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

Good afternoon, ladies and gentlemen, and welcome to the Alexforbes Annual Results Presentation for Financial Year 2024. I have with me Dawie De Villiers and Bruce Bydawell. Please note that this webcast is being recorded, as you will have heard, and will be made available on the company website together with the annual financial statements and full results announcement. And with that, I will hand over to Dawie.

Thank you, Zak. Welcome, everyone. It's a privilege and honor to be here again today. Looking forward to the discussion, and hopefully, some questions at the end. I'm going to start by, whilst you read the disclaimer, apologizing for wearing a tie. My wife bought me a tie with orange dots on, so I was compelled to wear it today given it's presentation. Sorry, Bruce. I didn't tell Bruce I was going to wear a tie. All right. We're going to run you through the agenda, where we do, as per normal, a little bit of background on the year, certainly some highlights of the performance of the individual areas. Bruce will unpack the numbers. I think we'll try and spend most time there because it was quite complex with lots of ups and downs and ins and outs. So Bruce has got most of the answers to the questions that you might have. And then I'll just quickly spend some time on how we see the future. So similar to previous years. I want to spend some time on this as an introduction -- on this slide as an introduction. Over the past few years -- and we've been quite open and transparent with our strategies, with our plans, as to how we want to grow and how we want to run the business. And some people even said that we're sharing too much of our information and making it easy for the competitors. But we've also always believed to be transparent. And what we've tried to do is to actively drive this strategy to transform Forbes or Alexforbes into a business that delivers advice and best advice to really make a big impact on people's lives, as that slide says. But what it means in essence is that we call it advice led and really trying to embed that. But in essence, what it means is we're trying to help corporates and individuals and funds to make better choices. And that was a transformation in itself in order to get there. But now we really have landed this brand, Alexforbes, to be a partner of individuals or funds or corporates that is the go-to place for advice, for help in uncertain terms and uncertain times. And if people ask me where does the growth come from, it comes because people want help and we're there and we're doing it quite well. And therefore, we've got clients that want to partner with us. So this, in my view, has been the transformational Forbes and why we've been relatively successful in the last number of years. And now we've talked about transformation for the last number of years. But actually, what has arrived now is we're now in the growth phase. We've now landed a place where we look forward to growth. We are growing, and there's lots of green shoots in terms of growth and pure growth. It's exciting to be there, firstly. Secondly, we applied ourselves through execution as a business in order to grow, relentless execution of the strategy. We didn't waiver at any time in terms of what we wanted to achieve, starting with the advice led, starting with a focused business and serving the best service to our clients that we can. Lots of innovation, lots of automation in order to help us. And then ultimately, it led to a growth in the client base, growth in the impact of our clients, which led to word of mouth and more clients wanting to partner with us and ultimately leading to a growth in revenue by winning market share in this very low growth market that we're operating in. And we're excited in this background to share the results with you. It is 8 bullets, but I want to spend a little bit of time on it because it is probably the intro and the main highlight. So you've seen the results, and all of you started to analyze it already. But what excites us a lot about the growth in net revenue because it is net of direct expenses revenue of 12% is that it has now been a cumulative growth in revenue for a large number of years. And it builds firstly, and secondly, it creates a lot of value for this business going forward. And ultimately, to me, the growth in revenue is the sign that we are on the right direction. And that's why it's so pleasing. Some of it has been acquisitive, and some of it has been part of business as usual. And I think both have added a tremendous amount of value also to the bottom line. 2% growth in profit of the underlying operations, but that includes, as Bruce will unpack in a while, the IFRS 16 adjustment on the property, which has a big effect. And obviously, without that, the underlying growth being 9%. But Bruce will unpack the expenses. I mean expenses increased by 16%, and that's probably the main thing that we have to look at, and Bruce will unpack that in detail a little bit later. But as you can see, headline earnings from total operations, up 29%, massive number. Very proud of that, which leads to us being able to pay a final dividend of ZAR 0.30 but a total dividend of ZAR 0.50, increasing by 19% year-on-year. That is a culmination of showing the growth in the business, the ability to pay dividends and also the trajectory of our business going forward, the confidence that we have in the business going forward. It's the ongoing ability to pay dividends, to generate cash, generate profits and obviously grow this dividend, as we have been in the last number of years. Further to the normal dividend, we've also reduced the risk in the business. We've reduced the risk in the business by selling some of the insurance businesses, by cleaning up the structure of the businesses, by reducing physical risk so that the capital -- the