Independent financial services provider PSG Konsult has delivered a solid 16% growth in recurring headline earnings per share and 25% return on equity.
“The current business environment is challenging with a poor equity, fixed income and currency capital markets backdrop. Shareholder, insurance float and client assets nevertheless benefited from being favourably positioned,” says Gouws.
This resulted in increased investment income on shareholder assets and insurance float assets. PSG Asset Management experienced substantial increases in performance fees due to delivering top-quartile performance for clients during the year under review.
“Our positioning always takes account of the fact that markets can be unpredictable, particularly over the short term,” says Gouws.
Gouws says the board was pleased with the results, and had declared a final gross dividend of 10.2 cents per share (2016: 8.8 cents per share) from income reserves. This follows the gross interim dividend of 5.1 cents per share (2016: 4.4 cents per share) declared in October 2016. This brings the total gross dividend declared for the 2017 financial year to 15.3 cents per share (2016: 13.2 cents per share). This is in line with the group’s dividend pay-out policy as approved by the board of directors at the time of listing.
PSG Wealth achieved recurring headline earnings growth of 1%.
“We are satisfied with this result in the context of the muted market value increase in local assets linked to the FTSE/JSE ALSI index being up by a modest 4%,” says Gouws.
The strengthening of the Rand resulted in international assets being down in Rand terms over the period. Management and other fees increased by 11% as the business continued to focus on recurring income and reduce its reliance on cyclical transactional brokerage fees. These brokerage fees declined by 8% during the current year under review. The cost base of the division increased by 26% as it strengthened both its IT and investment research teams while accelerating its investment in developing technology. In addition, it fully expensed all legacy technology development costs that had been capitalised up until 2014. This means there are no longer any deferred technology development costs. The combination of the above factors offset the ZAR13.3 billion of net inflows.
“We remain confident of the fundamentals and future prospects of this division,” says Gouws, “and believe that our advisers and clients can only gain, over the long term, from the current client centric digital projects we have embarked upon.”
“We are particularly pleased with the division’s formidable financial adviser network that grew by 7%, through both organic and selective adviser acquisitions, to 515 advisers. The experience and stature of the advisers joining the firm continues to add credibility to the growing brand equity. We continue to gain market share with Wealth’s platform assets increasing by 15% to ZAR38.0 billion and our managed assets increasing by 13% to ZAR142.2 billion.”
PSG Asset Management’s recurring headline earnings grew by 57%.
“The excellent results generated by this division are testimony to the team’s ability to generate alpha across all asset classes,” says Gouws.
“Our top-quartile risk-adjusted investment returns for clients during the year under review have further augmented our excellent long-term investment track record.”
Client assets under management increased by 19% to ZAR33.1 billion. This included ZAR2.6 billion of positive net client inflows predominately into higher margin multi-asset funds mainly from PSG Asset Management’s selected retail target market.
“The excellent investment returns enabled us to earn higher performance fees this year, aligning our interests with those of our clients,” says Gouws.
This more than compensated for the small loss of income that arose from the previously communicated decision to exit white labels to reduce operational risk.
“We remain confident and optimistic over the long-term growth prospects for this business.”
PSG Insure achieved recurring headline earnings growth of 70%.
Gouws says the group is especially pleased with this achievement, which is against the backdrop of a particularly difficult industry environment. This division, which is in an early growth phase, continues to make inroads into the highly competitive short-term insurance market and gain further benefits from economies of scale.
It achieved revenue growth of 19% compared to the prior year. It continued its shift away from the commoditised personal lines to the commercial lines side of the business which requires specialised adviser expertise. The comprehensive reinsurance programme reduced the impact of catastrophic and other related events that occurred during this year.
“This, when combined with our quality underwriting practices enabled us to achieve an excellent net underwriting margin of 9.7%. The insurance advisers, which now total 229, continue to gain market share.”
Looking forward, Gouws says that the group’s aim remains to service existing clients well and gain new clients. However, the group is confident that it will continue to build its client franchise despite this market outlook. A number of initiatives are in place to ensure this happens.
“Our focus on products, platforms and client service excellence through the quality of our advice is proving to be a resilient strategy,” concludes Gouws.