A.Forbes to sell off un­der - per­form­ing units if per­for­mance doesn’t im­prove in 1.5yrs

Zambian Business Times - - FRONT PAGE -

If the un­der­per­form­ing busi­nesses in Nige­ria, Uganda and Zam­bia can­not be turned around within 18 months they will be sold Anaemic op­er­a­tion in Rest of Africa have made Lib­erty Hold­ings look Strong

It is im­por­tant to get the right peo­ple on the bus­bus, says CEOCEO, and the mix of skills among em­ploy­ees is im­prov­ing

It is not sur­pris­ing that Alexan­der Forbes points the mar­ket to­wards the nor­malised op­er­at­ing profit over the year to March. At a 5% in­crease to R986m, it is an im­prove­ment on the 1% in­crease the year be­fore.

The ac­count­ing profit, though, was down 80% to R327m, af­ter sev­eral write-offs — R317m from Alexan­der Forbes Life alone — and a hefty 50% ef­fec­tive tax rate. Not that there weren’t some good trad­ing re­sults.

There was a 20% in­crease in the profit of the core re­tire­ment di­vi­sion. The um­brella fund, in spite of in­creased com­pe­ti­tion, with Al­lan Gray en­ter­ing the mar­ket and Dis­cov­ery com­ing in a few weeks, in­creased mem­ber­ship by 12% to 352,000.

In the short term the de­ci­sion to bring its as­set man­ager In­vest­ment So­lu­tions in-house and re­name it Alexan­der Forbes In­vest­ments is pay­ing off and profit, which had been stag­nat­ing, was up 29% to R398m.

It in­creased the over­all mar­gin by bring­ing in al­ter­na­tive in­vest­ments in hous­ing devel­op­ment and in­fra­struc­ture. And it launched an in­come-fo­cused prod­uct branded Clar­ity, though it had to look out­side the group, to spe­cial­ist as­set man­ager Colour­field, to de­velop this.

It does, how­ever, plan to de­velop ex­change-traded funds and other in­dex or quan­ti­ta­tive "smart beta" prod­ucts in-house through a team re­cruited from Ash­bur­ton.

Alexan­der Forbes group CEO An­drew Dar­foor says in­ter­na­tional in­vest­ment can be of­fered much more cost-ef­fec­tively now that it is out­sourced to Mercer, the gi­ant in­ter­na­tional as­set con­sul­tant that owns 34% of Forbes.

In­vest­ments used to have a clumsy top-heavy struc­ture with sep­a­rate as­set-con­sult­ing and mul­ti­man­ager teams, and even a third team, Caveo, re­search­ing hedge funds.

There have been a few high-pro­file de­par­tures from this team, in­clud­ing re­search king­pin Muitheri Wa­home and Rob Southey, head of as­set con­sul­tants. But Dar­foor says he be­lieves that in gen­eral the mix of skills at Forbes is im­prov­ing.

"More than 90% of those scor­ing 3, 4 or 5 in their as­sess­ments (the bet­ter per­form­ers) are stay­ing on while the pro­por­tion of 1 and 2 scor­ers (the worst per­form­ers) leav­ing has in­creased from 3% to 13%. I would like to in­crease that to 50%."

Dar­foor makes no apol­ogy for em­ploy­ing some high-cost ex­pa­tri­ates on his ex­ec­u­tive com­mit­tee. They in­clude John Mather, head of IT, and Chris­tian Schaub as head of HR (not that there is any trans­parency on their pack­ages).

"We have just started a five-year jour­ney," says Dar­foor, "and we need to have the right peo­ple on the bus." No less than R32m has been set aside for the re­ten­tion of such em­ploy­ees.

But he says that over two years there has been a cu­mu­la­tive R308m re­duc­tion in costs. The group has just sub­let a floor of its Sand­ton head of­fice, which will save R70m over the bal­ance of the lease.

Forbes has been a highly re­garded player in the re­tire­ment con­sult­ing and ad­min­is­tra­tion sec­tor, though with a high-cost struc­ture. It has also built up a prof­itable in­vest­ment busi­ness by ag­gres­sive cross-sell­ing.

But it has been some­thing of an also-ran in re­tail in­sur­ance prod­ucts and fi­nan­cial plan­ning. It is try­ing to change this through the cheesily ti­tled "fi­nan­cial well­be­ing for a life­time" pro­gramme, as if com­peti­tors such as Dis­cov­ery and MMI don’t use sim­i­lar slo­gans.

And the pro­por­tion of in­sti­tu­tional clients who own a Forbes re­tail prod­uct has in­creased from barely 3% to 8.7%.

His­tor­i­cally, Forbes used to cherry-pick its fi­nan­cial plan­ning clients from the board­rooms of its in­sti­tu­tional clients, and it has a size­able R67.3bn un­der ad­vise­ment. It is get­ting some trac­tion in mid­dle man­age­ment, with more than a third of peo­ple earn­ing R500,000 or more buy­ing a re­tail prod­uct such as an in-fund an­nu­ity or preser­va­tion fund.

Dar­foor is tak­ing a small step to­wards open­ing up the Forbes prod­uct suite to out­sideou dis­tri­bu­tion. But so far just three fi­nan­cial ad­vi­sory firms have been ap­provedap to sell the range.

Alexan­der Forbes has anaemic op­er­a­tions in the rest of Africa, which make Lib­erty’s look dy­namic. In Namibia Forbes is a solid busi­ness which made a profit of R54m but there were losses in Nige­ria, Zam­bia and Uganda.

Dar­foor told an­a­lysts the group would not be so pa­tient about its in­vest­ments in fu­ture. It has in­vested R28m in an African head of­fice in­fra­struc­ture to strengthen its le­gal and com­pli­ance back­bone.

But Dar­foor says that if the un­der­per­form­ing busi­nesses in Nige­ria, Uganda and Zam­bia can­not be turned around within 18 months they will be sold.

This would en­dan­ger Forbes’s am­bi­tions to be seen as a Pan-African busi­ness. To help its more than 250 SA-based multi­na­tional clients with their em­ployee ben­e­fits across the con­ti­nent, it works in al­liance with Mercer.

Dar­foor hopes to grow the pro­por­tion of earn­ings from emerg­ing mar­kets to 10%. Not just from Namibia.

The other prob­lem child is the sub­scale re­tail life in­sur­ance busi­ness which sits with 6,000 poli­cies when it needs at least 30,000 to be con­sis­tently prof­itable.

The Forbes fi­nan­cial plan­ning con­sul­tants have not been very en­thu­si­as­tic sellers of these poli­cies, but Dar­foor hopes the three firms that are now of­fi­cially al­lies will take up the slack. Or they might pre­fer to sup­port a prod­uct that’s more pop­u­lar in the mar­ket.

AF Short-term In­sur­ance, for ex­am­ple, had gross writ­ten pre­mi­ums of R1.6bn, mak­ing it a re­spectable mid­sized player, and its loss ra­tio of 68% was bet­ter than the tar­get of 71%.

Alexan­der Forbes Chief Ex­ec­u­tive Of­fi­cer - An­drew Dar­foor: Hopes to grow the pro­por­tion of earn­ings from emerg­ing mar­kets

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