regulatory capital that we have to hold behind this business has been reduced. And a further reduction in that capital has allowed us to pay an extra special dividend of ZAR 0.60, which is around about ZAR 800 million of -- and which is most of the free cash that we've had on the balance sheet. Part of our strategy of the last number of years is to be capital light to be able to pay all the cash out or utilize the cash. And I want to say at this point because that's probably the first question that comes up when people pay a solid dividend and a special dividend, it is the 2 options with cash -- 3 options with cash. One is the special dividend, and we had a lot of cash. The second one is buying back shares, but our share is very illiquid and not possible for that amount to be bought in the market. And then thirdly, to do acquisitions. We've proved that we can do acquisitions without really utilizing the cash. We've got lots of leverage still left on the balance sheet. We are highly cash generative and can use some of the future case as well. And then we've got very supportive shareholders that obviously want us to grow in the South African market. So we're certainly not -- certainly continuing to look at acquisitions, and this is by no means an indication of the country. I will always want to talk about new business, and I can talk about it for a long while. But we haven't failed to hopefully surprise you on the upside with the amount of new business in the last 3 years. And this year has been no exception. Another ZAR 140 million new annualized revenue added in the year, which is about 3% of our total revenue. And if you think about that, that is a big number. And it adds to the bottom line. It adds to the growth. And that is just in the institutional business. Next to it on the retail business, we've added another ZAR 21 billion, 25% up on the previous year of assets under management, which also leads into, obviously, a much higher revenue -- new business revenue in the retail space. So all in all, the growth from existing businesses and new business been very successful for us. A positive figure and we'll unpack the asset business, the investment business just now. But to increase the assets under management at year-end by 16% to ZAR 525 billion is a big milestone. We crossed ZAR 500 billion this year and becoming a meaningful player in the asset management space. Last year, we increased our members under administration by a tremendous amount. And this year, we added even more. It shows just 1%, but it's obviously off of a big growth of the previous year. And the exciting part of having 1.1 million members is obviously the opportunity to do engagement with them and possible new retail business from those members. So quite excited about that picture. And then I will try and do the different businesses and just to highlight. I'll leave this slide on for a while, and you can look at the numbers, but just try and highlight a few of the items that stand out for me on these. So on investments, the first point that is crucial for us on investment is, as you can see from the flows, that we are now becoming a real investment destination for funds and for individuals. We've changed the brand. We've worked on making it more accessible to individuals out there. A lot of our 1 million members in the past didn't even know that they can retire with Forbes. But that has all changed now. Now people want to have their investments with Forbes. It's a trusted brand, great returns. And we're becoming this investment destination, which we want to build on. And the culmination of all of that is that net positive flows into the asset management business of almost ZAR 23 billion. In this market with natural outflows of we saw just now of about ZAR 60 billion per year, to have a net positive inflow of ZAR 23 billion is really exciting for us. It shows that we're doing something right. And all of that came at an increased margin which shows -- or at least the same increased margin, which shows that it is good business that we're writing. And it really shows that clients are starting to appreciate us as an investment business and starting to see us also as a serious contender in the investment space. I think it is also -- people ask me, so why? Why would you have all the inflows in such a difficult market? And I think it is definitely the trusted brand and great people that work for the business, good research, good offerings, offshore partner, all of those things. But it's also the integrated-ness of our business. We can talk retirements, investments, health and retail also, all in the same language with the same people at the goal face. And that makes it a lot easier for clients to do business with us, and obviously, it makes it much easier for investments to prosper. And this is the exciting part for us. On this slide, people ask, why Forbes investments? Why Alexforbes investments? And why are we winning? And these are just a few. And I can talk, as I said, for an hour on each of these bullets. But just to highlight that the multi-manager concept in the volatile environment that we have now is really working. It's working for clients. It's working for specifically people in retirement and leading up to saving for retirement who doesn't want volatility in the returns. We've diversified our returns and our portfolios with alternatives, really successful alternatives, not just for the sake of it. We've got a great offshore partner, which is a big portion of the portfolios these days and gives us access at top end to the rest of the world. I mean that is really exciting. And then I think a very important part is that we're really looking at transformation and sustainability, ESG, into the future to make sure that we are future proof, that we continue to do the right thing, that we continue to transform ourselves, but also the landscape