News: IFL Australia's IOOF posts 68% decline in annual profit, page-19

advice; portfolio and estate; investment management

the underlying result for those business showed an overall yoy reduction in npat from 189mil down to 175.8mil (reduction of 7% yoy), but as you say the h2 on h2 reduction was more pronounced dropping from 95.2mil down to 85.6mil (-10%). Hopefully that is a fairer reflection of the underlying business.

These figure don’t include ANZ adg and don’t include corporate costs.

@Just_a_guy

I agree with your UNPAT YoY reduction figures: ~7% down in FY19 (vs FY18) and ~10% down in 2H19 (vs 2H18) is also what I see. That excludes discontinued businesses, ADGs, the ANZ note and corporate costs.

Annualising 2H19 results, and factoring in corporate costs, I see a current UNPAT run rate of ~145m$ pa, before the negative contribution from ADGs.

I also broadly agree with your reasoning, in the event that the P&I deal does not proceed, but it may be a bit aggressive to assume that ADGs could still be brought (easily) to breakeven under such a scenario.

While it is mentioned in yesterday’s presentation that there is substantial opportunity to streamline the ADG business, it is also pointed out (slide 19) that its negative impact is expected to be offset “by synergies and business mix upon acquisition of ANZ P&I”.

So, it is not clear to me whether Management think the loss from ADGs could still be fully offset (within a reasonable time frame) in the event of no deal.

so theoretically, IOOF will have to think the onepath acquisition would be more accretive to share holders than the above exercise for them to think it is the right thing to proceed with the transaction.

In principle, I agree. The vibe I got from the Q&A session was that both David and Renato have a strong preference for the acquisition to go ahead, though. Incidentally, David put some strong emphasis on the fact that capital management initiatives (read “buy-back”) would “definitively” take place if the deal fell apart.

I can’t imagine IOOF are still doing the wrong thing by clients in the current year

As to whether FY19 UNPAT still contains remainders of the old “fees-for-no-service” regime: it’s a difficult one, but I think @gragou02 has a point.

ASIC’s definition hinges around whether or not ongoing fees are charged for periodic reviews that are offered to clients but not taken. ASIC have been pretty clear on the fact that the review is the main item of the ongoing service agreement, and that the provision of ancillary services (such as newsletters and invitations to seminars) does not justify charging the annual fee when the periodic review is not taken.

The sense I have is that only very recently has consensus been built around what represents wrongdoing and what doesn’t; that does appear to be the case for IOOF, at least, given that until not long ago they thought “fees-for-no-service” was not an issue for them at all.

Overall, I too thought this was a decent result in the scheme of things, but I also feel it may be a bit early to conclude that “core” earnings have found a new base around current levels. The uncertainty around changes in the advice business model is also significant, although I personally see it unlikely that IOOF Management, given their track record and knowledge of the industry, would suddenly start throwing money after initiatives that have little hope of success.

Just my two cents.