Alexander Forbes Group Holdings Limited (AFH) Earnings Call Transcript & Summary

Good afternoon, everyone. My name is Zakira Amra, Head of Investor Relations at Alexander Forbes. I would like to welcome you all to the slide webcast of the interim results presentation for financial year 2021. I have with me today Dawie de Villiers, Chief Executive Officer; and Bruce Bydawell, Chief Financial Officer. Before we start the proceedings, I would like to remind you that the webcast is being recorded. I would also like to bring your attention to the safe harbor statement on Slide 2. Please note that the presentation material as well as the full results announcement is available at -- on our website, and the recording of this webcast will also be made available later today. With that, I would like to hand over to Dawie.

Thank you, Zakira. I want to start today by saying that as we all know, it's been a tough 6 months. Our 6 months that we're reporting on is exactly within the COVID period from the 1st of April. But this has been an exciting 6 months for Alexander Forbes. The mantra of ours, the strategy, the way we want to conduct ourselves as One Alexander Forbes with an integrated value proposition being advice-led was perfect for the circumstances during this period. And the most pleasing thing for me about the 6 months is not necessarily the numbers, it is the way that we picked up in front of our clients, the way we looked after staff. And therefore, they've been looking after the clients and after the business with increased productivity, good service delivery and really good client retention. So for us, the enhancement of the strategy during the 6 months has been really phenomenal and almost the highlight, for me, of the results during the 6 months. And we're sticking to our theme of the whole is greater than the sum of the parts and choosing the revenue as a theme for this round. The macroeconomic environment is not unclear to all -- any of you, you know how -- what it feels like even if you don't know the numbers. Macroeconomic growth, business confidence, very high and low. And these are the numbers that we show because they are the indicators of our revenue and our revenue drivers into the future. The unemployment rate is the one that stands out. This is the new revised rate. On the old numbers, it would have been closer to 40%, I think. But this is the -- one of the big drivers of our revenue, and we can talk about that a little bit later in the results. The one positive is the recovery of the market since March, which has helped our returns and our results quite a bit. If we stick a bit on this slide, talking about the overview. I've talked about the One Alexander Forbes, but then if we think about COVID and the period we went in with our strategy laid out and ready to do a better strategy through this financial year when COVID struck and it was a big shock to the business and to what we have to do. But we realized quite quickly that what we put in place as an operating model, looking at things holistically and being set up to service the clients was really encouraging and linking to what I said earlier. We've seen positive client feedback from these engagements. We don't talk enough about -- in this result, you normally talk about your own distress and your own fears, but we don't talk enough about the fears and the distress and the worries of our clients, which are all corporates, all doing business in this environment. So our job was mainly to make sure that we add to their lives, and we had to consult them and to really do our advisory strategy, as we said. And hopefully, the retention and then the new business wins during this period speaks for itself in terms of how we conducted ourselves and how the strategy is working out. Very clear that the world has changed, the way business is being done has changed and conducted. Certainly, the virtual aspect of it and being able to work from home, even with our administration staff, has been great. But also the needs of clients and the engagement needs and the differing ways of working to the future has been very important for us to adapt quite quickly. And I think we're on that journey and are doing really well. When we talk about the numbers, you can read the scripts there. Very happy about the outcome, specifically the profit from operations, it's down 5%, but pretty resilient. Operating income only down 3% through these times, and we'll unpack that a little bit later. And then specifically, the actions around increasing headline earnings per share over time is a good result that we're quite proud of. We will talk a little bit about our M&A actions during the 6 months and also into the future and unpack that a little bit, but I think that is important for us if we think about -- as we think about growth into the future. But I'll unpack that as we go along. Suffice to say that we talk about revenue and we talk about our expenses and our continuing operations and our core business, and that is key, and that is what we must understand and focus on in the future. Very pleased, as always, about our ungeared balance sheet, our financial position, our capital position and the strong cash available and cash generation of the business and that has been -- really nice to have that during these uncertain times and going forward. I think the business is in a very good position from that point of view. We've set ourselves 5 key deliverables, 5 key strategic pillars, and we thought it's important that we give you feedback as to how we're