners
(152)
Balance at 30 June 2020
1,970,847
2,867
(5,023)
(869)
(121,428)
(119,582)
(9,333)
(128,915)
91,272
(313,604)
1,743,492
(229)
1,743,263
Notes to the consolidated financial statements are included on pages 72 to 130.
69
IOOF | annual report 2020 Consolidated statement of changes in equity
For the year ended 30 June 2020
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
$’000
$’000
(184,169)
1,802,267
10,420
1,812,687
–
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
(4,649)
4,649
–
–
(524)
524
Total transactions with owners
(649)
Balance at 30 June 2019
1,970,999
304
(183,531)
(187,141)
(7,604)
(194,745)
25,225
(339,140)
1,649,194
7,663
1,656,857
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
–
–
–
–
–
–
4,000
–
–
–
–
–
–
–
–
–
–
(7,914)
–
(3,265)
(7,890)
Notes to the consolidated financial statements are included on pages 72 to 130.
70
IOOF | annual report 2020 Consolidated statement of cash flows
For the year ended 30 June 2020
Note
2020
$’000
2019
$’000
Cash flows from operating activities
Receipts from customers
Payments to suppliers and employees
Dividends from associates
Net stockbroking purchases
Legal settlements paid
Legal settlements recovered
Remediation costs
Coupon interest received on debt note
Income taxes paid – corporate
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
Income taxes paid – 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
Redemption/(purchase) of debt note
Proceeds on divestment of subsidiaries
Acquisition of subsidiary, net of cash acquired
Purchase of shares in associates
Net proceeds on purchase and divestment of financial and other assets
Receipt of deferred purchase consideration
Net proceeds from/(payment for) swaps
Payments for property and equipment
Payments for intangible assets
Repayment of loan principal (related parties)
Net cash (used in)/provided by investing activities
Cash flows from financing activities
Borrowings repaid
Drawdown of borrowings
Purchase of treasury shares
Capital return to non-controlling interest
Repayment of lease liabilities
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
Cash divested classified in assets held for sale at the beginning of the 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
Notes to the consolidated financial statements are included on pages 72 to 130.
2–5
1,325,331
(1,134,441)
351
(30)
(5,636)
3,342
(15,817)
9,381
(42,708)
119,027
(117,582)
1,839
150,373
(125,818)
(17,010)
(5,170)
145,432
1,473
4,373
(26,598)
(10,089)
–
800,000
93,007
(678,768)
(500)
85,015
–
(30,176)
(8,195)
(13,076)
7,298
223,764
(84,952)
115,000
–
–
(14,324)
(122,514)
(16)
(106,806)
262,390
97,442
14,963
(65)
–
374,730
1,211,456
(991,342)
358
612
(47,928)
37,070
(4,071)
67,910
(111,269)
112,292
(139,398)
6,200
291,688
(239,209)
(3,432)
(18,754)
172,183
1,238
9,448
(18,485)
(16,372)
407,443
(800,000)
41,251
(8,176)
(2,750)
1,287
351
–
(26,199)
(3,775)
47
(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
71
IOOF | annual report 2020 Notes to the financial statements
For the year ended 30 June 2020
IOOF Holdings Ltd (the “Company” or “Parent”) is a listed public company incorporated in Australia. The IOOF Group comprises
the Company and its subsidiaries, and the consolidated Group’s interest in associates.
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 included within the Directors’ Report.
1-1 Risk Management
IOOF Risk Management Framework
Risk is defined as the chance of an event occurring that will have
an impact on the strategic or business objectives of the IOOF
Group, including a failure to exploit opportunities. The IOOF
Group’s risk management process involves the identification
of material risks, assessment of consequence and likelihood,
implementation of controls to manage risks, and continuous
monitoring and improvement of the procedures in place.
The IOOF Group’s objective is to satisfactorily manage its
risks in line with the IOOF Group’s Risk Management Policy
set by the Board, and this aligns to International Standard
ISO 31000. The IOOF Group’s Risk Management Framework
manages the risks faced by the IOOF Group, with approaches
varying depending on the nature of the risk, through the risk
management policies, Risk Appetite Statement, and tolerances
set, approved, and monitored by the Board. 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 Enterprise
Risk and Compliance 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.
Liquidity risk relates to the IOOF Group having insufficient liquid
assets to cover cash flow requirements. The Group manages
liquidity risk by maintaining sufficient liquid assets and an ability
to access a committed line of credit. The liquidity requirements for
the Group’s licensed entities are regularly reviewed and carefully
monitored in accordance with their licence requirements.
72
The COVID-19 environment impacted on operating cash flows
in the fourth quarter of 2020. The ASX All Ordinaries closed the
financial year at 10.4% lower than 30 June 2019, which directly
impacts FUMA and revenues. Substantial cash outflows were
experienced due to the Early Access to Superannuation
scheme, particularly in the ex-ANZ pensions and investments
(P&I) business. The Group made payments totalling
approximately $743 million in relation to this scheme.
Financial risk
The financial risk management objectives, policies and
processes and the quantitative data about the exposure to
risk at the reporting date, as set out in the remainder of this
note, includes the benefit funds and the controlled 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. Further information in
relation to the benefit funds is included in Note 5.
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.
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.
IOOF | annual report 2020 (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 2020, had the price of the units/shares held by
the IOOF Group in unlisted unit trusts/shares in other entities
increased/decreased by 5% (2019: 1%) with all other variables
held constant, gains / losses recorded through profit or loss
would increase / decrease by $32,416,000 (2019: $6,748,000),
and financial assets at fair value through OCI reserves would
increase / decrease by $4,879,000 (2019: $291,000).
(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 2020, if interest rates had changed by +/- 50 basis
points (2019: +/- 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 $1,548,000
(2019: $2,233,000). 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 had a concentration of credit risk to ANZ for
the value of the debt note in 2019 ($800m). There is no such
concentration in 2020.
Expected credit loss assessment
As at 30 June 2020, $9,786,000 trade receivables of the IOOF
Group were past due but not impaired (2019: $2,873,000).
The amount of the impairment provision was $420,000
(2019: $585,000).
Collectability of trade receivables is reviewed on an ongoing
basis. The IOOF 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 IOOF 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 IOOF Group’s historical experience and informed credit
assessment and including forward-looking information.
73
IOOF | annual report 2020 The IOOF Group considers a financial asset to be in default
when the borrower is unlikely to pay its credit obligations
to the IOOF Group in full, without recourse by the IOOF 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 IOOF 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 IOOF 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.
Impaired receivables
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
2020
2019
$'000
585
(165)
$'000
607
(22)
Carrying value at 30 June
420
585
Ageing of trade receivables
that were not impaired at
30 June
Neither past due nor impaired
69,448
Past due 31-60 days
Past due 61-90 days
Past due 91-120 days
Trade receivables past due
but not impaired
4,507
3,526
1,753
79,234
9,786
45,950
1,402
468
1,003
48,823
2,873
(c) Statutory Fund Risk
Financial risks are monitored and controlled by selecting
appropriate assets to back policy liabilities. The assets
are regularly monitored by the Investment Management
Committee to ensure there are no material exposures and
that liability mismatching issues and other risks such as
liquidity risk and credit risk are maintained within acceptable
limits. The Investment Management Committee is chaired
by an independent expert and its membership is drawn
from appropriately skilled senior management. There are
two 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. The IOOF Group continuously monitors actual
and forecast financial results to determine compliance with
banking covenants.
Maturities of financial liabilities
The tables below analyse the IOOF Group’s financial liabilities
into relevant maturity groupings based on the remaining
years at the balance date to the contractual maturity
date. The amounts disclosed therein are the contractual
undiscounted cash flows.
74
IOOF | annual report 2020 Notes to the financial statements For the year ended 30 June 2020 2020
Carrying Amount
Contractual cash flows
Financial liabilities
Payables – corporate
Payables – statutory
Total payables
Ex-ANZ Advice Licensee (AL) remediation
provision – corporate(1)
IOOF adviser remediation provision
– corporate(1)
Ex-ANZ P&I remediation provision
– corporate(1)
Current
Non-
Current
Total
$'000
$’000
$’000
1 year
or less
$’000
118,689
1,748
120,437
139,427
129
–
129
76,347
118,818
118,689
1,748
120,566
215,774
1,748
120,437
139,427
1-5
years
$’000
129
–
129
76,347
81,492
135,408
216,900
81,492
135,408
107,459
90,417
197,876
107,459
90,417
Other provisions
56,273
–
56,273
56,273
–
Other financial liabilities – corporate
Ex-ANZ AL remediation settlements liability
Contingent consideration
Other financial liabilities – statutory
Insurance contract liabilities
Investment contract liabilities
30,978
5,626
16,963
1,198
47,941
6,824
30,978
5,626
16,963
1,198
187,079
823,496
–
–
187,079
823,496
187,079
823,496
–
–
Total other financial liabilities
1,047,179
18,161
1,065,340
1,047,179
18,161
Borrowings – corporate
–
457,858
457,858
–
457,858
1,388,535
687,903
2,076,438
1,388,535
687,903
Financial assets available to meet the above financial liabilities
Financial assets at amortised cost
Cash – corporate
Cash restricted ORFR – corporate
Cash – statutory
Total cash
Receivables – corporate
Trade receivables
Other receivables
Ex-ANZ AL remediation indemnity
Security bonds
Receivables – statutory
Trade receivables
Other receivables
Dividends and distributions receivable
225,360
145,630
3,740
374,730
78,508
234,022
170,389
–
306
8,880
23,343
–
–
–
–
–
3,778
93,301
250
–
–
–
225,360
145,630
3,740
225,360
145,630
3,740
374,730
374,730
78,508
237,800
263,690
250
306
8,880
23,343
78,508
234,022
170,389
–
306
8,880
23,343
–
–
–
–
–
3,778
93,301
–
–
–
–
5+
years
$’000
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
250
–
–
–
Total
$’000
118,818
1,748
120,566
215,774
216,900
197,876
56,273
47,941
6,824
187,079
823,496
1,065,340
457,858
2,076,438
225,360
145,630
3,740
374,730
78,508
237,800
263,690
250
306
8,880
23,343
Total receivables
515,448
97,329
612,777
515,448
97,079
250
612,777
Fair value through profit or loss
Unlisted unit trusts – corporate
Unlisted unit trusts – statutory
–
925,257
902
–
Equity investments at FVOCI – corporate
–
139,406
Loans and other receivables
902
925,257
139,406
–
902
925,257
–
–
–
139,406
902
925,257
139,406
–
51,208
–
–
–
Loans to policyholders – statutory
51,208
–
51,208
51,208
Total other financial assets
976,465
140,308
1,116,773
976,465
902
139,406
1,116,773
1,866,643
237,637
2,104,280
1,866,643
97,981
139,656
2,104,280
Net financial assets/(liabilities)
478,108
(450,266)
27,842
478,108
(589,922)
139,656
27,842
(1) Maturity of remediation provisions is not based on contractual maturity but rather expected payment dates.
