Alexander Forbes today bucked the trend among financial services companies by generating in excess of R1 billion in trading profits, a 19% growth for the 12 months ended 31 March 2003.
This surge in trading profits translated into 14% growth in core earnings to R602 million or 174c per share.
Group chief executive Rael Gordon said the result, achieved on the back of a 15% growth in revenue to R4.9 billion, was extremely pleasing given difficult market conditions. He credited a strong showing by both the South African and international operations.
"The growth in African operations was almost entirely organic with trading profit increasing 17% to R540 million. The organic growth in trading profit from international operations was 10%. Including Lane Clark & Peacock (LCP) which was acquired in June 2002, the international operations increased trading profit by 22% to R514 million.
"This is an excellent performance and underpins our confidence in our ability to continue delivering meaningful growth in earnings for shareholders. Going forward we will be looking for strong organic growth both locally and from our international operations," he said.
Alexander Forbes also announced an increase in the distribution to shareholders to 67c per share, representing a dividend yield of 6% on the current share price.
Gordon said the year under review saw Alexander Forbes conclude a number of strategic moves including the acquisition of LCP and the subsequent acquisition of the Schroder Pensions businesses in the UK.
"This gives us the platform to enter the specialist investment product market in the UK by combining Investment Solutions` experience gained in the South African market with LCP`s actuarial skills to develop multi-manager investment product solutions for defined benefit and defined contribution pension plans, and to develop pension administration services across the full range of schemes in the UK. The establishment of Investment Solutions in the UK provides significant long-term opportunities for the group," said Gordon.
Locally the company`s trail-blazing empowerment transaction in September last year ranked as a highlight. Thirty percent in Alexander Forbes South Africa was sold to an empowerment consortium headed by Millennium Consolidated Investments, with broad-based empowerment participation achieved through the Alexander Forbes Community Trust which has an effective 5% shareholding. The trust will directly benefit the aged, disabled, women, persons affected by HIV/AIDS and educational projects. It has received an initial R3 million cash injection from Alexander Forbes.
The group`s commitment to transformation is reflected in the restructure of the South African board of Alexander Forbes which is now chaired by Cyril Ramaphosa and includes Geoffrey Nzau and Mpho Nkeli as new executive directors, and Kojo Mills and Ndoda Madalane as MCI`s non-executive directors. Some of the group highlights were:
Africa
* Risk Services recorded a growth in trading profits of 25% to R172 million. The Personal Services business, which was restructured in the first half of the previous year, made a significant contribution to this growth in profits.
* The Financial Services business was able to boost trading profits by 15% to R208 million in difficult market conditions. A number of new business gains were achieved in the second half of the financial year, most notably appointment to the Government Employees Pension Fund.
* Investment Solutions produced a good set of results growing trading profits 12% to R160 million in depressed local and international equity markets. Strong new business flows continue.
* Associates produced disappointing results mainly as a result of the decline in the profitability of Medscheme. This business is in the process of being restructured to improve performance.
International
* The Risk Services business increased trading profit by 25% to R301 million, benefiting from the hard insurance market conditions and a turnaround in the loss-making operations in Argentina.
* Financial Services: LCP is performing well and contributed R51 million to trading profits for the 10 months since acquisition The Independent Financial Advisory (IFA) business experienced tough market conditions in line with other IFA businesses in the UK, with pressure on both revenue and margins resulting in a 56% decrease in trading profits to R27 million. The Bureau and Software Sales parts of this business have been restructured and recently the IFA business has been ranked the number one pensions IFA in the UK.
* Investment Solutions achieved a break-even result in the two months following completion of the acquisition of the Schroder Pensions businesses. There has been a significant focus on specialist product development for the close defined benefit and defined contribution markets.
* The Direct Marketing business recorded a 13% growth in trading profit to R135 million, but this was partly due to reduced marketing costs following the cancellation of a large agency agreement. The company continues to investigate opportunities with alternate providers.
Gordon concluded that Alexander Forbes would continue to focus on delivering meaningful growth in earnings for shareholders.
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