Corporate Governance

Highlights & Structure

Substantial changes in existing anti-money laundering measures due to the FIC Amendment Act

Continued monitoring of developments relating to the Financial Sector Code

Continued implementation and embedding of Treating Customers Fairly outcomes

Project in progress to implement requirements of data protection legislation

Annual review of all Board Charters, resulting in no material amendments

Material compliance with the application of the principles and requirements of King IV

Proactive participation in the Associations for Savings and Investment South Africa (ASISA)

The companies falling under the Group’s offshore subsidiaries, Stenham Group and Peregrine International Holdings are governed by the laws and regulations applicable to their respective foreign jurisdictions.

Governance Structure

The Board aims to integrate responsible corporate citizenship into the Group’s growth strategy and to embed sound corporate governance values and principles into daily operations and processes in order to build a culture of sustainability. It further endeavours to ensure that these sustainability components form part of all strategic decisions, audits and assessments and recognises this as a dynamic responsibility requiring continuous monitoring of processes to ensure improved compliance in line with developments in corporate governance in South Africa and internationally.

King IV defines corporate governance as the exercise of ethical and effective leadership towards achieving four advocated outcomes, which are set out further in this section of the report. Such report also sets out the practices implemented and the progress made towards achieving the 17 principles in meeting the advocated outcomes. It is done on an “apply and explain” basis as recommended by King IV.

Peregrine’s Board actively reviews and enhances the Group’s systems of internal control and governance on a continual basis to ensure that the business is managed ethically and within prudently determined risk parameters, in conformity with South African accepted standards of best practice.

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The Board

Overview

The Board is responsible and accountable for the performance and affairs of the Group and in so doing it: (i) effectively represents and promotes the legitimate interests of the Group and its stakeholders in a manner that is both ethical and sustainable; and (ii) the Directors acknowledge the need to exercise leadership, enterprise, integrity and judgement in directing the Group’s affairs to achieve continuing sustainability within the context of transparency and accountability . The Social and Ethics Committee, Audit Committee, Risk and Compliance Committee and Remuneration Committee ensure that active measures are taken in the adherence of the ethical standards of the Group.

Peregrine’s unitary Board is chaired by Sean Melnick, as a Non-Executive Chairman and comprises a further eight Directors, three of whom are Executive (with Claire Coward having been appointed as Chief Financial Officer with effect from 1 June 2018) with Leonard Harris as the Lead Independent Non-Executive Director. The majority of the Directors (six) are Non-Executive Directors, four of whom are classified as independent. As at the date of this report, two of the Directors are female and one male Director is black.

The Board members are all suitably qualified for their roles as Directors and have extensive experience in a variety of sectors. Their diverse backgrounds (including age, core expertise, gender and racial diversity) enable them to provide independent advice and judgement in the execution of their duties. The Board recognises that it should be comprised of individuals who are able to work together effectively to lead a viable, profitable and efficient Group. The Group took the above factors into account when nominating and appointing Claire Coward as Chief Financial Officer with effect from 1 June 2018 and will ensure that these factors are considered in future Director nomination processes.

In accordance with the:

gender diversity policy, the aim is to have females constituting: (i) by 31 March 2019, at least 20%; and (ii) by 31 March 2021 at least 30% of the total number of Directors. As at 31 March 2018, the percentage of females who were Directors was 12,5%, and is, at the date of this report, 22%, thus meeting the initial target; and

racial diversity policy, the aim is to have black people (as defined in the B-BBEE Act, as amended) constituting (i) by 31 March 2019, at least 20%; and (ii) by 31 March 2021, at least 40% of the total number of Directors. As at 31 March 2018, the percentage of black people who were Directors was 12,5% %, and is, at the date of this report, 11%.

The Board has undertaken to review and report on an annual basis on the composition of the Board taking into account the above mentioned criteria of competency, integrity, skill, capacity and experience and evaluate any future nominations and appointments with an aim to improving the constitution of the Board in accordance with the targets set for the promotion of gender and racial diversity. In accordance with the aforegoing:

in looking to appoint a Chief Financial Officer to replace Robert Katz following his appointment as the Group Chief Executive Officer, the directive given by the Board was to appoint a female culminating in the appointment of Claire Coward with effect from 1 June 2018; and

Boitumelo (“Tumi”) Tlhabanelo has been appointed as an Independent Non-Executive Director with effect from 1 August 2018. Should shareholders approve Tumi’s appointment at the upcoming Annual General Meeting (“AGM”), the number of Independent Non-Executives will be five and the percentage of black people who are Directors will be 20%.
 

During the year under review, Jonathan Hertz resigned with effect from 31 July 2017 with Robert Katz (who acted as interim Group Chief Executive Officer from I August 2017) being appointed as the Group Chief Executive Officer on 15 November 2017. Robert also carried out the dual role of Chief Financial Officer until the appointment of Claire Coward as Group Chief Financial Officer, effective on 1 June 2018.

The Peregrine Holdings Limited Board at the date of this Integrated Report comprises:

Executive Directors:
RE Katz (Chief Executive Officer), C Coward (Chief Financial Officer), M Yachad (Head of Legal and Company Secretary Representative)

Non-Executive Directors:
SA Melnick (Chairman), P Goetsch

Independent Non-Executive Directors:
LN Harris (Lead), BC Beaver, SI Stein, S Sithole

The name and a brief curriculum vitae of each Director are set on the Directorate page.