75
IOOF | annual report 2020 2019
Carrying Amount
Contractual cash flows
Current
Non-
Current
Total
$'000
$’000
$’000
Financial liabilities
Payables – corporate
Payables – statutory
Total payables
Ex-ANZ AL remediation provision – corporate
IOOF adviser remediation provision
– corporate
Other financial liabilities – corporate
Ex-ANZ AL remediation settlements liability
Contingent consideration
Other financial liabilities – statutory
Insurance contract liabilities
Investment contract liabilities
86,360
3,875
90,235
24,116
31,881
2,073
837
202,434
820,337
–
–
–
144,694
191,284
12,437
–
–
–
1 year
or less
$’000
86,360
3,875
90,235
24,116
31,881
1-5
years
$’000
5+
years
$’000
–
–
–
–
–
–
96,463
127,523
48,231
63,761
86,360
3,875
90,235
168,810
223,165
14,510
837
2,073
837
202,434
820,337
202,434
820,337
8,291
4,146
–
–
–
–
–
–
Total
$’000
86,360
3,875
90,235
168,810
223,165
14,510
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
1,946,831
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 AL remediation
indemnity
Security bonds
Receivables – statutory
Trade receivables
Other receivables
Dividends and distributions receivable
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
Total receivables
170,629
158,062
328,691
170,629
105,435
52,627
328,691
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
800,000
–
800,000
800,000
–
–
963,373
641
–
641
–
641
963,373
963,373
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
–
–
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
76
IOOF | annual report 2020 Notes to the financial statements For the year ended 30 June 2020 (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;
• financial assets at fair value through other
comprehensive income; 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 was initially recognised at cost, and
subsequently revalued to fair value through profit or loss
at balance date. Fair value is determined using a discounted
cash flow methodology, which incorporates unobservable
inputs such as discount rates, counterparty credit, and
probability-adjusted revenues expected to be received
under the arrangement. The debt note was redeemed on
31 January 2020 to fund the acquisition of the Pensions and
Investments businesses from ANZ.
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 Fair Value through Other
Comprehensive Income
Equity investments at fair value through other comprehensive
income (FVOCI) 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, and are
revalued through other comprehensive income (OCI) each
reporting period. 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 prior year include
deposits with original maturities of more than three months.
77
IOOF | annual report 2020 Financial liabilities
Alternative investment assets classification
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.
Alternative investments are made up of cash held with the
Custodian and investments in alternative portfolios which have
been designated as fair value through profit or loss. Alternative
investments include investments in hedge funds, unlisted real
estate funds and private equity funds.
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 Funds Under
Management, Administration, Advice and Supervision (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.
Alternative investments
Total return swap liability on alternative investments
measurement
The total return swap liability is initially recognised at cost and
subsequently measured at fair value. Changes in the fair value
of financial liabilities are recognised through the Statement of
comprehensive income. The maturities of financial instruments
table includes the net amount of the total return swap an
alternative investments at 30 June 2020. The value of the
amount payable on the total return swap on alternative
investments at 30 June 2020 is $783.1m. The value of the
alternative investments at 30 June 2020 is $783.1m.
78
Alternative investment assets recognition
and de-recognition
Regular way purchases and sales of financial assets are
recognised on trade date – the date on which the Group
commits to purchase or sell the asset. Financial assets are
derecognised when the rights to receive cash flows from
the financial assets have expired or have been transferred
and the Group has transferred substantially all the risks and
rewards of ownership.
Alternative investment assets initial recognition
and measurement
Alternative investments are initially recognised and
subsequently measured at fair value which is determined
as the redemption price at the balance sheet date.
Total return swap liability on alternative investments
classification
Total return swaps liability is made up of fully funded total
return swaps, which are designated at fair value through
profit or loss.
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 9 and AASB 15. There are differences between the
valuation requirements of the accounting standards and those
of the Life Insurance Act 1995.
IOOF | annual report 2020 Notes to the financial statements For the year ended 30 June 2020 Assets relating to statutory funds
(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.
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.
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 9 and AASB 15. There are differences between the
valuation requirements of the accounting standards and those
of the Life Insurance Act 1995.
Contract classification relating to statutory funds
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.
79
IOOF | annual report 2020 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 2020
Financial assets measured at fair value
FVOCI – corporate
Unlisted unit trusts – corporate
Unlisted unit trusts – statutory
Financial liabilities measured at fair value
Contingent consideration – corporate
30 June 2019
Financial assets measured at fair value
FVOCI – corporate
Unlisted unit trusts – corporate
Unlisted unit trusts – statutory
Debt note – corporate
Financial liabilities measured at fair value
Contingent consideration – corporate
Level 1
$'000
139,406
–
–
139,406
–
–
41,627
–
–
–
Level 2
$'000
–
902
925,257
926,159
Level 3
$'000
Total
$'000
–
–
–
–
139,406
902
925,257
1,065,565
–
–
6,824
6,824
6,824
6,824
–
641
963,373
–
41,627
964,014
–
–
–
–
–
–
–
800,000
800,000
837
837
41,627
641
963,373
800,000
1,805,641
837
837
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 2020.
80
IOOF | annual report 2020 Notes to the financial statements For the year ended 30 June 2020 Reconciliation of movements in level 3
financial instruments
Opening balance as at 1 July
Issuance/(redemption) of debt note
Take up of deferred consideration liability
Unwinding of discount
Settlement of contingent consideration
Closing balance as at 30 June
Debt note
Contingent consideration
2020
$'000
800,000
(800,000)
–
–
–
–
2019
$'000
–
800,000
–
–
–
800,000
2020
$'000
837
–
6,802
–
(815)
6,824
2019
$'000
392
–
2,907
8
(2,470)
837
There were no transfers into or out of Level 3 of the fair value hierarchy during the year ended 30 June 2020, except as disclosed
in the table above.
Level 3 financial assets consist of:
• A debt note carried at fair value in prior year. 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.
The debt note was redeemed on 31 January 2020 to fund the acquisition of the Pensions and Investments businesses from ANZ.
Level 3 financial liabilities consist of:
• Deferred purchase consideration in respect of client lists purchased by the IOOF Group, which is valued at best estimate of the
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.
81
IOOF | annual report 2020 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
Financial advice and distribution
The IOOF Group has the following six 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.
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.
Financial advice and
distribution
Portfolio and estate
administration
Investment management
Ex-ANZ wealth management
Ex-ANZ pensions
and investments
Corporate
and other
Total
Management and service fees revenue
External other fee revenue
2020
$’000
261,893
17,278
2019
$’000
285,737
15,690
Service fees and other direct costs
(192,837)
(195,442)
2020
$’000
382,740
8,714
(88,843)
(73)
(18)
105,967
302,538
4,508
(1,285)
3,223
84,455
(2,123)
191,522
3,978
145
31
–
–
–
7,135
(98,243)
211,430
–
–
–
–
86,334
3,304
(1,241)
2,063
94,142
(3,025)
179,514
3,383
101
(499)
(103,572)
(106,863)
(115,005)
(998)
(635)
(8,692)
–
(3)
(20,172)
48,427
(1,749)
(15)
(2,571)
–
45
(25,162)
59,361
(1,085)
(34)
(9,488)
(812)
–
(26,918)
58,088
2019
$’000
399,260
8,427
(96,014)
(155)
311,518
–
–
–
2,689
(82,255)
231,952
–
–
–
(108,932)
(1,903)
–
(5,082)
(715)
–
(35,932)
79,388
2020
$’000
98,327
7,337
2019
$’000
95,694
7,049
(36,601)
(36,696)
–
69,063
–
66,047
–
–
–
–
–
–
–
–
(2,612)
66,451
(2,903)
63,144
–
–
–
(10,537)
(601)
–
(1,262)
–
–
–
–
–
(10,698)
(1,146)
–
(653)
–
–
(16,396)
37,655
(15,538)
35,109
945
12,501
118,475
2020
$’000
184,148
14,837
(198,040)
–
–
–
–
–
19,547
20,492
2,899
170
20
(119)
(19)
(1,025)
–
172
8,207
(19,078)
2019*
$’000
145,861
6,290
(139,650)
–
38
–
38
–
–
12,539
6,204
390
(1)
(14)
(49)
(56)
–
134
7,776
(14,802)
2020**
$’000
165,119
2,929
(49,573)
–
–
–
–
–
–
–
–
167
(17,768)
100,874
600
10,223
(242)
(2,720)
2019
$’000
71,987
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2020
$’000
242
242
–
–
–
–
–
–
–
657
899
1,014
2,144
–
(41,362)
(129)
(13,329)
–
–
–
2019
$’000
–
353
401
754
–
–
–
–
–
137
891
867
5,917
–
15
–
–
–
(12,817)
(13,411)
31,293
(21,596)
50,391
18,424
(32,339)
17,986
(26,146)
2020
$’000
1,092,227
51,337
(565,894)
(73)
577,597
3,304
(1,241)
2,063
121,648
(121,648)
579,660
7,896
12,638
(479)
(2,932)
(14,259)
(23,187)
(812)
169
(50,266)
124,046
4,788
128,834
2019
$’000
926,552
37,809
(467,401)
(173)
496,787
4,546
(1,285)
3,261
87,281
(87,281)
500,048
11,049
78,439
30
(4,797)
(12,881)
(8,362)
(715)
179
(72,466)
183,301
14,688
197,989
(49,875)
(41,725)
(64,031)
(39,005)
(384,382)
(307,223)
Deferred acquisition costs
Gross Margin
Stockbroking revenue
Stockbroking service fees expense
Stockbroking net contribution
Inter-segment revenue(i)
Inter-segment expenses(i)
Net Operating Revenue
Other revenue
Finance income
Share of profits of associates
Operating expenditure
Share-based payments expense
Finance costs
Depreciation of property & equipment
Amortisation of intangible assets
– IT Development
Non-controlling interest
Income tax expense
UNPAT from continuing operations
Discontinued operations
UNPAT
(i) 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.
*
** For the period 1 February 2020 to 30 June 2020.
82
IOOF | annual report 2020 Notes to the financial statements For the year ended 30 June 2020 Investment management
Corporate and other
The management and investment of monies on behalf of
corporate, superannuation, institutional clients and private
individual investor clients.
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.
Ex-ANZ wealth management advice licensees
Ex-ANZ Wealth Management Advice Licensees (ex-ANZ ALs)
acquired from ANZ during 2019, which provide financial
planning advice services.
Ex-ANZ pensions and investments
Ex-ANZ Pensions and Investments (P&I) businesses which
have platform businesses across retail and corporate. This is
also inclusive of the debt note revenue up until its redemption
on 31 January 2020.
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.