around us so that we can add sustainable returns to the market. So we're very excited about the positioning of the investment business. That's the waterfall effect of how we build the assets up to ZAR 525 billion. Firstly, very positive controllable flows, which is obviously clients won and clients lost in the institutional space. A lot under platform but without jeopardizing our margin. So quite excited about that and really becoming the go-to place for big funds to have their investments housed, admin-ed, researched and reported. And this is a good place to be. And then as you see, we have to run very hard because the natural outflows from individuals is over ZAR 60 billion per year now. We've grown the book nicely, but that means that more people retire, more people die, more people have benefit payments being paid, and that's the natural outflows. So what we have to do is to try and build solutions for people to want to stay in for longer and try and minimize those outflows with additional inflows. Quite a positive picture. And then if we go to the retail side, which is our individual consulting. This is the growth area. This is the area where we are focusing all our attention in terms of engaging with members, building lead processes, making it easier for members to stay invested with us when they exit to buy annuities with us, whether it's in the fund or outside, to take our advice and to really ask us for help. So this whole ecosystem that we're building here is starting to work nicely, as you can see, 25% up new business year-on-year. And it is just the start. It is just the start of the journey in terms of that exceptional growth. More to come because we have built this ecosystem. I think something that I want to add on here is the benefit that 2-pot will bring to us as Forbes. I'll touch on it again at the end. But 2-pot forces us, one, to talk to every individual that is in our ecosystem or 1.5 million or 1.1 million members that is under administration plus all the other clients that you know are potential clients and want help from us. So we are geared towards talking to them, to advising them and hopefully building a trust relationship so that they will save with us into the future. So all of these, we see as tailwinds and opportunities to really to really engage further. I think the engagement is not just us talking. It's actually all the digital, AI capability that we are building around this ecosystem in order to just have the member have a much better experience with Forbes. Every member must say, this is the place I want to be, and this is the place I want to save. OUTvest, for instance, the acquisition of OUTvest just makes that whole transactional capability a lot better, easier, faster and integrated into the Forbes model from 1st of July onwards already. We'll make every transaction for every IFA, every adviser inside or every direct member just a lot easier. And that's why we are so excited about this growth opportunity in retail. If I look at retirements, massive growth year-on-year as a result of mostly [ P500 ] and the clients that we onboarded from Sanlam but also the amount of new business that we've written in the past number of years adding to the year-on-year growth. And this is continuing. What is very exciting in this space is a lot of funds saying, it's now getting complex. It is now getting order to get quality administration with all the new legislation and people wanting to partner with us is very exciting for us. The other thing is we have good people. On the consulting space, if you have a good person running your front, giving advice, helping, sorting out issues, it's just much easier to partner with us. And we've built that capability in the consulting team, and we're very excited about the quality of people that are running in front of the clients. This is also the largest area except for investments in terms of revenue, in terms of participation in the market. So we will continue to invest and to grow this space. And this is not an ex growth space. This is actually a space that will grow by at least inflation going forward and hopefully by more in terms of the automation and efficiencies that we can bring into this space. The second last area is health. And health shows a 2% growth, but what you must remember is it's a very profitable business, a big contributor to the bottom line. We're actually quite excited, if you can believe it, about the 2% growth because in the previous year, if you remember, we had a phenomenal growth and with a lot of new business. And to grow on top of that was exceptional for us. So we maintained the market share after that a lot of new business won in the previous year. So we're really excited about this space. And given the NHI that has been signed into law, even though it will take a long time, each and every one of our corporates and those that aren't clients of ours will want help, advice and guidance on the future. And this is why we exist and what we will help with and what will even build this business further into the future. And then lastly before I hand over to Bruce is the multinational space where we have the Botswana business, Namibia business, Jersey business and also the business where we help multinationals with clients into Africa. And all 3 of those areas really did very well. And I'm probably most excited that the last 2 has always done well, but I'm very excited about the big improvement in Botswana and Namibia. Big turnarounds in terms of how we service our clients, in terms of getting new business, in terms of making inroads, getting the right people in their roles and looking forward to the participating growth in those countries. That was a quick run through the different areas. I'm sure there's going to be nice discussions and questions around it. But for now, I'll hand over to Bruce to do the numbers in more detail.

