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

Good afternoon, and welcome to the live webcast of the Alexander Forbes' FY 2021 Annual Results Presentation. In studio today, we have Dawie de Villiers, Chief Executive Officer; and Bruce Bydawell, Chief Financial Officer. Before we begin with today's proceedings, please note that this webcast is being recorded. The presentation material, full results announcement and audited financial statements are available on the company website. With this, I'm going to hand over to Dawie.

Good afternoon, everyone. Welcome to this annual results presentation of Alexander Forbes. We really look forward to engaging with you today and hopefully, give you some insights into the past year and our financials, our outlook and what we've achieved during the year. We will do it in 4 stages. We're going to touch on the perspectives of the year, how we saw the year, what panned out, talk about the different revenue drivers and explain to you where those landed during the year and how we achieved the results that we did. And then Bruce is going to take you through the deep dive into the financials, the actual numbers, where it comes from, explaining it. And then I'll end off with looking forward a bit and talking about the outlook for Alexander Forbes in the year ahead. We always start the year and the presentation to -- looking at the macroeconomic environment. And just to give context to our results, we know it was a tough year with COVID having a big effect on business, on South Africa, on the world markets basically, but also on specifically, GDP growth, as you see there. We chose these factors basically because those are indications of our numbers and our revenue drivers and the things that affect us. You can see there the Business confidence index starting to turn around and that's green shoots for us. The unemployment rate is at an all-time high, and we'll talk a little bit about unemployment, about retrenchments later on in the pack. And then interest rate is quite low, which is a good indication for Corporate South Africa. Obviously, we've seen the markets rebound. This time period is 1st April to 31st of March, so exactly at the time when the market was at its lowest. So a big rebound in the all share at market, we also had a big effect on our return. So that's just a little bit of a background to see where we've come from. When we think and I invite you to read the slides, but when we think about this year, unprecedented, obviously with COVID, also for us as Alexander Forbes, at the start of our new strategy, our recovery journey, we look to this year to basically embed our strategy and lay a platform for the years ahead. And then COVID struck. So it has been tough for us. But if we look back and we look at the results, it's actually been a little bit of a blessing as well. We had to fast track everything that we embarked on from digitization to automation in the systems to the operating model and implement everything much faster and get the culture of the people and the service levels with the clients up quickly. We probably did it a year quicker than what we thought we would. And that was really, really good. So -- and I think the thing that carried us through is the strategy, operating model, but certainly, the advice-led, during this time, it was it was critical for us to be in front of the clients, whether it be our retail clients, our wealth clients, or our corporates and the pension funds. It was important for us to be in front of them and really take them through advice and help them through this journey. And I think it did well for us as a company. I'm very excited to mention the new business. For me, in the recovery phase, it's important to get feedback from your own staff as to how it's going. It's important to get feedback from clients, but the ultimate feedback, I believe, is if you can turn it around into actual new business. And for us to get in the year, signed annualized revenue, new business revenue of ZAR 140 million is exciting and really exciting for us for the future. So that is good stuff. Bruce says, it's the highest in 5 years. I just think it didn't go back further. So it's a good number, and we're very proud of that. And the team did really well to get us there. The other 2 things that we had to focus on, I think, you as the shareholders told me right upfront when I joined the company. You have to look at the culture of the people, make sure that you can attract the right skills, make sure that everybody's empowered and really look at the staff internally. And we're very proud to say we do the annual engagement survey. And over the last 2 years, we've had a 25% increase, with a lot of positives coming out from the staff, feeling much more comfortable in the company, willing to deliver, and I think we can go to war with the people that are in the business at the moment. And that's a real exciting prospect for us. And I think that spilled over to the next point, which is actually the delivery to clients, where we've had also an external survey, which we do annually where the clients rate us. And over the last year, that score doubled, which is a massive improvement, where clients are actually saying you are delivering, you are delivering according to the standards that we want and much happier clients. So those 2 things were significant upfront for us to fix. And certainly, we -- I think we fast tracked that, very happy with the result. Something else that will come through in the results, and Bruce will talk to it, is the sale of the group risk business. We've embarked on this capital-light journey. And we can unpack the reasons for it. We did it throughout the last 2 years. Mainly don't want to be a product provider and certainly want to be capital-light