FY2021 Interim results presentation - Dawie de Villiers Chief executive officer - The Vault
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FY2021 Interim results presentation
for the six months ended 30 September 2020
Dawie de Villiers Bruce Bydawell
Chief executive officer Chief financial officer
Disclaimer 2 The views expressed here may contain information derived from publicly available sources that have not been independently verified. The discussion and analysis of the results contained in this presentation have been based on the unaudited Alexander Forbes Group Holdings Limited (the group) condensed consolidated interim results. The group’s condensed consolidated interim results for the six months ended 30 September 2020 (results), include the income statement, statement of other comprehensive income, statement of financial position, statement of cash flows and statement of changes in equity. These results are prepared in accordance with the JSE Limited (JSE) Listings Requirements, International Financial Reporting Standards (IFRS) and its interpretations as adopted by the International Accounting Standards Board, the South African Institute of Chartered Accountants’ (SAICA) Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council, the presentation requirements of IAS 34 Interim Financial Reporting and the requirements of the South African Companies Act applicable to condensed consolidated financial statements. No representation or warranty is made as to the accuracy, completeness, reasonableness or reliability of this information. Any forward-looking information in this presentation including, without limitation, any tables, charts and/or graphs, has been prepared on the basis of a number of assumptions which may prove to be incorrect. This presentation should not be relied upon as a recommendation or forecast by Alexander Forbes Group Holdings and/or any of its subsidiaries. Past performance of Alexander Forbes Group Holdings and any of its subsidiaries cannot be relied upon as a guide to future performance. Any financial information contained in this document that may be construed as forecast information has not been separately reviewed or reported on by the group’s external auditors. Additionally, these interim results have not been audited or reviewed by the group’s external auditors. This presentation contains 'forward-looking statements' – that is, statements related to future, not past, events. In this context, forward-looking statements often address our expected future business and financial performance, and often contain words such as 'expects, 'anticipates,' 'intends,' 'plans,' 'believes,' 'seeks,' or 'will.' Forward–looking statements by their nature address matters that are, to different degrees, uncertain. For us, uncertainties arise from the behaviour of financial markets, fluctuations in interest and or exchange rates; from future integration of acquired businesses; and from numerous other matters of national, regional and global scale, including those of an environmental, climatic, natural, political, economic, business, competitive or regulatory nature. These uncertainties may cause our actual future results to be materially different that those expressed in our forward-looking statements. We do not undertake to update our forward-looking statements. We caution you that reliance on any forward-looking statement involves risk and uncertainties, and that, although we believe that the assumption on which our forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate and, as a result, the forward-looking statement based on those assumptions could be materially incorrect. This presentation is not intended, and does not, constitute or form part of any offer, invitation or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell or otherwise dispose of, any securities in Alexander Forbes Group Holdings Ltd and any of its subsidiaries or undertakings or any other invitation or inducement to engage in investment activities, nor shall this presentation (or any part of it) nor the fact of its distribution form the basis of, or be relied on in connection with, any contract or investment decision.
Agenda 3 1 2 3 4 H1 2021 Business Financial Concluding In perspective review review remarks
1 H1 2021 in perspective The whole is greater than the sum of its parts We combine and integrate our unique skills, expertise and offerings across Alexander Forbes. This reflects our integrated strategy to achieve ‘ONE’ Alexander Forbes, which is beneficial to our clients, employees and shareholders.
