31 MARCH 2015ALEXANDER FORBES GROUP HOLDINGS LIMITEDINTEGRATED ANNUAL REPORT

OPERATIONAL PERFORMANCE REVIEW

ALEXANDER FORBES INTERNATIONAL LIMITED (AFIL)

Performance indicators

 

2014/15

2013/14

2012/13

2013 – 2014

% change

Headcount at continuing operations

601

565

533

6

Employee turnover (%)

8

10

10

(2)

Net operating income (Rm)

1 495

1 322

990

13

Recurring revenue (%)

79

80

78

(1)

Profit from operations (Rm)

219

204

141

7

 

OVERVIEW

Alexander Forbes International (AFIL) experienced a successful year, growing net operating income to £84.2 million, a 4% increase over the previous year’s £80.8 million. The businesses continued to progress in a competitive market, growing through new business wins.

Sources of revenue were little changed from 2013/14, with pensions actuarial consulting and administration continuing to contribute just over 60% of income. The businesses remained focused on diversifying their income and generated good growth in investment consulting, general insurance consulting and business analytics, particularly energy. LCP continues to be regarded as a leading provider of pensions de-risking solutions and was lead adviser on 10 out of the 15 pension buy-in or buy-out transactions over £100 million in the UK, including the two largest pensioner buy-ins.

The businesses continue to invest in technology and LCP launched its ground-breaking pension analytics tool, Visualise, which has been adopted by 237 clients with assets totalling £86 billion as at April 2015. LCP Horizon, the DC scheme analytics portal which is an industry first in the way it enables DC scheme trustees and governance committees to analyse membership characteristics and target communications, was also launched during the year.

The full year property cost increase associated with LCP’s move to new London premises during the previous year impacted on profit from operations which, at £12.4 million, was marginally ahead of the previous year’s result. Rand earnings (R219 million) represented a 7% growth on the previous year, underscoring AFIL’s value to the group as a rand hedge.

In the previous year, AFIL disposed of its non-core, Trustee Services business (which had been discontinued in the 2013/14 year). LCP Belgium continues to be reported as a discontinued operation and the disposal of this business is progressing. Following this disposal, the streamlined business will consist of the interest in LCP in the United Kingdom, Ireland and the Netherlands and Alexander Forbes in the Channel Islands.

NON-FINANCIAL PERFORMANCE

This year we increased capacity, adding a further 36 predominantly client-facing employees, and bringing total headcount to 601; 166 of whom are qualified actuaries (158 at year-end 2013/14). Client retention rates remained extremely high, while a number of prestigious awards confirmed LCP’s reputation for excellent actuarial and consulting work. These included: Professional Pensions ‘Risk Reduction Adviser of the Year’; Financial Times Pension and Investment Provider Awards ‘De-risking Consultant (buy-out, buy-in, longevity swaps)’ and ‘Investment Consultant’; and Pensions Age ‘Pensions Consultancy of the Year’.

In line with the rest of the group, we are committed to being good corporate citizens. We offer our employees the opportunity to donate to good causes via payroll and also through our involvement with Naomi House and Richard House children’s hospices, which are our nominated charities for 2014.

OUTLOOK

The changes to annuitisation principles in the UK take effect in 2015 and the increased flexibility around pension options at and pre-retirement continue to support demand for employee benefits consulting. While this has been positive for the businesses, over the longer term, the risk exists that these policy changes could translate into lower demand for consulting services.

The marginally improved economic growth prospects for the UK and elsewhere in Europe will continue to have a bearing on our business’ short-term prospects. In the absence of significant market growth and with no prospect for overall fee increases, incremental gains in market share will continue to underpin our success.