Zambian Business Times

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


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