going with regards to those and where we've made progress and where we must do most -- more on. I think when we talk about best advice for clients, this is really our differentiator and key for us to be seen as advice-led to be really doing the right thing for our clients and clients wanting to talk to us and wanting us as their advisers during these turbulent times and into the future, and we're setting ourselves up this way. Under advice for clients, we also see the multi-management proposition, investment proposition really differentiating itself as well as a risk-adjusted return that we continue to give to our clients, diversifying away from purely balanced fund to private market, hedge funds, our offshore capabilities, really differentiating ourselves in the market with regards to those returns and looking after our clients. And then, as I said, the clients are under stress and needs a lot of help and advice and we were there. And then on top of that, being able to change the way that we engage, to change the way that we advise. I've got examples on the slide there, we're talking about guaranteed annuities versus linked annuities. Times have changed. Interest rates change, environment change and we continue to do the best thing for our clients. And we've seen change in behavior from the clients, and that just shows that you have to be upfront in terms of how you give advice. You can't stick to the same things over and over again. And it also says that we are not continuously just doing the same thing and selling the same product. We do what is best for the client, even if guaranteed annuities is not on our balance sheet. The other thing with regards to clients and advice, that is very pleasing for me and I have a slide later on as well, is the new business. I always said to the business, we can do all the things right and we know what we're doing and we know what we're trying to improve, but the only real indicator of whether you're successful is if your current clients give you compliments and if you get new business because you can only win new business if you can stack up in a beauty parade against the rest. And so this is, for me, personally, very, very pleasing, and it's across the business. It's not in one area only. It's across the business, all the business areas. So we're very, very excited about this pillar and how it's going. The measurable benefits talks to really the benefit of the individual, the benefit of the client. Does he feel it in his pocket? It is -- and wholesale prices for retail clients, it is really making a difference. Extra returns, added returns, stability of the returns, and we've seen those things come through. We narrowed it down to even saying, if we deliver on the SLA during this time with regards to a claim payment, with regards to different SLAs, then we are adding value to the clients. And it was important for us to do the basics right. We've also rolled out already to a few clients and in the process of rolling out to more with a lot of success and a lot of positive feedback, our digital exit process, which will certainly be a massive benefit to individuals in terms of the experience and in terms of how they are -- they see Alexander Forbes. And those things will enhance our offering quite a bit. And it's important that we continue to do that. Our offshore Arrive strategy is -- continues to deliver a bit more new clients during the period. We're delivering services in -- and advice in 27 countries on behalf of our clients, and really good growth there, also a big part of the additional new business that we've won and the revenue that comes from that. So that business continues to do very well. And if we talk about the focus, it is -- we've asked ourselves a lot of questions during this period about not being so diversified because we have a focused business model with administration, consulting, investment and the focus there. And shouldn't you have, when things are under pressure, a very diversified business. We actually believe that this focused approach has done very well for us. We can put all our efforts into the important things that we are good at to be able to win. The fact that these things are under pressure with regards to the SA economy is one of those things, but we must still put a lot of effort and resources into those areas to be able to win relative to the rest of the market and grow despite the market circumstances. Otherwise, you'll just lose value there. And this has really done well for us in terms of all of those areas. And we want to make sure that in those areas, we continue to grow also with regards to acquisitions. Not just new business and not just making sure that the core businesses are good. So we've signed 2 new companies on new acquisitions, and we call it a bolt-on strategy, make sure that it adds to the scale, it adds to the bottom line, but more so gives us access to markets and lease areas which we didn't have in the past and make sure -- and we've learned a lot through our acquisition strategy. We've always talked about it. We've learned a lot in the last year about how to do it and what to do. And to be fair, it is about the relationships. And it's about trust. And it's about having these companies not about the price, but actually having these companies feel comfortable with Alexander Forbes, with the methodology and that they will fit in and be looked after. So I think we've -- we're quite excited about our M&A strategy going forward. Continuing on the capital-light strategy and the disposal of the