The responsibilities of the Chairman, Deputy Chairman (if appointed), Chief Executive Officer and the other Executive and Non-Executive Directors are clearly separated to ensure a balance of power and prevent any one Director from exercising unfettered powers of decision making. The Chairman provides leadership to the Board in all deliberations ensuring independent input, and oversees its efficient operation. The Chairman and Chief Executive Officer are responsible for proposing, updating, implementing and maintaining the strategic direction of the Peregrine Group. In this regard, they are assisted by the other Executive Directors.

The Independent Non-Executive Directors and Non-Executive Directors are individuals who objectively contribute a wide range of industry skills, knowledge and experience to the Board’s decision-making process. These Directors are not involved in the daily operations of the Group.

A formal self-assessment by the Board was conducted during the year under review and the Board was satisfied that it operates effectively according to an approved Board Charter, which sets out its duties and responsibilities. The Board annually undergoes a comprehensive and rigorous review and evaluation of the independence of those Non-Executive Directors (including, if applicable, the Chairman), classified as, ‘independent’, and has satisfied itself that, notwithstanding the fact that certain Directors have been on the Board for over nine years, all the Directors classified as, ‘independent’, are independent and act in an independent manner. The affected Independent Directors are Messrs Harris, Beaver and Stein.

Access to the advice and services of the Company Secretary and to company records, information, documents and property is unrestricted. Non-Executive Directors also have unfettered access to the external auditors and to management at any time. All Directors are entitled, at Peregrine’s expense, to seek independent professional advice on any matters concerning the affairs of the Group.

The Memorandum of Incorporation provides for one-third of the Non-Executive Directors to retire by rotation each year. Accordingly, SA Melnick and P Goetsch will retire at the AGM. Both have advised that they will be standing for re-election. In terms of the Memorandum of Incorporation, the Board recommends to shareholders that all retiring Directors who are eligible and available for re-election be re-elected.

The Board meets at least four times a year, with ad-hoc meetings when necessary, to review strategy, potential acquisitions, planning, financial performance, resources, operations, risk and compliance, capital expenditure, standards of conduct, corporate governance, transformation, diversity, employment equity, human resources, community upliftment and environmental management as well as the manner in which all of these contribute to and maintain sustainability.

Board and Committee meetings attendance

Name

Board
Meetings

Audit
Committee
meetings

Remuneration
Committee
meetings

Risk & Compliance
Committee
meetings

Social & Ethics
Committee
meeting

Executive

R Katz (CEO & CFO)

4 (4)

3 (3)#

2 (4)#

2 (2)

1 (1)

M Yachad

4 (4)

-

-

1 (2)

1 (1)

Non-Executive

BC Beaver *‡

4 (4)

3 (3)

4 (4)

2 (2)#

-

P Goetsch

4 (4)

-

-

-

-

L Harris**

4 (4)

-

4 (4)

-

-

S Melnick (Chairman)

4 (4)

-

-

-

-

S Sithole*Ω

4 (4)

3 (3)

-

-

1 (1)

S Stein*†§

4 (4)

3 (3)

-

2 (2)

-

M Yachad attended one Risk & Compliance Committee meeting and was replaced, as Chief Risk Officer, by Eben Kolesky, with effect 1 January 2018.

*Independent Non-Executive
**Lead Independent Non-Executive
†Audit Committee Chairman
‡Remuneration Committee Chairman
§Risk & Compliance Committee Chairman
Ω Social & Ethics Committee Chairman
#By invitation

The formal Board Charter, which is reviewed annually (the latest review being undertaken at the board meeting held on 12 June 2018), mandates compliance with the principles of the King IV and current relevant legislation, as well as with South African accepted standards of best practice. It regulates the parameters within which the Board operates and demands that the Board represents and promotes the legitimate interests of the Group and its stakeholders, in a manner that is both ethical and sustainable and in so doing, adopts an approach in terms of which strategy, risk, performance and sustainability are intertwined.

Board processes

The Company Secretary, Peregrine Management Services (Pty) Limited, is responsible for ensuring that Board procedures are in compliance with relevant regulation and legislation and that full compliance is adhered to. Wherever necessary, Peregrine’s Sponsors and other relevant advisors/experts will be invited to become involved to ensure that the Directors have adequate information to sufficiently discharge their responsibilities.

M Yachad oversees the duties of the Company Secretary. He is a non-practicing Attorney who has extensive experience in the company secretarial and corporate governance arenas and who has been intimately involved with the Group since 1999 (attending Board meetings since 2003 initially by invitation and, from November 2010, as an Executive Director).The Board has considered and satisfied itself with the competence, qualifications and experience of the Company Secretary and Mr Yachad, as the representative thereof, basing such findings on ongoing relationships, past practice and performance, as well as Mr Yachad’s qualifications and experience.

Mr Yachad keeps records of, inter alia, meeting attendance registers, meeting minutes, resolutions, Directors’ declarations of personal interest/s and all notices and circulars issued by the Group. Although he is an Executive Director of Peregrine and accordingly an arms-length relationship between the Company Secretary and the Board of Directors is not present, given Mr Yachad’s extensive experience in the company secretarial and corporate governance arenas, his role as Head of Legal for the Group and based on his past performance, the Board is of the opinion that Mr Yachad remains best placed to ensure that, together with the Group Chief Risk Officer, good governance is maintained throughout the Group and that Mr Yachad continues to ensure that the Board maintains a high level of integrity and that the Board acts as a custodian of corporate governance.

