Alexander Forbes feels effect of Covid-19

Date: Jul 13, 2020

Alexander Forbes has been forced to freeze the fees of all its nonexecutive directors as part of the group’s cost-containment initiatives in response to the impact of the coronavirus (Covid-19) pandemic on its operations.

The JSE-listed diversified financial services group this week said it planned no increases for the ensuing year with all directors remaining on the same remuneration as in 2019. It said it had, however, added a new lead independent director fee.

Alexander Forbes ended the financial year to end March on a downward note as the positive market returns recorded in the first nine months were reversed in the last quarter.

The group saw assets under administration and management fall 9% to R310 billion($18.48bln), owing to negative market performance mostly in the month of March. Headline earnings per share also eased 20% from 44.2 cents per share in 2019 due to the market disruptions.

Alexander Forbes said the operating environment has become more complicated, uncertain and difficult with the outbreak of Covid19 and the country’s economic prospects. Chief Economist Isaah Mhlanga said the operating environment for the 2020 financial year was challenging.

“The weak economy leads to retrenchments, and thus, fewer active members, as well as competitive fee pressure,” Mhlanga said. “This also places savings and retirements markets under pressure, resulting in asset outflows demonstrated by the decline in the preservation rate for savings to 53%from 55% the prior year.”

Operating income increased 1% to R3 153bn($190m) amid difficult trading conditions characterised by a weak economic environment, and the impact of clients lost in the prior financial year.

The group wrote off R1 145bn ($68m)in goodwill and a further R47m($2.80m) in related intangible assets, included as non-trading and capital items, that reflected the uncertainty of projected income arising from the Covid-19 pandemic. Alexander Forbes said all the major global asset class returns were negative during the last quarter of the 2020 financial year, except for global bonds.

Similar trends were observed in the South African asset class returns where the returns of equities, bonds and property were negative. Local cash was the only asset class to register positive returns.

Alexander Forbes’ profit from continuing operations was flat at R757m($45.14m) year-on-year owing to muted operating income growth coupled with good expense management. But this was offset by stranded costs relating to the short-term insurance business.

The board declared a final gross cash dividend of 12 cents per ordinary share, bringing the total dividend declared for the year to 30 cents per share.

The board has declared a special gross cash dividend of 50 cents per ordinary share, distributing the available cash to shareholders and reducing a significant portion of the surplus capital position.

Chief Executive Dawie de Villiers said the surplus would still provide sufficient liquidity and capital strength. De Villiers said the decision to de-risk their business model and simplify the structure was gaining traction.

“After robustly stress-testing various scenarios for our business, driven by Covid-19 and the sovereign downgrade, we are now confident that we will be able to navigate steadily through these turbulent economic times,” De Villiers said.



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