Integrated Report for the year ended 30 June 2019 Sasfin Holdings Limited Sasfin Holdings At Sasfin we contribute to society by going beyond a bank to enable growth in the businesses and global wealth of our clients. Integrated Report 2019 Report Integrated Table of contents The 2019 Integrated Report compilation 2 An overview of Sasfin 5 Leadership reviews 16 Pillar performance reviews 30 Human capital performance review 44 Information and technology performance 50 review Social and ethics committee report 54 SOCIAL AND ETHICS Sasfin’s responsible approach to doing business strengthens our long-term sustainability, supports positive contributions to society and minimises Building stakeholder relationships 56 environmental impacts. Risk management and overview 60 OPERATING CONTEXT Sasfin adapts a stakeholder-inclusive approach and has an integrated risk management process that ensures that key risks are managed effectively within Governance practices and outcomes 66 acceptable parameters. GOVERNANCE Sasfin has a mature governance structure and we How performance is rewarded 88 are focused on ensuring accountability of senior management so that the Board can adopt a strategic oversight role. We appointed experienced Appendices executives last year which strengthened the first, • King IV™ application summary 104 second and third lines of defence in our combined • Consolidated Financial Statements 106 assurance framework. They focused on building their • Notes to the financial statements 110 teams, reviewing priorities and introducing • Glossary 115 innovative monitoring tools. • Offices 117 HOW PERFORMANCE IS REWARDED • Corporate details 118 The new performance incentive scheme focuses on the Group achieving sustainable growth in return on Feedback equity (ROE). The scheme combines short- and We welcome feedback that helps us provide long-term components and improves transparency meaningful and relevant information in our reports. for participants. The scheme rewards performance at Please contact us at [email protected]. a Group, Pillar/business unit and individual level. Report overview SASFIN OVERVIEW Sasfin Holdings Limited (the Group or Sasfin) is a bank-controlling company that listed on the JSE in 1987. Sasfin and its subsidiaries provide a comprehensive range of specialist financial products and services focused on the needs of asset suppliers, small and medium businesses, and institutional and private clients. Sasfin contributes to society by going beyond a bank to enable growth in the businesses and global wealth of our clients. Our business comprises three Pillars – Banking, Wealth and Capital. REPORT COMPILATION This Integrated Report covers Sasfin’s activities for the financial year to 30 June 2019. The report’s content was selected to meet the needs of stakeholders and reflect the Group’s material matters. There were no restatements of previously disclosed information. Sasfin adopted IFRS 9 retrospectively without restating comparatives. The Board of Directors (Board) approved the report on 10 October 2019. LEADERSHIP REVIEWS Within the challenging South African macroeconomic environment, we focused on bedding down the solid foundation established in 2018 and concentrated on fine-tuning the fundamentals of our business. The Board focused on governance, credit, capital management, distribution and information technology. Total income (including income from associates) grew 2.21% to R1.246 billion, total assets grew 1.97% to R14.601 billion, and gross loans and advances decreased by 0.18%. Credit quality improved markedly as evidenced by the better credit loss ratio of 102bps (2018: 197bps). The Group’s investment in our emerging businesses as well as the enhancement of our corporate governance and technology contributed to an increase in the cost-to-income ratio to 76.59%. Our established businesses have a combined cost-to-income ratio of 66.89%. Given the embedded nature of much of the cost structure associated with being a highly regulated banking group, revenue growth remains our core focus and we refined our strategy to improve distribution in Sasfin’s primary client segments. For a detailed financial review please refer to page 20. PILLAR PERFORMANCE The Banking Pillar provides asset finance and business banking services to asset suppliers and small and medium businesses. Headline earnings increased by 95.51%, primarily due to an 8.87% growth in income and a 39.60% improvement in impairment charges. We continue to see growth in the number of our clients using B\\YOND®, our digital banking platform, and we launched the Hello Paisa banking capability in May 2019. We increased our focus on the asset finance business, the significant contributor to the earnings of the Banking Pillar. Sasfin Wealth