Macroeconomic environment 5
An unprecedented year globally, with the outbreak of the coronavirus (Covid-19) pandemic, that has
intensified the already challenging macroeconomic environment
H1 2020 H1 2019 Q3 CY 2020 Q2 CY 2020
Economic growth (GDP)1 -12.7% 0.6% 50.0% -51.0%
Business confidence index2 24 34 24 5
Unemployment rate3 30.8% 27.5% 30.8% 23.3%
Repo rate4 3.50% 6.50% 3.50% 3.75%
JSE All Share total returns5 24.1% -0.8% 0.72% 23.2%
1. Real GDP for Q2 2020 and Q3 2020 are seasonally adjusted and annualised, Q3 2020 is the consensus estimate. H1 2020 figures – average year-on-year for Q2 and Q3
2. Business confidence rose to 24 in Q3 2020 from 5 points in Q2 2020
3. Unemployment rate decreased in Q2 2020 due to definition that reduced the labour force by 5 million people that could not work due to lockdowns
4. The SARB has cut rates by 300 basis points in 2020 to support the economy
5. Total returns from April to September in both 2019 and 2020
Source: Stats SA, BER, Bloomberg and Alexander Forbes InvestmentsH1 2021 Overview 6
New market momentum in leveraging ‘ONE’ Alexander Operating expense growth contained at 2% (excluding the
Forbes as our integrated value proposition impact of stranded costs and IFRS lease, underlying
operating expenses declined 1% year on year)
Covid-19 presented opportunities for Alexander Forbes to
mobilise swiftly and proactively engage and advise our HEPS1 from total operations declined 41% to 14.5 cents
institutional and individual clients through this difficult time Cash generated from operations of R335 million down 31%
due to increase in working capital
Positive client feedback evident in client retention levels
Notable new business wins − Profit to cash conversion remains high at 88%
Ungeared balance sheet supported by strong available cash
− 104 new corporate business landed position of R491 million
Adapting our ways of work M&A – Two small acquisitions concluded
Operating income Profit from continuing Headline earnings per share Interim dividend
from total operations operations from continuing operations of
down 3% to down 5% to up 6% to 13 cps (2019: 18 cps)
R1 542 million R382 million 18.8 cents declared
1. Headline earnings per shareContinued progress against our key deliverables 7
Best advice Measurable Pan-Africa Focused Capital-
for clients client benefits Solutions business model light
Advice-led is a key Performer consistently Employee benefits Good operating expense Disposal of the Namibian
differentiator ranks 1st quartile of solutions effectively management in the short-term insurance
Alexander Forbes Large delivered to clients across period business – regulatory
Multi-manager investment
Manager Watch SurveyTM 27 countries and competition authority
proposition allows us to Focus on our core –
approvals obtained
manage risk effectively Meeting our client service 10 clients added in the enabled us to assist
level agreements period clients seamlessly and Financial strength –
Supporting our clients
effectively ungeared balance sheet,
‒ advice on managing employee Positive feedback on our ‒ 61 since inception
strong cash position to
benefits needs service levels evidenced 22 broker appointments M&A – two acquisitions
navigate through
‒ contribution holidays, advising by positive client retention signed
individuals close to retirement ‒ 91 since inception challenging times
on the best annuity options, Rolled-out new digital
change in drawdown rates for Declared an interim
clients in living annuities, solutions for clients –
dividend of 13 cents per
assisting clients in taking digital exit process
advantage of improved annuity share
rates where appropriate.
New business: 104 winsBusiness review 2
Notable new business1 wins year to October 2020 9
104 new business wins concluded across Retirements, Healthcare, Investments and Arrive
Retirements
Good progress R10m
in regaining
(32) ground on SA blue-
chip companiesLost:
across
(R3m) key segments
Total number of new business wins concluded Assets – Healthcare
Success
AFRIS in regaining some lostR3m
clients
(16)
104 R2.0bn
Positive client New
feedback
Business
resulting from our
Lost: (R1m)
integrated and R60m
advice-led
(104) value proposition
Lost Business
(R5m)
Total estimated annual revenue2 New market momentum in leveraging ‘ONE’
Assets –
Investments
Alexander
Investments Forbes as our integrated value
c.R60 million
R30m (32)
R9.0bn
proposition
Lost: (R4.8bn)
Lost: (R14m)
Market remains competitive,
Arrive especially in
Investments and Retirements
R17m (24)
1. New business in corporate and institutional (excludes new business assets from retail consulting of R3.9 billion (with total estimated annual revenue of c. R3 million))
2. Net new estimated annual revenue c. R42 millionRetirements consulting 10
Although Covid-19 has impacted on performance, the underlying business remains stable
Operating income down by 8% to R423 million
New business in Active members in
- due to weak economy and change to the structure
umbrella funds umbrella funds
of the Alexander Forbes sponsored umbrella fund
- excluding the impact of the structure change (VAT 67appointments down 1%