Financial advice and
distribution
Portfolio and estate
administration
Investment management
Ex-ANZ wealth management
Ex-ANZ pensions
and investments
Corporate
and other
Total
Service fees and other direct costs
(192,837)
(195,442)
(36,601)
(36,696)
2020
$’000
261,893
17,278
–
86,334
3,304
(1,241)
2,063
94,142
(3,025)
179,514
3,383
101
(499)
(998)
(635)
(8,692)
–
(3)
(20,172)
48,427
2019
$’000
285,737
15,690
(18)
4,508
(1,285)
3,223
84,455
(2,123)
191,522
3,978
145
31
(1,749)
(15)
(2,571)
–
45
(25,162)
59,361
2020
$’000
98,327
7,337
2019
$’000
95,694
7,049
2020
$’000
382,740
8,714
(88,843)
(73)
2019
$’000
399,260
8,427
(96,014)
(155)
311,518
105,967
302,538
69,063
66,047
7,135
(98,243)
211,430
2,689
(82,255)
231,952
(2,612)
66,451
(2,903)
63,144
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(5,082)
(715)
(1,262)
(653)
(35,932)
79,388
(16,396)
37,655
(15,538)
35,109
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(1,085)
(34)
(9,488)
(812)
–
(26,918)
58,088
(103,572)
(106,863)
(115,005)
(108,932)
(1,903)
(10,537)
(601)
(10,698)
(1,146)
Management and service fees revenue
External other fee revenue
Deferred acquisition costs
Gross Margin
Stockbroking revenue
Stockbroking service fees expense
Stockbroking net contribution
Inter-segment revenue(i)
Inter-segment expenses(i)
Net Operating Revenue
Other revenue
Finance income
Share of profits of associates
Operating expenditure
Share-based payments expense
Finance costs
Depreciation of property & equipment
Amortisation of intangible assets
– IT Development
Non-controlling interest
Income tax expense
UNPAT from continuing operations
Discontinued operations
UNPAT
2020
$’000
184,148
14,837
(198,040)
–
945
–
–
–
19,547
–
20,492
2,899
170
20
2019*
$’000
145,861
6,290
(139,650)
–
12,501
38
–
38
–
–
12,539
6,204
390
(1)
(49,875)
(41,725)
(119)
(19)
(1,025)
–
172
8,207
(19,078)
(14)
(49)
(56)
–
134
7,776
(14,802)
2020**
$’000
165,119
2,929
(49,573)
–
118,475
–
–
–
167
(17,768)
100,874
600
10,223
–
(64,031)
–
(242)
(2,720)
–
–
(13,411)
31,293
2019
$’000
–
–
–
–
–
–
–
–
–
–
–
–
71,987
–
–
–
–
–
–
–
2020
$’000
–
242
–
–
242
–
–
–
657
–
899
1,014
2,144
–
(41,362)
(129)
(13,329)
–
–
–
2019
$’000
–
353
401
–
754
–
–
–
137
–
891
867
5,917
–
2020
$’000
1,092,227
51,337
(565,894)
(73)
577,597
3,304
(1,241)
2,063
121,648
(121,648)
579,660
7,896
12,638
(479)
2019
$’000
926,552
37,809
(467,401)
(173)
496,787
4,546
(1,285)
3,261
87,281
(87,281)
500,048
11,049
78,439
30
(39,005)
(384,382)
(307,223)
15
(12,817)
–
–
–
(2,932)
(14,259)
(23,187)
(812)
169
(50,266)
124,046
4,788
128,834
(4,797)
(12,881)
(8,362)
(715)
179
(72,466)
183,301
14,688
197,989
(21,596)
50,391
18,424
(32,339)
17,986
(26,146)
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.
83
IOOF | annual report 2020 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
Termination payments
Profit on divestment of assets
Non-recurring professional fees paid
Unwind of deferred tax liability recorded on intangible assets
Impairment of goodwill
IOOF AL remediation costs
Governance uplift 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
2-3
2-4
2-4
2-4
2-4
2020
$'000
146,964
(88,166)
58,798
36,749
6,010
24,955
65
2,865
(1,528)
6,426
(9,717)
4,344
1,511
4,461
1,444
(12,337)
124,046
4,788
128,834
2019
$'000
28,560
(58,374)
(29,814)
37,651
2,488
20,766
416
2,043
(368)
2,027
(9,881)
–
235,278
–
875
(78,180)
183,301
14,688
197,989
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) 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 was written back as it was considered unlikely
that the performance hurdles would be met and the deferred
consideration would be received. This continues to be the case
at 30 June 2020.
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.
(b) 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
84
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, $10m of which was received in the
previous financial year as a non-refundable deposit. The Group
recognised a post-tax profit on sale of $83.7m in respect of
the Ord Minnett business upon completion of the transaction.
Completion of the sale occurred on 24 September 2019.
(c) Investment in Perennial Value Management
On 10 October 2019, the IOOF Group divested its equity
accounted investment in Perennial Value Management
Limited. The book value of the Group’s investment in PVM
was $7.8m at the time of divestment.
(d) IOOF New Zealand business
On 16 April 2020, the IOOF Group announced that IOOF
New Zealand Ltd had entered into an agreement to sell all
client rights relating to the IOOF Integral Master Trust to
Britannia Financial Services Limited. IOOF New Zealand Ltd
closed effective 15 April 2020.
IOOF | annual report 2020 Notes to the financial statements For the year ended 30 June 2020 (e) 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 operations.
Results of discontinued operations
Revenue
Expenses
Legal settlement recovery
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 provided by/(used in) operating activities
Net cash (used in)/provided by investing activities
Net cash provided by/(used in) financing 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
Unwind of deferred tax liability recorded on intangible assets
Provident legal settlement/(provision)
Income tax attributable
UNPAT from discontinued operations
Year ended
Year ended
30 June 2020 30 June 2019
$'000
$'000
49,739
(42,046)
–
7,693
(2,241)
5,452
83,614
710
84,324
89,776
88,166
1,610
89,776
25.2
25.1
59,462
(843)
–
58,619
88,166
375
562
(83,614)
117
(73)
–
(745)
4,788
169,541
(167,370)
36,000
38,171
(18,746)
19,425
58,968
(14,993)
43,975
63,400
58,374
5,026
63,400
16.5
16.5
(28,998)
24,024
(500)
(4,974)
58,374
1,553
61
(58,959)
24,249
(319)
(36,000)
25,729
14,688
85
IOOF | annual report 2020 (f) 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
As described above, the IOOF Group disposed of its Ord Minnett business effective 24 September 2019. The IOOF Group entered into
an agreement with a consortium of private investors and the fair value less costs to sell of the business was 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 at 30 June 2019. The major classes of assets and liabilities of the Ord Minnett business at 30 June 2019
were 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
86
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
IOOF | annual report 2020 Notes to the financial statements For the year ended 30 June 2020 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 (losses)/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)
2020
2019
$'000
1,092,227
3,304
51,337
86
11,180
1,419
(47)
12,638
1,528
7,896
9,424
$'000
926,552
4,546
37,809
249
76,825
1,256
109
78,439
368
11,049
11,417
1,168,930
1,058,763
Revenue is measured based on the consideration specified in a contract with a customer. The IOOF 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 as
performance obligations are satisfied over time.
Management and service fees revenue from the provision of financial advisory services together with revenue from the rendering
of services are recognised as performance obligations are 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.
87
IOOF | annual report 2020 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 (excluding superannuation)
Employee defined contribution plan expense
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
Deferred acquisition costs
Non-recurring professional fees
Governance uplift
IOOF AL remediation costs
Impairment of goodwill
Other
Total expenses
Policy
note
(i)
(ii)
(ii)
(iii)
(iv)
(v)
(v)
(vi)
2020
2019
$'000
$'000
529,585
1,241
36,309
567,135
442,098
1,285
25,303
468,686
266,684
195,321
18,525
39,787
17,305
9,342
21,341
6,788
4,594
16
15,139
36,619
9,695
10,602
15,651
18,109
6,020
67
384,382
307,223
2,932
6,010
24,955
65
2,865
23,187
36,749
812
73
6,426
4,461
1,511
4,344
1,444
4,797
2,488
20,766
416
2,043
8,362
37,645
715
173
2,027
–
235,278
–
875
115,834
315,585
1,067,351
1,091,494
88
IOOF | annual report 2020 Notes to the financial statements For the year ended 30 June 2020 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.
89
IOOF | annual report 2020 (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 Plans 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.
Further information is include in Note 6-2.
(iv) Termination payments
Termination benefits or redundancy costs are recognised as
an expense when the IOOF Group is committed demonstrably
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, amongst other impairment indicators,
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.
90
IOOF | annual report 2020 Notes to the financial statements For the year ended 30 June 2020 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
Loss/(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
2020
$'000
148,405
24,507
37,935
4,344
550
(106)
(84,325)
14,338
(1,953)
(1,473)
351
(565)
2,932
31,030
(740)
(84,636)
(944)
20,972
191
8,872
(189)
66,315
(8,317)
(12,196)
-
(19,866)
145,432
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
91
IOOF | annual report 2020
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
2020
$'000
2019
$'000
42,887
65,058
(668)
126
(93)
47
42,345
65,012
(14,602)
(80,397)
(32)
(172)
(80,601)
(15,589)
425
44
(14,133)
28,212
2019
$'000
Total income tax (benefit)/expense
Income tax recognised in other
comprehensive income
Financial assets through OCI
Exchange differences on translating
foreign operations
2020
$'000
Before tax
Tax expense
Net of tax
Before tax
Tax expense
Net of tax
95,677
(50)
(28,703)
(8)
66,975
(58)
7,888
(6)
(2,366)
(8)
5,522
(14)
95,627
(28,711)
66,917
7,882
(2,374)
5,508
Reconciliation of effective tax rate
Profit/(Loss) before tax from continuing operations
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 tax loss not recognised
Imputation and foreign tax credits
Recognition of deferred tax balances
Other
Under/(over) provided in prior years
2020
%
30.0%
1.7%
0.8%
1.5%
0.2%
0.2%
0.1%
(0.7%)
0.1%
(1.2%)
(0.3%)
32.5%
$’000
86,841
26,052
1,489
718
1,303
144
216
126
(613)
44
(1,023)
(244)
28,212
2019
%
30.0%
(2.2%)
3.0%
– %
0.0%
(0.1%)
(0.1%)
1.1%
0.4%
2.0%
0.4%
$’000
(45,582)
(13,538)
982
(1,381)
–
(9)
65
47
(516)
(172)
(907)
(160)
34.5%
(15,589)
For statutory reporting purposes, IOOF Group had an effective tax rate of 32.5% on its continuing operations for the year ended
30 June 2020 (2019: 34.5%) compared to a statutory corporate tax rate of 30%. This rate difference is primarily due to impairment of
goodwill, research and development (R&D) tax offsets, and tax offsets for fully franked dividend income, prior period amendments,
and non-deductible subsidiary acquisition costs. For the year ended 30 June 2019, 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.
