South African financial services group Alexander Forbes said on Thursday that although there has been a strong operational performance across most of its businesses, it expects to record headline earnings per share of between 108 and 115 cents for the year ended March 31 2005 — down 15% to 20% compared with the previous year’s restated 135 cents.
In a trading statement, the group said the strong operational performance has been offset by the reduction in operating profit contribution from the United Kingdom Direct Marketing and International Risk Services businesses and £9-million of non-recurring costs.
The combined effect of these items, and the earnings dilution resulting from the repurchase of exchangeable bonds and equity issue to VenFin during the year, is expected to result in headline earnings of between 108 and 115 cents, it said.
The group said that in the Africa region — principally South Africa — Risk Services (corporate insurance broking), Personal Services (personal lines insurance) and Guardrisk (cell captive insurance facilities) delivered strong growth in operating profit.
The Financial Services business continued to record good results in line with the revenue and profit growth recorded at the half-year, while in the Investment Solutions division, the multimanager investment business delivered strong revenue and profit growth, benefiting from further net inflows of assets under management and favourable market conditions.
Assets under management exceeded R82-billion at March 31 2005.
In the group’s international region — principally the United Kingdom — soft insurance markets, the weak dollar and cost pressures in the business continued to have an adverse impact on general trading of the International Risk Services business in the second half of the year.
“While revenues have decreased modestly by approximately 5%, the effect on profit is more significant, with operating profit reducing to about £5,5-million for the full year,” the group said.
The Financial Services businesses recorded strong growth in the second half, reflecting continued good growth in the UK Independent Financial Advisory business, an improved performance in Lane Clark & Peacock’s core UK actuarial consulting business and the benefits of its European acquisitions. This resulted in a significant increase in the combined revenue and operating profit for the full year, it said.
In the Investment Solutions division, the UK business continued to grow assets and members under administration successfully. Strong new business has resulted in assets under management increasing to £450-million and, as a result of the growth, the intragroup profit elimination highlighted previously has increased commensurately.
In the International Direct Marketing division, the UK direct marketing business has continued to trade on a smaller scale in line with previous communications to shareholders.
“In aggregate, the provisional results reported by the various business units reflect a slight increase in consolidated revenue and a marginal decrease in consolidated operating profit for the year ended March 31 2005,” it added.
At the time of the half-year results in November 2004, the group advised that it was undertaking a specific review of its International Risk Services business and indicated that there would be one-off costs associated with this review.
Arising from the review, it has instituted a number of focused actions within this business, including aggressively focusing on client retention, new business and revenue generation to capitalise on enhanced opportunities in the market and cutting costs with annualised savings of approximately £4-million achieved to date.
Most of the benefit from these savings will only be felt in the new financial year, the group said.
It has also selectively recruited key resources, including the appointment of a new operations director and head of retail business.
The group has also continued to dealing with legacy issues and this has resulted in some provisions being required for bad debts and onerous leases.
The group has also sold it 20% shareholding in National Britannia for £5-million.
One-off costs of approximately £9-million have been incurred, resulting from the review and these costs — which include redundancy payments, bad debt write-offs and provisions for onerous leases — will be separately reported as non-recurring costs in the group’s results.
The combination of action already taken and plans in place will leave the International Risk Services business in a stronger position to capitalise on the growing number of opportunities in the market, it added.
The group is now in a closed period and will publish its annual results on about May 30. — I-Net Bridge