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Edited Transcript of IFL.AX earnings conference call or presentation 26-Aug-19 10:59am GMT

Full Year 2019 IOOF Holdings Ltd Earnings Presentation

Melbourne, Victoria Sep 19, 2019 (Thomson StreetEvents) -- Edited Transcript of IOOF Holdings Ltd earnings conference call or presentation Monday, August 26, 2019 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* David Coulter

IOOF Holdings Ltd - CFO

* Rachel Scully

IOOF Holdings Ltd - Head of Corporate Affairs

* Renato Mota

IOOF Holdings Ltd - CEO, MD & Director

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Conference Call Participants

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* Brendan Carrig

Macquarie Research - Research Analyst

* Joseph Koh

Schroder Investment Management Australia Limited - Analyst

* Kieren Chidgey

UBS Investment Bank, Research Division - Executive Director & Research Analyst

* Lafitani Sotiriou

Bell Potter Securities Limited, Research Division - Senior Analyst

* Matthew Dunger

BofA Merrill Lynch, Research Division - Research Analyst

* Nicolas Burgess

Baillieu Holst Ltd, Research Division - Equity Research Analyst

* Nigel Pittaway

Citigroup Inc, Research Division - MD of Insurance and Diversified Financials Equity Research and Lead Insurance Analyst

* Siddharth Parameswaran

JP Morgan Chase & Co, Research Division - Research Analyst

* Paul Fanning

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Presentation

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Rachel Scully, IOOF Holdings Ltd - Head of Corporate Affairs [1]

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Good morning, everyone, and welcome to IOOF's Full Year Results Announcement for 2019. My name is Rachel Scully. I'm the Head of Corporate Affairs here at IOOF.

Today, we'll hear an outline of the financial results from our CEO, Renato Mota; and our CFO, David Coulter. Renato will also finish up today's presentation with an overview of the priorities and outlook for the years ahead. There will be a Q&A session at the end of today's presentation. (Operator Instructions)

So to kick us off, I'll hand over to our CEO, Renato Mota.

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [2]

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Thank you, Rachel. And welcome, everyone.

This year has been a very challenging year for the industry and IOOF specifically, and I consider these results to be a very strong set of results considering the circumstances we're living through. Not only are we delivering underlying earnings growth, we're delivering positive business and client outcomes, and we're delivering on a program of work designed to stabilize our business.

Our reputation on conduct has been challenged during the year, and I'm pleased with how our people have responded and embraced the need for change. Whilst this is my second set of results, it's my first as CEO. And the last 7 months have given me confidence that the current focus on stabilizing the business will provide a platform for future growth.

So just touching on some highlights. And much of this, we'll go through in further detail, but there are a couple of callouts I'd want to make: an underlying net profit after tax from continuing operations, so excluding Ord Minnett, of -- 5.2% up to $184.9 million, representing a very strong result. Equally impressive is the net inflows position, $1.4 billion to platform and $0.5 billion in the advice segment, I think, are outstanding results in the current situation.

During the year, we've also reviewed our capital management principles. And as a result of that review, we're declaring a $0.19 dividend for the second half, taking the full year dividend to $0.445. And David will touch on this a little bit further.

In terms of the stabilization that we're undertaking, all APRA requirements up to and leading to 30 June have been met. We've also announced the divestment of Ord Minnett during the year, which allows clarity and provides us an opportunity to focus on our core business. And finally, we've also completed our advice review which we committed to in February, and I'll provide a little bit further detail on that through the presentation.

You may recall that in February, we made some key commitments to priorities that we thought were key to stabilizing the business. In terms of restoring trust, we undertook and completed a review of our risk and compliance functions, which, amongst other things, led to the appointment of a new Chief Risk Officer, Amanda Noble, who has already joined the group. And we also set about improving our engagement with all stakeholders through an increased level of transparency, and this equally applied to the regulators.

I've already touched on our achievements with respect to the APRA license conditions, but it's also worth pointing out that we -- all relevant "Protecting Your Super" package requirements were met for 30 June, and we're ready to adopt all Royal Commission recommendations.

Importantly, whilst we stabilize, it's important to also keep an eye on the future and ensuring we're investing for future growth. Certainly, the completion of the ANZ licensees, advice licensees transaction was an important milestone. And I'm pleased to say that is now fully integrated into the IOOF business. We're continuing to -- in continuing dialogue with both APRA and ANZ in relation to the completion of the P&I business, and we remain fully committed to this transaction.

In terms of our ongoing business simplification, we're today announcing that we will be moving from 2 platforms or 2 operating systems to 1 operating system by the end of 2021, which is a significant milestone in ensuring we're continuing to deliver the economic benefits from scale.

Importantly, we remain committed to our ClientFirst methodology and building a client-centric business model, so clearly, the reinvention of advice remains a key milestone and key deliverable in an advice-led strategy, as well as our open architecture, which we believe is quite a unique proposition in the marketplace.

Touching on the advice review. We're today announcing an advice remediation of $182 million, plus an additional $40 million in program costs. And I did want to touch on that and spend a little bit of time explaining the process we've undertaken with regard to that review.

So in February, at the half year results, we announced that we would be undertaking an external advice review with respect to our 4 existing advice businesses or licensees: Bridges, Consultum, Lonsdale and Shadforth. This covered a population of 788 advisers.

Our starting point for that review was to undertake a review of all advisers across 17 key risk indicators and looking for instances of fee for no service or inadequate documentation as well as inappropriate advice. These KRIs have been developed largely off the back of other similar processes being run throughout the industry as well as taking some guidance from the ASIC guidance reports and ASIC-issued reports such as the 515.

After running those 17 KRIs across all advisers going back to 2015, we identified 67 target advisers for specific sampling. Those -- of those 67 advisers, we sampled over 1,200 files going back to 2015. Out of those 1,200 files, we identified specific instances of failure of advice or fee for no service. The remediation of those instances was then extrapolated across the 67 advisers and then extrapolated again across the entire population, so the remediation number of $182 million, which includes interest expense calculated at cash plus 6%, covers the entire population and, we believe, is a full and thorough estimate of our remediation.

So just the whole a little bit further. $182 million in remediation costs, plus an additional $40 million in program costs. Those program costs relate to the analysis, interrogation of the sampling as well as actually effectively paying out the money and returning the money to clients.

In addition to the total advice remediation of $223 million which we're announcing, I also want to provide an update on our previous $5 million to $10 million guidance for product remediation. Having now completed that process, that has come in at $12.1 million and is expensed in this year's financials.

As I've mentioned, we have met all license conditions with respect to the APRA requirements for 30 June. And we remain on track for 31 December completion of all conditions, with one condition remaining subject to completion of the ANZ P&I transaction.

Just turning over to the financials for a moment. As I've already highlighted, the 5.2% increase in underlying NPAT, excluding Ord Minnett, I think it really illustrates the diversified nature of our business and the resilience that creates in uncertain times. Focusing in on the cost-to-income there, which has always been a hallmark of our results: And our business has always had a culture of spending money like it's our own, and I think that reflects through a very lean and very strong cost-to-income ratio and we expect that to continue into the future.

And as we've already touched on, a dividend per share of $0.445 for the full year, representing a $0.19 dividend that we're declaring at these results. Importantly, that $0.19 is made up of 2 parts as $0.12 final dividend for the FY '19 year plus a $0.07 special dividend, which David will explain a little further.

