Group Chief Executive's review


In July 2014, we successfully returned to the Johannesburg Stock Exchange after an absence of seven years, our listing valuing the business at almost R10 billion. The overwhelming support received from a wide range of investors, including our cornerstone shareholder, Mercer, was not only gratifying in the extreme, but the most significant vote of confidence in our company, its leadership and professional competence – the positive performance of our share since, as well as our maiden dividend payment has been a solid reward for the belief shown in our group.

Our 2014/15 results marked a watershed year in the group's transition from being a privately controlled company to one that is proudly listed on the JSE. These results reveal a focused core group of companies executing a clear strategic intent of delivering excellent financial services to growing markets in South Africa, the rest of Africa and the United Kingdom.

Top-line revenue from continuing operations in 2014/15 reflects an overall 12% growth; our various retail and public sector offerings growing their business by the same percentage and our institutional business increasing operating profit also by 12%, a most commendable performance given the many headwinds faced during the year. Elsewhere, our AfriNet division posted a 17% growth in net operating income and our International operation cemented and grew its position in a very competitive market. Our institutional core is sometimes considered by market commentators as ‘mature' but it is noteworthy that this same core secured R9.9 billion in AUM and AUA in new business and 268 brand new clients.


We continued this year to husband our resources, our overall costs increasing by 12.3%. This was an order of increase which would have been substantially lower were it not for once-off costs and investments into our three growth strategies as well as the rising cost of staying in business (including compliance costs which this year rose by 35% and a four-year compound growth of over 30%). Other significant investments were made in our IT infrastructure; in modernising and significantly improving our systems and the value they create to underpin our growth. We have also fully absorbed the disynergy effect of selling of large divisions as we refined our core group.

In addition, in response to client feedback, we invested in our AFICA platform. The investment into our platform for individual member administration has immediately borne fruit through higher retention and flows, growing by 17% in the past year. This state-of-the-art user-friendly platform that improves value to our individual clients. Also, we invested extensively in developing Alexander Forbes Life's retail skills and the team at FPC to upsell our new retail proposition. Regrettably, amounts invested in Alexander Forbes Compensation Technologies (AFCT) and in healthcare did not realise the anticipated increase in new business due to a change in a major client's business. The public sector generally failed to meet targets, new deals taking longer than anticipated to come to fruition and being of a smaller size than had previously been the case. Nevertheless, we remain optimistic that the public sector will be a substantial area of growth in future.

This was an unusual year, one which, in addition to conscious investment choices, was characterised by a significantly restructured balance sheet, costs relating to the listing, the crystallisation of a seven-year management share trust as well as a new long-term incentive plan for key executives. The detailed CFO's report (pages 37 to 41) provides clarity on what factors should be considered to obtain, from our income statement, a more normalised view of our profits before and after tax. Notwithstanding these caveats, at R1 137 million, our profit from group operations was up 10% on the previous year, our overall financial performance reflecting a year of solid achievement.


In 2014/15, we posted solid financial results in an environment that was scarcely conducive for growth. Competition in our sector has increased sharply and our achievement in growing market share – among institutions, among individual investors, in short-term insurance and in the rest of Africa – should not be underestimated.

However, what particularly pleases me, even more than the top-line performance indicators, are the underlying numbers that point to the progress we continue to make – and which tell about the sustainability of our revenues. These achievements include: on retail: assets under advisement by FPC up by 17% to R56.3 billion; assets under administration up by 14% and assets under management up by 14.5%.

We achieved solid growth while retaining exceptional client loyalty, institutional client retention rates of almost 100% being of the utmost importance to our sustainability. And we succeeded in retaining the critical skills which create value for our investors and our clients, and for which there is, understandably, a very considerable demand.

Our South African Institutional business passed the one-million-individual-member mark and ended the year on 1 021 000. Elsewhere in Africa, we have almost 400 000 members. This was achieved by not only doing what we do best but by doing it better.

In 2014/15, as we celebrated our new status as a publicly listed company, we marked the end of a remarkable five years of growth and achievement – and we set ourselves confidently on an even bolder new course towards building a great company by 2020.


Elsewhere in this report, we detail just how we have performed on the promises we made back in 2010. To briefly recap: in 2010 we promised to build on our proud, then 75-year, heritage by building a bigger, more valuable enterprise. The value placed on Alexander Forbes on 24 July 2014 and by subsequent market appreciation proves that we have achieved this objective.

We promised back in 2010 double-digit annual growth in net operating income from continuing operations. In 2014/15, we achieved net operating income of R4.9 billion – a compound annual growth rate of 10.4% since 2010. (This was despite us selling non-core businesses that, in 2010, had accounted for more than a third of our net revenue.)

Thirdly, we undertook to carefully and judiciously husband our financial resources. We succeeded on this score as well. While we deleveraged (another of our 2010 promises), we relentlessly kept investing in our ability to create sustainable value for all of our stakeholders. At the same time as growing value for our private equity owners, we systematically allocated resources to enhance the skills and strengths of our people, our brand, our systems, our products and, most importantly, our clients.

Whereas 2014/15 has been described as a year in transition for Alexander Forbes, it has been anything but a ‘gap year' for the group. A great deal of work was done, in a very short space of time, to prepare for our listing while at the same time we redoubled our efforts to entrench and accelerate our three growth strategies: retail, Africa beyond the Limpopo and the public sector.

We worked extremely hard to achieve growth in these key target markets, just as we worked with fanatical discipline to safeguard and grow our core business – the institutional clients who trust us, day in and day out, to do our utmost for their individual members' peace of mind and to secure their financial well-being. This is the restated higher purpose to which we are committed and which will always remain a critical part of our new strategic intent.