Namibian short-term insurance being approved, finalizing the disposal. And as you saw, the special dividend, continuing to pay dividends, our interim dividend again on formula. And hopefully, the strong balance sheet and the cash talks to the capital-light strategy and the strength of the balance sheet. If I look at the different businesses, as I -- allow me one slide to brag about the new business, but I mean, ZAR 60 million of annualized revenue in new business in the 6 months is really a success story for us. As I said, it talks to the strategy, it talks to the delivery and it talks to the culture and the business because you're only as good as the people that stand in front of the clients when they pitch for the new business. And certainly, we've done well in this space, and we're very, very excited about this. This does not mean that we've arrived. This means that we have just seen that we're on the right trajectory, doing the right things and we'll continue to do more of those things into the future. The Retirements consulting, which is consulting arm in terms of our revenue driver includes the EB consulting and administration businesses. This has been a tough time for this business or for this area of revenue, down 8% in revenue. Half of it is because of the bad change, as we've explained previously, with regards to the umbrella fund. But the rest is because of the weak economy. We've had retrenchments. We've had contribution holidays. We've had the market -- so fee pressures, and it has had an effect. But the biggest part of the effect is that impact. I want to talk about retrenchments in a separate slide on its own because I think it's important for our business, but it's also important for the South African environment and context and important to set that out. We've had nice growth in umbrella fund assets yet again. Our members -- active members are down 2% to just below 900,000 and mainly because of the retrenchments that we've seen come through. And then, as I said, very important for us to keep on investing and rolling out our digital solutions, our enhancements on the operational systems. And to that extent, we've done the digital exit process that's in play, busy rolling it out with clients. The bulk claims processing has been programmed and is busy being rolled out. Online contributions is being done. We've enhanced our workflow system. So really, really working hard on the admin system, and we should see quite good improvements over a very short period of time. If I talk about the retrenchments, I think it's critical to see the movement. And as I said, to just understand what's happening in South Africa and what's happening with us and our funds. Firstly, we've had 15,000 members retrenched and through our admin system on our books that has been retrenched, and you see the graph there on the right-hand side of the increase of this over the 6 months, month-on-month. Important to note -- and then -- sorry, I want to bring in the liquidations. It's another 5,000 members as a result of funds being liquidated, all companies closing down and funds being liquidated. So that's 20,000 members lost out of our contributing active membership base. And you can understand that has an effect on our revenue just from a member base point of view, but also from an assets under management point of view, which is now out of the system. People don't reinvest that money because they have to level as they have been retrenched and not switching jobs. A few things that I want to highlight on top of this, just to give context. The one is a lot of these retrenchments have been in SMMEs up to date. You can see here in the graph at the bottom, it's in our AFRF, and that's indicative. Most of them is in our umbrella fund, indicative of the size of the companies. It's been easier and quicker and much more needed for smaller companies that's under pressure to do retrenchments. The -- I don't think that is -- important is that we have a running rate of retrenchments. It's not like we don't have retrenchments -- we didn't have retrenchments before COVID. So we had a running rate of retrenchments of between 1,000 and 1,500 members per month in any case, which was always part of our book and always part of our numbers and always part of our in- and outflows. So this is not 15,000 to 20,000 new members. This is 10,000 new members because we've had a running rate of 6,000 to 10,000. So that is important to note. And the other thing that is important to note, which you'll see on the Investments, is that these retrenchments did not go along with big asset amounts flowing out. The assets flowing out under exits has almost been stable, maybe ZAR 1.23 billion extra as a result of these 15,000 exits. So it's been members with small asset amounts. Something else that I can bring in here is our concept of contribution holidays, which also talks to members and talks to revenue and talks to companies under distress. We've given members, as you know, and clients a period of 3 to 6 months of contribution holidays where they've asked for it, where they're in distress to help them out and help the companies out and also help the members out with take-on pay. That's been received very well, and I think hit the mark 100% for the right people, and we're actually very proud of what we can do -- could do for the man in the street and the employers out there with it. And I mean the number that we have is around about 470 companies or funds that have applied for these contribution holidays. And normally, it's a 3- to a 6-month