As I've already mentioned as well, the funds flow has been a particular highlight of these results, and particularly the $1.4 billion in net in-funds flow for the platform segment in a market which has experienced net out in the retail sector. And many of our larger competitors experienced significant net outflows into the billions of dollars, so I think the $1.4 billion really recognizes our proposition which is based around service, service excellence and ensuring we're building deep relationships with our clients. Equally, the $0.5 billion net advice flows is a strong number and really -- and reflects being out of market earlier in the year as a result of the BT reprice. So a strong result nevertheless.

Focusing on the 4 segments. And from these, it's clear to see that the ANZ Wealth segment has contributed and has been a key contributor to our earnings growth and, again, is a function of having a strategy that not only looks at organic growth but also looks to capitalize on M&A where relevant and where it makes sense to our strategy. The ANZ segment will -- both reflects the debt note as well as the losses from the ANZ Advice Licensees. And these losses remain an area of focus over the medium term as we look to redefine the advice model and ensure more sustainable economics.

From our financial advice segment, which generated $58.2 million, this is down on the prior year largely as a result of the BT reprice and the impact of that. Most pleasing, though, is the results of a NPS survey that was done amongst advisers that rated IOOF's licensee services at a plus 17%, in comparison to an industry average of a negative 30%. So this is an outstanding result and really positions us as an industry leader with respect to advice licensee services. Part of this, I think, is down to the open architecture nature of our business and ensuring that we're putting clients and the needs of advisers at the center of everything we do.

In terms of platform and estate administration, I've already highlighted the 4 -- or the $1.4 billion net flow position. And also worth noting that we're in the process of pre-releasing our new Evolve platform that will be the new platform going forward post simplification, and we've received really great feedback from that pre-release.

The $81.5 million UNPAT number is again down on last year, partly as a result of ClientFirst investment in the first half of the year as well as some erosion in our margins.

Investment Management continues to be a solid performer both in terms of earnings but also, more importantly, in terms of the investment performance with an outstanding result for the 1-year numbers ending 30 June, which has its place as a top retail fund MySuper performance. This is a credit to the team, and it's been a credit and a consistency in high-performing results the team's produced over a number of years.

With that, I'll hand over to David.

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David Coulter, IOOF Holdings Ltd - CFO [3]

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Thank you very much, Renato. And thank you, everyone, for making yourselves available this morning. It's a real pleasure to be here to present the result, 10 years and still going strong, hopefully.

Renato did touch upon the financials and the highlights on returns to shareholders. I'll give you the profit and loss breakdown on this slide, and that's separated into 2 years and it's on a continuing operations basis. So Renato made the point that we exclude Ord Minnett. We also exclude AET Corporate Trust. They've either been divested, in the case of Corporate Trust, or are undergoing divestment, in the case of Ord Minnett which was announced middle of the half and is expected to complete in late September of this calendar year.

The highlight is that underlying profit after tax from continuing operations is up 5% to $184.9 million, so in very challenging times, a very significant result. The statutory profit reconciles to this through an appendix to the pack but also in a great deal of detail in the appendix 4E and the financial statements released to the market. So you can get a good idea of what we take in, what we take out. These items are nonoperational, nonrecurring. There is a higher skew to cash in those items because we're making preparations for the integration of not only the ANZ-aligned licensees but the P&I business, which we expect to acquire later in this calendar year. That skew to cash is something that will be a recurring theme here when we go to talk about capital management and dividends later on in a slide.

The impact of the ANZ-aligned licensees does have a distorting impact on each of the line items, so I'll take you through a different view of the group underlying profit after tax pre-amortization analysis. And you can see that here, moving from $176 million to $185 million over the course of the financial year.

Notably, the growth in funds under management, administration and advice at $4.1 billion, when you compare average '18 to average '19, has contributed an $18.4 million uplift to underlying profit after tax, whereas a margin compression of around 2 basis points across the 3 ongoing segments and about $111 billion in funds, has pulled that gross margin impact on profit back around $28 million. So that's something we've been facing for many years structurally in this industry. And again, there are slides to come which discuss that in more detail.

Of note and Renato touched on it, $2.4 million in cost uplift on a $265 million cost base from the prior year, which represents less than 1%. And I've got more details on the slide to follow, but when you consider that 70% of our cost base is people-based costs, you can see the ongoing effort to manage that cost constraint is brought by ever vigilance on behalf of the management team.

The next 2 items speak to the contribution from ANZ or the ex ANZ businesses. Only ones truly ex ANZ, it's the $23.1 million 9-month loss from the ANZ-aligned licensees, and that's something we'll certainly turn our attention to once we integrate both businesses and on into the future; and in addition to that, $72.3 million of contribution from the debt note constructed with ANZ to ensure that we were working to a mutually beneficial outcome in terms of transitioning the P&I business once delays in the ability to transfer that business became evident. And that speaks to that very agile and nimble culture that you get from IOOF, where you do see us doing things to make sure that there are returns for shareholders in the face of diversity.

The other items is dominated by the funding cost for that debt note, around $13 million of the $20 million; and a few other peripherals which I can go into in Q&A. There's the share-based payments play an impact. There's depreciation and amortization arising from having built the infrastructure to proceed with ANZ on into the future as well as some new office fit-outs as we've expanded the business. And the increased amount of tax is simply a function of earning more profits.

So I've talked about our disciplined management of costs. Every year, we seem to go through in very granular detail what our cost base looks like and why it changed. I don't see many of our peers having to talk at single-digit millions; and it's because they don't have this flat cost profile year in, year out. So we will get bogged down occasionally. I see Nigel Pittaway in the room here, and he loves discussing the conference spend, for example, at $3 million in and out, half to half. We're looking at a first -- sorry, at a second half which is essentially the same base rate of costs as the second half in 2018.

The labor costs is the other notable pullback. And in that, if you go to the remuneration report that's been lodged with the ASX this morning, you'll see that all our KMPs and indeed, some of the wider senior management personnel pool have forgone STIs this year, so that pullback's occurred in the second half. And that's reflective of the adversity facing our shareholders. We as a management team and the Board with us, felt that, that sort of labor restraint is necessary with what's going on in the industry.

The ANZ costs have been isolated to their own bucket there and shown in blue at around $29 million, but that gives you a very good understanding of how the management team here manages those costs and keeps an ever-vigilant eye on them.

We also talk a lot about group margins in this business, and that's fair enough. You can see from the chart here, which is based on a 10-year historical time series for the group overall rather than any particular segment, we've gone from 52 basis points to 42 basis points on a like for like. So we've shown this analysis for the last several half year results presentations, and it does garner a lot of attention.

Irrespective of that, we've gone from 21 basis points to 19 basis points in the overall delivery of net operating margin, or EBIT margin you might also call it, in terms of returns to our shareholders on a pool of funds under management, administration and advice. The important thing to note there is that scale and the efficiency bred by scale allows us to get good member outcomes in terms of pricing. It's not the other way around.

So where we do take issue occasionally with the commentary that exists in the market is to discuss this as some ongoing price war. Participants in the market have delivered better outcomes for clients by having constantly looked at the way they do their business, improving technology and delivering services more efficiently. And that's what these 2 lines converging show you. So we're confident that the profile of these businesses on into the future, so long as we maintain vigilance on the cost base and invest in technology and process, will still continue to deliver returns to shareholders.

Renato touched on the segments earlier. We've got a lot more detail on the 4 slides to follow. So there'll be the advice, the portfolio and estate administration, the investment management and then the ex ANZ segment shown. Not only do you have both financial years, but you have the 2 halves for each of the financial years here.