and underwriting insurance provider. And that will enhance our strategy and really help us to be advice-led without having to push products to your own flows to your own product. So the last one in this instance was the sale of the group risk business and the life business to Sanlam, very difficult period to be selling a group risk business. And so we're delighted with this outcome. Also delighted with it going to Sanlam where part of the negotiation was around looking after the staff and certainly looking after the clients and being a house for us to place our future clients with as well and keep up the service levels and the underwriting. So we're very, very pleased to holistically with us, and Bruce will talk through the numbers a little bit later. And then the assets under management reaching ZAR 400 billion, which we're very proud of, obviously, as a result of the market's one side, but also the new business. The highlights for the year is the revenue drivers, which we'll go in, and again, despite COVID, maintaining at just ZAR 3.1 billion. We're very pleased with that, and that also shows to us that we're on the right track. Bruce will explain the profit's down 10% as a result of our expenses. We're actually way ahead of targets, way ahead of what we thought we would achieve. So pleased with that as well. And then the final dividend of ZAR 0.09, which I think will definitely talk about where that comes from and how that landed and unpack that a little bit and also willing to take questions on it. But certainly, within our range and within our policy and very pleased with the total result there. So that's a little bit of the background and a little bit of the context. We always show our strategy and those 5 pillars, and I'm certainly not going to handle and talk about every point on that slide. But it is important for us to always go back and say, this is our strategy, we want the consistent long-term strategy that can deliver the results. And how are we achieving the growth in all of those strategies? And what are we doing? How are we measuring ourselves? For you as shareholders, what is important, but also for our staff and our clients? So most of the points are on there. For best advice, it's important for us to embed advice-led strategy. We've done a lot of things there, as you can read. And certainly, talking to individuals, getting individuals in funds, to understand what they're investing in and why they're investing it and making better choices into the future is key to that, which will lead to better benefits. We've got the opportunity to give them wholesale pricing, to give them advice from a wholesale perspective to them on investments and retirements. And all of those are really, really good features. Our returns in the proforma portfolio, which is a flagship, again, top-ranked and top quartile, which is really good. So the one area that keeps on growing and growing fast is our Arrive strategy, our advice strategy, which I'll unpack a little bit. And certainly, it deserves a mention. But the strength is still our focused business model. We've decided to have the administration, the investments, the consulting areas and really focus on that. And we see really great improvement there, and we're quite excited about the differences that we've made there. The one thing that I want to highlight there is the administration, it was a bugbear for us, and it's central to what we do for clients and how clients perceive us and a lot of work has gone into using the people better, getting the right people in front of the different systems and the different parts of the administration system and changing the systems, enhancing the systems, and the feedback that we're getting from clients certainly is that, that has improved a lot, and a lot of automation has happened and will still happen. As I said, regularly, we'll update it every month. I want the admin clients to feel that there's an improvement in their service levels. So we're really excited about that. And then as I said, the group risk business basically signaling the end of our disposal of our underwriting businesses and really culminating in the end of that part of the strategy, really making us capital-light and how we can focus on the growth agenda into the future, which I'll talk to a little bit. So if I go to the different businesses, I do want to stand still a little bit on that big number for us on the new business, which we're quite proud of. You can see on the slides there, the differences as to -- the different areas that contributed to the new business. So there's 2 things that stand out for me on this new business number, obviously, the size of the number, but secondly, that it comes from all the areas, all the areas that contributed to it of our business model going forward, from health to investments, to the normal administration, to big administration, stand-alone clients won during this period. So it feels to me like we're doing a lot right across the business. And ultimately, it's our integrated advice-led approach that draws clients to us. And I think long may this continue, and we see this as quite a good building block into the future. The retirements consulting area of revenue consists of, obviously, EB consultants and the EB consulting area, actuarial, but also administration. So all the administration businesses in the umbrella funds. So it's a big component. You can say it's the heart of the business from that perspective. That's where we hold the relationships with clients as well. And the fact that this is done is one thing, and it worries us a little bit, but it is explainable. So the one part of it is the change, which Bruce can explain, but it's the change in the -- when we move the umbrella fund to -- from -- to underwritten...