period that we enter in for them. And more than 300 of them are starting to pay already again. Have started to pay, and the rest will phase out as for 6 months near. So the thing for me to read from that is that the companies are in distress. But when it comes to the end of the contract, they are starting to pay again, which is great news, great news for us and great news for the market in terms of sustainability of the companies and maybe showing the recovery out of COVID. The last thing on retrenchments -- I'm jumping around a bit, but the last thing on retrenchments is certainly not the end. I mean I don't -- it's not a -- it shouldn't be a shock to any of you that retrenchments will continue. We know that it has continued in the months of October, November already. It is flattening out a little bit, but I think it's moving to the bigger companies and our stand-alone funds where they're more considerate, they're running bigger programs and making sure that they're doing the right thing. And we've seen a slowdown in the retrenchments' numbers coming through the books, but will probably still continue for the next 6 months. And we will monitor that as we go along. So I spent a lot of time on that, but I think it's important. Our Investments business, as I said, very proud of the Investments business. The operating income is down, mainly because of the blended return being down. You saw the assets under management on average 3% up year-on-year, ending at ZAR 360-odd billion, which is quite a bit higher than 6 months ago, obviously, but also year-on-year, quite a nice increase. So the main reason for the lower operating income is basically clients switching to less rich products or less lower-margin products. And we've done quite a few -- in engaging with our clients during this period, we've done quite a few pricing reviews as well. Not just giving pricing discounts, but actually saying, "Okay, your assets have grown, you can get a lower fee," those type of things. So really looking after the clients. And I think this business is in a really good space. And the multi-management concept is in a really good space with our returns being quite good and something that we're proud of, as I said, but also good for the clients. And hopefully, this can go from strength to strength. Very good new business in this area as well as we would expect. And hopefully, we'll get even more in the times to come. This is just an analysis of the investments, and I want to bring you back to the retrenchment story as well. The 7 new business and the 2 new business in platform, I think, looks small on this graph, but if you add ZAR 10 billion of assets under management every 6 months, this business will get a nice growth, but most of the growth coming from the market depreciation. And then you can see from the uncontrollable flows in and out is the ongoing contributions, a little bit lower because of the contribution holidays than in the past and withdrawals from benefits a little bit higher because of the retrenchments, but not to the extent of the number of retrenchments, as I've previously said. The Healthcare and Multinational businesses. Healthcare has been a star performer for us for a number of years now, maintaining its book. I see this is just the consolidation, getting new business to stay where they are has been great during this period after the phenomenal growth that they've had in the past. And we've also got a -- set up a new Healthcare brokerage in Botswana, which is -- which has also already landed a client or 2. So really doing well in the Healthcare space. And I've already talked about the Arrive strategy, getting -- continuously getting new business in doing well for the clients and certainly really delivering for us from a revenue point of view and from a diversification point of view. The countries in the business is in Botswana, Channel Islands and Namibia doing their part, improving. Namibia's still under pressure, but all the business is improving year-on-year and helping us to grow the operating income there by 9%. On the Individual consulting, which is the individual planner's business, consulting, talking to individuals. As the market has said already, it's been tough because this business depends on face-to-face, which they couldn't do throughout lockdown with -- for new business and for reviews and for just servicing their clients. We've adjusted and the virtual world is working for them, but clients still want to see their individual advisers face-to-face, and it's going much better now. This is -- this business is affected by the retrenchments. It's certainly affected by the retrenchments from a preservation perspective. People took their cash and they have to live up their cash and they didn't reinvest it. So the preservation rate down which is to be understood because of the retrenchments. What is pleasing, though, is that our retention rate of those that preserve is higher and that means that our strategy is starting to work. Even though more people are taking their cash -- have taken the cash out during the 6 months out of the system, we've managed to grow the retention rate, which means that we've improved the way that we've engaged with those that do preserve. And that just shows that the system and the defaults and IFRS certainly is working and adding to the bottom line. About ZAR 8 billion of new business -- of assets in AFRIS already, which is really, really great. I'm going to hand over to Bruce to talk about the financial numbers, which is why all of you are here.