Starting at the back first. This segment is actually a little distorted by the imposition of a new accounting standard, AASB 15. In essence, that's grossed up the revenue and direct cost lines, with no impact on underlying profit after tax. So I'll just point that one out if you're getting excited by this $70 million improvement in revenue.

The net operating margin here is relatively stable. The business benefits greatly from its open architecture stance. That brings in funds under advice that we wouldn't otherwise be able to avail ourselves of. However, the gross margin, given repricing in the market, did decline marginally as a result of repricing in response to BT, one of our major partners, and some of the actions they took in the market this year.

The operating expenditure has been managed well, in line with our cost constraint overlay more broadly, but also because we diverted resources significantly in the first half of the year to ClientFirst initiatives in portfolio and estate administration, and that's what you see here on the next slide.

So again, the 2 full years and the 4 halves shown. And that margin compression Renato mentioned earlier, 60 basis points down to 57 basis points, that's something -- that is a structural headwind in the industry which we acknowledge. Renato has got some slides to come, however, that will speak to that platform rationalization and the savings we expect to gain from there so that we can return to a very solid return on net operating margin for the business.

More significantly, for this business, if you look at its future profile, there's no revenue derivation from a cash spread in this business. And when I look at some peers' announcements about the way that they manage this segment of the business within their own conglomerates, they talk about something like 30% revenue derivation from cash spread. We believe that that's not only an unacceptable stance with clients, but that's a high-risk factor in your earnings if that's the manner in which you're deriving your earnings.

The operating expenditure, as I mentioned early, talks to a higher first half which we flagged back at that result, and the second half now is a return to ongoing run rate in this segment. That first half is an investment in ClientFirst that we believe will pay back in future periods and keeps us at that high Net Promoter Score that Renato talked about earlier, was on the slides here in the pack.

Investment Management. This is a ongoing, stable, complementary business which returns year in, year out. And as Renato touched on, of course, the performance in terms of returns to clients is what we're proudest of, but as CFO, it's my job to talk about what it does for shareholders as well. And what it does is deliver a very complementary return to the platform business. Platform business at scale ensures that you have a very viable multi-manager business. And that business is unaffected by institutional volatility. And it's not affected by key person risk, unlike other asset managers in the market.

And lastly in terms of segments, we've got the ex ANZ Wealth. So dominant here is, of course, that debt note interest. And it's split $43 million to $29 million in terms of its 2 halves impact on the group profitability overall. You can see that the loss from the ANZ-aligned licensees is something we definitely will turn our attention to.

The coupon reset to 2% from May on that debt note, but that's something we're carrying at the moment. It binds us well to the transaction with ANZ; and still returns profitably, in fact, when you look at the low interest rate environment we see currently.

I will go to the dividend, but I wanted to dwell -- or not dwell -- outline for the first time the capital management framework from the work Renato talked about earlier. Capital management framework seeks to reward shareholders and retain flexibility. That's a fairly simple statement. That's what we should all be doing, of course, but it's built on 3 objectives. It's maximizing returns to shareholders by an appropriate dividend payout ratio given the cash intensity or the capital intensity of this business. It's maintaining financial strength through prudent liquid asset backing. And that prudent liquid asset backing is particularly evident at the license holding conglomerates below the holding company, so we want to make sure that we've got adequate resources not only for the licenses but buffers within those to ensure that we can ride out any volatility. And lastly, it's about optimizing financial flexibility. We talk about a target, 1x to 1.3x net debt-to-EBITDA. And that's built on accretive financing, accretive event-based financing, not simply loading up with core debt.

So the considerations going on into the future, the 4 major things that we will see going on, is the payment of that remediation provision that Renato declared earlier. That's got a multiyear payment profile. We've got the divestment of Ord Minnett bringing in significant funds, with a small tax stipend on that from the low cost -- from the very high cost base, sorry; completing ANZ P&I, which we definitely expect will occur. And that brings with it its own set of financing challenges but also brings with it a significant free funds flow from the profitability of those businesses. And those businesses are much more profitable now than they were in October 2017 when we announced the purchase of them.

And then lastly, as a more general point, we'll have to support the transformation of this business. There's an ever-changing environment which might bring with it further regulatory overlay and further regulatory change. And ensuring that we've got adequate liquid asset backing to make sure that we meet those challenges. So we'll look to optimize the balance sheet profile once we have absolute certainty on the ANZ transaction, and that could include buybacks. It could include special dividends.

So looking at those principles and how they've played out in the current period. We've announced a final dividend per share of $0.12 and a special dividend per share of $0.07 for 2019, so that's a $0.19 per share dividend overall. The reason we've got a $0.12 final dividend is the impact of that remediation provision on one of the subsidiary groups that sits below the holding company not only in terms of its impact on retained earnings and the tests you conduct there to ensure that you've got sufficient funds to flow through, but in terms of also being able to funnel up to the holding company an adequate amount of franking credits to provide for shareholders a fully franked dividend.

So at $0.19 per share, you're looking at something like a 60 -- what was it, 70% payout ratio, say, but a full year payout ratio of 80%. So both of those payouts are within the stated 60% to 90% payout ratio range. And as I've said on previous occasions, if we're going below 90%, I want to provide very good reasons for doing so. And I think of when we look at remediation provision funding, some of the uncertainty in the environment, the reasons are manifest. Those final and the special dividends will be paid on the 27th of September.

And the cash flow profile is probably something that bears looking at as well when you consider the impact of those dividends. So the half year dividend at around $90 million and the final and special dividends going to $0.19 at around $66 million represent about a 90% payout on cash flows generated, operating post-tax cash flows generated for the year. So highly responsive to the amount of cash flow that's available to us. The difference between $171 million and, say, $190-odd million of underlying profit after tax pre amortization speaks to that cash skew I spoke about earlier. In that, some of the nonrecurring nonoperational items do genuinely represent cash outflow.

The net debt financing and acquisition costs just speak to that nimble and agile posture on making sure that we are collecting from the transaction with ANZ but also funding at the most efficient manner possible.

And lastly, $191 million in cash flow out represents the much higher dividends from prior periods. So you're looking at a $0.275 per share dividend as the final for 2018 and a $0.25 per share -- sorry, $0.27 and $0.255 for those 2 periods at $191 million out. So you've not got that cash outflow profile from the dividend when it's set at around $0.19 per share relative to current profitability.

I'll now hand you back to Renato for the priorities and outlook session.

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [4]

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Thanks, David.

And just to wrap up the presentation today, I did want to talk about our strategy, our priorities and the outlook because the -- we view the outlook as being very positive for IOOF to build an industry-leading business. And certainly, that business is fundamentally based on the value advice to communities and to society as a whole.

4 years ago, I think we put the stake in the ground at being an advice-led business, and we did so in a world that was very much dominated by product-led competitors. And that rationale for being advice led was centered fundamentally in the belief and the proven belief empirically that financial advice helps create a healthy society by any measure.

And most important of all, when you look at the value chain, financial advice is a piece of the value chain that our investors, our communities value the most. With increasing levels of need and complexity, this is unlikely to change anytime soon.

But what has changed in the last year or 2 is the supply of advice. And on the right-hand side of the chart there, you see a number of factors that are impacting the supply of advice, be it changes to education standards or governance of advice, succession planning and also the retreat of some of our larger institutions from the sector where previously they viewed advice simply a channel of -- to sell their products or a sales channel to market.

