ALEXANDER FORBES |
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25.2% interest |
| Alexander Forbes is an international provider of financial and
risk services. It also has an asset management business, Investment
Solutions, that has more than R82 billion in assets under management. |
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| Alexander Forbes Limited (Alexander Forbes) is a leading
provider of financial and risk services internationally. Listed on
the JSE Limited, the group has offices in 31 countries in Africa,
the Asia Pacific region, Europe and Latin America. Its primary operations
are based in South Africa and the United Kingdom, and its main activities
include risk services, financial services and multi-manager investment
management. |
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OVERVIEW OF THE YEAR TO 31 MARCH 2005 |
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| Alexander Forbes produced revenues of R4.6 billion
for the year under review, up 4% on the previous year. Operating
profits (before non-recurring restructuring costs) increased by 1%
to R790 million, having been impacted by the reduced profit contribution
from International Risk Services and Direct Marketing. Operating
profit attributable to all of the other group operations increased
by 24% compared to the previous year. Headline earnings per share
decreased by 16% to 113 cents for the year, primarily as a result
of non-recurring restructuring costs in the International Risk Services
business. The dividend distribution to shareholders was maintained
at 67 cents per share. The total distribution increased by 30%. |
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AFRICAN OPERATIONS (PRINCIPALLY SOUTH AFRICA) |
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| The African operations continued to produce strong
organic growth with revenue increasing by 11% and operating profit
growing by 19% to R565 million for the year. All the businesses contributed
positively to these results. |
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| The Financial Services business recorded a 15% increase
in operating profit to R202 million, with good revenue gains in the
core actuarial consulting and administration businesses. The health
care and financial planning consulting divisions continued their
improved profitability reported at half-year. The asset consulting
division also delivered an improved performance. The home plan pension-backed
lending business increased both clients and profits, building on
prior year performances. |
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| The Risk Services (corporate insurance broking and
risk management), Personal Services (personal lines insurance) and
Guardrisk (cell captive insurance facilities) businesses again delivered
a good combined performance with operating profit increasing by 17%
to R161 million. The core corporate insurance broking business achieved
modest growth in turnover and operating profit, building on strong
prior year results. Significant success was achieved in delivering
innovative new products. The Personal Services business again produced
strong profit growth through good underwriting results and continued
disciplined expense management. |
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| Investment Solutions continued its strong performance
reported at the half-year, increasing its operating profit by 25%
to R202 million over the prior year. This was achieved through further
net inflows of assets under management of R3.7 billion for the year,
combined with the positive impact of strong market returns. Assets
under management from Southern African clients exceeded R82 billion
at year-end, an increase of 28% on the previous financial year. |
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INTERNATIONAL OPERATIONS (PRINCIPALLY UNITED KINGDOM) |
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| The international operations showed revenue growth
of 3%. Operating profit, before non-recurring restructuring costs,
decreased by 25% to £19.5 million as a result of the reduced
profit contribution from International Risk Services and Direct Marketing
businesses. |
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| The Financial Services businesses recorded strong growth
in operating profit to £10.1 million, up 58% on the previous
year. This reflects continued good growth in the Alexander Forbes
Financial Services (AFFS) business with 68% operating profit growth
to £4.2 million. In addition, a strong second half performance
by Lane Clark & Peacock’s UK actuarial consulting business
and the benefits of its European acquisitions resulted in operating
profit increasing by 51% to £5.9 million for the year. Excluding
acquisitions, Lane Clark & Peacock recorded 31% organic growth
in operating profit. |
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| The Risk Services business was negatively impacted
by softening property and casualty insurance rates, an industry change
caused by events in the United States and the continued impact of
the weaker dollar on US dollar denominated brokerage. Revenues decreased
by 5%, while operating profits, because of cost pressures, including
costs incurred in preparing the business for Financial Services Authority
regulation in January 2005, decreased by 52% to £6.3 million. |
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| At the time of the half-year results announcement on
15 November 2004, the group advised that it was undertaking a specific
review of its International Risk Services business. It indicated
that there would be one-off costs associated with this review, and
one-off costs of £9.6 million (R111 million) have been incurred.
Arising from the review, the group has instituted a number of focused
actions within this business including: |
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- Focusing aggressively on client retention, new business
and revenue generation.
- Cutting costs with annualised savings of approximately £4
million. Most of the benefits from these savings will only be realised
in the new financial year and will be partially offset by the cost
of new hires.
- Selectively recruiting key resources, including the appointment
of a new operations director and head of the retail business.
- Dealing with legacy issues. This has resulted in some provisions
being required for bad debts and historic lease issues.
- Selling the group’s 20% shareholding in National Britannia
for £5 million.
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| The combination of actions already taken and plans
put in place has left the International Risk Services business in
a stronger position to capitalise on the growing number of opportunities
in the market. |
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| The start-up UK Investment Solutions business continued
to grow successfully both assets and members under administration.
Strong new business has resulted in assets under management increasing
by £250 million (R2.9 billion) to £445 million (R5.2
billion) at 31 March 2005. The operating loss of £1.6 million
for the year is seen as a continued investment in growing this start-up
business. |
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| The operating profit of the UK Direct Marketing business
has decreased in line with expectations to £6.3 million for
the year. The business continues to operate profitably but on a smaller
scale. |
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| Alexander Forbes strengthened significantly its financial
position since the previous financial year-end. It made capital repayments
on term loan debt, settled the Merrill Lynch loan debt in the United
Kingdom in full and repurchased the exchangeable bonds held by VenFin.
The total debt repaid during the period under review amounts to R1.5
billion. It was funded through the proceeds of a R1.159 billion equity
issue of 114.8 million new ordinary shares to VenFin and the release
of the matching Merrill Lynch deposit in South Africa of R227 million,
with the balance funded from internal cash resources. This has resulted
in a materially stronger Alexander Forbes balance sheet. |
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BEE |
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| Management and the Board of Alexander Forbes continues
to see BEE as both a social and business imperative in South Africa.
The company is committed to ensuring that the scorecard targets of
the Financial Sector Charter are met by the due dates, with targeted
recruitment, retention and skills development being key elements
of internal transformation. Alexander Forbes’ BEE partners, Shanduka
Group, headed by Cyril Ramaphosa, deliver excellent value to the group by
providing input on emerging issues, human resources (including internal transformation),
business development and corporate social investment. |
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THE FUTURE |
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| The review of the International Risk Services business
places the business in a stronger position for future growth. While
trading conditions remain challenging in the short term, there are
opportunities arising from changes in the global insurance broking
industry. The International Financial Services and Investment Solutions
businesses are well placed to build on the successes of the past
year. Overall, the group is well positioned to achieve growth in
the year ahead. |
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Financial
and risk services 