92
IOOF | annual report 2020 Notes to the financial statements For the year ended 30 June 2020 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
Right of use lease liability
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%
2020
$'000
2019
$'000
20,838
206,995
9,854
21
32,735
1,524
271,967
(222,229)
49,738
38,642
(6,740)
79,689
28,292
64,730
17,616
222,229
(222,229)
–
(5,895)
67,062
14,132
15,352
(28,692)
(12,221)
–
49,738
5,325
1,598
17,758
121,625
94
9,679
–
2,056
151,212
(151,212)
–
9,951
8,612
88,166
(964)
50,643
699
157,107
(151,212)
5,895
(73,756)
696
80,601
(4,111)
(2,361)
(4,341)
(2,623)
(5,895)
4,905
1,472
* 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.
93
IOOF | annual report 2020 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 a consequence, all members of the tax-consolidated
group are taxed as a single entity.
Tax transparency
The IOOF Group is committed to tax transparency
and integrity. It has been a signatory to the Board of
Taxation’s Voluntary Tax Transparency Code (the Code),
since January 2017.
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 has previously conducted foreign activities
in New Zealand, via IOOF New Zealand, and in Hong Kong, via
share broking business, Ord Minnett (now both discontinued
operations). Each of those entities is subject to the local tax
regime. 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 $120.2m (2019:
$160.6m) in taxes to Australian, New Zealand and Hong
Kong governments (state and federal) in the 2020 tax year.
$119.9m or 99.75% (2019: $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.
94
IOOF | annual report 2020 Notes to the financial statements For the year ended 30 June 2020 2020 tax
contribution
by type (total
$120.2m)
Income Tax $45.1m
GST $53m
Payroll Tax $17.1m
Fringe Benefits Tax $1.1m
Other $3.9m
2020 tax
contribution by
country (total
$120.2m)
Australia $119.9m
New Zealand $0.25m
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 IOOF
Group. These include income tax, GST, pay-as-you-earn withholding taxes, and local duties, which total a further $95m (2019: $133m).
2-7 Dividends
After 30 June 2020 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 2020 dividend
Cents per
share
11.5
Total
$'000
40,374
Date of payment
Franked/
unfranked
22 September 2020
Franked
Dividend franking account
30 per cent franking credits available to shareholders of IOOF Holdings Ltd
for subsequent financial years
2020
$'000
2019
$'000
73,263
93,032
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
$17,303,000 (2019: $28,587,000).
The following dividends were declared and paid by the IOOF Group during the current and preceding financial year:
2020
Interim 2020 dividend
Special 2020 dividend
Final 2019 dividend
2019
Interim 2019 dividend
Final 2018 dividend
Cents per
share
16.0
7.0
12.0
35.0
25.5
27.0
52.5
Total
$'000
56,172
24,575
42,129
122,876
89,524
94,791
184,315
Date of payment
Franked/
unfranked
16-Mar-20
27-Sep-19
27-Sep-19
Franked
Franked
Franked
15-Mar-19
4-Sep-18
Franked
Franked
The total dividends declared relating to earnings for the year ended 30 June 2020 amounted to 34.5 cents per share
(2019: 37.5 cents per share).
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.
95
IOOF | annual report 2020 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
2020
2019
Cents per
share
Cents per
share
16.8
25.2
42.0
16.8
25.1
41.9
(8.5)
16.7
8.1
(8.5)
16.6
8.1
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
2020
$'000
146,964
146,964
88,166
2019
$'000
28,560
28,560
58,374
Earnings used in the calculation of basic and diluted EPS from continuing operations
58,798
(29,814)
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
2020
2019
No. ’000
No. ’000
350,122
681
350,456
982
350,803
351,438
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 2020, there were no options outstanding (2019: 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.
96
IOOF | annual report 2020 Notes to the financial statements For the year ended 30 June 2020 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;
• financial assets at fair value through other
comprehensive income;
• 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.
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 Holdings 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.
On 27 October 2019, the IOOF Group amended the
Syndicated Facility Agreement (SFA) with lenders to reduce
the available facilities to reflect the reduced consideration
for the ANZ P&I business. The amended SFA consists of the
following facilities:
• $240m revolving cash advance facility with a 3 year
repayment term from 27 September 2018 (being the
SFA effective date).
• $375m 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, comprising a contingent liability facility.
The current interest-bearing borrowings have a
debt duration profile of approximately 2.5 years
(calculated on a facility limit basis).
97
IOOF | annual report 2020 The overall net debt to equity ratio stood at 25% at 30 June 2020 (30 June 2019: 0%) reflecting a net $430.9m in borrowings
(including lease liabilities), principally $460m under the SFA. All banking covenants have been met at 30 June 2020.
Subsequent to the end of the financial year, the IOOF Group has renegotiated the terms of its borrowings. This has extended the
repayment term of its 3 year facility to be a 4 year repayment term from the SFA effective date.
Proceeds from SFA borrowings were initially applied towards the subscription of a debt note with a face value of $800m from ANZ.
The debt note was redeemed on 31 January 2020 and applied against the consideration owing for the ANZ P&I businesses.
Cash advance & working capital facility
Lease liabilities
Total 30 June
(a) Cash advance & working capital facility
2020
$'000
457,858
114,394
572,252
2019
$'000
426,503
–
426,503
The unsecured cash advance facilities and working capital facility is provided under an Australian dollar line of credit facility, to which
unrestricted access was available at balance date as follows:
Total facilities
Used at 30 June
Unused at 30 June
The financial liability under the facility has a fair value equal to its carrying amount.
Revolving Cash Advance Facility
Opening balance 1 July
Net borrowings drawn/(repaid)
Amortised capitalised establishment fees
Closing balance 30 June
(b) Lease liabilities
Lease liabilities
Opening balance 1 July
Lease liabilities recognised on adoption of AASB 16
Net lease liabilities acquired/(repaid)
Interest charge
Closing balance 30 June
(c) Other facilities
2020
$'000
615,000
460,000
155,000
2020
$'000
426,503
30,000
1,355
457,858
2019
$'000
770,000
430,000
340,000
2019
$'000
–
430,000
(3,497)
426,503
2020
$'000
2019
$'000
–
81,750
35,459
(2,815)
114,394
–
–
–
–
–
In addition to the revolving cash advance and working capital facilities, the IOOF Group has additional contingent liability
facilities. The aggregate of the contingent liability facilities is $55m (2019: $71.3m) of which $51.9m was used at 30 June 2020
(30 June 2019: $67.8m).
98
IOOF | annual report 2020 Notes to the financial statements For the year ended 30 June 2020 Accounting policies
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.
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 (2019: 351,076,027)
861,715 treasury shares (2019: 1,237,144)
Ordinary shares
On issue at 1 July
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
Treasury shares returned from recipients during the year
On issue at 30 June
Accounting policies
Ordinary shares
2020
$'000
2019
$'000
1,970,847
1,970,999
(5,023)
(7,890)
1,965,824
1,963,109
2020
2019
No. ’000
$’000
No. ’000
$’000
351,076
1,970,999
351,076
1,971,648
–
–
2,715
(2,867)
–
–
4,000
(4,649)
351,076
1,970,847
351,076
1,970,999
(1,237)
–
447
(72)
(862)
(7,890)
–
3,558
(691)
(5,023)
(485)
(1,240)
488
–
(1,237)
(4,625)
(7,914)
4,649
–
(7,890)
350,214
1,965,824
349,839
1,963,109
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 Plans 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 Plans Trust is controlled by the IOOF Group and is therefore consolidated. Dividends received
on treasury shares are eliminated on consolidation.
99
IOOF | annual report 2020 3-4 Capital commitments and contingencies
The only capital commitments entered into by the IOOF Group are operating lease commitments disclosed in section 4–6 Leases.
Other commitments
Guarantees and underwriting commitments
Rental bond guarantees
ASX settlement bond guarantee
ASIC bond guarantees
Other guarantees
2020
$'000
2019
$'000
18,267
10,773
–
–
382
18,649
500
40
454
11,767
Two subsidiaries of the IOOF 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 2020, the IOOF 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 IOOF
Group. Where confirmation notices have been received, the IOOF Group has a fixed obligation to purchase the businesses at market
value, the aggregate value of this fixed obligation is $5.32m (2019: $3.00m).
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. For example, on 28 February 2020 IOOF Group was served with a class action proceeding filed by Shine
Lawyers in the Federal Court of Australian on behalf of certain shareholders of IOOF – please refer to the ASX announcement on that
date for further information. 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)
2020
$'000
91,300
(326)
(27)
2,655
(2,330)
91,272
2019
$'000
24,326
(326)
30
2,655
(1,460)
25,225
Nature and purpose of reserves
(i)
Equity investment revaluation reserve comprises the cumulative net change in fair value of equity securities designated at FVOCI, net of tax.
(ii)
Business combinations reserve reflects historic acquisitions of non-controlling interests, net of tax.
(iii) Foreign currency translation reserve comprises foreign currency differences arising from the translation of the financial statements of the IOOF Group’s foreign
operations, net of tax.
(iv) The operating risk financial reserve is held for certain superannuation products that were previously held under Australian Executor Trustees Limited and have been
transferred to I.O.O.F. Investment Management Limited as Superannuation Trustee in the prior 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.
100
IOOF | annual report 2020 Notes to the financial statements For the year ended 30 June 2020 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 IOOF 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 owned 52.4% of the equity interests in 2019 but had 42.4% of the voting rights and dividend entitlements. The IOOF Group
determined that it did not have control but had significant influence because it had representation on the board of the investee.
This investment was divested on 10 October 2019.
In addition, the IOOF Group owns 56.7% (2019: 56.7%) of the equity interests of Thornton Group (SA) Pty Ltd. The IOOF Group has
determined that it does not have control of this investee as it has no controlling interest over the appointment of the Board and as
a result does not have power over the investee to direct its operations.
The IOOF Group owns 10.7% (2019: 12.1%) of the equity interests of Grow Super. Despite not owning 20%, the Group has determined
that it has significant influence because it has representation on the board of the investee and participates in management decisions.
The table below discloses material associates individually:
Associate
Country of
incorporation
Ownership interest
Carrying value
IOOF Group's
share of profit/(loss)
Perennial Value
Management Ltd*
Australia
Thornton Group (SA)
Pty Ltd
Australia
Grow Super
Australia
Other associates
2020
%
–
56.7
10.7
2019
%
52.4
56.7
12.1
2020
$'000
–
6,179
3,789
2,978
12,946
2019
$'000
6,800
6,129
4,155
4,425
21,509
2020
$'000
–
180
(866)
207
(479)
2019
$'000
–
127
(298)
201
30
*
Investment was divested in the current year. Share of profit of $1,043 thousand (2019: $956 thousand) has been reclassified to discontinued operations.
All significant associates have a 30 June financial year end.
The following table summarises the 2019 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.
This investment was divested on 10 October 2019.