From underwritten.

From underwritten...

Yes. To privately administered.

To privately administered, that's right. And that had a change in the way that we show the revenue. So that had a 2% effect.

Impact on that...

Impact on that. Thanks, Bruce. And then the rest is the retrenchments. So a big effect that the retrenchments had on administration fees and on advice fees. So -- but this is the area that we see big growth coming from as well. The guys are lined up. The things that we're doing in terms of products in terms of advice framework, in terms of administration, fixes, the automation, this is going to be a big growth area for us into the future. And whether the clients want to come into our umbrella funds or our stand-alone administration business, and this is going to be something that's going to drive our revenue into the future. If we think about normal environment where people get salary increases, where businesses grow and more people get employed. This area gets that windfall, and we'll hopefully grow with that. So this is a key area for us to keep on investing in and keep on growing. The effect of the retrenchments is always worthwhile looking at. And you can see there, 30,000 members over the total period that we lost on administration, out of our books for -- as a result of retrenchments and 8 more as a result of funds liquidating, companies liquidating. So that is the one that had the biggest effect on us, something that I know the market was worried about with regards to our future. But as you can see, there's 2 positives that we can take out of this. As you can see, it's flattening out. The number of retrenchments per month. And in the last month, it was just 1,000 members. So it's even flattening out more. We did a lot of research with our companies, that is our clients. And almost -- I think there's only 1 that has still got contribution holidays, we show that they're still in the stress. And none of the companies that we talk to are thinking about big scale retrenchments still into the future. So we certainly believe that this is the end of the retrenchment cycle, which gives us a lot of certainty and hope into the future with regards to this revenue number. Our new business landed in stand-alone administration that I talked about, is not in here yet because we've signed it, but the members must still be onboarded, and then they will come in. So hopefully, this gives us good growth into the future. On the health care consulting. It's been a stable business for us, really good growth in the past 2 years, maintaining that growth year, much less affected by the retrenchments, which is interesting and good for us. And membership actually growing with good new business wins and the revenue also growing. So this is this is a very good performer and one of the areas where we obviously are quite big in the market. On the investment side, which is the investment consulting part of the revenue, plus the asset management revenue, 60% of our revenue, 56% of our revenue comes from the assets under management. So it's a big part. It's important to look at this. As I said, we grew the assets to over ZAR 400 billion during the year, mostly markets, but obviously, good new business numbers, about ZAR 30 billion of new business. ZAR 20 billion of that is platform. I must just highlight, platform meaning clients using our platform for administration purposes and not through our asset management vehicle. But that is great revenue. We are sizable on the platform. We do it well, so we can scale that quite easily. And over time, it might even lead to some assets. So we're quite keen on that. And then the performance of the Performer portfolio is something that we constantly appreciate, don't take for granted, work hard on. But certainly, that is a differentiator for us in terms of risk-adjusted returns, in terms of volatility and in terms of adding value to our clients. This is something that is a draw card for us and will remain so into the future. So very excited about this. The -- some of the notable new business wins was in the advisory front, which we've really got key, very good people in the investment advisory space, making big headways into funds and getting good appointments, and that shows our knowledge and the capabilities in the investment space as well. So we're quite excited about this. That's the way that the assets build up, and it's quite a nice slide to explain to you, the shareholders, how that works. So obviously, it was at a low point in the beginning of the year at ZAR 310 billion. And there you can see the ZAR 10 billion and the ZAR 20 billion, which is the ZAR 30 billion of new business, and ZAR 10 billion loss. So the ZAR 10 billion loss is something that we continuously must work on and change. There's nobody that Bruce and I constantly talk. There's nobody else that we can blame anymore for that. We must just see to it that it doesn't happen into the future. So there was a few clients that left us, and that's regrettable, but excited about the new business, excited about the growth. And then if you look at the uncontrollable flows, the aim is to work on those with our retailization strategy and to get less withdrawals going out of the company. And to limit the outgoing contributions in the first place by preservation. So that numbers -- the combination of those numbers must shrink. The reason why it's bigger than last year is obviously the retrenchments. And all the retrenchments are in that ZAR 59 billion outflows. Normal contribution payments and all of those things are in there as well. So you will have that element. But our job is to try and make that less and then the market contribution getting us to ZAR 400 billion. The ZAR 400 billion is exciting for us because for the first time in a long time, we start the year on a very high asset value. And as I said, 60%, 56% of our revenue drive is driven by the value of our assets. So this is a nice high level relative to last year and going into the future for our revenue for the year. So we're quite excited about that. One of the highlights during the year was our wealth managers, our planning -- individual planning business, individual consulting, where it was a tough year, people couldn't get in front of clients for a long time, and these clients want face-to-face to help them with their -- specifically the investment advice and their solutions. So this was a tough year for them. And despite that tough year, it was a great year with new business growth, asset growth and people moving into the right products. The retention rate -- the preservation rate dropped, obviously with retrenchment. But on top of that, we actually got a much higher retention rate for those clients that actually did preserve, which means that our retailization strategy is starting to pay off, and we're quite excited about that. So good green shoots there, very excited and certainly the emphasis on the retail planning and the retail advice business and the people that we have there really contributing to this result. As I said, the Multinational consulting, the Arrive strategy, where we're doing consulting, into Africa for clients throughout the world that has businesses in Africa. We help them with all their employee benefits. We've actually expanded that now to include RIM models to include short-term insurance advisory. And all of those expansion is just taken up by the clients because we can help them from a central point of view. The maps are actually quite exciting. If you think about the scale of this business and the opportunity that it has. We're very well represented throughout Africa, and we have touch points in many of the African countries, which is -- which was quite exciting to see on a map. But the other thing that is great is these companies that we advise to that pay us, have got Head Offices throughout the world. And there you can see, we actually service all those companies in those different areas of the world with our advice for their members through Africa. So this is a big opportunity for us. We think this is still a massive growth area and a lot of the growth that we've seen in this year has come from this area. And Bruce will add with very little capital, very little capital. It's basically people and advice. So this is an exciting area for us, and the team has done very well to establish themselves there. And then I'm going to hand over to Bruce, who will delve into the financial numbers a little bit. Thanks, Bruce.

