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Retrenchments still on the increase

Alexander Forbes expects higher layoffs for at least the next six months.
While most job losses to date related to smaller companies closing down, those at larger companies are showing signs of starting to increase. Image: Shutterstock

The financial results that Alexander Forbes announced for the six months to September played second fiddle to what can be seen as a dire warning from the investment group’s management – that job losses are continuing due to the economic devastation of the Covid-19 pandemic.

A sober message from CEO Dawie de Villiers’ presentation to shareholders on the results for the first half of the financial year was that Alexander Forbes’s investment management and administrator businesses experienced first-hand the stress and uncertainty that people are facing at the moment.

Official figures show that millions of jobs were lost during the first six months of 2020, and Alexander Forbes presented figures showing that job losses are still increasing. While some 15 000 members left their retirement funds in the first six months due to job losses does not sound like a big number, the month-to-month increase is concerning.

Members opting out of retirement funds

One of the slides in the presentation shows that the number of members opting out of their retirement funds as a result of losing their jobs has been increasing steadily – from the ‘normal’ rate of around a few hundred per month to thousands by September.

In June, 1 710 people cashed in their retirement savings due to suddenly finding themselves unemployed, rising to more than 4 000 people losing their jobs in July. Another 3 386 were retrenched in August and then 4 613 in September.

Once again, of importance is not the relatively low number of 15 000 of Alexander Forbes’ total client base – admittedly very important if you are one of them – but the real issue is that the numbers are still increasing.

A few remarks by De Villiers on the subject are noteworthy. “We are starting to see the impact of retrenchments filter through to our client base,” he warned.

“It is certainly not the end,” says De Villiers. “We have seen retrenchments flattening off a bit in October and November, but it will probably continue for the next six months.”

He added that “not a lot of assets are flowing out” as a result.

This indicates that the retrenchments are not in the ranks of employees sitting on millions in pension money and that the situation is really ugly.

Commentary to the formal results announcement states: “The impact of the restrictions on economic activity was widespread, with output declining sharply in all key sectors.

“This led to significant impacts on our clients, some of whom have reduced salaries temporarily, some reduced contribution rates to retirement savings temporarily and in other cases retrenched their employees, which reflect in the unemployment statistics, the lingering effects of which will likely be felt in our business in the next 12 to 24 months.”

Read: Retrenchment: What are my retirement fund options?

The commentary continues: “In this challenging operating environment, our client base has experienced retrenchments, low levels of employment, negative growth in payroll as well as an acceleration of business closures towards the latter part of the period.

“These factors have resulted in a reduction to our active member base with the impact felt in the second half of the period. Retrenchments and business closures were experienced within our umbrella funds, which are primarily small, medium and micro enterprises (SMMEs). Our standalone client base, comprising larger corporates, while reporting low levels of retrenchments, were impacted by reductions and suspensions in their payroll as well as low levels of employment.”

De Villiers indicated that while most retrenchments to date were cases where smaller companies closed down, retrenchments at larger companies are showing signs of starting to increase.

It is still Covid-19 playing out, exacerbated by SA’s weak economic foundation.

Economic impact

“This year has been an unprecedented year globally, with the outbreak of the coronavirus pandemic that has intensified the already challenging trading conditions in which Alexander Forbes has operated in the six months ended September 2020. The hard lockdown in South Africa during April and May resulted in very limited business and economic activities apart from designated essential services,” says management, noting that GDP contracted at an annualised rate of 51% in the second quarter of the year, marking the deepest quarterly contraction in history. It has extended the economic recession to a fourth quarter.

At the same time, global and local markets experienced significant volatility with the worst market crash in decades, while SA saw its sovereign credit ratings falling further.

Management maintains that Alexander Forbes performed well under these difficult circumstances, if one looks past the bad performance of the insurance businesses that the group wants to sell and has thus classified as discontinued operations.

Performance

Continued operations delivered an increase of 6% in headline earnings per share to 18.8c in the six months, but provisions at the insurance businesses that Alexander Forbes is still to exit resulted in a 41% decline in the overall headline earnings per share (EPS) number. Headline EPS dropped from 24.5 cents a year ago to 14.5 cents.

