Alexander Forbes SA

ALEXANDER FORBES SA

ALEXANDER FORBES SA

Journey of a

Lifetime

PRODUCTION: Colin Chinery

Group Chief Executive, Andrew Darfoor is transforming diversified financial services giant Alexander Forbes with a radical new pan-Africa business model. “A lot has happened in my relatively short tenure at Alexander Forbes and I believe we are making progress in addressing the issues and positioning the company for growth on a panAfrican basis,” says the man recognised by CEO Today - Africa as a winning CEO.

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Powered by a nine-decade heritage and circa R9b market capitalisation, South Africa’s largest retirements fund administrator and asset multi-manager is on a life-changing journey; in its sights, the prudent citizen and the multiple opportunities across the African continent.

Traditionally operating a business-to-business model centred on providing companies with consulting, asset management and retirement fund solutions, Johannesburg-based Alexander Forbes has moved to sell retail products to individuals within these funds.

It’s a radical strategy with a potentially massive unlocking of client base numerical assets. And heading it since his arrival 15 months ago, is Group Chief Executive, Andrew Darfoor, a dynamic CEO with a 20-year plus record in strategic planning, turn-arounds, and

next-stage business growth.

“When I arrived, I found a largely institutional focused B2B business with a range of chiefly retirement, employee benefit and investment manager solutions to the corporate sector. We are now on a journey, part of which is a shift from business-to-business to businessto-business-to-customer.

“We find ourselves sitting on about 1.5 million customers across Africa, yet we only touch less than 5% on a proactive basis. So there’s a huge opportunity for us to better penetrate our client base on the individual side.

LIFE CHOICES “Our true customer is the individual, and we want to help the individual make smarter financial choices throughout their lifetime.”

Consumer need could not be more explicit. For 35 years South Africans have borrowed more than they save,

and a study by Forbes shows only 6% of its working people will be able to retire comfortably at their current pension contribution rate.

This is the Sandton-company’s designated heartland, and at the core of its re-positioning is ‘Ambition 2022’, a strategy to help its customers on what Darfoor calls a life-time journey of financial security and well-being.

“Our philosophy is very simple,” he begins. “We believe every human being goes through three phases of life; accumulating assets, wanting to protect those assets through home and car insurance and protection solutions, and moving towards retirement with enough to secure a level of comfort and dignity.

“Now we know that not many people can do this, and it’s largely a result of bad financial decisions and bad financial planning. What we want to do is to work with our 1.5 million

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INDUSTRY FOCUS: FINANCIAL SERVICES

consumers throughout their lifetime around appropriate interventions, advice, making sure they have a goal, and giving them a better certainty in meeting it.”

DOMINANCE DEPLOYED This is the rationale behind the switch from B2B to B2B2C. “We are using our dominance in the corporate sector where we have access and strong relationships with corporates to better access individuals in the work site to build a stronger consumer business.

It’s a vertically integrated model around accumulation, protection and retirement.”

But while Forbes has achieved vertical integration in South Africa, it has yet to emerge in many other markets, a factor in another element in

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its Grand Design.

“We are going on a journey to build a globally distinctive pan-African financial services leadership; globally distinctive in the sense that we are trying to apply global best practice and standards localised for the African market.

“As for pan-Africa, we have made a clear portfolio decision in terms of which countries in the world we want to be in. We have therefore narrowed our ambition - to become a pan-African leader within financial services.

“We looked around some of the 54 countries in Africa - you can’t be in all of them – so we made some clear choices. We assessed countries, looked at GDP growth, and whether there was an emerging middle-class and structural reform around pensions and savings.

AFRICAN HUB “We prioritised a number of countries into what we call a four-hub strategy.

There is Southern Africa - largely Namibia, Botswana, Uganda, Zambia and Zimbabwe - and here our strategy is organic growth with selective bolt-on acquisitions so that we can offer that vertical integration across accumulation, protection and retirement.”

In East Africa, Alexander Forbes is active in Kenya, while across in West Africa Ghana and Nigeria are being prioritised. The fourth geo-hub is francophone Africa.

“It’s a region which very few companies have targeted because of the perceived language and cultural differences. But we feel there is a strong demand there for the solutions I have talked about, with Morocco being the

ALEXANDER FORBES SA

// WE ARE GOING ON A JOURNEY TO BUILD A GLOBALLY DISTINCTIVE PAN-AFRICAN FINANCIAL SERVICES LEADERSHIP // best market, and one that we believe will give us access to countries such as Côte d’Ivoire.”

Darfoor acknowledges that most companies leave with burnt hands when entering a new market without local knowledge and an understanding of the culture. “Yes it’s a risk” he says, “so the approach we are likely to take in many markets is to come in with a significant minority stake, get to know the country and culture better, assess and support the management team, offer our expertise, and then overtime move to majority.”

DOOR OPENER The expansion strategy is predicated on start-off corporate entrenchment, seen as door opener to employees and hence consumer solutions. “Our employee benefit capability, particularly in southern Africa, is fairly fragmented, with the markets served from a fly-in-flyout model from South Africa, which is frankly inefficient.”

But with 94% of revenue generated south of the Limpopo, Darfoor says South Africa will always be dominant.

“However, over the five-year cycle we certainly want the rest of Africa’s emerging markets to be in double digits

as a component of the group.”

If African markets are currently economically challenged, Darfoor is unfazed. “I look through the currents.

We don’t manage the business for the cycle but through the cycle, and I look at structural trends.”