impact), operating income would be down 4% across AFRF and to 367 406
AF Access in the period since March 2020
Starting to see the impact of retrenchments
filter through to our member base
Positive feedback on our advice, performance Umbrella fund AuM1 Total number of
and service levels evidenced by stable client active members 2
retention up 5% year on year
2%
R87 billion
down
Roll-out of new digital solutions to
to 895 595
- digital exit processes, bulk claims processing and (up 15% since March 2020)
since March 2020
on-line contributions reconciliations
1. Assets under management
2. Total number of active members across standalone and umbrella funds (excludes members where we do not do administration)Impact of retrenchments on membership 11
Movement in number of active members (‘000s) Number of retrenchments per month
Retrenchments: Umbrella vs Standalone
20 000
15 000
Impact of business closures and retrenchments filtering through to our member base, with
the impact increasing in the latter part of the period 10 000
‒ Retrenchments and business closures experienced within our umbrella fund
5 000
‒ Standalone client base, while reporting low levels of retrenchments, are impacted by low levels
of employment and negative payroll growth -
AFRF Access Standalone Total
Total retrenchments during H1 2021 of c.15 000 Q1 Q2Investments 12
Diversified investment approach in our multi-manager investment portfolios adding value for clients
Operating income down 1% at R626 million New business
- cumulative positive blended market return of 8.7% AuA1 and AuM2
flows of
- offset by client switches, new business into lower margin up 3% year on year
portfolios/products, proactive pricing reviews, growth of our
to R353 billion R8.7 billion
AFRIS solution
(including R2.2 billion
(up 14% since March 2020)
Well-diversified investment approach helped to mitigate from Platform)
volatile market performance for clients
- Diversification in our portfolio positioning, with maximum
offshore exposure and allocations to private markets Performer, our Performer
flagship portfolio consistently ranks
Clients gained across advisory and delegated solutions
Good new business asset flows landed year to date
at R148 billion 1st quartile of
well positioned in these Alexander Forbes Large
- 25 new investments product appointments in the period, and volatile markets Manager Watch SurveyTM
7 investments advisory
1. Assets under administration
2. Assets under managementInvestments 13
Movement in AuA and AuM (March 2020 vs September 2020)
Controllable flows Uncontrollable flows
Product Platform
Mar 20 New Outflows New business Outflows from Ongoing Withdrawals Market Sep 20
closing business owing to In platform platform contributions for benefit appreciation closing
assets client losses payments assetsHealthcare and Multinational consulting 14
Healthcare consulting Multinational consulting
Operating income down 2% to R141 million Operating income up 9%
‒ Growth in Arrive, Botswana and Channel Islands, partially offset
Resilience in the healthcare book by poor performance from Namibia (down 9%)
Launched healthcare brokerage in Botswana
Arrive1
Employee benefits solutions Arrive
being delivered to clients in 27 Secured mandates with
Africa countries
Membership
61 pan-Africa
6 New down 1.5%
We continue to see the benefits
of a coordinated consulting
companies
and
appointments and service approach across
in the period 214 143 the continent, signed up 91 broker
since March 2020 ‒ 10 new companies appointments
‒ 22 broker appointments since inception
1.Solutions for clients across Africa through our advice-led platform in collaboration with MercerIndividual consulting 15
New business lower than the comparable period due to the adverse effect of lockdown restrictions
Operating income down 2% to R218 million Assets AFRIS
Preservation rates lower owing to the adverse impact under advice AuA
of Covid-19 up 1% year on year up 70% year on year
Retention rate improved due to FPC presence and
increased engagement
to R73 billion toR7.8 billion
(up 9% since March 2020) (up 32% since March 2020)
AFRIS, our flagship solution, continues to grow
- 26% increase in membership from March 2020, with
8 new funds added in the period Preservation rate1 Retention rate2
reduced higher
- R1.9 billion in new assets flowing during the period
Successful delivery of Retirement Benefits Counselling to 51% at 24%
from 53% in in the from 22% in the
services virtually to clients previous comparable
previous comparable
period period
1. The percentage value of retirement funds that are transferred to preservation or retirement solutions after an employee resigns, retires or is retrenched from a company
2. Retention rate refers to the percentage of preserved assets that remain with Alexander Forbes3 Financial review
Analysis of operating income1 17
Muted result amidst challenging macroeconomic environment
Operating income Disaggregation of operating income
By type By driver
six months ended 30 September (R million) 2020 % 2019
1%
Retirements consulting 423 (8) 460 11%
21%
40%