101
IOOF | annual report 2020 Beneficial ownership interest
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Net assets (100%)
IOOF Group's share of net assets (42.4%)
IOOF Group's share of movements in equity and other reserves (42.4%)
Goodwill
Carrying value of interest in associate
Revenue (100%)
Profit and total comprehensive income (100%)
Profit and total comprehensive income (42.4%)
Total profit and total comprehensive income (42.4%)
Dividends received by the IOOF Group
2020
$'000
0.0%
–
–
–
–
–
–
–
–
–
–
–
–
–
–
2019
$'000
42.4%
19,477
8,219
(7,050)
(361)
20,285
8,591
(1,791)
–
6,800
24,787
2,258
956
956
–
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 $351,000 (2019: $358,000) 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.
102
IOOF | annual report 2020 Notes to the financial statements For the year ended 30 June 2020 4-2 Intangible assets (other than goodwill)
Cost
Accumulated amortisation
Carrying value at 1 July 2018
Acquisition through business
combination
Additions
Divestments
Amortisation expense attributable
to continuing operations
Amortisation expense attributable
to discontinued operations
Reclassification to held for sale
Carrying value at 30 June 2019
Acquisition through business
combination
Additions
Divestments
Impairment
Amortisation expense attributable
to continuing operations
Amortisation expense attributable
to discontinued operations
2020
$'000
667,577
(323,619)
343,958
Other
intangibles
$'000
3,878
–
3,070
–
(1,401)
–
–
5,547
–
10,839
–
(207)
(1,300)
2019
$'000
652,248
(287,541)
364,707
Total
$'000
408,310
1,382
4,758
(269)
(38,360)
(1,559)
(9,555)
364,707
5,031
12,362
(7)
(550)
(37,561)
–
(24)
Brand
names
$'000
66,945
–
–
–
–
(6,773)
59,371
–
–
–
–
(801)
–
(34,534)
(801)
IT
development
Computer
software
Customer
relationships
$'000
1,284
–
1,654
–
(715)
–
–
2,223
–
1,490
–
–
(812)
–
$'000
4,267
–
1
(9)
(909)
(44)
(24)
$'000
331,936
1,382
33
(260)
(1,515)
(2,758)
3,282
294,284
–
33
(7)
–
(913)
(24)
5,031
–
–
(343)
(33,735)
–
Carrying value at 30 June 2020
2,901
2,371
265,237
58,570
14,879
343,958
Accounting policies
Intangible assets are non-physical assets used by the IOOF Group to generate revenues and profits. These assets include brand names,
software, customer and adviser relationships and contractual arrangements. The cost of these assets is the amount that the IOOF
Group has paid or, where there has been a business combination, the fair value of the specific intangible assets that could be sold
separately or which arise from legal rights.
The value of intangible assets, with the exception of goodwill and brand names with indefinite useful lives, reduces over the number
of years the IOOF Group expects to use the asset, the useful economic life, via an annual amortisation charge to profit and loss.
The values and useful lives ascribed are reflective of arms-length transactions and independent expert advice thereon. Where there
has been a technological change or decline in business performance the Directors review the value of assets to ensure they have
not fallen below their carrying value. Should an asset’s value fall below its carrying value an additional one-off impairment charge
is made against profit.
Subsequent expenditure
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which
it relates. All other expenditure, including expenditure on brands, is recognised in profit or loss as incurred.
103
IOOF | annual report 2020 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
•
IT development 3 – 5 years
• computer software 2.5 – 10 years
• other 5 – 10 years
• customer relationships 10 – 20 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.
In 2020, impairment has been recognised in relation to certain customer relationships and other intangible assets. Reduced cash flows
associated with the customer relationships and other intangible assets led to their expected value in use and fair value less costs to
sell declining to below the carrying value of the intangible assets.
Indefinite life intangible assets (other than goodwill)
The indefinite life intangible assets (other than goodwill) relate to brand names. The below table excludes $7.1m (2019: $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
Lonsdale
2020
$'000
51,000
500
51,500
2019
$'000
51,000
500
51,500
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 14.3% (2019: 13.3%) 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.
104
IOOF | annual report 2020 Notes to the financial statements For the year ended 30 June 2020 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
2020
$'000
2019
$'000
1,693,817
1,030,321
(97,775)
(93,430)
1,596,042
936,891
663,495
(4,344)
936,891
940,226
6,155
(9,490)
1,596,042
936,891
*
Purchase price allocation has not been completed for the acquisition of the ex-ANZ P&I businesses. The net asset adjustment is still being finalised in connection with
this acquisition. Therefore, the goodwill acquired in this acquisition is provisional.
Impairment of $4.3m has been recognised in 2020 in relation to goodwill allocated to the Consultum CGU (2019: impairment of
$9.5m 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 and value in use declining to below the carrying value of the goodwill balance.
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 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
As a result of the COVID-19 pandemic, assessing fair value as at the reporting date involves uncertainties around the underlying
assumptions given the constantly changing nature and early stage of the situation. The length of time it will take the measures
implemented by the Australian government to manage the effects of the COVID-19 pandemic on the broader economy and the
global and domestic markets is still unknown.
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.
105
IOOF | annual report 2020 The aggregate carrying amounts of goodwill allocated to each CGU are as follows:
2020
2019
Value in Use element
Cash
inflows
yrs 1-5
Cash
outflows
yrs 1-5
Cash flows
– perpetuity
Ex-ANZ Wealth*
Shadforth
Portfolio and estate administration
DKN
Multi manager
IOOF Ltd
Consultum
Bridges
Australian Executor Trustees
$'000
659,822
431,191
347,509
80,339
39,735
11,970
–
5,703
19,773
$'000
80
431,191
347,509
80,339
39,735
11,970
4,344
1,950
19,773
1,596,042
936,891
C
B
B
B
B
D
A
B
B
C
E
E
E
E
D
E
E
E
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
*
Purchase price allocation has not been completed for the acquisition of the ex-ANZ P&I businesses. The net asset adjustment is still being finalised in connection with
this acquisition. Therefore, the goodwill acquired in this acquisition is provisional.
A Reserve Bank of Australia forecast GDP growth rate1
B Blended rate of the 2021 budgeted rates by asset class and business unit
C 2021-2023 budget for the ex-ANZ P&I businesses, inflated thereafter in accordance with note E below
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 rate3
The recoverable amounts for goodwill allocated to all CGUs have been determined based on value-in-use calculations using 2020
actual balances to forecast 2021 and beyond cash flows. While the impacts of the COVID-19 pandemic on cash flows in the medium
to long term are still uncertain, the assessment undertaken to determine the recoverable amount for goodwill allocated to all CGUs
includes reduced forecast revenues for all CGUs and a COVID-19 specific alpha affecting the discounting of all future cash flows and
the terminal values of CGUs.
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 14.3% (2019: 13.3%) 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 (2019: 3.5%) to reflect a specific company risk premium.
This incremental amount is judgement based and consistent with accepted valuation industry practice.
The results of the annual impairment testing included management’s view of the current impact of COVID-19 on the Group’s
performance, including impacts on growth rates and discount rates.
1 Source – RBA Statement of Monetary Policy
2 Source – ABS 5655.0 Managed Funds Australia
106
3 Source – RBA Statement of Monetary Policy
IOOF | annual report 2020 Notes to the financial statements For the year ended 30 June 2020 4-4 Provisions
Employee entitlements
Ex-ANZ AL remediation provision
IOOF AL remediation provision
Ex-ANZ P&I remediation provision
Other
Balance at 1 July 2019
Acquisition through business
combination
Provisions made/(reversed)
during the year
2020
$'000
69,491
215,774
216,900
197,876
56,273
756,314
2019
$'000
59,312
168,810
223,165
–
2,045
453,332
Employee
entitle-
ments
Ex-ANZ
AL remed-
iation 1
IOOF AL
remediation
Ex-ANZ
P&I
remediation
Other2
Total
$'000
59,312
7,268
$'000
168,810
–
35,089
80,395
$'000
223,165
–
–
$'000
–
203,173
$'000
2,045
618
$'000
453,332
211,059
(1,243)
55,767
170,008
Provisions utilised during the year
(32,173)
(33,431)
Derecognised on disposal of subsidiary
(5)
–
(6,265)
–
(4,054)
–
(2,157)
(78,080)
–
(5)
Balance at 30 June 2020
69,491
215,774
216,900
197,876
56,273
756,314
1 Provisions totalling $168.1m were recognised in respect of the ex-ANZ ALs 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 provisions includes $54.5m in relation to the judgement in the Kerr v Australian Executor Trustees (SA) Ltd proceedings. This amount is held in escrow pending
the appeal outcome. The escrow lodgement was made by the Group’s insurers and an offsetting receivable has also been recognised. There is no cash flow impact
arising from this provision.
Accounting policies
A provision is recognised if, as a result of a past event, the IOOF Group has a present legal or constructive obligation that can be
estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are
determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time
value of money.
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. The IOOF Group 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.
The IOOF Group engaged an expert consultant to design the review methodology and estimate financial compensation impact for
this matter, in line with observed industry practice to date. IOOF Group 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.
107
IOOF | annual report 2020 As of 30 June 2020, the IOOF Group has provisions of
$630,550,000 (2019: $391,975,000) in respect of client
remediation and related costs. Of this amount, $215,774,000
is indemnified by the ANZ Banking Group (2019: $168,810,000)
and an offsetting receivable has also been recognised.
An increase in the ex-ANZ AL remediation provision of $80m
was required. In addition, the provision was drawn down
by client remediation payments and program costs paid
throughout the year. The increase was driven by a change in
methodology relating to adviser categorisation, now aligning
to that used by IOOF ALs, and is offset by a corresponding
increase in the equivalent receivable from ANZ. The provision
remains under the financial cap of the remediation program
arrangements with ANZ. There is no material cash flow impact
arising from that component of the provision. Additionally,
$203,173,000 was taken on upon acquisition of the ex-ANZ P&I
businesses relating to other areas of remediation.
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.
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.
108
IOOF | annual report 2020 Notes to the financial statements For the year ended 30 June 2020 4-5 Property and equipment
Cost
Accumulated depreciation
Office
equipment
Leasehold
improve-
ments
Balance at 1 July 2019
Recognition on initial application
of AASB 16
Additions
Disposals
Reduction in right-of-use asset upon
sublease of property
Depreciation expense
Depreciation expense attributable to
discontinued operations
Impairment expense attributable
to discontinued operations
$'000
3,190
–
633
(6)
–
(760)
(31)
–
2020
$'000
217,443
(83,000)
134,443
Land and
buildings
Right-of-use
assets –
premises
$'000
1,543
–
–
–
–
$'000
–
75,998
39,024
–
(1,101)
IT assets
$'000
19,622
–
$'000
11,655
–
1,380
5,976
(11)
–
(9)
–
(1,838)
(4,770)
(14)
(15,805)
–
–
–
–
–
–
(116)
(117)
2019
$'000
96,142
(60,132)
36,010
Total
$'000
36,010
75,998
47,013
(26)
(1,101)
(23,187)
(147)
(117)
Balance at 30 June 2020
3,026
11,186
20,819
1,529
97,883
134,443
(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.