Thanks, Dawie, and good afternoon, everybody. Thanks for joining us. We're pleased to be presenting these results that represent what we believe a strong performance, albeit a little bit complex in terms of 1 or 2 of the things that have happened in our income statements. And I'll be taking you through the majority of that and trying to unpack it. Dawie has spoken a lot to top line here, so I'm not going to repeat. But I will suggest that the 16% growth in expenses is obviously a little bit outside of what we would expect. And there are some reasons for that, and I'll unpack that as we go through the presentation, but that's what's given rise to only a 2% increase in our profits. Actually, the underlying sort of normalized profit that you will see in our segmental results is at 9% growth in net operating profit line. And then with some additional income below that line, giving rise to the 61% -- ZAR 0.615 per share on the headline earnings, 29% growth. That's given rise to a 19% increase in dividends, and we can unpack how that journey has happened, specifically the strong sort of surplus regulatory capital. We have pretty much been on a capital journey for the last couple of years and with -- resulting in a fairly strong surplus, and that's given us the ability to issue the special dividend. We are pretty much at the end of that capital journey. So I think that all of the changes that we anticipated making in a couple of years back have now landed, specifically this year in terms of moving to surplus measurement on capital as opposed to a group supervised measurement, which released a fair amount of capital in the current year. Total shareholder return for this year, 39.2%, I think, is relatively pleasing result with 24% over the last 4 years, which I think is outstanding and shows the trajectory of the growth that we've been able to deliver over a number of years now. Return on equity has declined marginally from last year. That's as a result of the impairment, and I'll take you through that in a bit of detail as we go through the slides. Dawie has taken you through the divisional breakdown of revenue, just splitting out acquisitions versus business as usual in that. I think that the acquisitions added 4% growth on the top line. And most of those acquisitions have been extremely successful with ZAR 67 million on the profit line from acquisitions, which ultimately represents a fairly good return on the investments that we've made there. Just going a little bit of detail into the expenses. I think if we unpack it, this is certainly the way we look at it internally. We specifically did indicate at the beginning of the year that we would be investing a little bit in this year, needing to increase our capacity in certain areas and the difference there being the difference between the sort of targeted 7.5% growth in expenses to 9.5% growth in expenses where we have built capacity specifically in our individual consulting area as well as our back office ops and admin area in order to drive new business that we've been getting as well as some of the future changes in regulation that's coming in those areas. The unusual items, which are generally a little bit once-off, are essentially the IFRS lease. Last year, we triggered a change in our lease, specifically at our head office, which gave rise to a fairly large gain. Obviously, the comparative has that large gain in it. This year, it is not. So that impact is 1.5% on our expense growth. And then the other one is the closing of the deal with Sanlam in terms of our AF list business that we sold to Glacier and the fact that certain cost recoveries into that business as it was part of our business have now fallen off, and that impact essentially is close to 2% on our growth of expenses. The important part of that is that the recovery on those expenses actually still happened. So it just happened on the other income line and in some of the top line as well as you saw in terms of the acquisitive growth for the individual consulting area. So net impact is not significant on the bottom line, but ultimately, our expense line experiences a 2% growth. And then the final item is acquisitions. Obviously, every business we do acquire impacts expense growth. And so if you take that out, that's another 3%. So all in all, fairly explainable at the 15.7% or 16% growth rate. We are pleased with that, and ultimately, it is within our plan. So we did expect that result this year. Quite important to understand. We spent a lot of time talking about IFRS lease adjustments and the impact on the IFRS lease. I thought I would just highlight 1 or 2 issues on that. And that is that over the last couple of years, we have decreased our property footprint by 58%. That's a real decrease in expense -- in the underlying expenses despite the disruption that we've had in our expense plan based on the way that, that gets accounted for. And importantly, the real cash cost of those lease properties -- leases starts impacting our earnings in the new financial year and going into the future. And you see on the graph on the right our IFRS sort of runs ahead of that in terms of once we've signed the lease, we actually recognize the change in the property cost, but the cash cost comes later. The difference between those 2, by the way, is one of our normalized adjustments and therefore is what is reflected in terms of the 9% growth on operating profit as opposed to the -- what's currently shown as 2% growth. Other items on our expense categories are relatively well managed. So you'll see their personnel costs are up 15%. That is the capacity build that we spoke about earlier and essentially quite a lot of the acquisitions. We have grown our head count by 7% across the group. Half of that approximately relates to acquisitions, and the other half was the capacity build within the business. And I said that was planned at the beginning of the year. The one that I think was not so planned was the increase in regulatory