Directors, as well as the Executive Directors of subsidiary companies, are required to disclose any potential conflicts of interest, as well as any proposed share dealings in the holding company’s securities to the Chairman or Chief Executive Officer for approval. The Company Secretary, together with the Sponsors, ensures publication of all approved share dealings on SENS. Where applicable appropriate personal account trading rules are in place within the subsidiary businesses. All Directors and Senior Executives with access to financial and any other price sensitive information, as well as all employees are prohibited from dealing in Peregrine’s shares during closed periods as defined by the JSE, or while the Company is trading under a cautionary announcement. The Chief Executive Officer informs all employees by e-mail when the Company enters into and comes out of a closed period.

The Board undertakes the role of a Nominations Committee and the selection, appointment and approval of new Directors is therefore undertaken by the Board as a whole, in a formal and transparent process.

Any new appointees are required to possess the necessary skills to contribute meaningfully to Board deliberations and to enhance Board composition in accordance with recommendations, legislation, regulations and best practice. The Company Secretary has implemented a comprehensive induction program for new Directors, which has been approved by the Board and includes introductions to key senior management, such as the Chairman, Chief Executive Officer, Chief Financial Officer, Audit Committee Chairman, Risk and Compliance Committee Chairman and Head of Group Legal. The program (including meeting with the Company’s Sponsors) sets out the new Directors’ responsibilities and fiduciary duties, as well as advice on the relevant statutory and regulatory framework and the JSE Listings Requirements. The induction program is designed to ensure that new Directors attain a sound understanding of the business operations, the Group’s performance and the industry in which it operates.

Each new Director is provided with a formal induction pack, which includes relevant charters, policies and guidelines necessary to comply with corporate governance requirements. In addition, information on the Board sub-committees, the delegation of authority framework and Board procedures are outlined and documents relating to any general meetings over the past three years (e.g. minutes, resolutions etc.) are provided for the Director’s perusal.

Board committees

Peregrine has an established Group Audit Committee, Group Remuneration Committee, Group Risk and Compliance Committee, and a Group Social and Ethics Committee that assists the Board in discharging its collective responsibility of sound corporate governance. All committees were found to have satisfied their responsibilities in compliance with their formal charters and/or written terms of reference. Having regard to the principles of King IV and the JSE Listings Requirements, the Board regularly assesses the composition of the committees and the functions carried out by the Non-Executive Directors as members of the various subcommittees.

There is transparency and full disclosure from Board sub-committees to the Board. The committee chairmen provide feedback to the Board on sub-committee activities and the minutes of committee meetings are available to the Board. In addition, the Chairmen of the sub-committees (or a member of such sub-committee/s) attend the Company’s Annual General Meeting to answer any questions from stakeholders pertaining to the relevant matters handled by their respective committees.

Group Audit Committee
members: SI Stein (Chairman), BC Beaver and S Sithole. In addition, the Group Chief Financial Officer, Group Chief Executive Officer, Group Chief Risk Officer and external auditors attend all meetings as invitees.

Group Remuneration Committee
members: BC Beaver (Chairman) and LN Harris. It is the intention, in line with the JSE Listing Requirements, to appoint a third Non-Executive Director to this Committee. In addition, the Group Chief Executive Officer attends all meetings as an invitee.

Group Social and Ethics Committee
members: S Sithole (Chairman), RE Katz and M Yachad. The members invite other Group employees to attend from time to time to update the committee on various aspects.

Group Risk and Compliance Committee
members: SI Stein (Chairman), RE Katz, A Levien and E Kolesky (Group Chief Risk Officer). In addition, the Chief Executive Officer, the Chief Financial Officer and the Risk Officers of the major subsidiaries attend all meetings as invitees.

The Chairmen of the respective committees may meet with the Chief Executive Officer and/or the Company Secretary prior to a meeting to discuss important issues and agree on the agenda.

Risk Management

Overview

Within an ever changing and complex financial services environment, the Board recognises that risk management needs to be a dynamic process with a framework that is robust enough to effectively manage and react to change in an efficient and timeous manner. The global financial crisis of 2008/2009 prompted regulatory and risk management changes, which resulted in the Twin Peaks model of financial sector regulation in South Africa. As a result, with effect from 1 January 2018, the Group appointed Eben Kolesky as Group Chief Risk Officer (CRO), to assist the Group in improving Enterprise Risk Management and Compliance related initiatives. Eben brings more than 10 years of Risk and Compliance executive management experience to the role and has valuable international Risk Management experience spending two years in Amsterdam in the Strategic Risk Advisory at ABN AMRO Bank. Eben graduated with a B.Proc degree and holds a post-graduate professional qualification in Financial Risk Management from the Global Association for Risk Professionals.

Peregrine acknowledges that risk management is a corporate discipline demanding the highest quality processes, training and infrastructure, so that corporate executives at all levels can understand and control risks in their business units and across the entire business. To this end Peregrine’s risk methodology integrates risk and legal compliance and internal audit in a single database. Risks, as set out in a formal risk matrix, are monitored on a daily to a monthly basis, depending on their respective nature and severity. Risk ratings are assessed as part of an ongoing exercise as documented in the Risk Charter and discussed at the Risk and Compliance Committee meetings. Peregrine has initiated the implementation of a new Risk Management and Compliance solution within various subsidiaries of the Group, in order to further entrench formalized risk management processes within the daily operations of the Group.

