Operational review: Financial Services

Financial Services

Key achievements 2017

  • Achieved solid results despite disruptive market influences.
  • Ensured continuity in the bank’s obligation to SASSA grant beneficiaries following the extension of the contract beyond its expiry date.
  • Achieved strong growth in Bridge Fund Managers and CoreShares in their first year as stand-alone businesses.
  • Recorded strong growth in the UK property portfolio.
  • Outsurance became a CoreShares shareholder and included its index portfolios in the online Outvest suite of products.

Key challenges 2017

  • Managing the business in a stagnant economy, aggravated by low interest rates, credit-rating downgrades and political uncertainty.
  • Exploring solutions to improve transformation.
  • Managing the impact on Grindrod Bank of negativity directed at the SASSA contract holder.

Key focus areas 2018

  • Capitalise on the expected organic growth.
  • Manage investments and activities to mitigate the effects of any volatility in the stock market, customers’ economic expectations and potential changes in the country’s sovereign rating.
  • Explore empowerment possibilities to increase growth prospects.
  • Manage compliance with increased local and international regulations.
  • Evaluate new technologies to increase competitiveness and improve service delivery.

Key indicators

Continuing operations

Economic

Revenue

5.1%

R467 million

(2016: R492 million)

EBITDA

7.5%

R363 million

(2016: R338 million)

Operating profit

7.8%

R358 million

(2016: R332 million)

Attributable profit

10.5%

R189 million

(2016: R171 million)

Social

Number of employees*

8.7%

225 employees

(2016: 207)

Fatalities

No fatalities

 

(2016: No fatality)

LTIFR

Zero

0.00

(2016: 0.00)

Social responsibility spend

63.2%

R3.1 million

(2016: R1.9 million)**

Environmental

GHG emissions (CO2 equivalent)^

9.3%

6 347 tonnes

(2016: 7 000 tonnes)

Scope 1 GHG emissions

13.1%

3 719 tonnes

(2016: 4 279)

Scope 2 GHG emissions

0.7%

2 419 tonnes

(2016: 2 436)

Scope 3 GHG emissions

26.7%

209 tonnes

(2016: 285)

* Includes joint ventures and associates at 100% shareholding.
** Restated to reflect effective shareholding of joint ventures and associates.
^ Total GHG emissions including scope 3 (tonnes CO2-e).

2017 review

Financial Services again reported solid results, achieving increased attributable profit despite negative market pressures caused by, amongst others, the effects of political turmoil, pressure on corporate earnings and the threat of credit-rating downgrades.

Revenue declined by 5.1 percent to R467.0 million (2016: R492.2) million and attributable profit increased by 10.5 percent to R189.0 million (2016: R171.0 million). The balance sheet remained strong, with assets at R18.23 billion (2016: R16.22 billion) at year-end. The decline in revenue is primarily due to the sale of the asset management business at the end of 2016.

Banking

Lending, the core traditional banking business, exceeded budget on advances, retained 2016 margins and incurred negligible bad debt. Advances totalled R8.8 billion (2016: R7.6 billion).

Treasury, which funds the bank lending activities, attracted additional core funding of R1.2 billion compared with 2016, excluding SASSA-related transactions in the Retail division.

Corporate Finance did not achieve budget, due to market and political uncertainty which negatively affected corporate transactions.

Capital Markets reported solid earnings in its R2.0-billion third-party preference share investment product.

Retail activities were focussed on ensuring continuity in its payment obligation to SASSA card-holder beneficiaries into 2018, following the extension of the social-grants contract by the Constitutional Court. The contract is for the monthly disbursement of 17 million grants of R11.5 billion to over 10 million card-holders. The bank is committed to comply with regulatory requirements and engage with stakeholders to find appropriate solutions for a smooth transition to the next phase of the process.

Investment banking

GFS Holdings Proprietary Limited (GFS) manages investments in property and private equity. The private equity arm targets small- to mid-sized companies for equity investments and companies with strong growth potential. The more significant investments are:

  • A 230-million-pound UK-based property portfolio, in which GFS holds a 30 percent share. The investment performed well on the back of healthy demand for warehousing and distribution centres.
  • A R261 million investment in Infinitus Holdings Proprietary Limited (49 percent shareholding), the holding company of Bridge Fund Managers which achieved strong growth in a volatile market.
  • A meaningful minority stake of 8.5 percent in Lenmed Group, the largest unlisted provider of hospitals and related healthcare services in South Africa. The R200-million investment will help fund the company’s acquisitive growth strategy.

The niche asset-management businesses GFS established as separate entities during the past two years reported good growth:

  • Bridge Fund Managers has R14.9 billion assets under management in various instruments, most of them based on the Payers and Growers® philosophy. Bridge is a 76 percent subsidiary of Infinitus Holdings, in which GFS holds 49 percent. Bridge Collective Investments grew assets under management by some 30 percent and the flagship funds, Bridge Managed Growth Fund and Bridge Stable Growth Fund, enjoyed solid support across both the retail and retirement fund markets.
  • CoreShares offers a range of passive index-tracking ETFs. The business was established by GFS with subsequent investments of 25 percent each by RMI Holdings and Yellowwoods. In 2017, Outsurance bought the Yellowwoods shares and integrated the CoreShares index portfolios directly into the advice algorithms developed for its Outvest robo-advisor, the online, automated Outsurance advice business.