(iii) Depreciation
Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each component of an item
of property and equipment. Leased assets are depreciated over the shorter of the lease term and their useful lives unless it is
reasonably certain that the IOOF Group will obtain ownership by the end of the lease term.
Items of property and equipment are depreciated from the date that they are installed and are ready for use, or in respect
of internally constructed assets, from the date that the asset is completed and ready for use.
The estimated useful lives for the current and comparative year are as follows:
• office equipment 3–10 years
•
leasehold improvements and right of use assets 3–10 years
Depreciation methods, useful lives and residual values are reviewed at each reporting date, and adjusted if appropriate.
109
IOOF | annual report 2020 4-6 Leases
From 1 July 2019, the Group has recognised right-of-use assets for operating leases, except for short-term and low-value leases.
Operating lease commitments
Prior to the recognition of lease assets and liabilities on balance sheet, the Group disclosed commitments in relation to operating
leases contracted for at the reporting date, but not recognised as liabilities. In 2020, commitments relate to short-term leases and
leases of low value assets. Those commitments are payable as follows:
Within one year
Later than one year but not later than five years
Later than five years
Amounts recognised in the statement of financial position
The statement of financial position shows the following amounts relating to leases:
Right of use assets – premises1
Lease liabilities – current2
Lease liabilities – non-current2
30 June 2020 30 June 2019
$'000
228
2
–
230
$'000
8,786
43,896
29,068
81,750
30 June 2020
1 July 2019
$'000
97,883
18,746
95,648
114,394
$'000
75,998
8,786
72,964
81,750
1 Right of use assets are presented within Property and Equipment in the statement of financial position.
2
Lease liabilities are presented within Borrowings in the statement of financial position.
The following table sets out a maturity analysis of lease liabilities, showing the undiscounted lease payments to be made after the
reporting date.
Within one year
Later than one year but not later than five years
Later than five years
Amounts recognised in the profit or loss
The statement of comprehensive income shows the following amounts relating to leases:
Income from subleasing right-of-use assets
Interest charge
Depreciation charge
Lease expense – short term leases
110
30 June 2020
$'000
21,521
76,427
22,404
120,352
30 June 2020 30 June 2019
$'000
458
2,815
15,805
901
19,521
$'000
331
–
–
14,778
14,778
IOOF | annual report 2020 Notes to the financial statements For the year ended 30 June 2020 The Group assesses whether a contract is or contains a lease
at inception of the contract. The Group recognises a right-of-
use asset and a corresponding lease liability with respect to
all lease arrangements in which it is the new lessee, except
for certain short-term leases (defined as leases with a lease
term of 12 months or less) and leases of low value assets. For
these leases, the Group recognises the lease payments as an
operating expense on a straight-line basis over the term of the
lease unless another systematic basis is more representative of
the time pattern in which economic benefits from the leased
assets are consumed.
The lease liability is initially measured at the present value of
the lease payments that are not paid at the commencement
date, discounted by using the rate implicit in the lease. If
this rate cannot be readily determined, the Group uses its
incremental borrowing rate. The incremental borrowing rate
is determined with reference to the following factors:
•
•
lessee specific credit risk; and
• secured borrowings adjustment.
length of the lease;
The lease liability is subsequently measured by increasing the
carrying amount to reflect interest on the lease liability (using
the effective interest method) any by reducing the carrying
amount to reflect the lease payments made. The Group
remeasures the lease liability (and makes a corresponding
adjustment to the related right-of-use asset) whenever:
• the lease term has changed or there is a change in the
assessment of exercise of a purchase option, in which case
the lease liability is remeasured by discounting the revised
lease payments using a revised discount rate.
• the lease payments change due to changes in an index
or rate or a change in expected payment under a
guaranteed residual value, in which cases the lease liability
is remeasured by discounting the revised lease payments
using the initial discount rate (unless the lease payments
change is due to a change in floating interest rate, in which
case a revised discount rate is used).
• a lease contract is modified and the lease modification is
not accounted for as a separate lease, in which case the
lease liability is remeasured by discounting the revised lease
payments using a revised discount rate.
The right-of-use assets comprise the initial measurement of the
corresponding lease liability, lease payments made at or before
the commencement day and any initial direct costs. They are
subsequently measured at cost less accumulated depreciation
and impairment losses.
Right of use assets are depreciated over the shorter period
of lease term and useful life of the underlying asset. If a lease
transfers ownership of the underlying asset of the cost of the
right-of-use asset reflects that the Group expects to exercise
a purchase option, the related right-of-use asset is depreciated
over the useful life of the underlying asset. The depreciation
starts at the commencement date of the lease.
Impact of initial application of AASB 16 Leases
General impact of application of AASB 16 Leases
The Group has applied AASB 16 for the first time for the
financial reporting period commencing 1 July 2019.
AASB 16 introduced new or amended requirements with
respect to lease accounting. It introduced significant changes
to the lessee accounting by removing the distinction between
operating and finance leases, and requiring the recognition of
a right-of-use asset and a lease liability at commencement for
all leases, except for short-term leases and leases of low value
assets. In contrast to lessee accounting, the requirements for
lessor accounting have remained largely unchanged.
The Group has applied AASB 16 using the modified
retrospective application of AASB 16 in accordance with
AASB 16:C5(b). Consequently, the Group has not restated
the comparative information. The impact of the adoption
of AASB 16 on the Group’s consolidated financial statements
is described below.
Impact of the new definition of a lease
The Group has made use of the practical expedient
available on transition to AASB 16 not to reassess whether
a contract is or contains a lease. Accordingly, the definition
of a lease in accordance with AASB 117 Leases and IFRIC 4
will continue to apply to those leases entered or modified
before 1 July 2019. The change in definition of a lease mainly
relates to the concept of control. AASB 16 distinguishes
between leases and service contracts on the basis of whether
the use of an identified asset is controlled by the customer.
Control is considered to exist if the customer has:
• The right to obtain substantially all of the economic
benefits from the use of an identified asset; and
• The right to direct the use of that asset.
The Group has applied the definition of a lease and related
guidance set out in AASB 16 to all lease contracts entered
into or modified on or after 1 July 2019 (whether it is a lessor
or a lessee in the lease contract). In preparation for the
first-time application of AASB 16, the Group carried out an
implementation project. The project showed that the new
definition in AASB 16 does not change significantly the scope
of contracts that meet the definition of a lease for the Group.
111
IOOF | annual report 2020 Impact on Lessee Accounting
Former operating leases
AASB 16 has changed how the Group accounts for leases
previously classified as operating leases under AASB 117,
which were off-balance sheet. On initial application of AASB 16,
for all leases (except as noted below), the Group has:
a Recognised right-of-use assets and lease liabilities in
the consolidated statement of financial position, initially
measured at the present value of the future lease payments;
b Recognised depreciation of right-of-use assets and
interest on lease liabilities in the consolidated statement
of profit or loss;
c Separated the total amount of cash paid into a principal
portion (presented within financing activities) and interest
(presented within operating activities) in the consolidated
cash flow statement.
Lease incentives (e.g. rent-free period) have been recognised
as part of the measurement of the right-of-use assets and
lease liabilities whereas under AASB 117 they resulted in
the recognition of a lease liability incentive, amortised as
a reduction of rental expenses on a straight-line basis.
Under AASB 16, right-of-use assets are tested for impairment
in accordance with AASB 136 Impairment of Assets. This has
replaced the previous requirement to recognise a provision
for onerous lease contracts.
For short-term leases (lease term of 12 months or less) and
leases of low-value assets, the Group has opted in some
instances to recognise a lease expense on a straight-line
basis as permitted by AASB 16.
Former finance leases
The main difference between AASB 16 and AASB 117 with
respect to assets formerly held under a finance lease is the
measurement of residual value guarantees provided by a
lessee to a lessor. As the Group does not have any finance
leases in place, this change has not had any effect on the
Group’s consolidated financial statements.
Impacts on transition
The Group previously classified leases as operating or finance
leases based on its assessment of whether the lease transferred
substantially all of the risks and rewards of ownership. Under
AASB 16, the Group as a lessee recognises right-of-use assets
and lease liabilities for contracts that convey a right to control
the use of an identified asset for a period of time in exchange
for consideration.
The Group applied the modified retrospective
transition approach, resulting in the cumulative effect
of adopting AASB 16 as an adjustment to opening
retained earnings at 1 January 2019, with no restatement
to comparative information.
At transition, for leases classified as operating leases
under AASB 117:
• Lease liabilities were measured at present value of
the remaining lease payments, discounted using the
determined incremental borrowing rate, as appropriate
for each identified lease arrangement, as at 1 July 2019;
• Right-of-use assets were measured at an amount equal to
the lease liability, adjusted by the amount of any prepaid
or accrued lease payments; and
•
In addition, the Group elected to apply the option to
adjust the carrying amount of the right-of-use assets for
any onerous lease provisions that had been recognised
on the Group balance sheet as at 30 June 2019.
The impact on transition is summarised below:
Right-of-use assets presented in property, plant
and equipment
Lease incentives
Lease liabilities
1 July 2019
$'000
75,998
5,752
(81,750)
–
When measuring lease liabilities for leases that were previously
classified as operating leases, the Group discounted lease
payments using its incremental borrowing rate at 1 July 2019.
The weighted-average rate applied is 2.75%.
Transitional practical expedients
The Group elected to apply the following transition
practical expedients:
i Exemption for certain lease arrangements with a
short-remaining-term from the date of initial application;
ii Discount rates applied to a portfolio of leases with similar
characteristics; and
iii The exclusion of initial direct costs for the measurement
of the right-of-use asset at the date of initial application.
112
IOOF | annual report 2020 Notes to the financial statements For the year ended 30 June 2020 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 (losses)/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/(decrease)
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 (benefit)/expense
Statutory fund contribution to profit or loss, net of tax
Accounting policies
Statutory
2020
$'000
913
37,375
(54,727)
5,145
15,355
14,924
2,598
21,583
10,352
5
2019
$'000
1,006
47,170
5,183
2,104
37,945
(33,447)
2,308
62,269
9,917
5
21,178
42,032
36
53
31,624
(10,041)
–
33
123
52,110
10,159
–
Investment contracts with discretionary participation feature (DPF)
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.
113
IOOF | annual report 2020 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 2020. The actuarial
report for IOOF Ltd was prepared by Mr Andrew Mead, FIAA,
and was dated 26 August 2020. 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.
114
IOOF | annual report 2020 Notes to the financial statements For the year ended 30 June 2020 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 IOOF Ltd 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
2020
$'000
15,083
6,688
8,395
226%
15,083
–
15,083
–
–
–
–
2019
$'000
16,027
7,241
8,786
221%
16,027
–
16,027
–
–
–
–
15,083
16,027
For detailed capital adequacy information on a statutory fund basis, users of this annual financial report should refer to the financial
statements prepared by IOOF Ltd.