Thanks, Dawie, and thanks, and good afternoon to everybody. Thank you for joining us on this call. Dawie has taken you through all of the business units, and this slide just essentially gives you the summary, as we usually do on the results across all of the different divisions. Just to say that 3% down, we certainly find that a pleasing result. But in the context of the 6 months that we've gone through, it is a little bit ahead of what we had anticipated. We do think that the markets came back a little bit better than expected and so that is ahead of what our expectation was. On the graph on the right, just to point out, 88% of our revenue is subject to either the economy or the market movements. And so we are a little bit at the whim of that. And then as I point out, once again, just in the Retirements consulting space, there is an amount of ZAR 19 million, which is a VAT charge or reduction on fees based on the change in the structure that we had in the AFRF, which released ZAR 400 million worth of capital in the prior year. And just moving on to the analysis of our operating expenses. We have for a number of years now, been really working hard on our operating expenses and continuing a really steady journey of trying to ensure that we drive efficiency and simplification into our processes. We are pleased with the results in terms of the 1% decrease in the base expense amount. What has impacted our expense number, as we have indicated before, is the decrease in our recovery from the sole discontinued operation from last year, which is the short-term insurance business, and that has had a significant impact on our expense base, which this year is a 3% swing on the underlying base. Important to talk to some of the issues here in terms of the fact that we remain the -- cognizant of our future and of the difficulties that I think lie ahead still with regards to our top line and therefore, continue to be fairly cautious and restrictive on any new hires in our business. We are conscious that we need to sort of extend and are ensuring that we invest in the right place. Unfortunately, there is cost pressure, specifically with regards to our regulatory environment, which has had significant changes over the last little while. Also, the sort of COVID interruption, getting in the way, working from home and things specifically like data costs increasing due to the fact that we are ensuring that our staff can access our networks from home. So some cost pressures there and those continue. The need for technological improvements through this period has also become very, very clear to us. And certainly, we're working on our data management within our business, and we need to invest there and continue to invest in tech security. I think it's a well-known phenomenon that our cyber security is under threat through this period as well. So continued very well-constrained expenses over the 6-month period. If we then move to the rest of the income statement, our profit from operations before nontrading items, capital items, is 5% down. We then had a positive experience within our cell-captive insurance facility, potentially it's just the fact that we're recognizing lower provisions or projected expenses in that cell and that reflected the ZAR 19 million around profit for the period. We've also had a significant decrease in our finance costs for the period based on the fact that we repaid our revolving credit facility at the end of last year after the sale of the short-term insurance business and the cash received on that sale. That brings our profit before tax to an 8% increase. Our tax rate -- our effective tax rate is at 36%, it's still very high. And the large reason for that essentially is the fact that we have unutilized tax losses and we have not recognized those losses in our balance sheet. And again, working on restructuring the business to ensure that we make our tax base more efficient in that space. The profit for the period from continuing operations is flat year-on-year, and I will go into a little bit more detail on the discontinued operations on the next slide. On the discontinued operations, our prior year numbers reflects the 6-month profit of the short-term insurance sale that was -- short-term insurance business that was sold at the end of last year. And therefore, there's a significant decrease in that profit from operations. The remaining operations in discontinued -- in the discontinued line are in group risk business and the AF insurance business in our Namibia office, both of which resulted in a small trading profit of ZAR 17 million. The large loss in that space is due to the ETV matter, which we notified in our trading statement which was put out a few weeks ago, whereby we had an increase in our liability with regards to a warranty plan from a disposed operation a number of years ago. And our insurers have not confirmed cover of that. And as such, we cannot recognize the other -- the asset side of that equation. It is our intention to continue working with the insurer, making sure that we get that cover confirmed. And when that does come through or when the insurance is paid out, that will result in a profit in our income statement in the future. So the loss recognized from discontinued operations for the period under review is ZAR 53 million as opposed to the profit of March to the prior year. Just moving to our headline earnings and dividends per share. A number of items to note here. One is that our continuing operations reflects a positive 6% growth on headline earnings per share. That is largely as a result, as I've indicated, of some of the positive news with regards to the cell-captive insurance, the financing cost decrease and also because of our share buyback program over the last 12 months, which has had a positive impact on that. Another event that happened in the 6 months is the ARC Flip-Up, which was nondilutive. So in other words, it did not affect our headline earnings per share. It reflects in a decrease in our noncontrolling interest, but also an increase in our overall shares issued. And therefore, the overall weighted average number of shares has actually increased. So that -- if you -- that commonality is essentially an overall decrease in feeding -- earning the discontinued operations for the total operations of 41% on our headline earnings per share. Our dividend is -- that we've declared this ZAR 0.13 per share. This is in line with our 1.5x cover ratio with the exception of the fact that we have not taken the ETV debit that has set the income statements into account. And so if you exclude that ZAR 78 million, we are within 1.5x cover ratio. And that's essentially based on the fact that we anticipate that recovery coming in, in the next period. Moving on to the balance sheet items and cash flow. We have had a decrease in our cash generation from our operations, which largely is a result of an increase in working capital. An increase in working capital was actually related to the slowdown in expenses where we have, obviously, our cash outflows for expenses accrued at the end of last year, and our accruals for the current year are anticipated to be low -- or lower based on anticipated lower expenses for the year. That's given rise to an increase in our working capital and an outflow of cash. Our available cash as at the balance sheet date, this is cash which sits in our balance sheet over and above our required regulatory capital and the capital cover ratio of 1.5x is ZAR 491 million. Based on special dividend that we paid out during the period, our tangible net asset value and our average equity has decreased. And the normalized returns on those 2 metrics is 28.1% and 17.4%, respectively. These numbers are last 12 months' numbers. So just to highlight that they also include the profit on sale of the short-term insurance business in the last 6 months of last year. On our capital-light strategy, we continue to be very focused on reducing our capital within the business and then return that capital to shareholders based on the fact that we really want to get to a place where we're seen as capital-light. That journey is reflected on this slide. And we believe that we have pretty much got to where we intended to get to with the exception of the group risk business, which still needs to be sold. That business is -- we're going through that process at the moment. We do anticipate that, that sale will happen before the end of the -- this financial year. Really with some of the uncertainties ahead of us, that needs to be taken into account in terms of the sales. So targeted sale for the end of the year, which should ultimately release an additional ZAR 200 million worth of regulatory capital in that process. Once that sale is concluded, we believe that we will have delivered on our strategy, which we set out to deliver on with regards to being capital-light 1.5 years ago. On the mergers and acquisitions side, Dawie mentioned that we have concluded 2 acquisitions. Both businesses, I think, will be very complementary to the Alexander Forbes' business. They are small in size. One business, which is an EB consulting business in Capetown with ZAR 3.5 billion worth of assets and 5,800 members. There are some conditions still remaining around that sale, and the communications to clients still outstanding. So we're not releasing the name of that purchase at the moment. Second purchase was a business called GF Wealth, which was essentially a retail wealth advisory business. We had a very close relationship with that business. And the purchase from -- of that business will enhance our FPC business going forward. Again, ZAR 5.1 billion worth of assets, 969 clients in that business. That transaction has concluded and will include some deferred payments for performance on that business going forward. That concludes my part of the presentation, I'm going to hand back to Dawie. Thank you very much.