I believe history will suggest that our larger banking institutions have created the false industry we're dealing with today and created the crisis of confidence in advice. And this is something that we're committed to restoring to ensure that we have a professional and sustainable advice industry for all Australians.

And it's this belief that drives our strategy. And certainly, in my interview with the Board, I committed to delivering outcomes through on advice-led strategy and transforming IOOF's relevance and growth prospects as a business and turning it into an industry leader.

To achieve this, we saw and I see 3 discrete phases. Firstly is one of stabilize. We need to stabilize the business to transform and to prosper. To prosper, we need to be inspired by the origins of our organization as a community-based organization and return to those communities with technology insights and a trusted reputation. In terms of stabilize, and we've spoken about this today and certainly in February, it's about turning IOOF into being a purpose-driven culture. We're working very hard to uplift and to invest in our governance capabilities as well as ensuring we've got adequate and prudent capital management.

Transformation sees 2 keys -- 2 key areas of focus, being the reinvention of advice into a sustainable and economically viable business; as well as platform simplification, which is something that's been a hallmark of this business. And we expect that to continue going forward for the benefit of both clients and shareholders.

Just turning to the stabilization phase. And certainly, over the past 7 months, one of the areas I've been very keen to apply different lens to is the capability and leadership capability within our business. And upon my appointment in late June, I announced a senior management review. And in the past 2 months, I'm pleased to say that we've made 2 new appointments to the team already in Amanda Noble, the new Chief Risk Officer, who's already with the business; as well as we're announcing today Melissa Walls, who will start with the business at 30 September as our new Chief People Officer. Clearly, in the context of stabilizing our governance, our culture and our leadership, these are 2 key pillars to that. And we continue with the senior management review that we expect to be completed by the end of the financial -- end of the calendar year, by December of this year.

In addition to that, we've appointed 2 new nonexecutive directors to the holdings Board in Michelle Somerville and Andrew Bloore; as well as appointing Lindsay Smartt to our APRA-regulated entities' subsidiary boards.

With all 5 individuals, I'm very excited to have them on board. I've been very impressed with the caliber of individual and the level of commitment and passion these individuals are bringing to IOOF. And it does give me a high degree of confidence that we are attracting and we're building the right capabilities within our business to ensure we can succeed.

In terms of transformation, you cannot describe yourself as an advice-led business without being committed to the reinvention of advice, which is a substantial challenge and something we are committed to, but it will be misleading to treat advice as a homogenous business. And certainly, from an IOOF perspective, we see 3 discrete advice models in the -- in a future world and 3 models that can prosper in their own right.

We describe them as a professional services advice model, which is largely described as a salaried model with a branded advice experience; a self-employed model, which is catering for self-employed advisers operating under our license, we describe this as our business in a box; and thirdly and importantly, catering to third-party self-licensed advisers. So these are independent licensed advisory businesses that are looking for assistance and support from an institutional support partner.

Importantly, the key to operating these 3 businesses is ensuring that you've got one common large-scale advice ecosystem or advice platform that covers all those items on the slide you see there but importantly is enabled through technology, data and insights. This is our key area of focus and key area of investments as we look to refine and build these 3 pillars within IOOF.

So with respect to the professional services model, clearly, we already have Shadforth. And we're looking to build Bridges into this professional services model with a branded advice experience. And certainly, the acquisition of Bendigo Financial Planning was a key pillar to this strategy.

In terms of the self-employed model, we're working very hard to build the infrastructure and technology capabilities to build the "business in a box" as well as improving the economics and risk profile of this business.

And thirdly, we've had a small presence in the self-licensed space for quite a while under a business we call IOOF Alliances. And we believe that as we grow out the capabilities and the infrastructure to serve the other 2 pillars, we'll be well placed to export these to third-party licensees who will undoubtedly need support, institutional-grade support to succeed.

Turning to platform and the platform transformation. And as I'm sure many of you know, much has been said about IOOF's M&A history, but less seems to be said or acknowledged around our track record of business simplification which, I believe, has been a hallmark of our business for the past decade. And it's really written -- underwritten our success and cost efficiencies. 10 years ago, we had 8 different operating systems. We are now operating at 2, with a commitment to move to 1 by FY '21 or end of the 2021 year. We believe this is a market-leading position amongst the traditional or incumbent players in the industry and, I think, sees us well placed to compete with anyone in this industry and in fact build a market-leading platform solution. We expect this, once completed and once fully implemented, to produce approximately $10 million per annum in cost saves.

Whilst we're certainly not the only organization or competitor looking to build an advice-led business and really transform the advice industry, there are some stark differences between IOOF and some of our peers. And the main difference of all, I see, is our starting point is drastically different to some of our peers. Our BOLR exposure is modest and all at market multiples, meaning that we have flexibility in terms of how we deploy capital in building out the professional services advice business. We are uniquely placed with our open architecture model offering true choice and true client centricity for the benefit of our advisers. And importantly, we have a relatively low exposure to legacy products and systems, be it in terms of the impact on grandfathered commissions; be it in terms of business simplification, which as I've already highlighted, a path of 2 to 1 is a relatively known path and known initiative; as well as our exposure to legacy products and the complexities that brings.

As well as a different starting point, our track record at our ability to execute is a key differentiator. We hold our agility close to our hearts and making sure we're delivering in a cost-efficient manner.

Turning our focus to the FY '20 financial year. On the slide there, you'll see some items we've highlighted in the past that will impact the FY '20 year. Specifically, the "Protecting Your Super" package is expected to have an $8 million impact on FY '20, as previously announced. And the BT reprice is expected to have an additional $4 million impact over the FY '19 run rate in '20 as well.

In addition to that, we're announcing today that we're expecting to spend an extra $10 million in governance investment in FY '20 as a result of much of the foundations we're building. And taking all those factors into account, we expect a 5 basis point reduction in our gross margin of the platform segment.

In addition to that, you can expect a full year's impact of the ANZ Advice Licensees as well as a profit on tax of $83 million from the Ord Minnett sale.

Finally and importantly, we remain committed to the ANZ OnePath or P&I transaction, and we expect to be able to provide some clarity to you on that by December of this year.

So in summary and before opening up to questions. Despite incredibly tough conditions for the industry and IOOF as a whole, we've delivered strong results whilst stabilizing for future growth. We're committed to the scale benefits that the ANZ P&I transaction will bring, both to the benefit of clients as -- and shareholders. And our advice-led strategy is built around capitalizing on the positive industry fundamentals.

Finally and most importantly, we're transforming the business to being purpose led off a strong base; and looking forward to rewarding our clients, our staff and our shareholders throughout this process.

So with that, I might hand over to Rachel, and we'll open up to questions.

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Rachel Scully, IOOF Holdings Ltd - Head of Corporate Affairs [5]

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Thanks, Renato.

(Operator Instructions) And we might start in the room, if Nigel is ready. And for those listening on the call: This is a call for investors and for analysts, so if any media have questions, please do shoot through an e-mail after the presentation, and we're happy to set up some time for a call.

Thanks, Nigel.

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Questions and Answers

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Nigel Pittaway, Citigroup Inc, Research Division - MD of Insurance and Diversified Financials Equity Research and Lead Insurance Analyst [1]

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It's Nigel Pittaway here from Citi. Renato, you've basically talked about the reinvention of advice being a key priority for the business, but you acknowledge it's a substantial challenge. How much do you think you'll have to spend in actually doing that? And how much demand will it have on capital moving forward?

