Alexander Forbes. Picture: MARTIN RHODES
Alexander Forbes. Picture: MARTIN RHODES

Financial services group Alexander Forbes, which is undergoing a major restructuring under a new management team, says earnings edged lower in the year to end-March as it underperformed in the savings and retirement sector.

“Savings and retirement markets are under pressure and we did not perform to expectation, resulting in lost business in some segments. We are addressing this shortfall,” the company said.

The group, which has a new CEO in Dawie de Villiers, said in March it would sell its insurance businesses and exit its smaller African operations as it shifted towards an “advice-led and capital-light model”.

Alexander Forbes said on Tuesday total headline earnings per share in the year to end-March edged 1% lower to 44c.

Normalised headline earnings per share, which is measured against restated numbers for the prior year that take into account discontinued operations, fell 14%.

“The year under review marks a watershed for Alexander Forbes, having aligned our resources to capitalise on our core strengths and setting a course to deliver value from our market-leading positions,” the company said.

Operating income for the whole group rose 6% to R3.9bn.

But operating expenses from continuing operations increased 13% to R2.5bn partly due to non-recurring items, such as a termination penalty on an information technology contract and consulting expenses.

Technology and regulatory costs also rose. This meant the company’s cost-to-income ratio surged to 78.4%, from 72.3%.

“The increase in costs is an area of concern for the executive team and the new strategy incorporates plans to address the inefficiencies structurally.”

The firm said it would pay a final gross cash dividend of 12c per ordinary share, bringing the total dividend for the year to 30c a share.

Alexander Forbes said the process to sell its short-term and life insurance businesses “is under way and includes several regulatory approvals”.

Management aimed to conclude these deals by the end of the 2020 financial year. At the same time, the company was looking at potential opportunities to buy “a similarly focused employee benefit business”.

The company aimed to improve its return-on-equity ratio to above 14% over the medium term, it said.

In the 12 months to March 2020, the group expected “a stable year where profit growth may be hampered while we correct some of the previous inefficiencies and invest to grow”

“We aim to conclude the disposal of our insurance businesses and commence a restructuring of the legal entities within the group, to ensure efficient allocation of capital within a capital-light business going forward. Any surplus capital generated as a result of these actions will be returned to shareholders, as appropriate.”

hedleyn@businesslive.co.za