Alexander Forbes reported a 13% spike in operating expenses when it presented its full-year results last week. The key drivers were claims, bad debt, professional fees paid to consultants to help previous CEO Andrew Darfoor put together his Ambition 2022 Strategy, and the termination of a IT contract.
While a lot of these costs were one-offs, Alexander Forbes shareholders may be justifiably worried about the recurring items. These include IT costs that increased 25% in the past financial year and personnel costs that accounted for 59% of the pension fund administrator’s total administration expenses.
The problem with personnel costs is that Alexander Forbes expects them to remain under pressure for the next two years as it deals with capacity issues in its client-facing business. The company traditionally dealt with retirement funds and not individual clients.
The Retirement Funds Default Regulations, which came into effect in March, have facilitated its entry into financial advisory sector. This means Alexander Forbes has to recruit in-house financial advisers.
The group is also continuously investing in its IT systems to be able to handle increased administration volumes when Alexander Forbes buys the retirement administration businesses it plans to acquire.
So can the company reduce its cost-to-income ratio from the current 76% to the targeted 70%? CEO Dawie de Villiers has put his head on the block and promised to ensure it does, in the medium-term. But how?
De Villiers says by automating most of the processes in the employee benefits and retail systems, the company will achieve large scale efficiencies. De Villiers says once these functions are automated, adding new clients to the system will not come at an additional cost.
Transnet should be applauded for manganese rail line
By its own account, Transnet has done a remarkable job on its manganese rail business, nearly tripling its tonnages in seven years and making the best possible use of the network and ports it can.
Transnet doesn’t often get credit, given that it has been in the news for the wrong reasons regarding corruption and poor management, but in this case it deserves a mention.
Next to the iron ore and coal lines along with the general freight line between Johannesburg and Durban, the manganese line is one that doesn’t receive a lot of attention from third parties outside producers, Transnet and manganese customers.
The original thinking was to move manganese ore down a central line between Hotazel, the perfectly named town in the Northern Cape, and Port Elizabeth or Coega in the Eastern Cape.
However, as demands on Transnet rose from producers wanting to capture more of the global manganese market, particularly when prices were strong, those plans have changed.
Transnet is now using as much of its rail network as it can to spread manganese shipments to six SA ports on the east, south and west coasts, a plan that has met the approval of its 10 major clients.
And the boast by Mike Fanucchi, Transnet’s chief customer officer, that the utility has come close to its 16-million tonnes a year railed manganese target years earlier than planned at a fraction of the planned R29bn cost is worth high praise.
He estimated that Transnet has achieved 14.5-million tonnes of railed manganese during 2018, reaching that target with just 15% or R4.35bn of the planned budget spent.
He points out that the close engagement with manganese producers, a willingness to try various schemes has been behind the success.
It goes to show what goodwill between the private and public sector can achieve. It’s a model that many ministries and state-owned enterprises can learn from.
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