Alexander Forbes seeks to rewind
Pension fund administrator extricating itself from former CEO’s decisions, but cancellation of IT contract pushes it to after-tax loss
After a rocky year, which included the dramatic axing of its CEO, Andrew Darfoor, Alexander Forbes is now trying to untangle itself from some of the decisions he made while at the helm.
After a rocky year, which included the dramatic axing of its CEO, Andrew Darfoor, Alexander Forbes is now trying to untangle itself from some of the decisions he made while at the helm.
The pension fund administrator, which is the largest in SA with roughly 1.4 million members, cancelled a R1bn IT contract it had entered into two years ago under Darfoor’s watch. New CEO Dawie de Villiers said the contract did not deliver what the company required.
The cancellation of the contract plunged Alexander Forbes into a R45m after tax loss for the six months to September as it had to write off R52m to exit it.
It also impaired a further R287m for software that was no longer necessary.
Darfoor was unceremoniously fired by the board without giving any detail apart from saying it had lost confidence in him. “It developed into something where we realised it wasn’t really going to deliver what we need right now. Instead of running through the contract, which we had already tweaked twice, we said, ‘let’s do the right thing and stop it’. The impairment is bad but rather stop here than go on,” said De Villiers.
Alexander Forbes said had it not paid the R52m to exit the contract, its profit before tax and the impairments would have been up 9% to R492m.
The company managed to increase its operating income by 6%, amid a shrinking retirement market as workers exit retirement funds due to lay-offs and market returns that are pretty much only equal to inflation.
De Villiers said all the underlying businesses — administration, consulting, retail and asset management — had managed to increase income in the six months to September.
“We’ve seen it in the mines, we’ve seen it in the retail companies, people being laid off and that has a big effect on our revenue. On top of that the markets aren’t performing well,” he said.
De Villiers, who was recruited from Alexander Forbes’s direct competitor, Sanlam, is in the process of reviewing the administrator’s market position and has promised to have a new strategy by the end of the company’s financial year in March.
“The underlying businesses are doing well. Any strategy will be a high-level tweaking. I don’t have to change everything. But it will focus a little bit on IT, which markets we are going to play in and our global strategy. But the essence is that we want to make our business simple.
“I’ll put clean milestones in place. I want to measure the business and I want to measure myself,” said de Villiers.
He said he is a firm believer of choosing carefully where to employ capital and anything Alexander Forbes will invest in must deliver returns.
He said Alexander Forbes’s business had growth potential and he was out to lure Sanlam’s clients to his new stable.
“I want to take clients from Sanlam and I want to take them away from all the other administrators. I only play if I can win.”
Karl Gevers, head of research at Benguela Global Fund Managers, said excluding the IT project losses, Alexander Forbes’s operational results were reasonable, given the difficult market conditions. But he said the second half might be more challenging, with some client losses and the state of markets affecting earnings negatively.