fees, 61% in regulatory costs. I mean it's a small number but quite impactful on our numbers, and that comes from increasing regulatory fees from the regulators. So most of the rest has been fairly well managed. Just taking you through the rest of the income statement. As indicated on the other income line at the top, decent growth there, largely recoveries of costs into disposed entities, and that will decline over time. So that essentially will decrease as we stop providing services to our disposed entities. But certainly, the recovery in this year has increased that number. And then on the non-trading and capital line, we did have an impairment of intangible assets from one of the acquisitions that we did 2 years ago. We did lose a significant client in that acquisition, and that triggered an impairment of the intangible assets that grows on that acquisition. Very importantly, I think the underlying business and the underlying strategy with regards to that acquisition sort of remains the same. And we still plan to drive synergistic benefits from the business, and we'll be investing in that business to grow as well. On the net investment income line, a significant increase there based on higher cash balances as well as higher interest rates. Obviously, going into the future, the special dividend will distribute quite a lot of that cash balance. So we do anticipate that increasing in the future years. And then our income tax -- effective tax rate is higher than expected, largely because of the impairment of the intangible asset, which is not tax deductible. But if you normalize for that, you come in within the 27% tax rate. So on a normalized basis, we're still pleased with where we are sitting on the tax -- the effective tax rate. Another unusual item in our discontinued operations relates to the closing out of the AF Life claims and liabilities. You will recall that 2 years ago, we concluded the sale to Sanlam with all of our long-term life underwriting business and transferred the policies across to Sanlam. We did maintain historical reserves there, and we spent the last 1.5 years to 2 years cleaning up and paying out and closing down those claims, making sure that we clean up the reinsurance receivables, et cetera. And as a result of that, we have closed out the tail that relates to that business and have been able to release essentially the majority of the reserves that sit within that business, and that gave rise to a fairly strong profit from the operations that were disposed 2 years ago. So that was a pleasing outcome in terms of closing out that business. I thought I would -- the schedule generally sits within our additional information, but I thought I would just highlight it here and bring it to the fore. In our normalized earnings, we do -- and it's been consistent for many years in terms of the way that we do disclose normalized earnings. We extract and take out a number of the unusual items that's in our income statement. And essentially, this result can be seen in our segmental information, which is published in our results. But what's key in this schedule really is the IFRS lease impact on the operating profit, which actually from a performance perspective internally is up 9% year-on-year. And I'll let you read through the rest. If there's any questions on that, I'm happy to answer. Again, highlighting just the non-trading and capital items that we do reflect in our income statement and the impairment -- once-off impairment that has happened in that line, essentially of just around ZAR 90 million relating to an acquisition 2 years ago and the loss of the client. So just bringing that and making that transparent. Importantly, as we look at our growth and our sustained earnings over the last couple of years, we are pleased with the way that this trajectory is. Over the last 4 years, total shareholder return of 24% with the sustained growth in headline earnings per share of 15% and dividend, earnings per share which comes closely behind that on 14%. And we think that that's credible with ZAR 5 billion worth of cash returned to shareholders over the period -- over the 5-year period. Very pleasing trajectory that we have been able to get in as a result of the strategy that we embarked on a couple of years ago. Again, just trying to highlight 1 or 2 issues that -- and questions that may come from our corporate balance sheet. We -- in terms of the corporate balance sheet, excluding policyholder balances, which are in our balance sheet. Just to highlight a significant increase in property and equipment, and that largely comes from the property lease, again, the right-of-use asset that comes through on the property lease plus we have landed a couple of the investments in terms of our software development. And that ultimately -- that does come through to property and equipment and reflects an increase there. Also the impact of acquisitions on that line as well. Goodwill and intangible assets. Still, the majority of that intangible assets relates to the 2007 private equity transaction but is growing as a result of acquisitions that we have made. And largely, the balances there relates to the TSA acquisition that we made earlier in the year. And then just to highlight the increase in borrowings as we have done 1 or 2 acquisitions. But importantly, still only 4.5% of our -- in terms of debt-to-market-cap ratio. So still a significant headroom in order to borrow if we have got acquisitions coming into the future. And last slide from me, reflecting our decrease in our capital requirements, the subsequent increase in our regulatory surplus. And that's giving us the ability to pay a significant special dividend in order to reduce our capital for the year going forward. And obviously, that will have a fairly good impact on our total shareholder return and return on equity going into the future. So very happy with that process as well. I think that that's it from me. I'll hand it over to Dawie for prospects.