Healthcare consulting 141 (2) 144
10%
Investments 626 (1) 634
Individual consulting 218 (2) 222
28% 23%
Multinational consulting 134 9 123 11% 55%
Other2 – (100) 5
Consulting & Advice
Asset based Payroll expense
Administration
Total 1 542 (3) 1 588 Members Commision
Commission
Investment management Ad hoc
1. Operating income represents revenue net of direct expenses
2. ‘Other’ relates to various services rendered to external third parties. These third parties formed part of the group historically and were disposed of in prior years.Analysis of operating expenses 18
Underlying operating expenses well contained
Operating expenses
six months ended 30 September (R million) 2020 % 2019
Operating expenses
Personnel costs 731 (2) 749
Personnel and IT costs well contained
IT costs 171 (1) 172
Increase in errors and omissions with a few large
Premises 136 4 131 historic claims settled
Professional fees 81 9 74
Underlying expenses1 reduced by 1% year on year
Insurance costs 39 22 32
Marketing & communication 33 (11) 37 Stranded costs2
Claims & bad debts 20 67 12 While the stranded cost exposure is being closely
Other expenses 51 (25) 68 managed, this continues to place pressure on our
expense management efforts
Total adjusted operating expenses 1 262 (1) 1 275
Cost-to-income ratio at 75.2% (+60 bps)
Recoveries from discontinued operations (8) (85) (54)
Adjustment for IFRS 16 leases (42) 17 (36)
Total 1 212 2 1 185
1. Operating expenses after adjusting for stranded costs and IFRS 16 Leases
2. Costs allocated from central functions that could not be separated and included in the sale of AF InsuranceSummary IFRS income statement (items below profit from operations) 19
Favourable impact of cell captive result and lower interest expense improves profit for the period
six months ended 30 September (R million) 2020 % 2019
Profit from operations before non-trading items and capital items 382 (5) 403
Improvement owing to positive result from
Non-trading and capital items (25) (40) (42)
the cell-captive insurance facility
Operating profit 357 (1) 361
Investment income 71 (15) 84
Decline owing to repayment of revolving
Finance costs (38) (47) (72) credit facility. Finance costs include the effect
of IFRS 16 Leases (R33 million)
Profit from accounting for policyholder investments 6 >100 (6)
Profit before taxation 396 8 367
(145) 24 (117) Effective normalised tax rate of 36% due to
Income tax expense
unutilised tax losses
Profit for the period from continuing operations 251 - 250
(Loss)/profit from discontinued operations (net of tax) (53) >100 92 Impact of reduced contribution from the sale
of the short-term insurance business and
Profit for the period 198 (42) 342 R78 million expense relating to the enhanced
Profit attributable to: transfer value (ETV) liability matter
Owners of the company 183 (38) 296
Non-controlling interest 15 (67) 46Discontinued operations 20
Profit from operations down due to sale of the short-term insurance business
six months ended 30 September (R million) 2020 % 2019
Profit from operations before non-trading and capital items 17 (88) 142 Impacted by the reduced contribution of the
short-term insurance business to the
(19) operating results in the current period.
Non-trading and capital items (78) >100
Operating (loss)/profit (61) >(100) 123
R78 million (31 March 2020: R30 million)
19 was expensed in the period owing to the
Net investment income 13 (32)
increased liability for ETV claims that could
not be matched by the insurance asset due
Share of net loss of associates (net of income tax) - (100) (5) to one insurer in the insurance programme
not confirming insurance cover.
(Loss)/profit before tax (48) >(100) 137
The anticipated recovery from the specific
Income tax expense (5) (89) (45) insurer, in future years, will be recorded as
income at that time.
(Loss)/profit for the year from discontinued operations (53) >(100) 92Headline earnings and dividend per share 21
Headline earnings per share from continuing operations up 6% to 18.8 cents per share
six months ended 30 September 2020 % 2019
1 297 6 1 223 Decline in profit from operations offset by a positive
Weighted average number of shares in issue (million)
impact from the insurance cell-captive facility, lower
Headline earnings per share – continuing operations (cents) 18.8 6 17.8 interest expense and the impact of shares
repurchased over the past 12 months.
Headline earnings per share – total operations (cents) 14.5 (41) 24.5
Basic earnings per share – total operations (cents) 14.1 (42) 24.2 Impacted by the sale of short-term insurance
business and ETV liability matter.
Normalised headline earnings per share 13.9 (49) 27.2
Interim dividend per share (cents) 13.0 (28) 18.0 In determining the interim dividend, the board also
considered the anticipated recovery from the ETV
liability matter. Therefore, maintaining the cover ratio
within the policy of 1.5 to 2.0 times.
Calculation of weighted average number of shares
million 2020 % 2019
Shares in issue 1 375 3 1 333 Issued shares to African Rainbow Capital, in terms of
Treasury shares (72) (31) (104) the Flip-Up2 transaction.
