Chairman's statement

On 24 July 2014 the Alexander Forbes group ceased to belong to the private equity consortium and became, instead, a listed member of the JSE. The listing also resulted in Mercer McLelland making a strategic acquisition of 34 percent of the group. With our listing came great excitement at our Sandton head office, and at our offices from Cape Town to Nairobi and London. More importantly, our listing brought with it great opportunities: to sharpen our strategic direction, to reconfigure the group's capital structure and to create greater alignment with our employees.

We report here on our progress as a listed entity and of how we have grasped our new opportunities and executed our responsibilities. In particular we seek, in this report, to explain where we believe the Alexander Forbes journey will take us.


An important part of our journey is towards greater integrated thinking in how we devise and execute our strategy. Despite not being a publicly listed company for the past seven years, this is our fifth integrated annual report and I trust you will agree that we have come a long way on this particular part of our journey.

Most integrated reports contain sections called, typically, ‘operating context', in which the reporting entity attempts to explain the socio-economic and market conditions under which it sells its products or services and how the external environment influences its business model and its creation of value. Our report is no different and if you click here you will find just such an operating context section. The difference is that, this year, we set out to share, in greater detail than before, not only the conditions that make it possible for us to stay in business, but the conditions that present us with great opportunities to create value – for our clients, our shareholders, our employees and, in a very real sense, for the societies in which we operate.

Our listing unlocked value for our private equity shareholders as well as for our empowerment shareholders who supported the group over several years while making it possible for us to create value for many other stakeholders. One such beneficiary is the Alexander Forbes Community Trust which will, in future, be able to use dividend proceeds to further its critical investment in deserving communities. Listing also made it possible for us to give our employees a stake in their company while sharply reducing our historically large interest expense will mean we are able to allocate more resources to growing our business.


It is no secret that the journey of democratic South Africa has recently encountered a number of potholes – poverty, inequality, discord and corruption. Power interruptions and labour upheavals have dented investor confidence and a country that is crying out for quality jobs to be created as quickly as possible is, instead, shedding employment.

South Africa's ‘operating context' within the global environment is also hardly without challenges: in China growth is slowing, Europe is battling to stave off the spectre of deflation and recovery in the US is still far from assured. We operate in an environment of many stresses and great uncertainty. But all is not doom and gloom. While 2014 was, in many respects, a year of many challenges we anticipate at least a slightly improved economic performance in 2015.

Meanwhile many good men and women are working hard to fix the South African highway and to get this country up to speed again. They strive to improve social protection – the safety net that underpins our economy and society. Employee benefits are a vital part of such social protection (as, increasingly, they are in those African markets outside of South Africa in which we operate).


One of the engines that South Africa must inevitably turn to propel it forward is the financial services sector – internationally respected for the quality of its service and systems and its accountability. And a vital cog in that engine is Alexander Forbes.

We subscribe wholeheartedly to the National Development Plan and we believe wholeheartedly that it is possible to create a better South Africa in which working communities and families raise their children in security and plenty. To create that wished-for future South Africa we need to make employee benefits work – not for fund managers, administrators and the multitude of intermediaries who are active in this space but for ordinary working South Africans. We need to ensure that their financial needs and those of their families are taken care of before and after retirement; that they have peace of mind, knowing they have made the right choices and investments based on advice that is right, not for people like them but for them specifically.


As a group our mission is about giving peace of mind to the more than one million South Africans who put their trust in us (these one million South Africans plus, today, 380 000 individuals elsewhere in Africa.) If more than a million South Africans have peace of mind that their financial well-being is being well taken care of by capable, trustworthy professionals, the social value that will be created will be enormous.

Our Strategic Intent, which we explain here, is all about attending to an employee benefits system that urgently needs fixing, and about creating wealth and certainty for people in a new era in which the certainty of defined benefits has become the exception rather than the norm.

I am proud to be part of a company that is so acutely attuned not just to its opportunities but also to its responsibilities – towards clients, shareholders, employees and society. A very important part of how we respond to these responsibilities, to the creation of broader social as well as financial value, relates to the very considerable resources we invest in researching and understanding our sector and our social impact. Through initiatives such as Benefits Barometer, Ready Set Retire and Hot Topics, plus innumerable public platforms, we share this tremendous store of intellectual capital whenever and wherever the opportunity presents itself. I'm proud to report that this year Alexander Forbes Financial Services, in particular, has achieved conspicuous success in disseminating its redoubtable thought leadership far and wide.