grows the global wealth of our private and institutional clients. Headline earnings increased 28.80% to R40.351 million and assets under management and advice increased by 3.67% to R41.119 billion. We launched the Sasfin umbrella fund; our Flexible Income Fund won two Raging Bull awards; and Sasfin Asset Managers (Proprietary) Limited (SAM) achieved a level 1 Broad-Based Black Economic Empowerment (B-BBEE) rating. Sasfin Wealth saw meaningful growth in associate income from its investments in SCM DMA (Proprietary) Limited, formerly Saxo Capital Markets SA (Proprietary) Limited (DMA) and Efficient Group Limited (Efficient Group). Sasfin Capital provides bespoke investment banking and financing solutions to mid-market businesses. The Capital Pillar delivered disappointing headline earnings for the year of R4.813 million, primarily due to lower corporate finance revenues and private equity valuations. The Pillar increased its focus on specialised debt solutions to medium-sized corporates, where Sasfin has a competitive edge and can achieve consistent and better quality earnings. HUMAN CAPITAL The Human Capital Department supports the Group strategy by attracting, developing and retaining Sasfin’s human capital. We implemented the new performance incentive scheme, which includes key risk and value indicators, to incentivise appropriately. We invested R9.5 million in skills development initiatives. Employee turnover increased to 21.7%, partly due to decreased headcount in asset finance following the Absa Technology Finance Services (Proprietary) Limited (ATFS) acquisition in 2018. The Group also conducted an employee engagement survey. INFORMATION TECHNOLOGY (IT) IT is a key enabler in achieving the Group strategy and driving Sasfin’s client-centric model. We established the structures necessary to bring IT and business closer together to effectively execute IT projects and measure their returns. We implemented a new asset finance system and a new foreign exchange solution. We made good progress on the risk data aggregation and risk reporting (RDARR) system implementation. Sasfin Holdings Limited Integrated Report for the year ended 30 June 2019 | Page 1 THE 2019 INTEGRATED REPORT COMPILATION Report objectives This Integrated Report provides information regarding Sasfin’s activities for the period 1 July 2018 to 30 June 2019 and is the primary report in our reporting suite. It provides our key stakeholders (page 56) with an overview of our strategy (page 23), business model (page 12), performance for the year and short- and medium-term outlook. The report includes relevant financial and non-financial information, with an emphasis on Sasfin’s material matters (page 8). These are defined as matters that have the most potential to materially affect the Group’s ability to remain commercially viable in the short-, medium- and long-term. In determining these matters, we also consider matters that could significantly influence our stakeholders’ assessments and related decisions regarding our long-term sustainability. Scope and boundary This report covers the activities and prospects of Sasfin The cumulative impact of adopting IFRS 9 was applied and its subsidiaries, excluding our associated companies retrospectively with an adjustment to the Group’s and investments. The Group’s interests in subsidiaries, opening 1 July 2018 reserves. structured entities and associates are disclosed in In preparing this report and other reports in our reporting note 39 to the Consolidated and Separate Annual suite, we were guided by several local and international Financial Statements. frameworks and guidelines. These include, but are not There were no significant changes to the size, structure limited to, the: or ownership of the Group since the 2018 Integrated • International Integrated Reporting Council’s (IIRC) Report, other than the increase of Sasfin’s holding in Integrated Reporting <IR> Framework Efficient Group which resulted in the Group accounting • Companies Act of South Africa, No 71 of 2008, as for it as an associate. Refer to page 35 for more amended (Companies Act) information. No previously disclosed information was • Banks Act, No 94 of 1990 and Regulations relating to restated. Banks (Banks Act) • IFRS International Financial Reporting Standard (IFRS) 9 • King Report on Corporate Governance™ for South Financial Instruments, became effective from 1 July 2018. Africa, 2016 (King IV™)* The Group has, as permitted by IFRS 9, elected not to • Broad-Based Black Economic Empowerment (B-BBEE), restate its comparative financial information. Therefore, Act, No 46 of 2013 (B-BBEE Act) the comparative financial information was prepared on • Basel III an International Accounting Standard (IAS) 39 Financial • JSE Listings Requirements