115
IOOF | annual report 2020 Section 6 – Other disclosures
6-1 Parent entity financials
As at and throughout the financial year ended 30 June 2020, 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
2020
$'000
160,795
160,795
2019
$'000
165,610
165,610
29,404
8,227
2,478,995
2,410,135
7,873
465,942
8,562
435,065
1,970,847
1,970,999
1,908
40,298
2,777
1,294
2,013,053
1,975,070
Contingent liabilities of IOOF Holdings Ltd 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. IOOF Holdings Ltd
does not consider that the outcome of any other current proceedings, either individually or in aggregate, is likely to materially affect
its operations of financial position.
Guarantees and underwriting commitments
Rental bond guarantees
2020
$'000
2019
$'000
1,621
3,977
116
IOOF | annual report 2020 Notes to the financial statements For the year ended 30 June 2020 6-2 Share-based payments
The IOOF Group operates a number of employee share and option schemes operated by the IOOF Equity Plans 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
2020 (2019: 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.
Opening balance at 1 July 2019
Forfeited or lapsed during the year
Exercised or transferred during the year
Granted during the year
Outstanding at 30 June 2020
Exercisable at 30 June 2020
Performance
Rights
Rights
Deferred
Shares
Shares
No.
838,919
(231,190)
(462,481)
698,122
843,370
–
No.
358,788
(72,052)
(167,247)
57,592
177,081
–
Total
Rights &
Shares
No.
1,197,707
(303,242)
(629,728)
755,714
1,020,451
–
117
IOOF | annual report 2020 Disclosure of share-based payment plans
Series – Recipient
Performance rights
2017-01 Executives
2017-03 Executives
2017-04 Other Key Stakeholders
2018-01 Executives
2018-04 Other Key Stakeholders
2019-01 Executives
2019-04 Other Key Stakeholders
2019-05 Other Key Stakeholders
2019-06 Other Key Stakeholders
2020-01 Other Key Stakeholders
2020-02 Executives and Others
2020-03 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*
2020-01 Other Key Stakeholders*
Exercise
price
Opening
balance
1 July 2019
Granted
Forfeited
or lapsed
Exercised
Closing
balance
30 June 2020
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
nil
150,000
30,000
29,567
155,000
15,891
279,000
46,961
132,500
–
–
–
–
838,919
35,420
89,777
36,632
154,939
42,020
–
358,788
1,197,707
–
–
–
–
–
–
–
7,500
270,322
57,592
329,000
33,708
698,122
–
–
–
–
–
57,592
57,592
(75,000)
–
–
(45,000)
(1,895)
(105,000)
(1,844)
–
–
–
–
(2,451)
(75,000)
(30,000)
(29,567)
–
–
–
–
–
(270,322)
(57,592)
–
–
(231,190)
(462,481)
(35,420)
–
–
(89,777)
(36,632)
–
–
–
–
(77,470)
–
–
(72,052)
(167,247)
–
–
–
110,000
13,996
174,000
45,117
140,000
–
–
329,000
31,257
843,370
–
–
–
77,469
42,020
57,592
177,081
755,714
(303,242)
(629,728)
1,020,451
*Upon vesting, 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 2020.
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
2019-01 Executives
2019-02 Other Key Stakeholders
2019-04 Other Key Stakeholders
2019-05 Other Key Stakeholders
2019-06 Other Key Stakeholders
2020-01 Other Key Stakeholders
2020-02 Executives and Others
2020-03 Other Key Stakeholders
Fair
value
$4.93
$7.58
$3.54
$4.93
$5.57
$5.90
$6.47
$3.38
Grant date
share
price
$8.00
$7.84
$4.73
$8.00
$5.99
$6.08
$8.01
$3.95
Expected
volatility
Expected life
(years)
Dividend
yield
Risk-free
interest rate
24%
24%
37%
24%
n/a
62%
44%
54%
3
1
3
3
n/a
1
3
3
6.80%
6.90%
11.40%
6.80%
n/a
6.17%
4.68%
7.09%
2.20%
2.10%
2.00%
2.20%
n/a
0.58%
0.70%
0.28%
118
IOOF | annual report 2020 Notes to the financial statements For the year ended 30 June 2020 The following share-based payment arrangements were in existence during the current and comparative reporting years:
Performance Rights Series – Recipient
2020-03 Other Key Stakeholders
2020-02 Executives and Others
2020-01 Other Key Stakeholders*
2019-06 Other Key Stakeholders
2019-05 Other Key Stakeholders
2019-04 Other Key Stakeholders
2019-03 Managing Director
2019-02 Other Key Stakeholders*
2019-01 Executives
2018-07 Other Key Stakeholders
2018-04 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
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
nil
30-Jun-22
30-Jun-22
8-Apr-20
n/a
n/a
8-Apr-20
20-Sep-19
20-Sep-19
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
n/a
30-Jun-20
30-Jun-19
31-Dec-19
n/a
n/a
n/a
30-Jun-20
30-Jun-19
n/a
n/a
30-Jun-19
30-Jun-19
n/a
TSR
n/a
n/a
TSR
n/a
Lapsed
n/a
TSR
n/a
n/a
Lapsed
TSR
n/a
TSR
Lapsed
TSR
*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
Chief Executive Officer
Executives
Other Key Stakeholders*
Attributable to discontinued operations
*Other key stakeholders include other Group employees.
Accounting policies
2020
$'000
–
281
436
2,215
2,932
–
2,932
2019
$'000
(204)
446
2,102
2,484
4,828
(31)
4,797
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.
119
IOOF | annual report 2020 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.
6-3
IOOF Group subsidiaries
Set out below is a list of material subsidiaries of the IOOF Group.
Country of incorporation
Ownership interest
2020
%
2019
%
Parent entity
IOOF Holdings Ltd
Material subsidiaries
Australian Executor Trustees Limited
Bridges Financial Services Pty Limited
Consultum Financial Advisers Pty Ltd
Executive Wealth Management Financial Services Pty Limited
I.O.O.F. Investment Management Limited
IOOF Ltd
IOOF Equity Plans 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
OnePath Custodians Pty Limited
OnePath Administration Pty Limited
OnePath Investment Holdings Pty Limited
Oasis Asset Management Limited
Oasis Fund Management Limited
Mercantile Mutual Financial Services Pty Limited
Global One Alternative Investments Management Pty Ltd
120
OnePath Funds Management Limited
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
Australia
Australia
Australia
Australia
Australia
Australia
Australia
Australia
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
–
–
–
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
100
70
70
70
–
–
–
–
–
–
–
–
IOOF | annual report 2020 Notes to the financial statements For the year ended 30 June 2020 If the acquisition had occurred on 1 July 2019, management
estimates that the consolidated revenue from continuing
operations for the Group would have been $1,444.1m and
consolidated profit from continuing operations for the year
would have been $107.6m. 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 2019.
Prior year acquisition
On 1 October 2018, the Advice Licensees (ALs) formerly owned
by ANZ joined the IOOF Group following the completion of a
share sale agreement between IOOF and ANZ. The ALs 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 ALs for a total cash consideration of $25.1m.
In the period from acquisition to 30 June 2019, the ALs
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 ALs 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.
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
Final completion of the acquisition of the ANZ P&I businesses
occurred on 31 January 2020. The purchase price allocation
has not been completed for the acquisition. The net asset
adjustment is still being negotiated in connection with
this acquisition.
In the period from acquisition to 30 June 2020, the ex-ANZ
P&I businesses contributed revenue of $178.9m and a
profit of $31.3m to the IOOF Group’s UNPAT results. This
excludes integration preparation costs of $25.0m incurred
during the year.
121
IOOF | annual report 2020 The following summarises the major classes of consideration transferred, and the recognised amounts of assets acquired and liabilities
assumed at the acquisition date for current and prior year acquisitions:
Consideration transferred
Cash
Deferred consideration
Total consideration
Cash balances acquired
Consideration, net of cash acquired
2020
$'000
810,209
–
810,209
(214,048)
596,161
2019
$'000
23,000
2,128
25,128
(24,240)
888
The impact on cash flows for the IOOF Group for the year was an outflow of $596.2m (pcp $0.9m).
Acquisition-related costs
The IOOF Group has incurred acquisition-related costs of $31.0m (pcp: $23.7m) in the financial year, on acquisition advisory,
integration preparation and finance costs in relation to the acquisition of the ANZ P&I businesses (pcp: acquisition of the ANZ ALs).
These costs have been included in the Other Expenses in note 2-4.
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
Other financial assets
Property and equipment
Deferred tax assets
Payables
Borrowings
Current tax liabilities
Provisions
Non-controlling interest
2020
$'000
214,048
48,390
–
–
974,023
–
64,133
(938,687)
–
–
(211,440)
–
2019
$'000
24,240
3,744
579
368
–
1,600
1,033
(2,103)
(618)
242
(3,493)
(544)
Total identifiable net assets acquired
150,467
25,048
*
The $168.1m customer remediation provision acquired with the ex-ANZ ALs 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
2020
$'000
810,209
(150,467)
659,742*
2019
$'000
25,128
(25,048)
80
*
Purchase price allocation has not been completed for the acquisition of the ex-ANZ P&I businesses. The net asset adjustment is still being negotiated in connection
with this acquisition.
122
IOOF | annual report 2020 Notes to the financial statements For the year ended 30 June 2020 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
Transaction advisory services
Risk and compliance review
Other services
2020
$
2019
$
4,460,243
1,759,440
6,219,683
3,147,729
1,016,270
4,163,999
336,232
590,948
204,930
344,155*
1,476,265
82,551
567,189
–
29,040
678,780
7,695,948
4,842,779
* Other non-audit services includes remuneration advisory services and debt advisory services, as well as minor other non-audit services provided during 2020.
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
Total
2020
$
2019
$
4,804,751
4,662,992
201,070
704,279
967,689
200,385
1,279,181
1,268,129
6,677,789
7,410,687
2020
$
5,580,543
1,097,246
2019
$
6,406,756
1,003,931
6,677,789
7,410,687
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.
123
IOOF | annual report 2020 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
Interest free loans
Perennial Value Management Limited
Interest bearing loans
Perennial Value Management Limited
Financial
year
Opening
balance
1 July 2019
Closing
balance
30 June 2020
Interest paid/
payable
during year
Highest
balance
during year
$
1,944,381
2,286,717
$
–
1,944,381
$
–
–
$
1,944,381
2,286,717
5,794,350
6,402,062
–
5,794,350
69,442
228,939
5,836,966
6,505,622
2020
2019
2020
2019
The amounts above were advanced by Perennial Investment Partners Pty Ltd and I.O.O.F. Investment Management Limited for the
specific purpose of assisting executives to acquire an equity interest in subsidiaries and associates of the Company. Secured interest
bearing loans made on commercial terms and conditions and unsecured interest free loans were repaid during the year.