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [2]

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Sure. It's a good question, Nigel. Certainly, the -- much of the infrastructure or, if you like, the ecosystem that I was referring to is being built, so the costs associated with that are built into our run rate. But in terms of building out the salaried model, it is likely that we would envisage some capital outlay in terms of acquiring some businesses and acquiring books of business. So for example, the BOLR, as we say, is potentially an opportunity to turn what are currently self-employed businesses into salaried businesses. That will involve a capital outlay. Our intention is to come back to the market with an Investor Day later this year to provide some greater clarity of that. So I don't want to get prescriptive around some of the numbers there, but certainly, we need to acknowledge that the build-out of the professional services segment will involve some deployment of capital.

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Nigel Pittaway, Citigroup Inc, Research Division - MD of Insurance and Diversified Financials Equity Research and Lead Insurance Analyst [3]

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And I've noticed you say that you think that a salaried advice model is capable of running at a 30% to 50% EBIT. I mean, what sort of companies are you using as your benchmark for that? What gives you confidence that, that kind of EBIT is achievable? Because certainly, if you look at a number of advice businesses, that would seem to be a challenging number.

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [4]

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So I think, if you look at -- with the group to large institutions, you will certainly -- or specifically, if you're looking at bank salaried models as an example, I don't think that is the right benchmark. We are talking about a very different business type. And I could point to a number of private practice advisory businesses that are corporatized in nature generating EBIT margins in excess of 50%.

So certainly, if you talk to advisers and you understand advice businesses that are self-employed in nature, that are corporatized, they are extracting EBIT margins of 30% to 50%. Our work with practices through the Advice Academy has absolutely proven to us that a 50% EBIT margin is not unrealistic. I think at 30%, we're being conservative. A lot of industry benchmarking, if -- independent industry benchmarking, be it either here or overseas, will indicate to you that 30% to 50% is quite reasonable. Now I don't think you will necessarily see that in some of our listed counterparts, but we think that is achievable.

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Nigel Pittaway, Citigroup Inc, Research Division - MD of Insurance and Diversified Financials Equity Research and Lead Insurance Analyst [5]

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A question on the remediation. I mean you've gone back as far as 2015. Do you think that'll ultimately prove to be going back far enough? And I guess, why was 2015 chosen?

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [6]

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So 2015 was chosen for the KRIs as all the work -- and keeping in mind that the team -- much of the team that have run this process on our behalf have come with experience from the ANZ business and have broader experience around programs of work. We've got people in our business that had been involved in similar processes at Westpac and other organizations. The reliability around the KRIs reduces significantly if you go much further back. They've also pointed that, that 3-year period does turn out to be a reliable predictor of the longer history. As we find issues, however, we will go back further. So in terms of the sampling in the remediation, the remediation will go back 7 years, but in terms of using this as a means to estimate, reliably estimate, our exposure, it's accepted as a reasonable proxy.

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Nigel Pittaway, Citigroup Inc, Research Division - MD of Insurance and Diversified Financials Equity Research and Lead Insurance Analyst [7]

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Okay. And maybe just finally, could you just sort of tell us exactly where you are on the ANZ deal, so far? Have you had the approvals from ANZ yet, or is that still being awaited and...

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [8]

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So the -- probably the most material thing that's changed since February, when we last spoke, would have been the -- now the requirement for the APRA approval as well as the trustee approval. So we're continuing with both approvals actively in parallel, so certainly, we are trying to work through these as swiftly as we possibly can. We've had numerous interactions and meetings with the ANZ trustee board. It would be fair for the OPC or the ANZ trustee board to expect some greater clarity around the -- our process with APRA throughout that. So certainly, I think having now delivered the update on 30 June with the APRA requirements and provided with -- the trustee with greater clarity around that, I think that's been an important milestone. We're continuing to work through them with the remaining milestones, so I'm confident that -- between now and Christmas, that we'll come into a landing on the way on that transaction.

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Rachel Scully, IOOF Holdings Ltd - Head of Corporate Affairs [9]

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Thanks, Nigel. With no further questions in the room, I might hand over to Miles to take questions from the phones.

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Operator [10]

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(Operator Instructions) So your first question today comes from the line of Matthew Dunger from Bank of America Merrill Lynch.

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Matthew Dunger, BofA Merrill Lynch, Research Division - Research Analyst [11]

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If I can just go to that Slide 27, on the reinvention of the advice business. You're talking about an increased future footprint in salaried and also self-licensed. Is this organic or inorganic means you're expecting to achieve this by?

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [12]

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I -- thanks for the question. I would suggest both. So -- and I was alluding to it a little bit earlier. There is -- the modest level of BOLRs we have in the business will allow us what I would consider a semi-organic means to which to grow the business, but likewise, we have a relatively large footprint in the self-employed sector within our own network. So with the increasing need for advice business succession with the number of advisers leaving the industry, we believe that, that pool of businesses which we know quite well will provide a good opportunity for us to acquire those businesses. So to Nigel's point, there will be deployment of capital. So whether you call that organic or not, I'll leave to you, but there will be the need to deploy capital as well as growing our adviser numbers from within to ensure we build that out.

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Matthew Dunger, BofA Merrill Lynch, Research Division - Research Analyst [13]

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Okay. Fantastic. And if I could go back to the provision that you've taken. You talked about 67 advisers that were targeted. How were these guys selected -- the guys or girls selected and how were they chosen?

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [14]

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So they were chosen as a result of the key risk indicators, so the data analytics that we put across all advisers for the 3 or 4 years across those 17 metrics. They are best considered the high-risk advisers. So certainly, what we targeted in on were the higher-risk advisers, and from there, we then used that to extrapolate across the total population.

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Matthew Dunger, BofA Merrill Lynch, Research Division - Research Analyst [15]

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When you say you extrapolated across the population, you're extrapolating with higher-risk advisers, so does that mean you would hope that the provision is conservative?

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [16]

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We would hope the provision is conservative, but just to be clear: Those -- we made some assumptions to the extrapolation, so we didn't necessarily assume the same value rate, but we did use extrapolations that had been used elsewhere. And so that was a method we believe -- and we've been conservative in those assumptions, we believe. So yes, we do believe it's conservative, but as we continue the -- it's probably worth also mentioning that we're continuing the sampling of those advisers. So whilst we've -- we're happy with the number, we think it's a full and complete number, we're continuing to the sampling as well as, obviously, undertaking the remediation where relevant.

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Matthew Dunger, BofA Merrill Lynch, Research Division - Research Analyst [17]

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And just lastly, if I can. Can I ask about the $18 million loss from the ANZ ADGs? What is the timing to try and take these costs out? And how much costs are we talking about there? Can that become a -- profitable?

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [18]

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So you might note that I said medium term, not short term, so -- and by that, I think we need to be realistic that those businesses are currently dealing with an unprecedented level of change which they're trying to help their advisers manage through. I think the NPS scores show us that we've actually done a pretty good job in managing through that to date. And that is our primary focus, but certainly, once we move through that change, we are committed to ensuring that, that business is sustainable. And by sustainable, I mean it's not making a loss. So therefore, now how much profit we can extract from that channel, I think is something we still need to work through, but as a minimum, we would expect that business to break even.

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David Coulter, IOOF Holdings Ltd - CFO [19]

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And I think it's worth reflecting on. It's not simply a matter of taking costs out of the support services as well. And Renato and I are both on the record with this: It's a matter of asking practices and advisers to pay reasonably for the services they use as well. So it's a revenue-and-cost dynamic that will have to shift.

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Operator [20]

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Your next question from -- comes from the line of Kieren Chidgey from UBS.