In addition to sharing thoughts and insights through the media and on public platforms, we engage, on a daily basis, with partners, including government, regulators, institutional clients and trade unions – the good men and women who are as committed as we are to mending our country's social protection potholes.


In fixing the system, retirement reform is today very much on the South African agenda. Our executives have been involved in discussions with regulators on consolidating pension and provident funds and retirement annuities into a single type of retirement fund with greater tax benefits for contributors. We welcome such moves as we believe they will be good for the employee benefits sector but, most importantly, for the individual members.

Similarly, we enthusiastically endorse proposals to enforce at least partial preservation on the withdrawal of retirement funding. Both of these endeavours will go a long way towards strengthening South Africa's social protection and giving real financial peace of mind to hundreds of thousands of employees. Alexander Forbes is ready, willing and, most importantly, well prepared to help overcome the many obstacles that stand between us and the achievement of a truly effective social protection system.

A theme running throughout this report is our commitment to always serve our customers to the best of our ability, and to do so honestly, openly and fairly, securing their financial well-being. Across all businesses we have engaged with the Financial Services Board's Treating Customers Fairly framework, not in a spirit of compliance but one of enthusiasm and a belief that this framework will be good for our customers, our businesses and the whole financial services sector.

I am also pleased to report that we made very substantial progress in implementing the pillars of the Solvency Assessment and Management (SAM) framework and now believe that we will be fully ready for the implementation of this new regulatory regime on 1 January 2016.


While we research and communicate at every opportunity, the Strategic Intent to which we commit ourselves is about engaging directly with beneficiaries, about putting words into practice and so fixing a broken system, one member at a time. In 2014/15 a great deal of thought, time, effort and financial resources went into preparing our group for the implementation of the Financial Well-being programme. In time, I have no doubt, Financial Well-being will come to be regarded as a watershed development not just for Alexander Forbes but for the financial services sector as a whole, such will be its profoundly positive impact.

Financial Well-being, while conceived and packaged by a leadership team that has been reinvigorated by our group's new status as a public company, will be carried out by the 4 000 Alexander Forbes foot soldiers, our greatest assets. The board and I have noted with great satisfaction the heightened engagement the company now has with its employees and the overwhelmingly positive way in which our people have rolled up their sleeves in response to their new opportunities and responsibilities. It was therefore a source of great satisfaction that we could announce this year the creation of an employee share ownership plan (ESOP) which will give all employees but especially black women a 2.9% share in the business for which they work every day to create value.


Our ESOP was about building up to meaningful empowerment – as well as about our broad-based black economic empowerment status. Our commitment to transformation remains and will only be strengthened in the new era of our JSE listing.

Although we continued to maintain our Level 2 contributor status, we acknowledge that we still have a great deal of work to do to transform our company. In particular, there are areas of employment equity that need to be addressed and much work needs to be done on developing and empowering black-owned suppliers so that they can become fellow travellers on the exciting journey which our new Strategic Intent maps out for us.


Alexander Forbes is changing and so is the retirement and investment landscape. A new direction, coupled with the reforms and changes facing our industry, mean considerable opportunities but also substantial risks. At such times the quality of an organisation's leadership is of the utmost importance and I believe that our stakeholders should be assured that our group's leadership and governance are of the highest order.

At board level, subsequent to our listing, we underwent a partial changing of the guard with the appointment of three new non-executive directors while myself, two executives and four other independent directors and the senior executive leadership ensured, we believe, a considerable measure of continuity.


In welcoming Messrs O'Regan, Anderson and Kgosana to our board I commend my fellow directors for consistently displaying an energy that mirrors the zeal now evidenced throughout Alexander Forbes. In particular the board has acted decisively and with great application to strengthen our risk management policies, systems and procedures (as detailed here). As such we embrace the new 2016 – 2020 Strategic Intent with resolve and the greatest confidence.

To our clients and fund members: thank you for your ongoing faith in our business. To our new shareholders I extend a heartfelt welcome and trust that they will enjoy a rewarding and, we hope, long association with Alexander Forbes. It is with great pleasure that we have declared our maiden cash dividend of 12 cents per ordinary share.

In closing I thank my fellow directors for their unflagging support and congratulate Group Chief Executive, Edward Kieswetter, Chief Financial Officer, Deon Viljoen, and the entire executive team on a year of great achievement. Your hard work is noted and appreciated by the board of directors and by all with an interest in Alexander Forbes.

Lastly, my thanks and congratulations go to all employees of our group for their engaged commitment to work, every day, to achieve our mission, to create value for all our stakeholders.

Sello Moloko


30 June 2015