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The financial results that Alexander Forbes announced for the six months to September played a secondary role in the face of what can be seen as a dire warning from the investment group’s management: that job losses continue due to the economic devastation of the Covid pandemic -19.
A sober message from CEO Dawie de Villiers ‘presentation to shareholders on the first half of the financial year results was that Alexander Forbes’ management and investment management businesses experienced firsthand the stress and uncertainty that people in this moment.
Official figures show that millions of jobs were lost during the first six months of 2020, and Alexander Forbes presented figures showing that job losses continue to rise. While some 15,000 members left their retirement funds in the first six months due to job losses doesn’t seem like a large number, the month-over-month increase is worrying.
Members who choose not to receive retirement funds
One of the presentation slides shows that the number of members who choose not to receive retirement funds as a result of losing their jobs has risen steadily, from the ‘normal’ rate of a few hundred per month to thousands in September.
In June, 1,710 people collected their retirement savings because they suddenly found themselves unemployed, increasing to more than 4,000 people who lost their jobs in July. Another 3,386 were laid off in August and then 4,613 in September.
Again, it is not the relatively low number of 15,000 of Alexander Forbes’ total customer base that is important, certainly very important if you are one of them, but the real problem is that the numbers keep increasing.
Some observations by De Villiers on the subject are worth noting. “We’re starting to see the impact of the layoffs trickle down to our customer base, “he warned.
“It’s certainly not the end,” says De Villiers. “We have seen the downsizing has stabilized a bit in October and November, but it will probably continue for the next six months.”
He added that, as a result, “not a lot of assets are flowing.”
This indicates that the layoffs are not in the ranks of employees with millions of dollars in pensions and that the situation is really unpleasant.
The comment to the formal announcement of results reads: “The impact of the restrictions on economic activity was widespread, with a sharp drop in production in all key sectors.
“This had significant impacts on our clients, some of whom have temporarily reduced salaries, some have reduced contribution rates to retirement savings temporarily and in other cases have laid off their employees, which is reflected in the statistics. unemployment, the lingering effects of which will likely be felt in our business in the next 12 to 24 months. ”
Read: Reducing Expenses: What Are My Retirement Fund Options?
The comment continues: “In this challenging operating environment, our customer base has experienced cutbacks, low employment levels, negative payroll growth and an acceleration of business closings towards the latter part of the period.
“These factors have resulted in a reduction in our active member base with the impact felt in the second half of the period. There were layoffs and company closures within our general funds, which are mainly small, medium and micro-enterprises (SMEs). Our independent client base, which comprises larger companies, while reporting low levels of layoffs, was affected by payroll cuts and suspensions, as well as low levels of employment. ”
De Villiers said that while the majority of layoffs to date were cases in which smaller companies closed, layoffs at larger companies are showing signs of starting to increase.
Covid-19 is still developing, exacerbated by SA’s weak economic base.
Economic impact
“This year has been an unprecedented year globally, with the outbreak of the coronavirus pandemic that has intensified the already challenging business conditions in which Alexander Forbes has operated in the six months ending in September 2020. The harsh lockdown in South Africa during April and May resulted in very limited economic and commercial activities, apart from designated essential services, ”says management, noting that GDP contracted at an annualized rate of 51% in the second quarter of the year, marking the deepest quarterly contraction in history. It has extended the economic recession into a fourth quarter.
At the same time, global and local markets experienced significant volatility with the worst market decline in decades, while SA saw its sovereign credit ratings drop further.
Management contends that Alexander Forbes performed well in these difficult circumstances, looking beyond the poor performance of the insurance businesses the group wants to sell and has therefore classified as discontinued operations.
Performance
Continuing operations generated a 6% increase in overall earnings per share to 18.8c in the six months, but provisions at insurance companies Alexander Forbes has yet to exit resulted in a 41% decrease in earnings. general per share (EPS). number. Overall EPS fell from 24.5 cents a year ago to 14.5 cents.
Read: Alex Forbes Exits Insurance In Strategic Review
The group’s insurance operations (short-term insurance and group risk) and smaller African operations were classified as discontinued operations during the previous financial year, but so far only the Alexander Forbes Namibia Insurance Company (AFI Namibia) has been sold .
Management indicates that these businesses are expected to exit by the end of the financial year, but shareholders will have to deal with them and the earnings halt for the foreseeable future, as well as continued difficult economic conditions.
Therefore, the current price of the stock is 30% lower than its 12-month high and the latest results still put the stock at a fairly hefty price-to-earnings ratio of 15.4 times.