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Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [21]

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A couple of questions, maybe just starting back on the advice provision. The 788 planners that you called out in the presentation package, I mean, is that a current sort of number in force? Or does that take account of advisers who were part of the network at various points over that 7-year period?

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [22]

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It is advisers in force, if you like, so current advisers. It does not include advisers that have left the groups.

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Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [23]

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Okay. Would you potentially bear liability for those well?

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [24]

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We would, to the extent that the advice that's in question was provided under our license. Where necessary and where there is evidence that there is further investigation required, we're absolutely commit to doing that, but at the moment, giving -- given the time we had, we focus very much on the current advisers.

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Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [25]

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Okay. And can you provide a number in terms of sort of the total number of advisers who worked under your licenses over that 7-year period?

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [26]

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I don't have that off top of my head. We'd have to -- we'll have to come back to you on that one.

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Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [27]

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Okay. And the 7-year period, I mean, just going back to an earlier question on that, why 7 years? I mean some of your peers have gone back 10. Is there a chance that you will extend that period at some point over the next year or 2?

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [28]

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So we will remediate in accordance with our requirements and our regulatory requirements. So my understanding is that's 7 years. I'm not going to comment on others, but certainly, we -- our intent is to remediate in accordance with our [last] requirements. So it's not -- we don't see that as a -- an optional or a discretionary time frame.

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Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [29]

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Sure. Okay. Just moving on to this Evolve platform, Renato, can you just talk about sort of what sort of platform that is? I mean, is that tech that's all built, let's say? Sort of what the differences in functionality coming through there will be over time? And obviously, you've called out a $10 million per annum cost/benefit once that comes through in FY '22, but sort of maybe you can also talk about whether or not sort of you view that platform, I mean, as an opportunity to sort of get more aggressive on price and to sort of pick up more market share?

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [30]

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Yes. It's a good question. So -- and I think we may have touched on this at the Investor Day late last year, but this platform that we have been building for a number of years, quite quietly, I should add and we haven't made a big song and dance about it, but it's very much leading-edge technology; micro services in structure; has been built over a number of years; has approximately, rough numbers, about $10 billion already running on it. So this is live. We're dealing with customers every day and clients every day, dealing with advisers, taking feedback on functionality.

Probably the standout feature from our perspective is the user experience, so the UX. So whether you're on tablet, mobile, desktop, the user's -- the look and feel is very contemporary, we think, as good as anything else that is out there. The functionality that's built is all true straight through, so whether it's account opening, withdrawals, which to your point does lower your operating costs, but importantly -- and this is where I think the point needs to be made, there's no point building a new platform unless you're rationalizing your traditional platforms. And our focus, as much as it is on building the future and building better functionality, it's equally on making sure we're simplifying and rationalizing because that is really the way you extract the cost efficiencies.

I think we've seen some of our competitors put a lot of effort into new platforms but have not done anything whatsoever about their traditional platforms. And therefore, I think they're still carrying the cost base of past practices. So we're very, very confident that both through new functionality, we can -- and simplification, we'll have a market-leading cost base, which by definition means we can compete on price with anyone else in the marketplace. And I believe Evolve can actively compete with any other platform in the market in terms of the functionality, keeping in mind we -- our intent is still to differentiate on service and be a market leader on service.

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Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [31]

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Okay. And just one final question, David, on the balance sheet. Sort of I know you've talked about capital and sort of cash flow in a lot of detail, but when we have a look at net tangible assets, is that a number that sort of matters to you? I think it's sort of around $350 million...

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David Coulter, IOOF Holdings Ltd - CFO [32]

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No, it's not a number in terms of considering what we can return to shareholders. It's the parent entity's profitability and the parent entity's ability to pay from funds upstream from dividends. The group balance sheet gets skewed by the scrip-for-scrip acquisitions that have taken place historically for the group and then the subsequent write-down of intangible assets that are declared from a purchase price accounting for those acquisitions. So it does tend to have an impact on that consolidated view.

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Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [33]

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Okay. I mean you seemed to be alluding, during the presentation, to some potential form of capital management at some point in the future. Is that sort of -- or on the view that ANZ -- under a scenario where ANZ P&I doesn't go ahead, presumably?

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David Coulter, IOOF Holdings Ltd - CFO [34]

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It's under either scenario really. I think we bank ANZ P&I when it occurs, and then we look at our capital structure in order to optimize it. When we announced the transaction in October 2017, things were a lot more straightforward. We were simply going to acquire it. We raised equity capital to do so, and then we formed a syndicated facility to fund the rest of the transaction.

In the meantime, you have remediation provisions. You have the divestment of Ord Minnett. You have settlement of AET, Provident litigation. You then sell your corporate trust business to Sargon. So what we're saying is we need to be agile in response to all those events which will either draw on capital or give us potentially excess funds. So the idea that ANZ P&I means that, that is the end of any reward to shareholders or consideration of what the optimal balance sheet looks like is not the right one. But to your question, should ANZ P&I not proceed, I think those options stare you a lot more starkly in the face, yes.

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Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [35]

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And how should we think about gearing metrics under this...

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David Coulter, IOOF Holdings Ltd - CFO [36]

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Well that -- the gearing ratio that I said was our optimal there is contingent on it being event financing, M&A accretive event financing, at this point. So that debt funding would come back into play, say, and we're going right on the speculative trail here or the hypotheticals, if ANZ P&I was to not complete but we had other very viable M&A options, we would again be looking at that net debt-to-EBITDA ratio as something that would optimize our position if we had to fund a large-scale transaction. But in the absence of ANZ P&I, that target probably doesn't come into play because it is event financing-driven.

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Kieren Chidgey, UBS Investment Bank, Research Division - Executive Director & Research Analyst [37]

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Okay. And finally, what's sort of your BOLR liability? Is that a number you can call out?

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David Coulter, IOOF Holdings Ltd - CFO [38]

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Well, there's a number in the financial statements themselves on Page 72 saying what our actual liability is at the moment. It's $3 million. As a contingent liability, it's highly variable because it's dependent on the number who may or may not put a BOLR and what the market price is prevailing at the time. So we don't -- we can't put a number where we don't have a reliable estimate of it. But the BOLR exposure is fairly modest and exists largely within the Bridges network and in very small number in the Consultum network, and that's all.

And it's not only that it's a market multiple. It's an independently derived market multiple, so if we can't agree a price with a practice principal, it goes through independent arbitration for independent valuation. So we're not facing any sort of fixed revenue multiple, nor the prospect that we have to rip up a contract. The contract itself says that's the process. But it's $3 million at the moment and it was $2 million last year, over 30 June.

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Operator [39]

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Your next question comes from the line of Brendan Carrig from Macquarie.

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Brendan Carrig, Macquarie Research - Research Analyst [40]

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Maybe just a quick clarification just on the margins in the platform and estate administration. The 5 basis points, is that essentially solely the previously announced guidance from the BT repricing and the PYS? And then is there anything additional in terms of competitive pressures that you're factoring into that 5?

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David Coulter, IOOF Holdings Ltd - CFO [41]

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Yes, it's a combination of PYS and, I guess, if you want to call it, competitive pressure. Yes, the competitive pressure or the strong flow in the contemporary platform is probably what I'd call it, $1.4 billion. We're modeling for something like that to continue on into next year, and that has its own impact. It's derived also, though, from the impact of those "Protecting Your Super" measures which do have a simple revenue-out perspective to them.