Whilst the Board is ultimately responsible for the management of risk, the Board relies on management to operate within the control structures and frameworks established by the Board and has delegated the responsibility for implementation of the risk framework to the Risk and Compliance Committee. The primary role of the Risk and Compliance Committee is to assist the Boards of Group and subsidiary entities in fulfilling their oversight responsibilities by providing guidance regarding risk governance and the development of the Group’s risk profile, including regular review of major risk exposures and the management of risk limits.

Specifically, the objectives of the Risk and Compliance Committee are to ensure that:

key risks are identified, analysed and assessed;

appropriate risk management recommendations are made for Board approval;

adequate progress is made against the risk management plan;

management’s risk responses are appropriate and adequate; and

the risk management process is effective.

In achieving these objectives the Risk and Compliance Committee reviews and assesses the Group’s risk control systems and ensures that risk policies and strategies are effectively managed, which includes monitoring risk tolerance levels.

Each major operating subsidiary has its own Risk and Compliance Committee, which is responsible for reporting directly to the Group Risk and Compliance Committee and the Group Chief Risk Officer. The Group and each major operating subsidiary also have a dedicated Risk Champion, whose duties are to develop, maintain, manage and execute a comprehensive process for identifying, assessing, mitigating, monitoring and reporting on risks that may impact on the business’ performance.

The Risk and Compliance Committee is governed by a formal charter which sets out its composition, role and responsibilities, which charter is reviewed annually.

Risk Management Process

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The most significant risks faced by the Peregrine Group are detailed in the risk matrix below:

Risk

Mitigation / risk response

Financial risk:  The risk of loss inherent in financing methods which may impair the ability to provide adequate return at a Group level

Inclusive management style

Maintaining a balance between an entrepreneurial and a corporate environment

Focus on growth and return objective

Liquidity risk:  The risk of not being able to meet funding obligations when they are due

Stringent cash flow reporting

Monitoring of the Group’s working capital requirements with a focus on liquidity

General and specific banking facilities in place to meet liquidity requirements in excess of normal operational requirements

Credit risk:  The risk of loss resulting from the default of a counterparty. This includes settlement risk

Diversified investment of cash in top rated financial institutions

Prudential credit limits set by the Risk and Compliance Committee

Regular review of credit exposure

Established credit policies

Market risk:  The potential change in the value of a financial instrument resulting from changes in market conditions

All investments made within an approved investment mandate with set allocation parameters

Investments are measured continually via mark-to-market valuations, sensitivity, concentration and scenario analyses where applicable

Investment risk:  The risk that an actual return on an investment might be lower than the investors’ expectations

Appropriate asset allocation

Effective diversification

Value investing

Scenario planning

Employee risk:  The risk of losing key employees and with it intellectual capital that is a key factor in ensuring that the Group remains a market leader

Employees are involved in the decisions affecting their business and are incentivised appropriately

Interests are aligned through performance bonuses linked directly to the profit performance of each business

Employees are provided with applicable and relevant training and mentoring

Technology risk:  The risk that clients, staff or the Group may suffer financial, data and/or privacy loss through malicious or accidental use or abuse of computer or other technologies

Analysis of industry best practice and implementation of robust security solutions

Monitoring of environment to minimise possibility of data leakage

Continuous improvement of staff skills, technology and strategy

Experienced and skilled staff with deep understanding of business

IT management and staff form an integral part of the risk management team

Continuously evolving incident response capability based on experience, training and technology

Participation in sector Computer Security Incident Response Team

Risk

Mitigation / risk response

Compliance & legal risk:  The risk of non-compliance with applicable laws, including regulations and regulatory instruments, imposed by the South African Reserve Bank, the Financial Sector Conduct Authority, the Prudential Authority and various other financial authorities and regulatory bodies

Skilled staff dedicated to specific compliance functions as part of the Group risk management framework

Ongoing monitoring of the changing legislative environment

Operational risk:  The risk of direct or indirect loss as a result of a breakdown in systems, communications or internal processes

Comprehensive system of internal controls, as well as sound practices in the areas of human resources and IT risk management

Effective internal audit function

Effective functioning of the risk management system

Subsidiary and Group Risk Committee/s

Appointment of risk and governance champions at Group level and in each major operating subsidiary

Comprehensive risk matrix and continually reviewing and addressing processes and procedures

Market conduct risk:  The risk of inappropriate, unethical or unlawful behaviour on the part of an organisation’s management or employees

The Company has a policy in terms of which all employees and their associates are prohibited from transacting in Peregrine shares during any closed period and/or during any period when the Company is trading under a cautionary announcement

Approval and monitoring of personal trades of employees

Conflicts of interest must be avoided or mitigated and disclosed

Annual declaration signed by employees regarding conflicts of interest, personal account trading, compliance with Group’s Code of Conduct and other matters

Embedding of TCF outcomes

Reputational risk:  The risk of any type of loss resulting from damage to the Peregrine's reputation

Code of Conduct setting out guiding principles for employees and officers of the Group

A comprehensive process is followed prior to entering into any new arrangement with an outside party for the purpose of managing third party assets

Annual requirement of staff to confirm compliance with Codes of Conduct

Country risk:  Is a collection of risks associated with investing and/ or operating in a particular country

The Board continually monitors political and economic environments

Accounting and auditing

The Group Audit Committee and where applicable major subsidiary Audit Committees review and monitor the scope of work planned by both internal and external audit and ensures that both assurance providers adopt a risk-based approach. Deloitte & Touche were appointed as the independent external auditors during the latter part of 2016 and are responsible for reporting on whether the financial statements in all material respects are fairly presented in compliance with IFRS and the Companies Act. The preparation of the financial statements remains the responsibility of the Directors.