Read: Alex Forbes exits insurance in strategic overhaul

The insurance operations of the group (short-term insurance and group risk) and smaller African operations were classified as discontinued operations during the previous financial year, but this far only the Alexander Forbes Insurance Company Namibia (AFI Namibia) has been sold.

Management indicates that these businesses will hopefully be exited by the end of the financial year, but shareholders will need to contend with them and the brake on earnings for the foreseeable future, as well as continued tough economic conditions.

Thus, the current share price is 30% lower than its 12-month high and the latest results still put the share on a fairly hefty price-earnings ratio of 15.4 times.

Alexander Forbes share price

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First Q 2021 will be a bloodbath.

Jobs and ZAR… lets hope the dollar continues its decline as fast as the ZAR will after the Tito budget

In order to fully understand a serious challenge such as this – and learn how to reduce the probability of it recurring in future – we need to be clear what the actual causes are. SA’s economy was already in dire straights before the so-called pandemic – which is an important factor. To say that “…job losses are continuing due to the economic devastation of the Covid-19 pandemic” is factually incorrect. The Covid-19 virus did not DO anything. It’s a natural event. Our government and their key policy decision-makers are to blame for what they did that directly lead to the unprecedented and predictable economic devastation we now sit with. They need to be held accountable.

Very interesting your comment and I agree on the points you mentioned except for the Covid19 being a natural event

I personally think it was intentional, that it was not a result of “Wet Market Foods” in Wuhan

It “coincidentally” happened in the US election year and given the factitious relationship between Xi Jinping and Trump and the coziness of the Demo-rats, “Beijing Biden” and Xi Jinping, one can see politics at play

One can’t help marveling at the almost “perfect timing” of Covid 19’s appearance. Even if it wasn’t intentional, the CCP may have exploited the disaster to its fullest to weaken their opponent(s) by not shutting down international air travel sooner, etc. I wonder what the CCP has learnt from this and how it will apply this knowledge with the next virus?

The virus issue? “Do not waste a good crisis”. The US election was one target? It appears the CCP in October 2020 acquired another stake to max 75% ownership in Domion Voting System? What is a fact is, this voting equipment and peripherals proofed to be susceptable to fraud and version/s have been used to manipulate elections, wherever. Closer to home; SA has had an anemic economic growth; well documented recent history. Least of all the disastrous unemployment. As if this was not a crisis, pre-Covid, all of a sudden the Govenment closed the economy and wolla, miraculously the banking regulations are relaxed to pump liquidity into the market.Proof that perpetuating these regulations was also instrumental to surpress the economy. Otherwise why would it be used as a mechanism for Covid, if it did not work. Economic growth is synonomous with enery consumption?

Thank You Nkosasana Dlamini Zuma. Very soon she will leave p[olitics and retire on her phat pension AND ALL THE PERKS !!!

The economic crisis we are sitting in is a direct result of the ANC government racist economic policies turbocharged with their amazingly brazen corruption and incompetence. Sucking up and copying the insane response of the One worldlers to Covid 19 did not help either. The economy is in dire straights and the governing clique that brought us to this point has no idea how to fix it.

All politicians and government employees should take a 50% cut in their salaries until all COVID-19 restrictions have been lifted. It will be the quickest recovery of a pandemic in human history.

Gestaldt Management Consultants recently concluded a study which clearly indicated that in these turbulent times of a health pandemic and recession-like economics, some organisations resort to “amputation without diagnosis”, they simply retrench. As a matter of the survival of the organisation, a “knee-jerk” 10% retrenchment of staff across all operations gets signed off. What we always ask is the question,”Is retrenching the only Operational Strategy? and “How will you maintain strength in parts of the organisation that are critical to operational excellence if you retrench?”

Unfortunately, even after all the consultations and deliberations, most of the organisations still opt to retrench.

Sadly cutting the payroll promises a quick fix, whilst an alternative leaner approach may not necessarily produce the required result in the short term.

End of comments.

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