The external environment which our industry requires if it is to achieve solid growth, consists of a positive equity market, a stable, expanding economic environment and a growing labour force. Not all these factors have worked in our favour in the past year, requiring unprecedented resolve and innovative approaches to deliver on our double-digit growth commitment, without compromising our long-term vision to create a great company.

We (and our clients) have gained from the South African bull market which has trended for the past six years but, as the chairman makes clear in his message, other factors largely beyond our control have been less favourable. Specifically, the labour market has been flat and even contracting and the disposable income of the formally employed minority has been squeezed and drained on many fronts. That we have gained market share under such formidably challenging conditions speaks to the wisdom of the investments we keep making in our strengths, in our reputation and in our employees.


As much as we created value for shareholders this year we kept our promises to our clients; in the second half of the year 71% of Investment Solutions' funds performed ahead of benchmark and our performance on assets under management was generally very satisfactory.

Most pleasingly, customer satisfaction rates continued to improve. Receiving prestigious accolades such as the PMR diamond arrow award for the best consulting and actuarial business and the highest rated pension fund administrator award, both for the eighth consecutive year, speaks of our commitment to being the very best at what we do best. Awards and customer service scores are important measures of our success – they tell us how embedded is our culture of always treating the customer fairly and of consistently serving them with positive impact. I believe I can confidently say that in the year reviewed we further entrenched our SERVE culture across Alexander Forbes.

This year we invested large sums in improving our core offering to both institutional and retail customers, in developing and marketing exceptional new value propositions. We invested similarly large amounts of money, time and effort in improving our IT platforms and in a new employee value proposition. In the immediate future we intend working harder than ever to build our brand and to communicate our key strengths and the impact our services can have as well as deepening our investment into reaching our target markets with our extended value proposition and refreshed IT platforms.


After a year of sustained improvement and growth, in April 2015 we embarked on a new five-year strategic course, one that renews our commitment to our SERVE ethos and to our higher purpose. This new course will enable Alexander Forbes to exploit its tremendous potential and its many strengths, to become a truly great company by 2020. Our ambition statement is to be a company producing an annual operating profit of R2 020 million and one that creates value for each of its key stakeholder groups – clients, employees, society and investors.

The more we achieve well-being for our employees the better equipped they will be to achieve financial well-being for their clients and members. Well-being for our clients, in turn, will translate into greater financial well-being for investors which, as we have seen this year, allows us to increase the positive contribution we make towards society. To give concrete expression to this ambition by early 2015 we had identified and trained 22 financial well-being consultants, a new breed of all-round experts whose work will support our quest to move beyond products to providing meaningful financial wellness. We also prepared to roll out an extensive well-being workplace programme, to make sure that our people enjoy the kind of financial peace of mind we seek to give our clients and members.

Our new five-year strategic intent (which we unpack here) is being implemented in an environment of exponential, unprecedented and often quite daunting change. In 2014/15, we laid the basis for a culture of high innovation where our aim is to seek ongoing opportunities for incremental improvement whilst future-proofing ourselves to leapfrog towards a more robust and competitive business model.

Our group-wide innovation campaign this past year yielded an extremely positive response. Some 573 ideas were submitted to our new innovation hub and 16 business cases received by divisional executive committees. By year-end five innovations had been implemented and 12 robust business cases pitched at our first ever ‘Innovation Den' held in May 2015. In the new year I intend spending a significant amount of time personally heading up our new drive to innovate, disrupt and to reinvent ourselves.


We believe that structure follows strategy and so, following the board's endorsement of our new strategic intent in February 2015, we restructured our business along cluster lines to better support the realisation of our ambition to create a truly great company by 2020.

We have been in the fortunate position of retaining a highly skilled, experienced and stable leadership core which is, as I write, working to realise the new future of Alexander Forbes.

Our clusters (see here) give expression to our strategic intent. They also speak to our key strengths and will translate into more optimal use of operations and resources which, traditionally, have been silo'd. This, we have no doubt, will mean better cost control – a more focused, more fit-for-purpose Alexander Forbes.

In driving our new strategic direction, we seek to exploit opportunities and to embrace a number of key challenges. These challenges include hiring, retaining and engaging excellent people and constantly enhancing our business model to give a client experience that is engaging, effortless, consistent, remarkable and rewarding.

We will work hard to maximise technology to remain agile and to be able to seamlessly manage an influx of new clients (particularly individuals) and seek higher levels of operational gearing. The quality of our leadership will be tested by the extent to which we bring fanatical discipline to bear on executing our strategic intent and engender productive paranoia that ensures we plan effectively for the future – all while practising empirical creativity to underpin our innovation and next-generation products, services and delivery models.

The rate of change continues to growth exponentially. Great companies will be those that approach disruption not as a threat but as a very real opportunity – an opportunity to constantly reinvent themselves through discipline and disruptive thinking. In 2015, Alexander Forbes is, I believe, such an organisation.


In closing I thank my executive teams and all employees – in South Africa, elsewhere in Africa and in Europe – for their extremely hard work in a most demanding year. I also extend my sincere appreciation to our chairman, Mr Sello Moloko, and the board for their unstinting support in guiding our group so skilfully through the many challenges encountered and embraced.

We have in place a first-class executive team that is uniquely equipped to build a great company by 2020, to create positive impacts for all stakeholders while giving people peace of mind through securing their financial well-being, now and in the future.

Edward Kieswetter

Group chief executive

30 June 2015