Now the end of -- before we talk about -- before we take questions, I think the most important thing for our share is that this strategy is being embedded much quicker than we thought, much quicker because we had to and becoming part of the DNA of the business and positively influencing the results. I think just getting through this period and on top of it, getting through this period with these results, is a testament to the strategy and the operating model and the way that it has been implemented and worked. The value proposition of being advice-led and being independent is actually being seen as a -- is a big differentiator for us. It really makes us a trusted adviser to clients and really is doing well for us. And again, it was embedded during this period of uncertainty with clients under pressure and needing a lot of advice. I think the business is -- I know the business is very resilient. The business has shown stability in terms of the numbers, but also in terms of clients and in terms of how we engage with the clients. That is a very strong attribute. And we're proud of how we behaved through -- during COVID as a business. Suffice to say that there is headwinds. I talked about retrenchments, I talked about macroeconomic environment and the volatility of the market. So we are exposed to those. I think we have proved that we have enough levers in terms of cost management that we can still use. And then we must focus on growth in terms of new business and in terms of acquisitions so that the headwinds that we face, we can counter with growth in other areas. So we -- it's a simple strategy, it's a simple plan, and we must just execute on it. What is critical as well for us going forward is to continue to manage the expenses, but more importantly, continue to invest in the right places so that we can have a continuous improvement in our administration system, in our engagement, in our digital enablement, in the way that we talk to individual clients on a regular basis and clients through companies, funds, brokers and individuals interact with us. That experience must be enhanced, and we saw the need for that during COVID, and we'll continuously invest in that. The member engagement strategy even further than that needs to kick in place. We saw during the period, when companies started talking about retrenchments, how important it was to have the right engagement at the right levels with the clients and how much it helped them and also how much it helped our business then that they could stay with us. So certainly, that needs to be enhanced as well. We hope to complete the Namibian short-term insurance sale. And as Bruce has said, the group risk sale, which will complete our disposal program and our capital program and then we can focus properly on the growth, which is what the business is wanting to do, where the business is, where the people are and they're very keen to focus on the growth proposition. We remain very strong with the balance sheet, with the cash position, our gearing, and I think that bodes well for us during this period of uncertainty, firstly, but also hopefully, with some opportunities for acquisitions. And that is me. Thank you. Thank you very much.

