Message from
the chairman
Given what was a particularly challenging operating environment, the Alexander Forbes group’s overall performance for the 2017 financial year was satisfactory. It was a year of transition for the group. We welcomed our new group chief executive as well as several other senior leaders across the business. We refreshed our strategy and ambition under what we are calling Ambition 2022. We aligned our investment plans to the strategy and embarked on a comprehensive technology and digital modernisation programme. I believe we now have a very solid platform for growth, with detailed plans and performance indicators for execution against our strategy.
Our performance in 2017
The unexpected global economic and political outcomes of 2016/17 caused considerable market instability and volatility. These events, coupled with local political disquiet, made it a challenging year for the financial services sector domestically. The pro-Brexit vote and President Trump’s economic policies have negatively impacted the South African economy. More critically, South Africa itself is in a state of transition. The upsurge in political activism through focused campaigns at tertiary educational institutions and in civil society, the recall from office of Treasury officials and the lack of clarity around government policy have resulted in uncertainty around the country’s macroeconomic outlook. The result was the downgrading of the country’s credit rating. The financial services industry is acutely sensitive to these macroeconomic factors, and the political and economic turmoil has contributed to a very tough trading environment across most sectors.
This difficult operating context has been reflected in our 2017 results, which I believe were satisfactory given the backdrop. The group achieved a 1.2% growth in operating income and a 3.1% growth in profit from operations, and our overall increase in expenses was well contained at 0.5% as a result of increased operational efficiency. Our core institutional business experienced good growth and the retail clients division is gaining positive traction.
In addition, Alexander Forbes itself has been going through a period of significant transition. We have successfully shifted towards operating as a leaner, more focused group that is no longer ‘siloed’ into different businesses, but instead offers a single group customer value proposition. We have also begun to leverage our dominant institutional position to expand in the retail market. A key enabler of these structural and product changes is a modern operating platform that supports the entire organisation. To this end we have partnered with Sapiens and will be modernising our systems over the next five years. The transaction with Sapiens is the largest single investment in technology and digital in the history of the group.
During 2017 the group completed two important transactions. The group sold its 60% interest in UK-based consulting business, Lane Clark & Peacock, for R1.3 billion, which has allowed us to improve the capitalisation of the business. Simultaneously, African Rainbow Capital (ARC) acquired a 10% shareholding in Alexander Forbes Limited (a wholly-owned subsidiary of the group) as a strategic empowerment partner. We believe this relationship, coupled with our partnership with Mercer, will give us the opportunity to penetrate markets and segments in which we have not traditionally had a deep presence. We anticipate that the affiliation will facilitate greater access into the public sector and improved navigation in pursuit of our continental ambitions. Together, these transactions enable our restructuring process and provide capital for investments and acquisitions.
Regulatory reform
Regulatory changes have – as always – remained a significant consideration this year. Among other changes, the increase in marginal tax rates has adversely affected our high net worth clients. We do not view regulations as an obstacle to our business; we recognise their usefulness and view shifts in the regulatory context as an opportunity to gain competitive advantage. For example, changes to social security and pension fund regulations create new markets, particularly in other African countries, where we intend to expand in the wake of legislative reform.
Our intention with regard to the regulatory environment is to be proactive in implementing new requirements as and when they arise. In 2017 the group made substantial progress in readying itself to comply with the requirements of the Solvency Assessment and Management framework (SAM), and ensuring that we embed SAM into our strategic plans and into the way we do business.
Clients
The markets in which we operate are shifting towards outcomes-based solutions. As a group we need to meet our clients’ needs and expectations, remaining relevant to them and providing value in terms of their long-term well-being. During 2017 we refined our group strategy, focusing on customer-centricity and our retail ambitions.
To support these ambitions we have planned and budgeted for significant investment in our modernisation and digitisation. Collaboration between the various business divisions is critical to achieving our ambitions, forming the anchor of our holistic client service offering.
Employees
This year we have focused on boosting our talent pool to successfully drive our strategy. In particular, we have concentrated on appointing new leaders, through both external recruitment and internal promotions, who will ensure continuity and achieve our group ambitions.
We have embarked on our focused strategic drive under the fresh leadership of Andrew Darfoor, a 20-year-plus veteran of financial services with broad international and emerging market experience, who was appointed in September 2016. Under his leadership we have already driven significant positive change within the group. We also appointed Leon Greyling and Bernard Schluep to head up the investments and emerging markets businesses respectively. These gentlemen have already begun to impact their businesses positively.
Society
Being an ethical company is a key priority for Alexander Forbes and we are committed to being an influence for good in the societies in which we operate. Responsible investment and fair treatment of customers remain important aspects of the mandate for the investments team and we drive this as a principle that underlies the way we do all our business. We are committed to realising our transformation targets and this year retained our level two B-BBEE rating.
We continue to make a difference to disadvantaged communities through the Alexander Forbes Community Trust. Our partner non-profit organisations positively impact the lives of thousands of impoverished children and adults.
Appreciation
I would like to express my deepest appreciation to the staff of Alexander Forbes for their commitment and dedication. Without them we would not be able to deliver value to our clients and achieve our strategic goals. The industry accolades we have received ten years in a row, namely the three PMR.africa Diamond Arrow Awards we received for Large Administrators, Top National Fund Administrator, and Top Retirement Fund Consulting and Actuarial Firm, are an indication of the high calibre of people in our business.
I wish to express my gratitude to the board members for their support and guidance during a period of transition. In particular, I wish to acknowledge the service of Deon Viljoen, the former group chief financial officer of Alexander Forbes, who spent 14 years with the group and guided it through several significant events. I wish Deon well in his new career. I also wish to thank Peter Edwards, Grant Stobart and Derrick Msibi for their contribution during their time with the group.
At the same time, I wish a warm welcome to Andrew Darfoor, the group’s new chief executive.
Special appreciation must also go to our customers who continue to support us. We commit to continue to provide them with leading solutions and superior service.
Looking ahead
Alexander Forbes’ new beginning also marks a sad but proud ending for me personally, as I have announced my resignation as chairman. I will be succeeded by my fellow board member, Moses Kgosana, who I am confident will take up the challenge of chairing the board with elegance and acuity.
As the group emerges from its difficult period of transition as a leaner, customer-focused business, it is well-positioned to create substantial sustainable value for all its stakeholders. Moses and Andrew are looking forward to steering the group towards achieving its vision of building a globally distinctive, leading pan-African financial services provider.
Sello Moloko
Non-executive chairman
20 June 2017, Sandton
