Chairman's Report


I am pleased to present to stakeholders, the 2018 Peregrine Integrated Report. This marks the 20th year that Peregrine has produced such a report as a listed entity. The one constant over this period has been that of change.

The tremendous growth that the Group has experienced over the past two decades has been forged amidst the backdrop of ongoing change, with a myriad of local and international political shocks, oscillating economic and financial conditions, attendant equity, bond and currency market reactions and over-reactions and with regulatory requirements ratcheting higher all the while.

Over time, the scope of business activities to report on has grown tremendously, as have the reporting requirements. The Group has grown both organically and through acquisition. There have been pivotal internal changes in some years, when the Group has exited certain businesses, actively reducing the size of the Group. Invariably these decisions have placed long term considerations ahead of short term concerns and have always been designed to preserve the ethos and culture of the Group. All of this has been achieved notwithstanding changes at the Group and subsidiary leadership level along the way.

In some ways 2018 was a microcosm of the past two decades for the Group. Growth in earnings was achieved against a backdrop of significant change. Earnings measures were up between 4% and 7% with dividend growth of 10% to a record 170 cents per share.

Largely driven by the political changes, the Rand was the strongest performing emerging market currency in the year under review, negatively impacting the Group with its 40% plus offshore earnings base. A two year rise of 50% in the World MSCI Index commencing January 2016 came to a rude halt in January 2018. Local equity markets were stronger for the year under review with the South African All Share Index up almost 10%, with the Listed Property Index an exception, finishing down 7%. The year will likely be remembered in South Africa as one mired by the exposure of extensive fraud at the South African corporate level, in a country already reeling from rampant and open levels of corruption.

In this regard, a change in leadership took place at the national level with Cyril Ramaphosa replacing Jacob Zuma as president of the ANC and of South Africa. It remains to be seen whether the political will, so desperately needed, will result in the necessary improvements and whether affirmed intentions by government to prioritise investment and growth will result in a moribund economy escaping years of slow or no growth.

At the Peregrine Group level, Rob Katz replaced Jonathan Hertz as Group CEO. Jonathan, who successfully led the business for four years, stepped down on 31 July 2017, with Rob taking on the role after more than 7 years as Group CFO. I thank Jonathan for his distinct contribution over the period of his tenure as CEO and commend both Rob and fellow Executive Director Mandy Yachad for the extended roles they played in a year of transition. We also welcome Claire Coward to the Group as Rob’s replacement as CFO. Claire joined us with effect from 1 June 2018.

The 2018 year also saw the implementation of the Group’s decision to unbundle its proprietary investments, which were surplus to the requirements of the Group’s businesses.

These were predominantly in the form of hedge fund investments, listed property units, unlisted property and cash. These were unbundled to Peregrine shareholders in the form of shares in Sandown Capital Limited, which were listed on the JSE and A2X on 29 November 2017.

The question could be asked whether it would not have been better to keep the surplus assets on balance sheet, either as a source of earnings or as insurance in the event the Group needed capital, a form of standby capital. From an earnings perspective, the Board’s view was, and remains, that the mark-to-market movements on these assets tainted the quality of the Group’s earnings stream and served to lower the Group’s dividend payout ratio. From an insurance or standby capital perspective, it made no sense to hold surplus capital for any of the Group’s wealth and asset management businesses, with the only business potentially benefitting from surplus or standby capital being Peregrine Securities. However, in the context of the Peregrine Group’s risk profile, the Board felt that this business was appropriately and sufficiently capitalised.

Following this decision and further discussions with Peregrine Securities’ management subsequent to year end, the Board has accepted an offer from an empowerment consortium, in conjunction with management of the Peregrine Securities business, to purchase Peregrine’s 65% interest in the business. It is worth noting that Peregrine purchased this business in 2001 for R70 million, sold 35% to a management consortium in 2010 at a business valuation of approximately R500 million and is selling its remaining 65% stake at a business valuation of R1.4 billion.

Upon completion of this transaction, the Group will be somewhat leaner, with outstanding cash generation, appreciably high return on equity metrics and a very generous dividend payout ratio. It will focus intently on its chosen niches and continue to seek both organic and acquisitive growth in these areas.

Finally, I would like to offer my appreciation to all our stakeholders. To our staff and their chosen leaders who continue to ably manage our clients’ money through a world of constant change. To our clients, for entrusting us with the responsibility. For many of you, your relationship with our Group goes as far back as the Group’s listing in 1998. I thank you all for your loyalty and your friendship. To our Board, thank you for taking decisions that seek to ensure the sustainability of our Group. I look forward, with anticipation, to the challenges and opportunities that further change offers our Group in the years to come.

Sean Melnick
Non-Executive Chairman

31 July 2018