Thank you, Dawie and Bruce. I think with that, we have a few questions.

[Operator Instructions] First question comes from [ Louie A.G. at Standard ]. "Can you provide some color on the income band and industries where the impact of retrenchments and business closures is being most felt?"

I don't know the income bands, and I don't know the sizes of the businesses. Suffice to say that it's in the SMME space. We've actually analyzed the retrenchments to the nth degree, and we probably have those numbers, but I just don't have it on me. Yes. So 85% of the retrenchments was in AFRF, which is our umbrella fund which has the smaller companies. But I don't know the income bands of the individuals that was retrenched. I think that is probably -- if we look at the asset outflows, it was about ZAR 1.5 billion of assets that flowed out for the 15,000 members. So not a big number per person, but we can look at the income bands.

Next question from Charles Boles with Titanium Capital. "Could you please provide some background as to the reason for the dispute related to the ETV matter?"

Sure. It's -- it has been an ongoing claim, which has happened over the last 3 to 4 years in the U.K. We disposed of the business in 2012. And at the time that we disposed of the business, the FCA, the regulation in the U.K. had raised this issue, and we notified our insurers. Of the layers of insurers that we have, which there are many, all of the layers have confirmed to us that our interpretation of the policy, which essentially and centers around the excess that is payable per claim, is clear in their minds as to how to implement that interpretation. In terms of the excesses paid by Alexander Forbes for each of the different claims that are being assessed in that liability. There's one insurer that has taken a view -- as to -- a different view to the way that excesses applies to the policy. It is very unusual for an insurer to stand against all of the other insurance companies within the market. Our brokers are telling us it's a highly unusual situation. Certainly, we have legal advisement that supports our view, so we continue to engage with them and try and get them to understand. If there is no resolution to this in the front while, we have already started the litigative process that will take us to conclusion within the South African environment.

Thank you, Bruce. Next question on the ROE, have you got a specific ROE target? If so, how are you looking to achieve this? Given the pressure on the top line, impact of stranded costs and progress in the advice-led business model, where do you see operating margins of the business in the next 2 years?

Yes. So when we set out on our strategy, we specifically talked about an ROE target, and we talked about it being about 14%. I would totally agree with the fact that there are significant headwinds on that achievement and on getting to it. And that's largely through, as indicated, the disposals, the stranded costs that we've had to carry, plus the decline in revenue based on what's happened over the last year. So probably a much longer-term target than we originally set out to be. Just in terms of that specific target, when we put that up, we did take into account the intangible asset that we have on the balance sheet and the fact that there is a good portion of our equity that is actually based on those intangible assets, which arose on the private equity transaction back in 2018. So it was fairly difficult target to achieve and will be our target to achieve. It is still part of the capital-light journey that we're going, on and that is the reason why we have specifically targeted returning cash to shareholders over the period to reduce our capital.

From a fundamental point of view, it must still be the target because from a bottom-up growth perspective, we have to achieve that target over time. And it will probably be quicker to achieve it on a year-by-year basis and on a cumulative basis, but certainly, it is our target. COVID and some of the actions now have just put some pressure on it, hence, our focus on growth as well. So I -- you're 100% right, we're doing what we can on the capital side and I think that journey is on the below-the-line side. That journey is almost complete. And now we just have to get the revenue back up. And therefore, we have to look at new business and we have to look at acquisitions. So we're still striving for that target, it might just take a year or 2 longer before we can. We certainly don't want to change the target of this business. I think it's the right target for this kind of business.

