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Alexander Forbes profit up, despite strained conditions

Disturbing trend: people leaving their jobs to access their pension savings.

ROFHIWA MADZENA: This is the SAfm Market Update with Moneyweb, with me, Rofhiwa Madzena. We’ve had some very interesting conversations around the Prasa board being dissolved, as well as the Stage 6 load shedding that we’ve been plunged into by Eskom. Now we are going to have a conversation around company news. Alexander Forbes has released a solid set of interim results – well, not too bad, not too great – around 1% growth, if I’m not mistaken. This is of course despite constrained conditions in terms of the operating environment here in South Africa. CEO Dawie de Villiers is very excited about a strategy that the company is implementing to get some growth into that company. This is the conversation we had a little earlier with him.

Let’s perhaps start with the salient features of the results in this particular period that we saw.

DAWIE DE VILLIERS: We saw revenue up by 1% and in itself that is obviously not too exciting a number. But for us it’s very exciting. It shows that we stabilised the business, it shows that we’ve stabilised the team – because without the right team and people, the right attitude and culture, you can’t keep your clients and you can’t get revenue growth. So for us that growth was quite important, and to show that it stabilised.

And then the other thing that happened is we’ve got a 3% profit. Both of these are just on continuing businesses, obviously excluding those businesses that we’ve put up for sale. That profit growth shows that the revenue has come though, but also that we’ve done very well with cost-containment in a period where we are also building the business with the right people. So, getting the balance right, getting the basics right – and it shows a lot of good things in terms of execution for us. So a good starting point.

ROFHIWA MADZENA: I’m glad you bring that up, the selling of some of the businesses and really aligning the strategy to give you optimal growth. Talk us though the businesses that you have got rid of, and the focus in terms of where the growth will come from for the business.

DAWIE DE VILLIERS: We’ve sold the short-term business in South Africa. We only need prudential authority approval for that to go though; we’ve got all the other approvals and that’s aimed to be finalised in in the next month or two, hopefully before the end of January.

Then we are busy with the disposal of the short-term insurance business in Namibia as well – it’s in the final stages. We are exiting Uganda and Zambia. The other one is the group risk and life business in South Africa, which is all the big insurance businesses and the non-core businesses.

That gives us the opportunity to focus on our core, as you say, from which we are going to get our growth – which is our pure administration, our consulting and our investment businesses.

So all our focus is now on growing those, and we think that there is more than enough opportunity to grow out of those businesses.

ROFHIWA MADZENA: Speaking of growth – you do speak about your new strategy and the refocusing of the business. You’ve mentioned that very briefly. But just give us a little more detail about the strategy and how executing it has been?

DAWIE DE VILLIERS: Yes, we changed the whole operating model and the way that we organise ourselves so that we are more client-centric. The big part of our strategy is to say, how do we pitch up in front of the client, and how do we really put the client at the centre of what we want to do, to be advice-led and be really client-centric.

So the growth we think will come from really engaging funds and members at funds throughout the period that they save with us, that they are in employ, that they are clients of Alexander Forbes through their employer; engaging them, making them understand why they are saving, how they are saving, so that when they exit they remain clients of Alexander Forbes, whether it is exit in leaving employ or exit in retirement, so that they then feel confidence in Alexander Forbes and leave their assets and their administration with us.

ROFHIWA MADZENA: I suppose the trading environment in South Africa has been a very tough one, given the current economic climate, and I want to know what you see in terms of trends and clients perhaps dipping into savings to be able to get through the month or to pay off some debt. What are the trends that you are seeing there?

DAWIE DE VILLIERS: When we talk about the economic environment, and how tough it is for our clients, and the trends we are seeing, certainly it’s tough for employers, and employers are losing employees because they have to downsize, plus [they are] not paying a lot of salary increases [indistinct] and improving in the behaviour of individuals.

The first thing we’ve seen is when people leave companies they are not preserving as much.

The preservation rate is down from 55 to 53, which means people are taking more cash.

We’ve certainly seen people also switching jobs because they want access to their pension fund [money], which is a very negative trend, and we are hoping that as soon as the economy turns, that trend will turn as well.

ROFHIWA MADZENA: We are seeing some very disturbing trends in terms of people leaving their jobs to access their pension savings. Thanks to Dawie de Villiers for the update.

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From what I understand they are getting R1.9 Billion for their insurance business sale.

Some of this money will possibly make its way to the share holders and possibly AIL.

What could go wrong?

End of comments.

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