(c) Investment in related entities
Through one of its subsidiaries, the IOOF 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
2020
$
2019
$
263,583
279,662
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 2020 and 2019 financial years.
124
IOOF | annual report 2020 Notes to the financial statements For the year ended 30 June 2020 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 2020
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
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 2020 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 31 August 2020.
(b) Basis of measurement
The consolidated financial statements have been prepared on
the historical cost basis except for the following material items
in the statement of financial position:
• financial instruments at fair value through profit or loss
are measured at fair value;
• equity investments at fair value through other
comprehensive income are measured at fair value; and
• 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.
(e) Use of estimates and judgements
To conform with AASBs management is required to make
judgements, estimates and assumptions that affect the
application of accounting policies and the reported amounts
of assets, liabilities, income and expenses. Actual results may
differ from these estimates.
Estimates and underlying assumptions are reviewed on
an ongoing basis. Revisions to accounting estimates are
recognised in the year in which the estimates are revised
and in any future years affected.
Information about critical judgements in applying accounting
policies that have the most significant effect on the amounts
recognised in the financial statements is included in the
following notes:
• section 1–1 – Contingent consideration;
• 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;
• note 3–4 & 4–4 – contingencies and provisions; and
• note 6–4 acquisition of subsidiary.
125
IOOF | annual report 2020 7-3 Other significant accounting policies
Significant accounting policies have been included in the
relevant notes to which the policies relate. Other significant
accounting policies are listed below.
Certain comparative amounts have been reclassified
to conform with the current year’s presentation.
(a) Changes in accounting policies
The IOOF Group has consistently applied the accounting
policies to all years presented in these consolidated financial
statements, except as identified at note 7–4.
(b) Basis of consolidation
The consolidated financial statements incorporate the assets
and liabilities of all subsidiaries of the Company as at 30 June
2020 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.
(ii) Non-controlling interests (NCI)
NCI are measured at their proportionate share of the acquiree’s
identifiable net assets at the acquisition date. Changes in the
IOOF Group’s interest in a subsidiary that do not result in a
loss of control are accounted for as equity transactions.
(iii) Subsidiaries
Subsidiaries are entities controlled by the IOOF Group. The
IOOF Group controls an entity when it is exposed to, or has
rights to, variable returns from its involvement with the entity
and has the ability to affect those returns through its power
over the entity. The financial statements of subsidiaries are
included in the consolidated financial statements from the
date on which control commences until the date on which
control ceases.
(iv) Loss of control
When the IOOF Group loses control over a subsidiary,
it derecognises the assets and liabilities of the subsidiary,
and any related NCI and other components of equity.
Any resulting gain or loss is recognised in profit or loss.
Any interest retained in the former subsidiary is measured
at fair value when control is lost.
(v) IOOF Equity Plans 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.
126
IOOF | annual report 2020 Notes to the financial statements For the year ended 30 June 2020 (c) Foreign currency
Foreign currency transactions
Transactions in foreign currencies are translated at the foreign
exchange rate ruling at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the
balance sheet date are translated to Australian dollars at the
foreign exchange rate ruling at that date. Foreign exchange
differences arising on translation are recognised in profit or
loss. Non-monetary assets and liabilities that are measured
in terms of historical cost in a foreign currency are translated
using the exchange rate at the date of the transaction.
Foreign operations
The assets and liabilities of foreign operations, including
goodwill and fair value adjustments arising on consolidation,
are translated to Australian dollars at foreign exchange rates
ruling at the balance sheet date. The revenue and expenses
of foreign operations are translated to Australian dollars at rates
approximating the foreign exchange rates ruling at the dates
of the transactions.
Foreign currency differences are recognised directly in equity
in the foreign currency translation reserve.
(d) Impairment
(i) Non-derivative financial assets
A financial asset not carried at fair value through profit or loss
is assessed at each reporting date to determine whether there
is objective evidence that it is impaired. A financial asset is
impaired if objective evidence indicates that a loss event has
occurred after the initial recognition of the asset, and that the
loss event had a negative effect on the estimated future cash
flows of that asset that can be estimated reliably.
Objective evidence that financial assets (including equity
securities) are impaired can include default or delinquency by
a debtor, restructuring of an amount due to the IOOF Group
on terms that the IOOF Group would not consider otherwise,
indications that a debtor or issuer will enter bankruptcy,
adverse changes in the payment status of borrowers or
issuers in the IOOF Group, economic conditions that correlate
with defaults or the disappearance of an active market of
a security. In addition, for an investment in an equity security,
a significant or prolonged decline in its fair value below its
cost is considered objective evidence of impairment.
Financial assets 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.
Associates
An impairment loss in respect of an associate is measured by
comparing the recoverable amount of the investment with
its carrying amount. Recoverable amount is the higher of
fair value less costs of disposal and value in use. 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 for which the estimates of future
cash flows have not been adjusted. 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.
(i) 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.
127
IOOF | annual report 2020 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.
(f) Leases
The following policy applies to the year ended 30 June 2019.
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.
(g) 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 IOOF 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.
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.
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.
(e) 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.
128
IOOF | annual report 2020 Notes to the financial statements For the year ended 30 June 2020 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, however will be
relevant for IOOF Ltd. The IOOF Group plans to adopt
AASB 17 in the consolidated financial statements for the
year ended 30 June 2023.
7-5 Subsequent events
The Directors have declared the payment of a final dividend
of 11.5 cents per ordinary share franked to 100% based on tax
paid at 30%, to be paid on 22 September 2020.
On 31 August 2020 the IOOF Group announced that it has
entered into transaction agreements with National Australia
Bank (NAB) to acquire 100% of NAB’s wealth management
business (MLC) for $1,440 million, (subject to completion
adjustments) and upfront integration and transaction costs
(approximately $90 million). The acquisition is expected to be
completed before 30 June 2021 and is subject to a number
of conditions precedent including regulatory approvals from
APRA and ACCC. This acquisition will be funded through a
combination of:
• $1,040 million fully underwritten institutional placement
and accelerated non-renounceable entitlement offer,
launched on 31 August 2020;
• $250 million of incremental senior debt via an underwritten
syndicated debt facility;
• $200 million in a subordinated loan note issued to NAB; and
• $40 million of existing IOOF cash.
The existing $670 million syndicated facility is expected to
remain in place and IOOF will seek consent from its lender
group in relation to the acquisition. As part of the transaction,
IOOF will expand its total debt facilities by $250 million in
total facility limits. IOOF is confident of receiving lender group
support for this transaction. To ensure funding certainty,
IOOF has engaged Citi and NAB to underwrite $920 million of
total debt facilities as a backstop to the syndicated facility.
7-4 Adoption of new and revised Standards
New and amended Standards that are effective
for the current year
The IOOF Group has adopted the following new or amended
standards in preparing these consolidated financial statements.
Impact of initial application of AASB 16 Leases
The Group has applied AASB 16 for the first time for the
financial reporting period commencing 1 July 2019. The
impact of the initial application of AASB 16 has been detailed
at section 4-6 Leases.
New and revised Standards in issue but not
yet effective
At the date of authorisation of these financial statements, the
IOOF Group has not applied the following new and revised
IFRS Standards that have been issued but are not yet effective:
AASB 17
Insurance Contracts
Annual Improvements to
IFRS Standards 2015–2017
Cycle
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
AASB 3
Definition of a Business
(Amendments to IFRS 3)
AASB 101 and AASB 108
Definition of Material
(Amendments to IAS 1 and IAS 8)
The directors do not expect that the adoption of the
Standards listed above will have a material impact on the
financial statements of the IOOF Group in future periods,
except as noted below:
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.
129
IOOF | annual report 2020 The $200 million of subordinated loan note issued to NAB has
the following key components:
• Coupon of 1% per annum. Steps up to 4% pa if the
subordinated loan note is not redeemed prior to 42 months
post completion
• Five year maturity date with an early redemption start
period of the later of three years from Completion and
30 September 2024
• Redemption amount equal to principal plus accrued
interest plus additional amount equal to any uplift in
notional securities over a reference price (being a 15%
premium to the theoretical ex-rights price for the Equity
Offer) and subject to adjustment
• Structurally subordinated to senior secured creditors
On 7 August 2020, the IOOF Group sold approximately
14.2 million shares of its total minority holding of 19.7 million
shares in Australian Ethical Investment Ltd (ASX:AEF) for total
cash consideration of $74.5 million (purchase cost $5.2 million).
This sale has reduced IOOF’s stake to approximately 5.5 million
shares (4.9%) of AEF. The proceeds from the divestment will be
used to reduce debt and provide strategic flexibility for growth
opportunities. The impact on underlying net profit after tax
is immaterial.
Subsequent to the end of the financial year, the IOOF Group
has renegotiated the terms of its borrowings. This has
extended the repayment term of its 3 year facility to be a
4 year repayment term from 27 September 2018, which is the
SFA effective date.
On 21 August 2020, ASIC commenced proceedings against
RI Advice Group Pty Limited (RI Advice), a wholly-owned
subsidiary of IOOF. ASIC makes complaints relating to
RI Advice’s management of cybersecurity and cyber
resilience risk, some of which relate back to events from
2016. No provision has been recorded at this point as
ultimately the quantum of penalty (if any) is not reliably
estimable at this point.
As part of the Advice 2.0 strategy, it is estimated that the
Group will acquire practices through Buyer of Last Resort
agreements due to the conversion of Bridges to a fully salaried
network. The estimated spend is $15 million to $20 million
for the 2021 financial year. In addition, on 28 August 2020,
the Board approved the 100% acquisition of Wealth Central
for $30 million, an online client engagement tool that creates
a better and more transparent advice experience as well
as delivering practitioners a more streamlined exchange
of client data.
IOOF evaluates potential opportunities for investments or
divestments on a regular basis. IOOF has received an approach
from a third party (who has commenced due diligence),
relating to the potential divestment of its professional trustee
services business, Australian Executor Trustees Limited. While
discussions are on-going, there is no assurance that any
divestment will occur, or if so, on what terms.
The existence of COVID-19 was confirmed in early 2020 and
in March 2020 was declared a pandemic by the World Health
Organisation. This has resulted in significant volatility in global
and domestic financial markets. Refer to Note 1–1 for the
sensitivity analysis of risks.
At the date of signing of the financial statements, there is still
significant uncertainty on the likely duration and the ultimate
impact COVID-19 will have on world economies. Given the
high degree of estimation uncertainty, management cannot
reasonably assess or quantify the potential short or longer
term financial impact on the Company.
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 2020 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.
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IOOF | annual report 2020 Notes to the financial statements For the year ended 30 June 2020 Shareholder information
Share Capital
IOOF has on issue 649,324,356 fully paid ordinary shares held by 58,808 holders as at 30 September 2020.
Voting Rights
IOOF’s fully paid ordinary shares carry voting rights of one vote per share.
Twenty largest shareholders as at 30 September 2020
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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