Thanks very much, Dawie. I appreciate that. And yes, there's quite a lot of different messages through these financial results. I think what I would like to highlight in the financial overview essentially are sort of 5 key themes that sort of come through in all of the numbers. Dawie has spoken quite a lot to the pleasing top line. We certainly did expect our top line to be a little bit less. And so we have exceeded our own expectations on that one, and are very pleased with that result. From the cost side, we -- also good cost management. Unfortunately, we are a little bit smaller because of our disposals in the past 2 years. And as a result, I mean, we've spoken about stranded costs in the past. And that impact, I think, for the last year, this year is still impacting our expense growth, which drives our profit from operations, down by 10%. There's also quite a lot of detail to talk around the management of the sale -- management and sale of discontinued operations, which I think there are a number of things there that we need to talk to. And then the sort of ETV liability matter, which essentially we've been dealing with through most of the year. We did highlight this at half year, and we did speak to it at the end of last year. Obviously, that liability is significantly increasing through this year, and we've had to put a number of things in place there. And then essentially, the indication of our sort of capital-light journey, pretty much the group risk sale being the last step in that process. But also just recognizing that we are very much a smaller balance sheet at the moment. It's a strong balance sheet, not leveraged. We have -- we're quite well capitalized. But our total equity is down 21% to ZAR 1 billion, and that's largely due to the fact that we've returned cash to shareholders through the year. So we'll certainly unpack that as we go through. Won't spend a lot of time on this slide, just really reiterating a lot of what Dawie has taken you through. The only decrease in revenue was in our retirement consulting area, as indicated by Dawie, largely impacted by the retrenchments and also the restructuring of the AFRF umbrella fund, which has changed that. And then highlighting, again, the significant amount of our revenue that's driven by market, which is 56%. And then also by what the economy drives, which is essentially formal employment on payroll expenses and on sort of members under administration. So quite a significant portion of our revenue. Those are your key drivers. Just going to costs. I think that as indicated, if you extract the stranded cost, the allocation to what we did allocate to discontinued operations in the past, our cost base has increased by 1%. And we think that, that's a fairly good result in the current environment. Again, lots of different things happening, some positive, some negatives on the expense base. Certainly, with regards to people costs, last year, we did give an increase to our levels 1, 2 and 3, the senior management didn't get increases. So that's pushed cost up there. But there has been investment in the right place, client-facing areas, et cetera, where we have invested a little bit in people and continue to have pressure, to be honest, to invest in our people because that's really what drives our company. From an IT cost point of view, decrease. Pleased with that result, largely through renegotiated contracts with some of our larger suppliers. But again, just real area of pressure with regards to specifically increases coming through from UK, U.S. applications that we use. And then the rest is there for you to read as well. The stranded costs having a significant impact on the total growth rate of that expense base. If you exclude the stranded costs, we have been growing our underlying expense base at lower than inflation, and are pleased with that result. The -- it's not the end of the journey with regards to costs and cost management. We are still looking to manage specifically property costs. We still are looking for a sublease on our Sandton office and on our Durban office, and we've had a lot of interest. We've spoken to a number of people and just haven't brought that one across the line yet, and we continue to try and get a subtenant into those buildings. We will also continue to automate and to rationalize our IT applications, which I think is going to be a journey over the next couple of years in order to try and make sure that we manage costs to at a reasonable level. And then there -- that has ongoing consequences with our E&Os, which also need to be reduced over time, and that's one of our focuses. Just a reminder that these cost pressures do remain, we're still locked into a lease agreement, which has an 8% escalation on it for another few years before we can get out of that contract, which is why we're looking for subtenant. Other cost pressures include our sort of cybersecurity around IT, which is a constant threat at the moment. And then obviously, lots of regulatory issues coming through, which I think we are attending to as we speak. Just carrying on with the income statement. And going down to some of the highlights, running through to the rest of the income statement. In our non-trading capital items, the prior year obviously had a significant goodwill write-off at the at the initial stages of COVID and our estimations there. Obviously, and then that line item includes the amortization of our intangible assets based on the old private equity deal and our cell-captive insurance facility, which actually has been -- was a positive result this year, which we're pleased with as well. Lower finance costs, which are as a result of paying off our revolving credit facility, the ZAR 74 million that is there is the lease costs, which are as a result of our IFRS 16 lease accounting. Income tax effective rate is 34%, still higher than we wanted to be. Still work to be done in terms of structuring our legal entities to ensure that we can take better advantage of our tax losses. And certainly, we'll be looking to improve on that number going forward. It has come down from last year, so there has been some movement -- positive movement in that regard. And then our discontinued operations, which has got the significant impact of the ETV costs, which I will talk to in the next few slides. The underlying operating profits or operating losses of the discontinued operations, ZAR 38 million. In the prior year, we had the short-term insurance business. That ZAR 38 million includes our short-term insurance business in Namibia, which was essentially around ZAR 19 million loss and our group risk and life business here in South Africa. The group risk and life business actually, if you take finance costs and finance income into account, actually made a profit for the year, which we think is a very credible result for a life company through a COVID year, and we were quite pleased with that result from our life business, which is -- which we have announced the sale on. With regards to the ETV, which essentially comes through on that non-trading and capital items line of ZAR 250 million, I think it's quite important to unpack exactly what the underlying liability stems from. We did sell this business back in 2012. It was a consulting actuarial and administration business, which we sold to JLT. At the time, the U.K. Finance Conduct Authority was inquiring into enhanced transfer values, which