10 August 2016
Michael Roddan Reporter Melbourne @michaelroddan
Chris Kelaher, managing director of financial services provider IOOF, believes there will be no further government tinkering to the $2 trillion superannuation system after the Turnbull government’s proposed reforms riled sections of the public.Shares in IOOF, which manages about $150 billion of client money and super funds, yesterday fell as much as 8.4 per cent in intraday trade despite the company booking a 42 per cent increase in net profit to $196.8 million for the year to the end of June. The bumper result was boosted by the $72m sale of IOOF’s Perennial business, passed off to Henderson Group last year. Stripping out one-off items, underlying profit was steady at $173.4m for the financial year, with revenue flat at $907.9m.Investors were also apparently unimpressed with a deterioration in the profit margin of the IOOF platform business, which fell three basis points to 0.2 per cent over the past six months.The group said in May it expected the gross funds margin to be “materially unchanged”.
“Decline in the platform margin will unlikely be well received, especially in the context of the earnings update in May,” said Credit Suisse analyst Andrew Adams.Despite IOOF emphasising future savings in financial 2018, Mr Adams said “investors may have been hoping for something sooner”.
While IOOF had positive funds flows of $1.8bn over the year supported by compulsory super contributions, including $1.3bn through its financial advice channels, fund flows to its platforms were somewhat hamstrung by market ructions such as Brexit and a “soggy start to the year”, Mr Kelaher said.
“This is a pleasing result in the face of turbulent market conditions,” he said.
Without the contribution from the $670m Shadforth acquisition, which the company bought in 2014, IOOF’s earnings per share would have been about 16 per cent lower year-on-year, according to CLSA analyst Jan van der Schalk.
The takeover delivered $25m in cost savings over the year.
Mr Kelaher said the prospect of further changes to the super system now appeared “negligible” after the government stoked outrage among some wealthy superannuants with the proposals outlined in the budget ahead of the federal election. “There’s not a lot of mileage in fiddling with superannuation,” he told The Australian. “People don’t like it being fiddled with and it tends to be retrospective, so people get agitated — even when there’s no impact on them.
“Our superannuation offering in Australia is one of the best in the world. That shouldn’t give you a natural inclination to go tinkering with the area — you want to leave it alone.”
Mr Kelaher has led IOOF through a series of takeovers including buying Bridges Financial Services, Shadforth, Lonsdale and a majority stake in Ord Minnett, and he said mergers and acquisitions were still “paramount” to the group’s growth strategy.
The group was recently outbid for the $1bn StatePlus financial planning business, but Mr Kelaher said it was regularly approached for deals. “If these opportunities come forward, we are in a position to deal with them,” he said, noting IOOF’s net debt stood at $20m after the Perennial selldown.
Consolidation and divestment of non-core businesses form a large part of the group’s strategy. During the year, IOOF merged $7.1bn of client funds and 40,000 client accounts, in one of the country’s largest platform consolidations, as part of an efficiency bid. Operating costs across the business fell 2 per cent over the year.
The low interest rate environment was also providing a tailwind for the company. “People, particularly retirees, are struggling to survive (amid low rates) so the climate for advice has never been greater, and the advice is often technical advice. It’s positive for the company,” Mr Kelaher said.
IOOF will pay a 26c final dividend, bringing the year’s total payout to 54.5c, ahead of the previous year’s 53c distribution and a company record.