Until you handle the questions.

Happy to answer the questions.

All right. We're fast approaching the end, but I'll stand still a little bit on this graph because I think this is always -- historically where we've had most of the questions, trying to understand the business, where we're going. And I must start again by saying I firmly believe, and the numbers speak for itself now, that Forbes is now transformed. No more in trying to change. Trying to ready for the future. It is ready. It is transformed and it's now fully on a growth trajectory. I think the numbers are coming through. The business is coming through. The clients have spoken and we're excited to be in this place. And then we say, okay, so why? And how do we see that going forward? And one has to start with the core business, the core business being consulting, the traditional institutional consulting, whether it be retirement, health, investments and then the administration part of it. It is the core of Alexforbes. It will remain the core. It's a big portion. It's a big portion of the revenue. It's also the touch point with clients. So this business on its own, if that is the only business that we had, will give us solid growth into the future. It is -- we've seen the growth trajectory. We've seen the growth numbers. The top line growth, including new business, is north of 10%. And the expenses, we're seeing at around inflation plus 1% into the future. So this core business has been transformed to be the best, to win market share and to carry its weight and leading the charge for us and on its own with the jaws opening up should give us great growth into the future. But then on top of that, we've built this integrated business with retail. And we've discussed how we're going to engage the retail. It's a different form of -- our competitive advantage is the engagement that we have with members under administration, information that we have on them, the help that we can give them throughout the process of saving so that when they have to make investment decisions, we are the partner that they will select. So that is the drive under retail. We feel that we're really making an impact on these members' lives. And we couple this now with the digital enhancements, the OUTvest-type transaction, the AI the engagements, the lead generation, everything that we're doing to make this an integrated proposal is really driving the bottom line and the results in the retail sector. If we jump to the other side and then you build on the retail and consulting and administration, we are excited about the investment business, AF investment becoming a real destination for the ordinary South Africa. We still have to do a lot to build the brand. We still have to do a lot to engage with more members. But what is in place is superior returns, a trustworthy brand, lots of engagement, and the offering and the communication and engagements are at a very high level. And it's exciting for us to also, in the investment space, launch the DFM, which is an additional revenue line for us, engaging with a part of the market that we would not have done previously, people that are not necessarily clients of ours, not necessarily in the pension funds, IFAs that are independent that wants to place their clients' retirement money with Alexforbes because of the superior offering, the research, the help that we can provide them. And that's a new space for us, building this investment destination. And then if we jump to the digital transformation. All of this needs to be enabled, and it needs to be enabled by automation, digital, better engagement, better experience in transacting with us and engaging with us. And we're building this village where every individual has got a seamless journey, better communication and hopefully a better experience in terms of doing business with Forbes easier, faster and hopefully more. So we can go into some of those but being automated, exits being automated, WhatsApp conversations, direct transactions. Two-pot is the catalyst in order to get us to communicate with members and transact in a digital way. Every member getting his 2-pot money or his third or his access into the initial money and into the future must do it in a way where he can transact with us in a direct manner. And that 2-pot just fast-tracked the whole digital transformation that as per normal corporate, we had a 5-year plan. Now it is being done by the 1st of September, which is a lot of pressure but an excellent transformation for folks in the digital space. And then we lead to 2-pot, which we can talk about a lot. But I think it's great for South Africa. I think it's great for South Africans, having access to money for a rainy day, although a lot of South Africans will take everything that they can get because they need it. And that's great. What is wonderful for folks is that we are there as the trusted partner, as the trusted adviser. We are now having to engage with those members, and those members want to engage with us because they've got a need. So there's a natural fit, which enhances our whole retail offering, our whole engagement offering and our whole presence in the market. And we're making the lives of our corporate clients and our pension funds so much easier because we can deal with all those queries. A lot has to happen by the 1st of September, a lot of communication, but we're ready. I mean the word that we want to land with the market is that Forbes is ready. Forbes will be ready to pay the claims. But most importantly, Forbes will do the education and the communication with members so that come 1st of September, every one of our individual members that are clients will have been engaged and will know what to expect so that there's a smooth journey for them after that. It will be tight. It will be difficult. And there will be hiccups. But I'm excited about the journey that Forbes is on to make this a good experience for the members. Everybody asked about how much assets we're going to lose out of the system. And as per Forbes, with all our actuaries, we've done proper modeling, bottom up, top down, looking at every member record, what is the amount that can be transferred into given the formulas and what will be available and what people will draw out in the first year, and we estimate about 1%. Long story short, we estimate about 1% as the best estimate. In the upper end, probably 2%, but closer to 1%. And our assets are ZAR 500 billion, so we expect ZAR 5 billion. Round numbers. And the industry is about ZAR 5 trillion, which means about ZAR 50 billion of assets out of the industry for 2-pot in the first year. The numbers sound big. But if you really think about it as 1% of the assets under management, most funds, if not all, balance funds and funds that people are invested in, pension funds and retirement funds have much more than 1% in cash. So we don't think that there will be any effect on the capital markets come 2-pot. And that makes it a good experience for all. Then we've talked about the new lines of revenue, which we're excited about, call it the DFM, which we've talked about, but then also the impact advisory, the ESG, the sustainability. We are a house that gives advice that are independent, that helps funds and individuals. And the next thing that we'll have to help our funds and our clients and our corporates in South Africa is how to deal with ESG, how to deal with sustainability, what it means. Good frameworks in place. And we've launched and partnered with others to bring this through top capability, top research and the top minds in the country around sustainability and ESG in order to bring that to you as an offering and as an advice offering. And then I want to end with saying that we're certainly geared for growth, and the number speaks for itself. The strategy hopefully resonates with all of you. But what makes me more excited is that we've got people in the business that eat, sleep, drink retirements. This is what we do. And this is what the people do. And therefore, they will be successful. They understand when they engage with you. They understand when they have to program something. They understand when we have to land something that -- what it takes, what it means. And it is our core business. So the whole team is excited, and we see the tailwinds coming through now as well for this business to be successful in the legislation changes, in the way that we have to engage and even if we think about the future of lower interest rates on the effect that, that will have on the markets and on the asset management business. So really excited about the growth into the future, and I think we're perfectly positioned to capitalize on that given the work that's been done in the last number of years. I will end on that positive note and hand over for questions.