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Brendan Carrig, Macquarie Research - Research Analyst [42]

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Sure. And those ones are just in -- sorry, administration and -- portfolio and estate administration, not in the advice side of things, correct?

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David Coulter, IOOF Holdings Ltd - CFO [43]

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Yes, not in the advice at all, no, because by their nature, it's the government looking to protect the small balances of members who most likely and in our instance with our modeling don't have an adviser.

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Brendan Carrig, Macquarie Research - Research Analyst [44]

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Okay. And then just on the costs. So firstly, just on the invest -- or the additional governance investment expected to cost $10 million, that's on a go-forward basis. Apologies if you confirmed that earlier. I didn't catch it, but is that a permanent inflation of the cost base of $10 million, or is it one-off?

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [45]

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I wouldn't describe it as a one-off nor ongoing at this stage. We think they're ongoing probably at least for 18 months. And by that, I mean that at the moment, we are going through not only embedding a high level of governance but also implementing that, so there's a degree of implementation cost in there. And I think FY '20, so the current year we're currently going through, will actually give us a sense of how much of that is ongoing and how much is one-off in nature, but we haven't been prescriptive at this stage.

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Brendan Carrig, Macquarie Research - Research Analyst [46]

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Okay. And then maybe just on sort of a similar tack with the $10 million cost saves you're expecting in the platform side of things. The costs to achieve those, are they going to be sort of included in the value costs as given historically, you've obviously been taking or consolidating platforms and reducing platforms down, and that's sort of been seen more as value? Is it fair to assume that that's going to be a similar process or approach taken there?

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [47]

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Yes. Look, I think that's a fair assumption, and fair to assume that's embedded in the cost base. So I'd argue we'll -- that we have -- in terms of people and knowledge and expertise, we have more expertise in platform simplification than anyone else in the market. And that's largely embedded in the business today.

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Brendan Carrig, Macquarie Research - Research Analyst [48]

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Sure. And then maybe just a final clarification just on the dividend composition. David, you mentioned it was more about the streaming and whatnot in terms of distributing franking credits in terms of the ordinary versus special split. Should we be reading anything more into the fact that there is a special dividend being a component of it? Or is -- does that prohibit you, going forward, from being able to pay the ordinary dividend the way you want it? Or would it be more of a reduced franking credit proportion going forward, if that's -- if your comments earlier are how should...

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David Coulter, IOOF Holdings Ltd - CFO [49]

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I think you would take your guidance from the $0.19 per share total. It's the simplest answer to that question. The $0.12 per share is a one-off impact of declaring such an outsized remediation provision within a particular group of subsidiaries that holds the AFSL licenses.

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Operator [50]

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Your next question comes from the line of Siddharth from JP Morgan.

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Siddharth Parameswaran, JP Morgan Chase & Co, Research Division - Research Analyst [51]

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Just a question, if I can, just going back to the -- just the remediation costs for those 788 advisers. At the Strategy Day last year, you actually showed a number of 1,100 advisers ex ANZ. What's the difference between that 1,100 and the 788 advisers that you're showing now? And obviously, the reason for asking is just to see whether the amount you have taken as provisions is reasonable compared to peers.

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [52]

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Yes, it's a fair question. The difference is Ord Minnett.

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Operator [53]

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Your next question comes from the line of Joseph Koh from Schroders.

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Joseph Koh, Schroder Investment Management Australia Limited - Analyst [54]

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Just wondering on the remediation provisions. Is that like a best guess of a central estimate number? Or is it more like an 80% adequacy platform because you're more employing on the conservative side and likely to be over what your normal estimate would be?

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [55]

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I describe it as a full and thorough number. Now, we can't be definitive about that, but it is an estimate but we believe we've been conservative in our assumptions. But obviously, as we continue to work through the work and the sampling, to the extent the number or our views of the number changes, then we'll update the market accordingly.

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David Coulter, IOOF Holdings Ltd - CFO [56]

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There's some fairly descriptive wording in the actual detail of the financial statements on that as well that just gives you the sense of how it's compliant with accounting standards. So it's our best reliable estimate given the information and circumstances.

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Operator [57]

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Your next question comes from the line of Paul Fanning from Sunnyside Equities.

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Paul Fanning, [58]

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Look, I've been a very long-term shareholder of IOOF. I came in on the initial folks. So I've been around a very long time and have seen a lot of water pass under bridge. Look, a couple questions in relation to Slide 7 and Slide 22. Would either of you like to comment on what the status is of IIML? I see there's implementation date of 31st of December, '19, so still outstanding. Item 6, which has been always talked about by other analysts, ANZ P&I acquisition. And now we've got an APRA overlay requirement. I think the market and investors are being a bit concerned that the process has been dragging on. There seem to be a degree of apprehension coming from ANZ. Where are things up to specifically as of today? Renato, I think you indicated there that you would like to see finalization probably by December, if not the AGM.

And also, David, this will be one for you: Slide 22. I think there might be a -- you might have got a couple of dates a little bit skewed here. You've got opening here 30th of June, '18 and closing 31st December, '18. Should that have been effectively 30th of June, '19? That's the one talking about cash flow and prudent capital management. So in summary, they are my 3 questions.

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David Coulter, IOOF Holdings Ltd - CFO [59]

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Sure. No, well I'll do that easy one, first. Yes, you've spotted. So that should be a closing June. So we'll rectify that.

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Paul Fanning, [60]

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Any change in numbers on that?

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David Coulter, IOOF Holdings Ltd - CFO [61]

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No, no. The numbers are as they should be.

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Paul Fanning, [62]

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Okay. Right, okay. Now, the other 2 questions back on -- back to Slide 7?

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [63]

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Sure, no problem. And thanks for the question. So just in terms of the status of IIML. So just to maybe recap: IIML is our RSE, a registered superannuation entity. It also currently operates as our RE of our investment funds. We are going through the process of separating those 2 responsibilities into 2 separate entities. We expect that to be completed by 31 December.

So if I refer to your Slide 7: Everything else which was largely due to be completed by 30 June has been completed, so we are on track. And we're on track as per the time frames we set out ourselves in February. So to the extent to your question how we're tracking, we are tracking to plan is the simple answer.

Now, as you can imagine, these changes have had an impact on ANZ and the ANZ trustees board's ability to approve the transaction. So obviously, they're following our progress here quite carefully. Equally, since in -- on the 5th of July this year came a new approval requirement from APRA, who equally are following our progress very carefully. So in many ways, the approval of the ANZ transaction is dependent or -- on the -- our progress with these license conditions. You can view the fact that we've made good progress on these license conditions as a positive, as we're tracking as expected. And as I said earlier, I expect clarity on the future of the ANZ transaction by December of this year.

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Paul Fanning, [64]

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Okay. Renato, just 2 supplementary questions on that. Should the ANZ P&I go through sooner rather than later, on the bottom line, what sort of contribution to revenue could that be?

And also, a couple of days ago, you released the -- in the [update] about the APRA license conditions report are done by an independent party. Would you or the Board be happy to put to shareholders out -- or out in the open space the findings that would -- kind of came out of the independent review of the APRA license conditions?

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [65]

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So at this stage -- so the review of that was undertaken at -- as at 30 June was in relation specifically to the requirements that you've seen on this page. So it is one report, not -- I wouldn't describe it as being a review of the entire process as a whole. Obviously, APRA have been privy to that, as are ANZ, but at this stage, they're the only parties that are privy to that report.

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David Coulter, IOOF Holdings Ltd - CFO [66]

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So it's not analogous to the reviews that the banks, I think 3 of the 4, have decided to release. It is not a review of that ilk.

