annual report 2011

IOOF | annual report 2011
Notes to the financial statements (cont’d)
For the year ended 30 June 2011
Treasury shares
Treasury shares are shares bought or transferred to the IOOF
Executive Performance Share Plan Trust in respect of the
employee share scheme. The Executive Performance Share
Trust is controlled by the Group and is therefore consolidated.
Capital risk management
The Group’s and the Company’s objectives when managing
capital is to safeguard their ability to continue as a going
concern, so that they can continue to provide returns to
shareholders and benefits to other stakeholders, and to
maintain an optimal structure to reduce the cost of capital.
In order to maintain or adjust the capital structure, the Group
may adjust the amount of dividends paid to shareholders,
return capital to shareholders, buy back its shares on market,
issue new shares, sell assets, or otherwise adjust debt levels.
The Group and the Company monitor capital on the basis of
investment capital, working capital and regulatory capital.
Investment capital is the Group’s capital that is not required for
regulatory and working capital requirements of the business.
The investment capital is invested in:
• bank deposits
• bank bills
• subsidiaries
• available-for-sale assets
• unit trusts, as investments, and
• Group operated unit trusts, as seed capital.
Each subsidiary manages its own capital required to support
planned business growth and meet regulatory requirements.
Australian Prudential Regulation Authority (APRA) regulated
subsidiaries have their own capital management plan which
specifically addresses the regulatory requirements of that
entity and sets a target surplus over minimum regulatory
requirements. Regular monitoring of regulatory requirements
ensures sufficient capital is available and appropriate planning
is made to retain target surpluses. IOOF Holdings Ltd is
primarily the provider of equity capital to its subsidiaries. Such
investment is funded by IOOF Holding Ltd’s own investment
capital, through capital issues, profit retention and, in some
instances, by debt.
Subsidiary capital generated in excess of planned requirements
is returned to IOOF Holdings Ltd, usually by way of dividends.
A standby facility is in place as a safeguard against a temporary
need for funds and to provide a short term funding facility
that allows the business to take advantage of acquisition
opportunities as they arise.
The weighted average cost of capital is regularly monitored.
Funding decisions take into consideration the cost of debt
versus the cost of equity with emphasis on the outcome that is
best for shareholder interests.
During 2011, the Group’s capital risk management strategy was
unchanged from 2010.
Further information in relation to solvency requirements
imposed by the Life Insurance Act is provided in note 40(h) Life
Insurance Business – Solvency Requirements.
The investment capital is available to support the organic
development of new businesses and products and to respond
to investment and growth opportunities such as acquisitions,
as they arise. The seed capital is primarily available to support
the business in establishing new products and is also used to
support solvency requirements of the benefit funds.
Working capital is the capital that is required to meet the day
to day operations of the business.
Regulatory capital is the capital which the Group is required to
hold as determined by legislative and regulatory requirements
in respect of its life insurance business and financial services
licensed operations. During the year, the Group has complied
with all externally imposed capital requirements to which it is
subject.
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