Thank you, Dawie. We have got a question from [ Jack Houston ]. What acquisition? Just the impairment related.

I'll take that one. It was our EBS International acquisition. It was a technology services company basically had -- essentially holds licenses for certain employee benefits technology. Certainly from a strategy perspective, the acquisition of that technology and the ability to utilize that technology specifically within the African countries and some of our African subsidiaries was part of the rationale for that acquisition. Also to target larger clients in South Africa with regards to those that are still self-administering. And those strategies remain in place. So it is natural.

Just maybe add if I can. So this client, as Bruce has said, has had one big core client, which we knew had a big chance of leaving. And we still went through with the transaction. It was a calculated risk. We knew we had to -- would have to impair something if that client leaves because it's a big part of the revenue. But the main idea for buying this business was because of its capability to implement systems in the retirement space. It's something -- capability that we didn't have. It's already been implemented in our Botswana and Namibia businesses, in Jersey and for other clients. And we've recently, which we'll talk about next time, started engaging with and landed a big contract with another big client. So this business, the idea was to help funds that are self-administering. And with our backing as Forbes, with the skills and the brand that we have, this business is definitely going to go places. So the strategy still works, yes, but we have to be impaired because of the loss of the client.

Thank you, Dawie. We've got 3 questions from Patrice at Visio Capital. Congratulations on a solid set of results to you and your team. Can you comment on the cost guidance in the coming year? Expectation that the jaws ratio will improve? Do you want to take that one? And then I'll give you the next question.

Sure. Absolutely. I mean we did -- and that is -- I think one of the key messages is the expansion of the investments in capacity that we had this year was definitely planned. Obviously, there were some unusual items, which I've explained. But certainly, going forward, we have high expectations that we will move back towards the sort of inflation plus 1% trajectory that we have indicated in the past. So I think certainly, that is our intention. And we believe that, that will be achieved in the next 1 or 2 years.

Thank you, Bruce. The next question. What do you expect to see coming from the new DFM strategy? Are they getting access to your current client base and the [ in-stock reserving funds ] and that should be expected to flow out on a normal basis?