The Audit Committees regularly meet with the external auditors and evaluate their independence. Where the external auditors, as an exception, are appointed for non-audit services, the Committees ensure that the nature of the work and the size of the fee does not impair their independence. There is a non-audit fee policy which has been approved by the Group Audit Committee in order to ensure this process is monitored in line with these policies and this is tabled and assessed at each Group Audit Committee meeting.

Internal control

The Board is responsible for the Group’s systems of internal control, such as the Directors determine necessary, so as to enable the preparation of financial statements that are free from material mis-statement, whether due to fraud or error, and for maintaining adequate accounting records and an effective system of risk management. The Audit Committees assist in this regard, supported by the internal audit function. Together they annually evaluate the adequacy and effectiveness of internal control systems and processes, and monitor whether internal control recommendations have been implemented. This is formally documented. Internal audit reports directly to the Chairman of the Group Audit Committee and has full and unrestricted access to the Chief Executive Officer and Group Chairman.

The systems of internal control are designed to manage rather than eliminate risk. The systems are also designed to safeguard and maintain accountability of the Group’s assets. Further, these systems should identify and curtail significant fraud, potential liability, loss and material misstatement, while complying with applicable statutory laws and regulations.

The internal control systems are designed to provide reasonable assurance as to the integrity and reliability of the financial statements. Inherent limitations in the system’s effectiveness exist due to the possibility of human error and the circumvention or overriding of controls. The importance of internal control systems and the management of risk is clearly communicated to all employees, so that they have a clear understanding of their roles and obligations in this regard. The internal auditors, based on the field work undertaken during the year, provided reasonable assurance on the adequacy and effectiveness of the internal controls tested and the associated risk management process. Nothing has come to the attention of the Board that would indicate a material breakdown in the systems of internal control during the year. Citadel operates its own internal audit function and Deloitte LLP (UK), in addition to their external audit of Stenham, also provide a certain level of extended assurance services under the direction of Stenham’s governance function. Citadel’s internal audit function liaises with the Group internal audit function. KPMG Services (Pty) Ltd are responsible for the internal audit function of the Group, including certain subsidiary companies, with the exception of Citadel and Stenham, and will continue with their existing internal audit functions in the 2019 financial year.

Management maintains a formal risk matrix for each business and operating unit, based on inherent risk, the perceived effectiveness of existing control structures and management’s assessment of residual risk. Internal audit conducts a separate risk assessment on each of these businesses and operating units and compares that to the matrix maintained by management, in order to try and ensure that all material risks are identified, mitigated and their impact is properly evaluated. Findings are reported to, and discussed with, operational management by the Risk and Compliance Committees, with significant findings being highlighted for specific attention.

A formal Internal Audit Charter is in place. The key responsibilities of the internal audit function, as encapsulated in the Charter, include:

developing and maintaining an internal audit coverage plan aligned with the risk management processes and based on significant exposures to loss or failure, and submitting such plan to the Audit Committee for approval;

developing annual internal audit plans based on significant exposures identified in the internal audit coverage plan and submitting such annual plans, and any significant amendments to these plans, to the Audit Committee for approval;

reviewing the enterprise risk management system, so as to align this system with the internal audit risk assessment;

evaluating business risk in order to focus the internal audit effort;

reviewing systems and operations to assess the extent to which objectives are being achieved, and the adequacy of controls over activities leading to such achievement;

evaluating the relevance, reliability and integrity of management and financial information;

ensuring compliance with established policies, procedures, instructions and contracts;

recommending improvements in procedures and systems to prevent waste and fraud; and

advising on appropriate systems of controls and other accounting and operational matters in a consulting capacity.  

The various internal audit functions conducted a risk-based internal audit during the year, with no significant findings being identified.

Assurance

Assurance is multi-faceted. The Audit Committee ensures that a system of internal controls is implemented and operational throughout the year and the Risk and Compliance Committee oversees an effective risk management process. These are supported by the internal audit function and the independent external audit process.

Peregrine is committed to applying a combined assurance model and intends to continuously advance this in the years ahead. Management, the internal audit function and the external auditors have taken this into account in their consideration of risks and in the planning of the internal and external audits during the year.

Information and technology governance

As the Group operates in multiple jurisdictions, regulatory compliance and risk management is increasingly complex owing to the increasing regulatory burden. The Group’s dependence on technology leads to continued focus on information and technology risks and controls.

Information and technology governance are therefore integral objectives in the Group’s holistic approach to governance. An IT Management Forum, headed by the Chief Information Officer, is tasked with reviewing on-going business requirements within the areas relating to IT. An IT Governance Charter and IT Internal Control Framework are in place. Information and Technology governance are also areas of responsibility of the Chief Risk Officer and is reported on at the Group Risk and Compliance Committee.

A fault-tolerant robust infrastructure, together with geographic dispersion is used to the Group’s advantage. This ensures that Peregrine has business continuity management and disaster recovery plans in place to mitigate and minimise risks that may occur in the event of an IT outage or any other IT related incident. The plans are regularly updated and on-going attention is being given to risk management improvements. Regular business resilience and continuity testing is a key part of the risk management process.