Normalised weighted average shares 1 303 6 1 229
Policyholder treasury shares (6) - (6)
Weighted average number of shares in issue1 1 297 6 1 223
1. Net of treasury shares.
2. The company issued 118 019 747 ordinary shares to ARC comprising 4 336 492 treasury shares and a new listing of 113 683 255 ordinary shares on 13 May 2020. This transaction was concluded pursuant to an agreement between
Alexander Group Holdings Limited (AFH), Alexander Forbes Limited (AFL) and ARC on 28 September 2016 in terms of which ARC would exchange its 10% shareholding in AFL for shares in AFH (Flip-Up). This transaction was approved
by shareholders on 20 January 2017.Cash flow, available cash and balance sheet 22
Liquidity and solvency position remains strong, with a regulatory surplus of R1 453 million1
Cash generated from Tangible net asset
operations2 value (NAV) Average equity
down 31% year on year down 13% from March 2020 down 7% since March 2020
to R335 million to R2 993 million to R5 374 million
due to an increase in working due to payment of dividend
capital
Available cash Normalised return on Normalised return on
resources tangible NAV (LTM3) equity (LTM)
of R491 million 28.1% from 17.4% from
post special dividend, repayment 23.6% (in September 2019) 12.1% (in September 2019)
of RCF and share buybacks
1. Cover ratio of 2.08 times
2. Cash flow generated from continuing operations
3. Last twelve monthsDelivery on our capital-light strategy 23
Distribution of special dividend reduces surplus capital
Regulatory surplus – Mar 2020 to Sep 2020 (Rm) September 2020
16%
2 500
37%
22060
053
R4 331m
2 000
1 453
47%
1 500
1 365 1 291
1 000 March 2020
778 778
641 625 625
556
500 29%
32%
-
R5 103m
Group
Group Surplus/ Normal & special
Ordinary & Share repurchase Other movements Group Surplus Interim dividend Group Surplus
(Deficit)
surplus dividend
special (before dividend) (after dividend)
31 Mar 20 dividend Movement - actual 30 Sep 20 Movement - 30 Sep 20
f t 39%
Surplus 2 060 (767) (77) 237 1 453 (162) 1 291
Own Funds 3 370 (852) (59) 345 2 804 (180) 2 624
SCR 1 310 (85) 18 108 1 351 (18) 1 333 Intangible assets Regulatory capital1
Capital allocated
Black line indicates free capital above target SCR cover ratio of 1.50
1. Regulatory capital – based on the prudential standards for Solvency Assessment and Management together with applying a cover ratio of 1.5 timesM&A update 24
Two acquisitions concluded Focus of our M&A strategy
EB consulting business – 100% of shares Expand core businesses of consulting, administration
Niche EB consultant with experienced team and investments to leverage synergies and scale
opportunities
AUM1 R3.5bn, 5 800 members
− Primary driver: achieving a high quality of earnings
Certain conditions outstanding across businesses and synergistic benefits
Consideration includes deferred payments based on earnings
Ensure we retain our position as the market leader that
provides best advice for our clients
GF Wealth (individual wealth business) – 100% of shares
− Revitalize the growth momentum and accelerate asset
Previous AF Franchise – wealth advisor to HNW individuals accumulation in a mature industry
17 employees
AUM R5.1bn, 969 clients Secure talent-pool and enhance skills base
Transaction unconditional
Consideration includes deferred payments based on earnings
1. Assets under managementConcluding remarks 4
Prospects 26
Our strategic decision to focus on our core business has enabled us to assist
our clients seamlessly and more effectively during this unprecedented time We remain confident in our
advice-led strategy and
The underlying business remains stable, despite the adverse impact of believe that continued
Covid-19
delivery against our
Despite the resilience of our business to withstand macro pressures, the objectives should reflect
economic headwinds will have an impact on the business positively in the
performance of the business
We continue with mission critical initiatives to deliver operational efficiencies over the medium-term
– Expense management remains key
– Focus on continuous improvement to our operations and administration functions
– Enhance our member engagement strategy to deliver better financial outcomes for Alexander Forbes has a
our members strong integrated value
proposition in a competitive
Targeting conclusion of the disposal of the Namibian short-term insurance market. Being independent
business and the group risk business by financial year-end
and advice-led is a key
Our unleveraged balance sheet and cash position will allow us to continue differentiator
to support our employees and clients through the current economic
headwindsThank you
27
Alexander Forbes Group Holdings Limited
Tel: +27 11 269 0000 115 West Street, Sandown
P.O. Box 787240, Sandton, 2146, South Africa
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