“Take a country like Nigeria; 85 million people in work but with just seven million or so having access to savings and pensions, and that number was virtually zero five years ago.

“So despite the political and GDP challenges, that figure has grown at 1520% CAGR, and we see that penetration rising from sub 10% to between 20 and 30% over the next five to ten years.

Taking a longer term structural view, Nigeria is certainly a good market for us to be in because of our business model.”

South Africa too fits into this matrix;

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SCALING NEW HEIGHTS

A RISING REINSURER GIC RE, INDIA’S RATING : TOTAL ASSETS: NET WORTH : GLOBAL RANKING : GLOBAL FOOTPRINT :

S&P

RATING

A- (EXCELLENT) BY A M BEST USD 12. 5 BILLION USD 5.77 B 14TH AMONG TOP 50 REINSURANCE GROUPS (A M BEST) JOHANNESBURG, LONDON, DUBAI, KUALA LUMPUR, MOSCOW, BRAZIL, SINGAPORE, BHUTAN, KENYA

BB+ (GLOBAL) ZAA+ (NATIONAL) OUTLOOK - STABLE

AND SUPPORTED BY A PARENTAL GUARANTEE

SMALL ENOUGH TO LISTEN, BIG ENOUGH TO DELIVER…

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ALEXANDER FORBES SA

seven million with access to pensions in a workforce of 15 million. “We are clearly the market leader in South Africa when it comes to retirement and pensions, but again, we are only talking to 5% of our actual individuals around their accumulation and protection needs.

GREAT OPPORTUNITY “This represents great opportunity, with strong structural growth within our existing business, improving cross-sell, getting the basics right, and by delivering on this big shift from B2B to B2B2C. So, while the economic indicators and political factors may not be favourable in the near term, we look beyond that, focusing on our strong customer value proposition, supported by excellence service and competitive pricing.”

Sorting out the basics was an early

ensure that we were bulletproof in the future, while at the same time promoting from within some of our bright talents.”

RECOVERY Just nine months after arriving at his desk, Darfoor was reporting significant recovery. “We had moved into positive leverage, growing revenue faster than expenses for the first time in three years, group margins were up by 50 basis points - the first time in five years expenses had been reduced significantly in excess of our target, and we delivered more profit and dividend.”

There were portfolio changes, including the sale of the UK business and using the proceeds to reinvest and fuel expansion in Africa including a significant stake in Zimbabwe-based African Actuarial Consultants, a promising

// BUT CAN YOU RUN AN ORGANISATION WHEN BUSINESS AND CONSUMER CONFIDENCE IS LOW, WHERE GDP IS LOW, AND WHERE THERE IS POLITICAL UNCERTAINTY - THIS IS WHERE YOU SORT OUT THE MEN FROM THE BOYS // agenda-topper. “The cost income ratio I inherited when I joined the business was too high - roughly in the 80s. I was unhappy that we grew expenses faster than revenue, unhappy about the margins, unhappy we didn’t have a clear strategy or portfolio choices.

“I was clearly dissatisfied with the financial performance over the previous five years. I think the definition of insanity is trying to do the same things over and over again and expecting a different outcome.

“It became clear to me that we needed a fresh perspective in terms of leadership and management, so of my group executive it is fair to say that of the 11 members of the group executive, eight are new.

“We have gone outside and gone for the best, bringing in both local and international skills in specific roles to

new leads–led partnership model with a group of South African financial advisers, and a $60m investment in the technology platform - the largest such investment in Forbes’ history.

“All this has been reflected in our share price, which has moved north, but not even close to the intrinsic value of the organisation if we can deliver on ‘Ambition 2022’.

“So while the progress we are making is satisfactory, in terms of our potential it’s barely adequate. When I look at the cross-sell into our end consumer base it’s still subscale. We are probably about six-months ahead of where I thought we would be at this stage, but there is a lot more we can and need to do.”

A graduate from the University of London and a qualified chartered accountant with an MBA from Cranfield

School of Management in Britain, Darfoor’s first job was serving drinks at the Artists’ Bar at the Royal Albert Hall – “I can still make a mean Pimm’s and lemonade,” he jokes.

With a 20-year track backdrop in bringing vision and all-encompassing strategic planning to international nextstage business, he headed Canadian insurer Sun Life Financial’s international arm before joining Forbes.

JURY OUT As a relative newcomer on the South African financial scene, he says that while the country’s short-term economic outlook is fragile, business and consumer confidence low, and the jury is still out on whether South Africa will experience further credit downgrades, much will depend on the mid-term budget and outcome of the ANC’s party conference.

“But here’s what we say. We are proud and honoured that our clients are loyal to us, with 85% of our business on the corporate side recurring in revenue nature and client retentions at over 95%.

That’s a good starting point.

“So in a tough economic cycle we believe we can be resilient as we become far more efficient, deliver the integrated model, and focus on strong client value proposition while waiting for the environment to improve.

“It’s all about resilience. When everything is going well anybody can look like a hero. But can you run an organisation when business and consumer confidence is low, where GDP is low, and where there is political uncertainty - this is where you sort out the men from the boys.”

ALEXANDER FORBES SA +27 11 269 0000 info@aforbes.co.za www.alexanderforbes.co.za

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Journey of a

Lifetime

Exclusive interview with CEO Andrew Darfoor ALSO IN THIS ISSUE:

Buffalo Coal / Nautic Africa / Grindrod / SAOTA

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ENTERPRISE AFRICA

DECEMBER 2017