16 Mar 2017
While Sasfin is disappointed to report an 18.84% drop in headline earnings and headline earnings per share (HEPS), the Group believes that business developments over the last six months will ensure good future growth for the Group.
Headline earnings and HEPS dropped to R86.142 million (December 2015: R106.137 million) and 271.42 cents (December 2015: 334.43 cents) for the six months to December 2016 respectively. Dividends per share showed a similar decrease of 18.84% to 80.00 cents from 98.57 cents in December 2015.
These results follow a 29.0% increase in headline earnings for the year to June 2016.
This drop in earnings was largely due to two unusual credit losses as well as a write down in Sasfin’s investment in Efficient Group Limited (Efficient). “Coming out of a period of consistent earnings growth, this unusual volatility in earnings requires us to increase scale and granularity,” says Chief Executive Officer Roland Sassoon.
“Further reasons for the poor performance were the low growth levels (assets grew by 7.48% and gross loans and advances by 7.89%) and a material increase in expenses in order to comply with new regulations and position Sasfin for growth,” he explains further.
Sassoon says that despite this drop in earnings, “we are positive about the future of Sasfin. We have made a significant investment in IT to improve client experience, digital channels and efficiencies. We hope to finalise our recently announced acquisition of the Absa equipment rental book and our BEE deal with WIPHOLD in the next few months, both of which should stimulate growth. A revised strategy will see Sasfin divided into three distinct pillars – Banking, Wealth and Capital. This will enable these areas to grow with more focus”.
The Group expanded its funding base to R8.158 billion from R7.316 billion in December 2015 resulting in a liquidity position of R2.838 billion and is well positioned to meet the funding requirements of the Group.
Total income grew by 4.30% on the back of lower levels of revenue generation in the Business Banking and Wealth divisions. The challenging credit environment, sluggish economy and two material impairments led to the Group credit loss ratio increasing to 121 bps (December 2015: 51 bps) with a commensurate increase in non-performing loans to R466 million from R233 million in December 2015. Subsequent to the December 2016 reporting period, non-performing loans reduced to R349 million following certain loan recoveries.
The Group and Banking Group’s cost-to-income ratios regressed to 72.05% (December 2015: 70.92%) and 66.47% (December 2015: 62.53%) respectively. The rising cost-to-income ratios are largely as a result of the significant investments made in the Information Technology, Risk and Compliance units.
Business Banking delivered a profit of R77.610 million (December 2015: R86.243 million), a 10.01% decrease. This result was impacted by low growth in lending activities and increasing credit impairments which saw the divisional credit loss ratio climb to 89bps (December 2015: 52bps). With the Fintech acquisition now bedded down, the division will focus on the acquisition of Absa Technology Finance Solutions’ (ATFS) loans and rental contracts (approximately R1.5 billion), which is subject to shareholder approval and other conditions. This should result in solid and sustainable growth for the division.
Wealth showed a 40.42% decrease in profitability to R20.888 million from R35.058 million for the comparative period to December 2015. This decrease was a result of a number of factors, with the more notable being the continued investments into this business due to the upside potential recognised, a flat revenue base due to lower brokerage and a mark-to-market reduction in its investment in Efficient. As previously reported, the Group acquired a stake in Efficient and has generated a mark-to-market gain on this investment since its original purchase. However, during the period under review, a write down was taken due to a negative move in the Efficient share price.
Pleasingly, the business has launched some new products to market and continues to grow its offshore offering and assets under management. The strengthened rand did result in a decrease in Assets under Advisement and Management by 5.80% to R36.500 billion (December 2015: R38.747 billion).
Transactional Banking and Treasury continued to grow by building a deposit base with diversified tenors with deposits from customers increasing 16.13% to R4.017 billion. Despite the ongoing investment in the Transactional Banking business, profitability in the division grew encouragingly to R13.282 million (December 2015: R4.033 million) mainly due to improved returns on the surplus liquidity position and normalising of the Transactional Banking cost base and a growing client base, albeit on a relatively small scale. Sasfin expects further growth in this area due to the recent integration of Sasfin’s platform with Xero Accounting software and further developments in Sasfin’s digital banking space. We believe this will put Transactional Banking in good stead to provide attractive products and services to the SME market.
Capital’s revenue increased impressively to R26.982 million (December 2015: R8.818 million) arising from strong performance on its private and property equity portfolio and a turnaround in the Corporate Finance area. The Property and Private Equity and Corporate Finance areas of the business see this division well poised for further growth. Despite the negative impact of credit undertakings, Capital’s profit was R3.830 million compared to a loss of R4.853 million in the six months to 31 December 2015.
Commercial Solutions’ revenue decreased to R70.858 million (December 2015: R97.424 million), largely as a result of the deconsolidation of Imperial Sasfin Logistics (ISL) and the continued economic downturn and tough trading conditions experienced in its Global Trade and Incentives businesses. Notwithstanding this, the division delivered a profit of R9.356 million (December 2015: R12.321 million) following a meaningful contribution from Sasfin Forex. Sasfin believes that further value will be realised from the ISL integration. On the short-term insurance side of the business, further value will arise from Sasfin’s partnership with HRS under the new banner Sasfin HRS.
Financial position and capital management review
The Group maintains a solid funding base underpinned by a growing deposit book. Sasfin Bank Limited’s liquidity coverage and net stable funding ratios remain well in excess of the prescribed regulatory minimums which bodes well for future growth.
Sasfin’s securitisation vehicle, the South African Securitisation Programme (RF) Limited (SASP) continued to deliver consistent performance. During the calendar year to December 2016, R1.445 billion of maturing notes were successfully refinanced demonstrating strong demand for SASP paper.
The Group’s capital base increased to R1.601 billion from R1.508 billion in December 2015, while its capital adequacy ratio has decreased to 18.32% (December 2015: 21.97%), primarily due to growth in risk-weighted assets.
The Group maintains a high Tier 1 capital ratio of 17.94% (December 2015: 21.47%).
“Political and economic uncertainty coupled with market volatility continues to raise potential threats to financial stability. Nonetheless, we are cautiously optimistic about the South African economy, mainly due to the break in the drought, improved commodity prices and reduced strike action,” says Sassoon.
He also adds that “The fixed overhead relating to regulatory compliance for a challenger banking group such as Sasfin has increased considerably.”
Despite this, Sassoon says that “the initiatives the Group has undertaken to improve performance should result in solid and sustainable growth for the Group.”
Issued on: 16 March, 2016
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Sasfin Holdings Limited (“Sasfin” or “the Group” or “the Company”) is a bank-controlling company listed in the “Financials: Investment Services” sector of the JSE Limited (“the JSE”). Sasfin and its subsidiaries provide a comprehensive range of specialist financial products for Business and Wealth clients.