In terms of the Board Charter, the Board assumes responsibility for the overall supervision of IT risk. IT management reports to the Board on the progress of the IT functional objectives and to the Group Risk and Compliance Committee regarding their role in the risk management process. The Chief Information Officer is a member of the Group Risk and Compliance Committee, and the Chief Risk Officer is a member of the IT Management Forum.

Legal compliance

Peregrine has an effective compliance framework approved by management and the Board, which includes suitably skilled and experienced compliance officers in each of the major operating subsidiaries. The compliance function of each major operating subsidiary is required, inter alia, to -

develop, document and maintain internal rules and procedures for compliance by staff members with applicable legislation;

make sure that affected staff members are aware of such internal rules and procedures;

implement a compliance monitoring programme;

report at least quarterly to the subsidiary Board or appropriate Board sub-committee on compliance matters; and

report on compliance matters to the Group Risk and Compliance Committee.

A Group Legal and Compliance Forum, chaired by Rifke Gellman, the Head of Legal at Citadel, provides a platform for the members of the compliance and legal functions of the various subsidiaries and representatives of Peregrine Holdings Limited, including Executive Director, Mandy Yachad, to share relevant information and keep updated on, discuss and debate legal developments impacting the core businesses of the subsidiaries.

Industry associations

Peregrine is represented at the following industry associations or organisations and regulated by the following financial services regulators:

Certain Peregrine Group entities:

are members of the ASISA (www.asisa.co.za)

are licensed/authorised/registered and regulated by the Financial Sector Conduct Authority (FSCA) ( www.fsca.co.za )

are regulated by the Prudential Authority (PA) (www.prudentialauthority.co.za)

are regulated and authorised by the Financial Conduct Authority (FCA) ( www.fca.org.uk )

are regulated by the Guernsey Financial Services Commission (GFSC) ( www.gfsc.gg )

are regulated by the Jersey Financial Services Commission (JFSC) ( www.jerseyfsc.org )

are regulated by the U.S. Securities and Exchange Commission (SEC) ( www.sec.gov )

Peregrine Equities and Peregrine Derivatives being subsidiaries of Peregrine Securities are members of, and regulated, by the JSE Limited ( www.jse.co.za )

Certain Peregrine Group professionals are:

members of the Actuarial Society of South Africa ( www.acturarialsociety.org.za )

members of the South African Institute of Chartered Accountants ( www.saica.co.za )

Chartered Financial Analyst charter holders ( www.cfasa.ac.za )

members of the Financial Planning Institute of Southern Africa ( www.fpi.co.za )

members of the Institute of Directors Southern Africa ( www.iodsa.co.za )

Compliance Officers registered in terms of the Financial Advisory and Intermediary Services Act, 2002 are members of the Compliance Institute of Southern Africa.

Regulatory Environment

Key new & proposed legislative & regulatory developments

As a business that operates within the financial services industry, Peregrine is faced with a range of regulatory requirements that necessitate compliance. The table below depicts some of the key legislation that have a major impact on the Group:

New/proposed legislative/regulatory development

Description

Response

Financial Sector Regulation Act

This Act was passed by Parliament and signed into law in 2017. The effective dates of most of the provisions of the Act have been published. Some provisions of the Act came into effect on 29 March 2018, large parts of the Act came into effect on 1 April 2018 and other provisions are scheduled to come into operation at various dates up to 1 April 2019. This legislation establishes the Twin Peaks model for financial sector regulation and two new regulatory authorities, namely, the Prudential Authority and the Financial Sector Conduct Authority are now operative.

The operative provisions of the Act are taken into account by affected subsidiaries and developments are being monitored.

The Conduct of Financial Institutions Bill & Treating Customers Fairly (TCF)

National Treasury and the FSCA are working on a draft of the Conduct of Financial Institutions Bill, the over-arching market conduct legislation proposed in the 2014 discussion document entitled, ‘Treating Customers Fairly in the Financial Sector: A Market Conduct Policy Framework for South Africa’. At time of writing a draft of this Bill has not yet been published for public comment. Sector specific TCF provisions continue to be developed.

Developments are being closely monitored. TCF monitoring takes place on an ongoing basis in the affected subsidiaries.

Retail Distribution Review (RDR)

Several RDR related reforms have been implemented. Further RDR related reforms and papers are awaited.

The Group continues to be involved in the industry comment process and in interactions with the FSCA, via ASISA. Developments are being closely monitored on an ongoing basis.

Financial Intelligence Centre (FIC) Amendment Act

The FIC Amendment Act introduced many changes to the existing legislation, including a requirement for accountable institutions to implement a risk based approach to anti-money laundering and terrorist financing measures and a requirement for an accountable institution to have a Risk Management and Compliance Plan.

The amendments have required accountable institutions in the Group to make substantial changes to their existing anti-money laundering measures.

OTC Derivatives Regulation

The final version of the Regulations to the Financial Markets Act, 2012 was enacted into law on 9 February 2018. This included regulations requiring the mandatory clearing, through a licenced central counterparty, of certain OTC derivative transactions. The final board notice detailing the margin requirements for non-centrally cleared OTC derivative transactions is still pending.

Peregrine Securities has been actively involved in the drafting of revised regulations and is currently engaging with the Financial Sector Conduct Authority on the margin requirements for non-centrally cleared OTC derivative transactions.

Protection of Personal Information Act (POPIA)

POPI was promulgated in November 2013, but the provisions imposing compliance requirements in relation to the processing of personal information have not yet come into effect. The Information Regulator is in the process of putting in place what is required for the full implementation of the Act and published draft regulations for comment in 2017.