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Paul Fanning, [67]

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Okay. Okay. Yes, yes. I'll what -- that's what -- exactly what I was getting at, yes.

And the other point there is -- this might be for you, David...

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David Coulter, IOOF Holdings Ltd - CFO [68]

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Yes, well, the earnings belong to ANZ, the ANZ Banking Group, which is its own publicly listed entity as well. So we do receive reporting on them. I gave a nod to them being significantly improved on what it was when we bought; and that's because they've been generous enough, when they put their earnings profile into the market, to at least let the market know what that part of the business is producing. They have a September year-end, and they tend to be able to report within about a month of that year-end. So you'll get an update around that time on what that business had produced for them for that period. So we can give a nod, but it's not our place to disclose that number because it's not within our group of businesses.

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Paul Fanning, [69]

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Okay. So -- and those numbers and whatever the finalization date of the transition, that would be effectively the revenue date coming into IOOF?

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David Coulter, IOOF Holdings Ltd - CFO [70]

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That's right. That's right. And you can, of course, go to their March results as well, where they've disclosed contributions.

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Paul Fanning, [71]

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Okay. From ANZ. Okay.

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Operator [72]

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Your next question comes from the line from Nick Burgess from Baillieu.

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Nicolas Burgess, Baillieu Holst Ltd, Research Division - Equity Research Analyst [73]

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Just 2 quick follow-up points. Just on the advisers. So is 788 your current adviser count? And do you think you need to exit advisers to achieve sustainable compliance in advice? That's the first question.

Second question: So I must have missed something just on the dividend, just conceptually, David, the logic of reducing the dividend from last year but still talking about capital management even if ANZ P&I goes ahead. I don't quite understand those 2 points.

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David Coulter, IOOF Holdings Ltd - CFO [74]

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Yes. I -- do you want to go...

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [75]

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You go first if you like.

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David Coulter, IOOF Holdings Ltd - CFO [76]

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Yes. Well, I'll go to the capital management question, first. So it is that we won't sit on the current posture that we have in the event that ANZ P&I goes ahead. The extent to which we can release synergies, the extent to which there's free funds flow from ANZ also has an impact on the way that we would look at that net debt target ratio, the net debt-to-EBITDA. So it's more a nod to that. And then there is also the unexpected -- when we initially raised equity to fund ANZ, the unexpected windfall from the Ord Minnett transaction; and accessing whether or not -- once you have ANZ certainly, whether or not you would, say, apply the Ord Minnett windfall to reduce debt, whether or not you would reserve some of it for other capital management activities.

It's thinking of that nature. And I think getting ANZ in within the business, first, would be the priority. And then, in answer to Kieren's question, I don't like to acknowledge the possibility that ANZ won't happen, but if I have to be forced to acknowledge it, I think it then ramps up more in the view that if ANZ P&I didn't happen, we'd definitively have capital management initiatives to undertake.

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Nicolas Burgess, Baillieu Holst Ltd, Research Division - Equity Research Analyst [77]

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That helps. And the advisers?

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [78]

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Yes, in terms of the advisers. So we don't view it as a thinking about whether we've got advisers we need to expel from the group because of remediation or because of quality of advice, but we view that we'll be driven by the data and we'll -- driven by the analysis. And if the analysis suggests that there are advisers that are not adhering to our standards or the standards that is expected of them, they will leave.

Now if -- to think about the adviser numbers in a macro perspective, I'm expecting our adviser numbers to shrink largely as a result of the structural change that's happening at the moment, be it education standards, be it the ages of some of the advisers and succession planning, so -- and I think you can throw in there the quality of advice as another factor, but we don't think of it as a key driver of either attracting or removing advisers. It's simply an input. And we hold our advice standards and the quality of our governance systems close to our heart, so we're going to be very disciplined about that process.

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Nicolas Burgess, Baillieu Holst Ltd, Research Division - Equity Research Analyst [79]

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Okay. And 788 is the current count. Is that right?

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [80]

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Yes.

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Operator [81]

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Your last question today comes from the line of Laf Sotiriou from Bell Potter.

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Lafitani Sotiriou, Bell Potter Securities Limited, Research Division - Senior Analyst [82]

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Just a few questions, if I may. I just wanted to start off with Slide 30, the financial year '20 finance guidance. Can you just clarify? Is the -- or it's on the page before. Is the $7 million impact from the grandfathered commissions, can you just reconfirm the expected timing of that?

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [83]

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That's going to be dependent on the [needs of] legislation.

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Lafitani Sotiriou, Bell Potter Securities Limited, Research Division - Senior Analyst [84]

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So you're not moving ahead. You're waiting for the legislation to go through?

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [85]

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Well, it's very -- it's difficult to move ahead when you've got different parties dependent on different contractual arrangements. So by that, I mean whether it's -- so certainly, to the extent that there were unadvised advisers, much of that is already gone, but then we obviously have those that are salaried and those that are self-employed or even self-licensed. And there are contractual obligations there today. So that process of removing the grandfathered commissions is made far easier once that legislation is in place.

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Lafitani Sotiriou, Bell Potter Securities Limited, Research Division - Senior Analyst [86]

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Okay. And just moving on to the ANZ P&I transaction. I think David mentioned earlier on that he, I think and I quote, "definitely think it will occur," but Renato, yourself, you said that you're sort of open to the possibility that it may not happen by December. Can you just add some comments around some of the key dates that are coming? And is there a date that ANZ can walk away from this transaction if it's not complete by a certain period? And also can you just also clarify, are there 3 approvals that we are waiting on, or 2? So there's ANZ board separate to the ANZ trustee need to approve this.

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [87]

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Sure. So I'll try and deal with those in different parts. So there is a date, which -- in mid-October, whereby either party can walk away, can terminate the agreement or effectively walk away from the transaction. In terms of specific dates that we're currently working to, there are no specific dates per se, other than the fact that APRA have 90 days to approve the application. And obviously, we're meeting with OPC as in line with their own time frames. So there are no hard dates outside of that.

In terms of my level of confidence, I'm fully committed and we are fully committed to getting the transaction done but equally respectful that we're relying on 2 third-party approvals. And we respect their process, and we are supporting that process as best we can but also acknowledge that it is ultimately up to them. And you are right. There are 3 approvals in the sense that there's the OPC board, the ANZ trustee board. We do require an approval from ANZ as well and then obviously, APRA.

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Lafitani Sotiriou, Bell Potter Securities Limited, Research Division - Senior Analyst [88]

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Okay. And just finally, on some of the remediation stuff. With the pending Ord Minnett sale, who actually keeps the exposure to provisions from anything 7 years prior to the transaction completing or 10 years? Will you guys hold it, or will that go with the transaction?

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [89]

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The obligation sits with the license which would go with the transaction.

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Lafitani Sotiriou, Bell Potter Securities Limited, Research Division - Senior Analyst [90]

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Which would go at the transaction.

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [91]

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Yes.

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Operator [92]

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There are no further questions at this time. I will now hand the conference back to Renato Mota.

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Renato Mota, IOOF Holdings Ltd - CEO, MD & Director [93]

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Well, thank you for that. And thank you, everyone, for their time.

Just to recap. We are of the view that it's a very strong result in an incredibly tough set of circumstances. And very much as I outlined today, as part of our strategy, we are stabilizing the business and confident that we will deliver future growth as a result.

Again thank you for your time, and look forward to talking to you again soon.