were payments made to individuals exiting defined benefit pension funds. They have defined some thematic errors in the advice given at that time. And as a result, there was a number of redress payments that have to be made to individuals who exited defined benefit pension funds. Most significantly, I guess, is the fact that we have always considered these liabilities covered by insurance. And to date, our primary insurance layer has made payments. We've -- and we have got confirmation from a number of the other layers of insurance that they will be paying for these redress claims. Really, the reason why we are having to recognize a loss in our income statement and provide for liability is essentially because there are 2 insurers that are disputing the method of aggregation of claims in that process. We've had senior counsel opinion on this, and we're fairly confident that we should be able to ensure that those insurers pay out on the claims. But until such time as we have full and final confirmation or payment from them, we can't obviously expunge that liability. So we've recognized the liability. Our liability at Alexander Forbes is limited based on the sale agreement that was signed back in 2012. And our liability actually is limited to GBP 18.5 million. The provision that we've made in our results for this year-end is the full extent of that liability. So we should have no longer -- we should no longer have a negative impact going forward with regards to this liability. In addition, as we recover from insurers, and we cover the liability in terms of the cash payments to clients, we will be able to recognize this ZAR 274 million back into our income statement going forward. I think it's also important to point out at this stage that as a result of the way that our insurance program works, we are having to cash back that ZAR 274 million liability. And again, the cash will come back to us once we've -- once the insurers have paid out on it. Just moving on to our normalized income statement. I think we give this every year, so I'm not going to spend too much detail on -- too much time on it. I did just want to point out the normalized numbers include the ETV liability when we publish them. And in calculating of dividend, we have agreed with the Board that we exclude the ETV liability. And so I've just provided our normalized numbers, excluding the ETV liability on this slide for information. It's a fairly busy slide. I won't spend a lot of time on it. It's largely to provide information to everyone. Interestingly, though, I think it's quite important to understand the journey of our issued share capital with regards to how it impacts our weighted average number of shares. During the course of the previous year, we actually canceled 54 million shares. And then at the beginning of this current year, we issued 114 million new shares as a result of the ARC flip up that was an agreed flip up from 2016, the shareholders approved that transaction back in 2016. We have, also subsequent to that, purchased 42 million shares on our share buyback program, and we'll be canceling those shares in the new year going forward. So a few movements there on our issued share capital, which I think need to be taken into account in terms of calculating some of our weighted average ratios that are impacted by that. Importantly, the normalized headline earnings per share, excluding the ETV of ZAR 0.312 per share is what we've used to base our dividend -- to base our dividend calculation, and we've stuck with the 1.5x cover on that calculation. So resulting in the ZAR 0.09 final dividend to be paid in July. Just some of the other ratios that we normally provide on this. I think the most important one here is the available cash of ZAR 232 million. And I've got a slide following this, which will indicate how we have returned a large part of our cash back to shareholders through the last 12 months. The normalized return on equity is very low, inclusive of the ETV cost -- excluding the ETV cost, it would be at 9.1%. Taking just a bridge between our available cash at the end of last year to the ZAR 232 million that we are reflecting as available cash for this year. It does incorporate -- when we talk about available cash, it is after having reserved cash for our solvency capital requirements and the cover of 1.5x, which we do restrict in terms of -- when we look at available cash for dividends. Through the course of the last year, we have returned ZAR 1 billion of cash to shareholders in dividend payments. We've also done ZAR 284 million worth of share purchases, some of which is for our -- the employee share schemes, but most of which is for the -- for treasury shares, which we will be canceling going forward. And we have settled ZAR 100 million worth of revolving credit facility, which was left over just after the end of last year. In addition to that, as indicated, we are needing to cash flow the ETV cost and that will come back into available cash when we receive that cash from our insurers. And that's essentially how we get to after operating cash flows. Operating cash flows do include the tax payments, capital expenditure, et cetera, that you'll find on our cash flow statement. And then our capital journey. Just as we move through the journey to a lower capital base, reflects those same payments and those same outflows as indicated in the cash flow. Importantly, post the sale of the group risk business, there will be a release of capital from the group risk business as well as obviously, the proceeds on cash that we get from the sale of that business that will become available in the new year. Lastly, from my side, just to talk to the M&A, the mergers and acquisitions, the sale of the group risk business, it is -- the nature of that sale was changed through this year from the sale of the company to the sale of the policies, which is a Section 50 transfer of the policies to Sanlam Life. And that will be done as soon as the conditions associated with that transaction are fulfilled. The majority of the conditions that require fulfilling is actually the Prudential Authority approval of that and compcom approval, which will take a number of months to complete. The transfer of the policies is based on the effective date. So all liabilities up to the effective date will continue to remain with Alexander Forbes, and it is quite important that we will keep the reserves associated with those liabilities and the capital in that company until such time as we close down that balance sheet. And that will take a number of months post the effective date for us to settle liabilities and release capital from that business. Then just a note on the Alexander Forbes Insurance Namibia business, which was -- the sale was concluded in November 2020. There is still some outstanding settlements to be made on that business, and we're working on closing that out fully. But essentially, that business is now with MMI. The one -- I mean, we have been working very hard on acquisitions. And I think that there's some good opportunities that we are working on and discussing. The one completed acquisition that we have finished is GF Wealth. That business has been well integrated into our business and certainly is operating very well. In line with our expectations when we set out that sale. So that's been a fairly successful transaction. And that's it from my side. I'll hand back to Dawie. Thank you.

