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Sasfin banks on future growth despite 18% dip in profit

Mar 16 2017 16:44
Lameez Omarjee

Johannesburg – Banking and financial services group Sasfin [JSE:SFN] reported a drop of 18.84% in headline earnings, to R86.1m.

This is according to the group’s interim financial results for the six months ended December 31, 2016. Headline earnings per share came down to 271.84c from 334.43c reported in December 2015. A dividend of 80c per share was declared, down from 98.57c from the previous period.

“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),” the group said in a statement.

“Coming out of a period of consistent earnings growth, this unusual volatility in earnings requires us to increase scale and granularity, of assets in Sasfin, as a small banking group, in comparison to the larger banks” said Chief Executive Officer Roland Sassoon. “Further reasons for the poor performance were the low growth levels and a material increase in expenses in order to comply with new regulations and position Sasfin for growth,” he explained.

The group reported operating profit of R112.9m, down from R149.9m reported in 2015. Total profit for the period came to R93.7m, down 17% from R113.2m reported previously.

The group also expanded its funding base to R8.1bn from R7.3bn in December 2015 resulting in a liquidity position of R2.8bn. This positions the group “well” to meet the funding requirements, according to the statement.

Total income grew 4.3%, despite lower revenue generation in its business banking and wealth divisions. Sasfin said it benefited from a lower tax charge for the period due to a larger share of income subject to lower rates of taxation.

Sassoon added that despite this drop in earnings the group is positive about the future of Sasfin. “We have made a significant investment in IT to improve client experience, digital channels and efficiencies.”

The group aims to finalise its acquisition of the Absa equipment rental book and the BEE deal with WIPHOLD in the next few months, both of these should stimulate growth.

Sasfin will embark on a revised strategy to divide the group into three distinct pillars. These being banking, wealth and capital. “This will enable these areas to grow with more focus,” the group said.

Division performance

Business Banking delivered a profit of R77.6m, down 10% from R86.2m reported in December 2015 due to low growth in lending activities and increasing credit impairments.

The group aims to focus on finalising its acquisition of Absa Technology Finance Solutions’ (ATFS) loans and rental contracts worth R1.5bn. This is subject to shareholder approval, but there are hopes it will result in “solid and sustainable” growth.

The wealth division’s profitability declined 40.42% to R20.8m. Among the factors contributing to the decrease was continued investments into the business. A flat revenue base, driven by lower brokerage and reduced investment in Efficient also impacted profits. “During the period under review, a write down was taken due to a negative move in the Efficient share price,” said the group.

Further, assets under advisement and management declined 5.8% to R36.5bn, as a result of the stronger rand.

The transactional banking and treasury division grew. Deposits from customers increased 16.13% to R4.01bn. Transactional banking profitability grew to R13.28m, up from R4.03m reported in December 2015. This is as a result of improved returns on surplus liquidity and the normalising of the transactional banking cost base and a growing client base, Sasfin said.  

The capital division’s revenue increased R26.9m, up from R8.8m reported in December 2015. This is a result of the strong performance of the private and property equity portfolio as well as a turnaround in corporate finance. Capital’s profit was R3.8m compared to a loss of R4.8m reported for the corresponding period in 2015.

The commercial solutions division’s revenue decreased to R70.8m, from R97.42m reported in December 2015. However the division still delivered a profit of R9.3m, although this is down from R12.3m in December 2015. 

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