Extensive work has been and is being done in the Group in anticipation of the requirements of POPI coming into effect.

New/proposed legislative/regulatory development

Description

Response

General Data Protection Regulation (GDPR)

The European Union (EU) General Data Protection Regulation's (GDPR) applies with effect from 25 May 2018. The EU GDPR impacts on countries outside the EU if EU resident’s data is being processed.

Processes are underway to ensure the Group meets the GDPR requirements. Significant progress has been made in the majority of the affected subsidiaries.

Cybercrimes and Cybersecurity Bill

This Bill is before Parliament and the Parliamentary Committee on Justice and Correctional Services held public hearings on the Bill in 2017. It creates cybercrime offences and penalties and provides for the establishment of various structures to deal with cybersecurity. The Bill includes provisions which will impose obligations on financial institutions.

Developments are being monitored.

Financial Sector Code

The Financial Sector Code was published in the Government Gazette in December 2017. A summit on financial sector transformation is expected to take place during 2018, following hearings on transformation that took place before Parliament’s Standing Committee on Finance in 2017.

Developments are being monitored.

Retirement fund reform

The reform process continues. The requirements for annuitisation of provident fund retirement benefits were set to come in on 1 March 2018, but have now been delayed to 1 March 2019 to allow for further discussions in the National Economic Development and Labour Council.

The affected subsidiaries are monitoring developments and implementing required changes.

Social Security Reform

The government has released a discussion document on “Comprehensive social security in South Africa”. Among the proposals is the introduction of a National Social Security Fund.

Developments are being monitored.

Insurance Act and other insurance legislation/regulations

The Insurance Act which deals with prudential requirements for long and short term insurers was passed, signed into law and published in the Government Gazette in January 2018. It is anticipated that it will come into effect in July 2018. At time of writing, drafts of the Standards that will apply under the Act have been released for comment. There have also been many other developments impacting insurers, such as the new Policyholder Protection Rules and regulations under the Long-term Insurance Act and proposed amendments to these.

Changes are being implemented where required and developments are closely monitored.

Solvency Assessment & Management (SAM) framework for insurers

These requirements which affect long and short-term insurers and their group companies are expected to come into operation in July 2018.

Extensive work has been done by the affected businesses in regard to the interim requirements and in anticipation of full implementation.

Group Remuneration Report

Background statement

This Report has been presented in terms of King IV with the primary objective of reporting on the Group’s remuneration policy (“Remco Policy”) and its implementation in relation to the current reporting period. The Group’s remuneration policy has the primary objective of aiming to ensure fair and responsible Executive remuneration practices in the context of overall employee remuneration and aligning with the principle of ethical leadership. In determining its remuneration policy, the Group Remuneration Committee (“Group Remco” or “the Committee”) has given much consideration to the King IV reporting requirement regarding the remuneration governance principle 14 that, “the governing body should ensure that the organisation remunerates fairly, responsibly and transparently, so as to promote the achievement of strategic objectives and positive outcomes in the short, medium and long term”. Whilst this principle and recommendation was adopted by Peregrine for the current reporting period to 31 March 2018 it was, to a large degree applied, implemented and ingrained in Peregrine’s remuneration philosophy in the prior year.

The scope of this Report covers the remuneration relating to the Executive Directors of Peregrine Holdings Limited, the JSE listed holding company, as well as the Non-Executive Directors’ remuneration.

All of the major operating subsidiary companies in the Group have their own Remuneration Committees (“Remco’s”). The remuneration of the Executive Directors and Senior Management of these operating subsidiaries is determined in terms of their specific contracts with these entities and is generally based on specific formulaic measurement criteria, based on the performance of each of these respective entities.

The Group Remco is an independent and objective sub-committee of the Board, which is responsible for assessing Non-Executive and Group Executive remuneration, including the determination of short and long-term incentive pay structures for the Group Executives, as well as overseeing the remuneration of the Executives of the Group’s operating subsidiaries.

At year end, the Committee comprised (and presently comprises) Independent Non-Executive Directors BC Beaver (Chairman) and LN Harris. It is the intention, in line with the JSE Listings Requirements, to appoint a third Non-Executive Director to this Committee. The CEO, who is excluded from deliberations relating to his own remuneration, attends as an invitee. The Group Remco is satisfied with its independence and objectivity and believes that the current policy has achieved its objectives.

The Group Remco meets at least twice a year or more frequently, if required. Should the Committee require information from any employee or needs to obtain external legal or other independent professional advice, deemed necessary, it is authorised by the Board to do so at the expense of Peregrine Holdings Limited.

The Board overview covers the Directors' attendance at the Group Remco meetings for 2017/2018.

In terms of its mandate, the Group Remco assists the Peregrine Holdings’ Board by ensuring that Group remuneration and recruitment is aligned with the overall business strategy, with the aim of enabling Peregrine to attract and retain personnel who will create long-term value for all stakeholders. The Group Remco is assisted in its task by the Remco’s that have been established within the major subsidiaries, which enable them to apply the same objectives to their unique operations and their strategic objectives. Each of these subsidiary Remco’s, which comprises of Executive Directors of the subsidiaries, as well as two Peregrine Group Executive Directors or Non-Executive Directors within the Stenham subsidiary, report into the Group Remco, which enables the latter to assess that these subsidiary Remco’s are aligned with the specific performance of the subsidiaries and hence the Group’s overall remuneration philosophy.