Good comment, Patrice. I think the -- we're not there yet. So let me cut to the chase. I wanted to make a nice story. We're not there yet. So currently, our engagement with -- on the DFM, we're very excited. The IFAs are really excited to partner with us. I think we're latecomers to this industry but -- to the specific proposal and proposition. But the guys are excited to partner with us given our research and our service and our capabilities. So that's exciting, and we've already signed up 1 or 2 IFAs. And hopefully, the money will start flowing. And our expectation is in the first year, certainly, it will take time to build up assets, but it's more about landing more IFAs to join us. But I would be disappointed if we don't write at least ZAR 2.5 billion into that in the first year. Having said that, we're not there where we are going to open up corporates for independent IFAs in terms of advice framework, in terms of the thinking of advising on where we are with existing savings plans, pension fund plans. So that might be a natural transition into the future. But at the moment, that has not been part of the DFM proposition.

Thank you, Dawie. Final question from Patrice. Could the 2-pot alternative mean that there may be less of the other outflows normally taking place?

I certainly think so. It's a great comment. I think there's 2 things that's going to happen, Patrice. I mean as you know, I'm quite close to the 2-pot and the implementation. So I think there's 2 things going to happen. One is, as you say, a lot less other outflows over time. Certainly, the preservation of 2/3 is going to mean that after the first year, you're already going to see less and less and less outflows because every retirement after that and retrenchment after that, there will be a little bit. As they start saving into the 2-pot system, that will be less. In the first 5 to 10 years, it's not going to be a lot because it's only the savings from that period. But over time, it's certainly going to reduce the outflows considerably, which means the preservation is higher. The second effect, in my view, is the counter, which says I can actually now save more into the retirement fund because I have access to it. And our people have been running at minimum savings like 13% or whatever the fund allows instead of saving 20% per annum because you have to almost resign to get the money if you need it. Now you have access to the money. So I think over time, with the right advice and the right help, which we'll certainly do, people can now save more in a very cost-effective, tax-effective way and still have access to some of that money over time. So we might see positive effect coming through from throughput in terms of asset cap.

We have a question from [ Charles de Villiers ]. Have you got any medium-term targets for the converting -- for converting the retirement member base into individual consulting clients versus the current baseline? Individualization.

Doubling of assets. I think that that's our target.

Yes. So certainly, I mean, as I said, I think there's 25% growth. With all the new efforts that we've implemented in the last 2 years, we would have probably landed at between 10% and 15% naturally. And the extra 10% is on top because of the new efforts. That's now going to accumulate. And a year ago, I said we want to double the retail business, which is now about ZAR 90 billion of assets or ZAR 100 billion now. ZAR 100 billion of assets. So we want ZAR 200 billion of assets in 5 years, and it's now 4 years left. So we still think that's a very achievable target. And that will be from new members, all new members retiring, preserving and hopefully through the DFM clients that aren't even ours that save with us.

Thank you, Dawie. We have a question from [ Peter Ballop ]. Will OUTvest be rebranded Alexforbes investment solutions?

It will definitely not remain OUTvest. But it's actually more than that. So it's a great question. So OUTvest is a product and a business but very small at this point. We bought it for the capability. So it will be truly integrated into Forbes. It will have an internal name for some of the functions called AF Invest. But that's just for internal use. For any client interacting with Forbes, OUTvest will just be the capability, or AF Invest will just be the capability for various angles of clients transacting with us, buying new products and/or using the advice framework that's built into AF Invest in order to land business. So it will be fully integrated. I think 1st of July is our lift and shift date that everything comes fully off the OUTvest system or OUTsurance system. And from then on, within 6 months after that, you won't know that it's a separate system. It will be fully integrated into Forbes. The idea of it is -- for us is -- certainly, as I've said, is whether it's our adviser, whether it's a direct client, whether it's an independent intermediary or any other way, a client has a much easier transaction journey to land assets with us. If you think of something like tax-free savings account, any client can now go already onto the system directly through the Forbes portal and buy any product through the mechanism without having to talk to an adviser and be fully advised and signed within 5 minutes. So it's the capability.

Thank you, Dawie. We have no further questions.

Can I just ask whether all the questions that was answered was answered satisfactorily? So from my side, thanks a lot for listening, for dialing in. Also, thanks for the support and the help over the past few years. The feedback that -- and the difficult questions that we've received, we used and implemented and changed our strategy -- we didn't change our strategy but nuanced our strategy because of the help that we received from you. So we appreciate that as well. And we're looking forward to the next year's journey in this space. And hopefully, the environment in South Africa becomes a tailwind for all of us to be prosperous.

Thanks, everybody. Thank you.