Final few questions for now and another question from Charles of Titanium Capital. "The benefits of rationalizing and focusing the business are apparent. That said, are you confirmed that you are focused in areas which are unlikely to see structural growth in South Africa for the foreseeable future? Can the businesses stay in real growth in its current form?"

No, that's the -- that is the question because we get a lot of -- I mean, even internally -- in our internal and strategic discussions, would it have been better to be more diversified during a period where [ SA ec ] is under pressure? We believe that it was more than ever the right thing. And the focus that we have on the business, the resources that we can invest solely in the businesses that is our core is important, and we'll deliver the right return. So -- but suffice to say that it is under pressure. The -- [ SA ec ] is under pressure, the macroeconomic environment is particularly putting our business and our revenue drivers under pressure. So our answer to that is, again, being the best at what we do in those core areas and winning relative to the rest. So for a period of time, we know we won't get tailwinds from the economy. So we will have to drive growth from stealing from the rest, if I can say it that way, but being better than the rest on a relative basis and enhancing our returns and our revenue with acquisitions. We still believe that the more difficult the environment is, the better it is to focus and to get that right. And despite the headwinds, we think it's the right strategy.

Final question from Elan. "You mentioned 15,000 retrenchments in the period and an additional 5,000 jobs lost to liquidation. Have these trends persisted into October and November?"

So there's a flattening of -- Elan, of retrenchments. And I don't want to say that's a trend. It's quite easy to try and draw trends, but it is a bit difficult to say because we do think that some bigger companies will still come with retrenchment. So I think the large number that's on the slide was 4,600. I think the month after that was 3,000, 3,500, and it looks like about that same number for November. So it is lower and it has flattened, but I suspect it's going to stay at those levels for the rest of the year.

We have a question from Christian of Ninety One. "From here on out, what are your thoughts on the deployment of residual surplus capital for acquisitive growth versus returning it to shareholders in the form of special dividends?"

Thanks, Chris, we specifically that at the Board. And essentially, I think, given the uncertainties that are still lying ahead of us and what we all believe we need to go through for the next 6 months, we remained cautious with regards to paying out anything more than what our dividend policy has advised for this -- for the interims. And I think the 2 events, as we indicated -- the group risk sale, I think, is important in terms of defining and increasing that surplus capital for the end of the year. Then once we're there, I think for the year-end dividend, we will consider whether there is a need for another special dividend. It is our preference that we look and get to an acquisition that -- and use that surplus capital for acquisitions. That would be our preference. Having said that, we're also very happy to gear the balance sheet if we need to. And so if a large acquisition comes along, we certainly would want to look at some gearing on that and are in a position to be able to give the balance sheet. So we're not necessarily holding cash back for an acquisition, but we'll have that -- we'll assess that again at the year-end.

We're basically in a good position because we -- our stated strategy is to be capital light. So we know we have to do something with the cash. We don't want the lazy cash. But we're in a fortunate position that we actually have the cash to make a decision on as things come along. And so on a 6-month-by-6-month basis, we'll continue to do either. More questions?

One more from Elan. "If the sale of the group risk unit is completed in the second half, would you pay out the full ZAR 200 million relief? Is the scope for a larger payout of surplus cash as early as FY '21 stage irrespective of the group risk transaction?"

No, no, no. I wouldn't want to give any [ very clear sphere ] there, but certainly, we will look at it for the year-end position. We will look to distribute surplus cash. And we're very conscious of the fact that the cash held on the balance sheet is already bagging on our earnings, so we don't want to hold on to the cash. It's not our intention to do so.

Okay. I've got no further questions. [Operator Instructions]

Thank you very much to everyone for dialing in, for listening and the questions, the interaction. We'll have a little bit more interaction over the next few days with some of the shareholders. So thank you very much and enjoy the holidays.

Thanks very much.

Thank you for joining. Thank you for your time.