Thanks, Bruce. On -- Bruce hopefully addressed most of the issues in the numbers, and we can take question and answers. I was thinking whilst I'm sitting here, I was thinking we're sitting in a studio today. So I hope that I hope that the quality is good. It does make us feel a little bit more stuffy. So no jokes, no laughter, no banter. So that's unfortunately how it is when you sit in a studio. So apologies for that. The other thing that I thought of whilst Bruce was talking is, one of the things that we set out to do on day 1 was to be much more consistent and transparent and give you sustainable results. So I think you guys should know the presentation by heart now, it's just the numbers that change. We try and -- I think our strategy has stayed the same, even though things have changed internally. And externally, and we're sticking to our guns, and we're fine-tuning as we're going along. But the way we report and the way that we do things, hopefully gives you some comfort that there's a long-term sustainability to it. And obviously, year-on-year, it's more or less looking at the same quality issues. The -- something that Bruce hasn't touched on with regards to cash and to capital, we are on this journey from capital-light. We've proved to you in the amount of dividends that we've paid out special dividends, in the amount of share buybacks that we've done. And certainly, we'll continue with that. There will be cash coming in after the sale of the group risk and the release of that capital. And we might get cash back from the reinsurers. And we will continue with that journey. At the moment, we certainly like share buybacks at the current price. And certainly, as soon as the results are out, we'll start with that. And we'll continue to optimize the use of the cash and the capital for the shareholders going forward. We understand the journey, and we're quite keen on that. But we can unpack that a little bit further. So I just want to end off by looking forward a little bit and saying, so what does this mean? Where are we? And what does this mean? One thing that we did is we looked at what did COVID do to the environment? Certainly, to our space, we're now playing specifically in that focus business model area of ours, and what does that mean? And we've had many discussions with you as shareholders over time. How do we get the growth from there? What does the landscape mean? What does the future say? And also what did COVID teach us? So we've unpacked it there. And again, I'm not going to go through the whole slide. But one thing is clean, is clear, and that is that we will probably see consolidation in this industry over time. Now people have realized that they also want to focus on their core businesses, administration, you need big scale to do enhancements to really affect the whole automation digitization into the future. And you have to do that to be competitive and to deliver to clients what they expect. So we see that consolidation plays 100% into our hand as well in terms of our look to acquisitions into the future. And certainly, we've, as Bruce has highlighted, we've had some discussions, and we're quite positive about some of them. And then specialization, doing what you do, do well. And then if you can't do it well, then you partner with somebody else to deliver that for you. So things that we've expanded on quite a bit is partnerships. Really getting people into help us where we are weak or where it's not our specialist area. And that has really enhanced our offering into the market and also internally. So we'll continue to co-create those partnerships and make sure that we partner with people that can help us. For instance, we don't have a balance sheet at the moment if we want to give our clients guarantees or on balance sheet products, we'll have to partner with the like. So this is how we think about it. Obviously, at the forefront of automation and digitization, and we have to deliver that better client experience for our clients. We've gone a long way, and this is the exciting part, and the journey will continue a long way to make it easier for clients on the administration side, specifically to interact with us. And to do their own uploading of claims, a bulk upload system, straight-through processing, all of those things that we've been talking about is programmed implemented on the system, and we're busy rolling out clients on that. And I think that's a key trend for us going forward. And that's how we think about when we think about our future and where we want to go, that's where we look to. If we think about way to from here. I think the easiest way to say it for me is, and I started off by saying our platform is now right. We will continuously tweak our operating model. We'll continuously tweak the way we enter into the market and there will be continuous development on the administration, on the way that we manage assets, got a lot to do on ESG and all of those things, but that's all fine-tuning. The essence of our offering and our advice-led offering and our integrated offering is there. And it's now ready to scale and to grow. And we're quite excited internally and hopefully for the clients about this growth agenda of ours. I think we're really ready for it. And we believe I'll come to it, but we believe that the environment is also ready for that growth. We've highlighted there on this slide, strong capabilities in people, strong multi management capabilities, the automation. We've touched on all of those. We still believe that this retailization of the member base in terms of really capturing them and understanding how they can invest and understand the investments and do the right decisions. During this COVID period, also people were questioning a lot of should they save? Should they use their cash? Should they withdraw? And just that help to the members that doesn't have access to advice, is actually where we can play a serious role and hopefully make a big difference in their lives. And also then in the lives of our clients, the corporates because their members will be and their employees will be much happier. And then we say embrace regulation. What we're actually trying to say is there's a lot of -- from where we were a year or 2 ago, where it was talk about Regulation 28 going to be changed to give compulsory savings to SOEs and to fund SOEs and all of those things to where we are now, where the regulation has actually changed to say this is sacred money. This is pension fund money. It's integral to the future of South Africa, its members, and it's protected. And the regulation changes are actually coming to get more preservation, auto enrollment, those type of things, which hopefully we'll see over time, certainly, with the change in Regulation 28, you saw the move to make infrastructure development more accessible, but not at a minimum level, which was a good move forward. So we're excited about the whole environment and where we can go. And then I want to end off by almost starting at a higher level and saying, there's -- our theme was pulling together, but certainly, from an SA Inc. point of view, South Africa point of view, the way we should look at things and what does the environment give us. If you think emotional, you think negative, load shedding, vaccine rollout is slow, corruption, you suddenly get very negative. But what we did is we went back and we actually analyzed what is happening on the ground. What is the fact? How do we look at the fact? And if you -- we all know about our strong courts and our strong financial system and those. But if you also think about the green shoots that's come to the fore, just in the last month or 2, to really indicate where South Africa can go and that we may be at the turnaround point, and that could be massive for our country. We've seen corruption being dealt with head on. We've seen SOEs getting enough attention, also not throwing good money after bad with the SOE sale to make sure that, that's done in the right way. Certainly, the energy reforms that's been announced is a massive positive and makes us very hopeful into the future of South Africa. The new GDP numbers actually projecting -- coming out very positive and projecting more growth into the future. So that is something to harness and to think about the positiveness of South Africa. And if we think about just a last data point to consider there is a lot of the asset managers in South Africa at the moment with their global mandates are underweight offshore, which means that they are positive South African Inc. and their thinking South African stocks, companies operating in South Africa have got good growth prospects. So all of those things culminating into something that we say could this be it? We're seeing the green shoots, we're thinking this is the turnaround. And certainly, the next block is we as Alexander Forbes, think we can play a big role in that, certainly from the investment space, but also looking after members and helping them through this growth phase to really get the right advice, being the right product. And through our solutions, looking after them. And this really makes us excited. This is the first time and that in the last 2 years that we can almost stand in front of you and say, maybe the worst is behind us. And maybe we'll see some employment coming back into the country. Maybe we'll see some growth. We're already seeing foreign investment coming in with Heineken investing in Distell. So a lot of positive news coming out, and we're geared for it. We've set up our company and the business now to be geared for that growth. A little bit of salary increases coming through, a little bit of markets coming through and you know GDP growth and growth in South Africa infrastructure, the investments for our investment company. So we're really positive about what lying ahead, and we think we can make a difference within that as well. So that was for me key to end on that high note. And hopefully convince you that we're really well positioned for this growth agenda of us lying ahead. I think that is where I want to end. I'll let you -- leave you with a quote on optimism. So -- and then take any questions.

