Despite a disappointing decrease in headline earnings, Sasfin believes that future plans and growth strategies are set to see positive future prospects for the Group. Coming off strong growth in headline earnings of 29.03% in 2016, Sasfin delivered a disappointing 16.34% decrease in headline earnings to R194.151 million (2016: R232.080 million) and headline earnings per share to 611.76 cents (2016: 731.27 cents).
This was largely due to an increase in the credit-loss ratio from 108 bps to 124 bps arising from two unusual credit losses, and the impact of a mark-to-market loss on the Group’s strategic investment in Efficient Group Limited (Efficient).
“While our results this year did not meet our expectations, we are positive about the upcoming year. This depends, however, on how the worrying political and economic environment unfolds,” says Chief Executive Roland Sassoon. “ That said, we look forward to new initiatives such as our restructure to support the growth of the business; our empowerment transaction with Women Investment Portfolio Holdings Limited (WIPHOLD), which is subject to shareholder and regulatory approvals; and the expected acquisition of the Absa Technology Financial Solutions (Pty) Limited (ATFS) rental book.”
Explaining the impact on Sasfin’s earnings with regard to the Efficient Group, Executive Director Michael Sassoon says: “During 2016, the Group acquired a 14.32% interest in Efficient. While the underlying performance of Efficient has been largely in line with expectations, the share price has experienced significant volatility driven by very thin volumes resulting in large mark to market swings. Excluding the impact of Efficient in both years, the Group’s headline earnings would have been down 0.77% at R216.807 million (2016: R218.491 million).”
Total assets grew by 14.71% (2016: 1.27%) to R12.623 billion (2016: R11.004 billion), driven by an 84.52% growth in cash and short-term negotiable securities to R3.525 billion (2016: R1.911 billion).
The tough economic and credit environment resulted in muted growth in gross loans and advances to customers of 4.06% (2016: 20.65%) to R6.711 billion (2016: R6.449 billion).
The Group’s funding base grew by 22.95% (2016: 5.96%) to R8.979 billion (2016: R7.303 billion), largely driven by a 39.82% growth (2016: 2.12% decrease) in deposits from customers to R4.483 billion (2016: R3.207 billion).
During the year Sasfin sold 70% of its investment in Imperial Sasfin Logistics (Pty) Ltd (ISL) to Imperial Holdings. Sasfin is confident about the future prospect of ISL under the control of the Imperial Group.
“Excluding the impact of Efficient and the deconsolidation of ISL, total income increased by 6.86%, predominantly as a result of the muted growth in loans and advances in Business Banking and flat revenue in Wealth, while operating costs increased by 9.12% (2016: 19.81%) following the Group’s continued investment in information technology, risk and compliance,” explains Michael Sassoon.”
The Group’s cost-to-income ratio increased to 72.12% (70.35% excluding Efficient) from 68.89% (70.09% excluding Efficient) in 2016, while the Group JAWS ratio was a negative 4.54% (positive 0.01% excluding the impact of Efficient) (2016: positive 3.79% [positive 3.47% excluding the impact of Efficient]).
Performance per pillar
Business Banking was negatively impacted by an increase in credit impairments and slow growth in loans and advances, resulting in a 0.20% decrease in headline earnings to R164.192 million (2016: R164.513 million). Transactional Banking and Treasury had an excellent performance achieving headline earnings of R23.734 million (2016: R6.559 million) with Treasury performing well and the relatively new unit Transactional Banking reducing losses, while developing a strong business offering, including being the only bank to offer direct feeds into Xero Accounting software. Sasfin Forex increased critical mass and contributed meaningfully to profits.
Headline earnings for Sasfin Wealth decreased 51.91% to R36.746 million (2016: R76.406 million) largely due to the mark-to-market loss on its investment in Efficient. Excluding the impact of Efficient in both years, Wealth’s headline earnings would have decreased 5.44% to R59.402 million (2016: R62.817 million). Assets Under Management (including Assets Under Advice) decreased from R40.107 billion to R38.297 billion, largely due to lower portfolio values. Assets Under Administration decreased from R67.855 billion to R53.694 billion due to safe custody clients exiting their portfolios. Sasfin Wealth continued to increase its offshore capabilities and offerings, which have been well received by its private clients.
Sasfin Capital, excluding Commercial Solutions, continued to perform well, reflecting an increase in headline earnings of 81.11% to R36.845 million (2016: R20.344 million) and exited in excess of R200 million of its private equity portfolio at carrying value or better. Commercial Solutions (which, with the exception of Forex, now forms part of Sasfin Capital) was negatively impacted by the economic downturn and tough trading conditions resulting in flat performances across all business units.
Capital and liquidity
With the growth in its funding base, Sasfin’s liquidity coverage ratio is at a comfortable level, well in excess of minimum regulatory requirements. Sasfin’s securitisation vehicle, South African Securitisation Programme (RF) Limited (SASP) continued to deliver consistent performance. Maturing notes of R580 million were refinanced.
The Group’s total capital adequacy ratio decreased to 16.379% (provisional and unaudited) (2016 final audited: 19.023%) primarily due to a growth in risk-weighted assets resulting from an increase in the funding base. Tier 1 capital adequacy was 16.099% (provisional and unaudited) (2016 final audited: 18.629%).
Subsequent to year end, Sasfin Bank Limited concluded a long-term funding facility with the FMO and DEG for US$30 million, which will further strengthen the tenor, diversity and stability of the Group’s funding base.
Roland Sassoon says that the Group will continue with its conservative drive for critical mass, to achieve strong revenue generation across its businesses, combined with cost containment, where appropriate, while strategically investing in technology and distribution. “Sasfin is also finalising a proposed restructure to adopt a more focused approach to its target markets along its core pillars of Banking, Wealth and Capital,” he says.