Thank you for watching today's webcast. [Operator Instructions]

Our first question is from Charles Boles, Titanium Capital. Do you think that your relationship with Sanlam and ARC as shareholder impacts your perceived independence? That's first question. Do you think this impacts your growth potential? And lastly, are there any conflicts, for example, in the asset management space?

Yes. So certainly, we definitely have ARC as our major shareholder, and per se, that is exciting for us. This is a company that invested by buying the shares in the market, 35% of our company and have the same long-term vision of Alexander Forbes that certainly we have. And share our strategy that we've implemented, and we're quite excited about that. That gives us a lot of stability and comfort into the future. Certainly no conflict in terms of -- or problems with regards to independents. The cornerstone of what we do and how we will be judged in the market is independent. And I think that's the reason why in a difficult time, we can get new business because people see, you just have to do your work right and you have to be good at what you do. But because your independent people will listen to your advice. And certainly, with our advice-led strategy, we have to be independent, and that is understood certainly by all our shareholders and by the market. So I don't think that is compromised at all. And then going forward, I believe we will grow 1 by -- from 1 side by getting new business. We will also get new business from the likes of Sanlam, who is a major competitor of us in the administration and umbrella fund market and the consulting market. So head-on competition. And certainly, we'll grow from hopefully acquisitions. And if Sanlam wants to sell something, we'll definitely buy it from them. But I don't think there's any relation to our growth prospects. And the shareholding or the relationship with ARC. We're actually very excited about the impact that ARC has had as a shareholder is giving us the comfort that we can strive for long-term returns and sustainability rather than what we had in the private equity era.

Thank you, Dawie. Our next question comes from Sandile Magagula of Umthombo Wealth. This one's for you, Bruce. Can you please provide guidance on stranded costs going forward? Are you in any -- second question? Are you in any position to do a share buyback given the depressed share price and level of cash on the balance sheet? And lastly, what size of acquisitions can we expect in the pursuit of your growth strategy?

Sure. Thanks very much. So certainly, our intention is to continue to do share buybacks and very much at the levels that they are -- at the levels the share price is at the moment, we believe that, that's the right thing to do. We believe the share buybacks are accretive. So we'll continue to do that in line with what the shareholders have authorized us to do at the last AGM, and we'll certainly be going to the AGM to continue with the ability to do that. Sorry...

Do you want to take the question on the size of acquisitions?

And the size of acquisition. Yes. I mean, we've had a number of discussions, as indicated, with more than 1 party, so there is that. The size of the acquisition is actually quite difficult to determine, to be honest. And ultimately, our goal there is to drive our core business, which is essentially consulting, actuarial and administration as well as well as assets. And so the assets that come along with the administration consulting. So that's the core of our business. And we'd be looking in that area. We have a very strong balance sheet. We certainly are able to borrow. And we believe that we would be able to integrate a fairly sizable acquisition. I think that, that's about as close guidance as I can give on that.

And we won't say no to smaller acquisitions. We've embarked on that. We're busy in finalizing one which we entered that last time already, and that's taking a little bit of time, which is fine. The businesses are continuing, and you'll integrate them. So we'll continue to look at smaller ones as well. But no problem to buy a bigger administrator. Certainly, we have access to cash, and we have enough cash. So it's not a really a size issue. It's more a question of from a competition commission, what can we do? What can we afford? And secondly, does it make sense? Will it be value-adding to the bottom line and to our scale effects that we want to get to. So we're looking all over. But certainly, we're having quite positive discussions at the moment. So it is at least progress from where we were last year.

And then just to talk to the stranded cost question as well. So we -- pretty much at the end of that journey, I mean, there is another ZAR 20-odd million worth of allocated costs into some of the discontinued operations, either that we've sold to date or all into the group risk business, which will carry into the new year. But I certainly don't want to be talking too much about stranded costs going forward. I think that's the big journey of tackling the sort of -- I think it was ZAR 150 million to ZAR 200 million worth of stranded costs that we had at the beginning of the journey 2 years ago, I think we've pretty much passed that journey now. So we won't be talking to stranded costs going forward too much.

And also not for the current sales. So we'll absorb it and go forward, and it will all be included. So it's probably past us now.

The next question is from Warwick Bam of Avior Capital Markets. Will you review the dividend policy once the group risk and retail life business is transferred?

Dividend policy after the transfer.

So my view is the dividend policy there is -- it's designed to really drive our capital structure and how we want to be going forward. There will always be an increase internally for both investment and for solvency capital requirements. So the 1.5x to 2x cover is really designed to address that increased investment that's required on an annual basis going into our business. So I don't think it will be the policy that we relook at. However, given a release of capital, given the return of the ETV cash, given the proceeds and sale of the group risk business, it is likely that we will have available cash at the end of next year or through the course of next year. And as that cash becomes available, we will look at it in light of another special dividend. So we've been quite clear from our side that we don't want to -- we want to be capital-light that we will drive our equity down, and we will continue to do that. So certainly, our intention is not to hold onto cash unnecessarily.

If we haven't bought something by then.

Yes. If we haven't bought something, yes.

Thank you, Bruce. The next question from Chris Stewart at Ninety One. Just following on the -- following on from the question relating to the inorganic growth. Can you give a sense of how much gearing you think the balance sheet can tolerate to support acquisitions?

It's a good question, and we were asked this a few times. So I mean I guess it depends on what kind of gearing that is and how we structure it. And we are able to take up to, I think, 35% of our total equity in Tier 1 and 2 capital. So it will be dependent on the structuring of it. To be honest, from my side, I think it's more a -- targeted level would be more in the 10% to 15% range of our equity being leveraged so or in a Tier 2 type borrowing structure. So that's what I would target.

Just as a follow-up there, would you consider using equity for a transformational transaction were the right opportunity to arise?

Absolutely. Absolutely. I think that we really believe we're well poised for growth, and we are well poised to serve South Africa, to be honest. And so where it makes sense for us to bring 2 businesses together and to be able to leverage that through synergies, I think that it is -- we're in the right environment to do that. So absolutely, we would be looking at that.

Thank you, Bruce. And the final question that I have. If we turn back to the slide on retrenchments, Dawie, how was April and may retrenchments? Which sectors of the economy have had the lowest retrenchments?

So the last number we have was for April and that was 1,000 members. So it's already a big drop from what we've had in March. And we see that, as I said, that drop continuing. The biggest retrenchment was initially in the entertainment area, hotel groups, restaurants, those area, a little bit in the motor industry as well. And -- but as you know, the hotels have started operating. The restaurants have started operating. So they are back again. And as I said, one indication for us about the recovery is actually that only one of our companies that is our clients of all the corporates as a client, is still on a contribution holiday to help those employees at half salary or lower salary. So -- and that we call is our distress factor. So I think it's really coming through as a turnaround.

Next question on the acquisition of GF Wealth Management. You paid ZAR 33 million, and it has been in the books for 6 months now to March 2021. How much profit-after-tax has it contributed? Just going to finish off, Bruce, there's another question related to M&A. Going forward on M&A, what is the size you're looking for in terms of deals? And that's it.

Do you know that profit number?

I do but we don't publish. So essentially, we haven't published it. This is a small deal. The ZAR 33 million is a small transaction. So it's not -- I would be happy to say that the business itself is -- would be in the region of ZAR 20 million to ZAR 25 million on top line going forward. So -- and it's been in our business -- it's been in our company for 6 months now. So not a significant sizable business, but certainly has been hugely value-adding in terms of the ability to integrate and to service some really quality clients. So we think that it's been a really good acquisition to that. Also through the year, again, in difficult circumstances that have done very well in maintaining a large part of those clients through the transition and making sure that they are well looked after. So it's been a good acquisition. And the second question was around size again.

Size again.

So I mean, I think that, again, the size is not really -- I mean, we are looking for acquisitions. I think the smaller acquisitions are probably complex. And we would prefer to target more sizable than that.

We can easily with our -- to give you an indication. So I know you want to talk about money and capital layout, and that depends on what you buy, obviously, if you buy peer administration or consulting or whether there's assets involved. So it changes quite a lot. But just to give you an indication on our platform at the moment and the work that we've done in the past 2 years to make it scalable and to really -- it's working to take clients on that platform. You can easily take 200,000, 300,000 individuals on that platform in terms of EB administration. And then we can cope and the amount of synergies that we can get there then is quite positive. So whether we do that through a few smaller ones or a bigger one or so, it's very doable. And yes, we'll continue to look at that.

Yes. I think just in addition to that is that sizable opportunities are not easy to find and are not out there in the market that do take some time. There's a lot of complexity and it's valuable business. So very difficult to land. And so it's not as if it's easy to get this done. If it was easier, we might have got it done by now, but certainly we'll continue working hard to get that over the line.

And it will always be a combination. I say to everyone, always be a combination where we are now and the strides that we've made. We're actually quite positive to get -- to continue to get new business in. The pipeline keeps on strengthening, the engagement keeps on strengthening. And the market is actually excited about Forbes' participation in this space. So we just -- the acquisition will just give us a kick start, but the normal growth will be there. And I think that's the question. Zak, is that the last one?

That's the last question.

So from my side and on behalf of Alexander Forbes, Bruce, and everybody on our side with all the work, Zak, thanks a lot. And then thank you very much for everybody dialing in. A lot of work going to your side as well to prepare for this, and we really appreciate it, and we appreciate the support up to now for our journey and our strategy, and we look forward to further engagements after this call in the next few days. Thank you very much. Highly appreciate it.

Thanks very much.