Peregrine’s current remuneration policy acknowledges the owner managed culture and entrepreneurial nature of the Group and is highly related to performance. Performance is the key driver of remuneration within the Group, with the main objective of incentivising and retaining key Executives and staff generally, and thereby contributing to the Group’s long-term sustainability. Senior Executives, key personnel and staff are not only the foundation of Peregrine’s success, but also take responsibility for and stewardship of clients’ affairs, including the protection of clients’ wealth. Peregrine’s remuneration policies support the Group’s focus of attracting and retaining superior talent and acts as an incentive to all employees to perform in the best interests of the Group and its stakeholders.

Determining, ‘fair remuneration’, particularly within the financial services industry, remains a challenge for Remco’s generally, because it is so highly regulated as the custodians of client funds, both on and off-balance sheet, and consequently requires the employment of highly specialised and skilled staff and Executives, many of whose skills are in short supply and for which there is a considerable demand, both locally and overseas. The policy therefore seeks to take into account the need to attract and retain the Group’s human capital, promote achievement of strategic objectives, positive outcomes, as well as an ethical culture and responsible corporate citizenship. Similar principles are applied by the separate Remco’s of the main operating subsidiaries, in determining the remuneration of the Executives of those subsidiaries.

For the current reported financial year, there was no change made to the Remco policy that was introduced during the March 2016 financial year, following the Board’s approval thereof in November 2015. Details of the 2015 Remco Policy are available here.

At the 2017 Annual General Meeting (“AGM”), shareholders in excess of 30% voted against the remuneration policy. After engaging with shareholders, it became clear that the main reasons for the rejection were that the current remuneration policy measurement criteria for both the Short-term (“STI”) and the Long-term (“LTI”) incentives were too similar in nature and that stakeholders were not easily able to assess whether the quantitative and/ or qualitative measures had been achieved. In addition, these shareholders felt that too much of the incentive awards was weighted to the STI portion and would have preferred the LTI portion to be paid in Peregrine shares as opposed to cash so as to align the Executives more with shareholder value growth over the longer term.

To this end, Group Remco, in conjunction with an independent and objective remuneration consulting company has undertaken a benchmarking exercise and review, to enable the Remco to design a new remuneration policy (“New Policy”) (the key changes of which are set out below), which the Group Remco have recommended, and the Peregrine Board have approved, for consideration as a non-binding advisory vote, at the AGM in September 2018.

Whilst Group Remco believes that the current Remco Policy is fair, responsible and transparent, it is anticipated that the New Policy will implement certain improvements and will hence achieve an improved shareholder approval rating and will better align with the King IV recommendations (improving the correlation between shareholder value creation and Executive remuneration) and will more appropriately demonstrate the link between remuneration and performance, including the need to better distinguish between the short and long-term elements of the Group’s incentive rewards and which will be implemented with effect from 1 April 2018.

In its meetings up to the date of this report, Group Remco discussed the outcomes of the remuneration consultant’s report on the benchmarking exercise and review conducted; it assessed and made recommendations regarding changes to the STI and LTI rewards for the year ended 31 March 2018, under the existing Remco Policy; and it reviewed and made recommendations for inclusion in the proposed New Policy, that the Board has approved for submission to the forthcoming AGM for shareholder consideration as a non-binding advisory vote. In addition, Group Remco has noted the Executives’ recommendations of the proposed Non-Executive Directors’ remuneration that will also be tabled at the AGM in September 2018.

Overview of the existing Group remuneration policy for the year ended 31 March 2018 :

The performance of the Group Executive Directors was assessed by taking into account their respective performances and metrics in the areas of, inter alia:

business results and drivers of share price performance, which include earnings performance and return on equity;

sustainable revenue streams;

clients, customer service and retention;

leadership and people; and

risk and control.

The overall remuneration is made up of three elements, namely:

annual guaranteed packages, the purpose of which is to attract and retain Executives;

short-term incentive rewards (STI), the purpose of which is to annually motivate and incentivise individual performance, balancing short-term performance with value creation for stakeholders; and

long-term incentive rewards (LTI), the purpose of which is to motivate and incentivise Executives to deliver upon the long-term strategies of the Group, thereby aligning Executives’ and stakeholders’ interests, while also serving as a retention mechanism.

The maximum incentive bonus pool attributable to Executive Directors in any financial year is calculated as 4.5% of Normalised Profit Before Tax (before impairments and capital items), plus, if applicable, an amount of up to 5% of realised extraordinary capital profits or any special capital distributions to shareholders (as agreed by the Group Remco and after taking into account any prior year losses). 66,7% of the weighted pool is applied to the STI with 33,3% of the amount being applied to the LTI. 25% of the LTI vests at the end of years 2 and 3, with the remaining 50% portion at the end of year 4, with the single exception being applicable to the 2016 financial year, where 25% of the LTI vested in June of 2016, 2017, 2018 and 2019 respectively. Should an Executive Director resign before the June vesting dates, they would not be entitled to receive any payment. In the event that not all performance measures’ targets are attained, then a weighted proportion of the potential bonus pool is forfeited. Thus the starting point is the maximum incentive bonus pool to which is applied a percentage calculated as set out below in respect of both STI and LTI components. This percentage is designed to reflect the degree to which the Group Executives have met the performance criteria.

It is acknowledged that certain elements of both the STI and LTI calculations are subject to a certain degree of judgement having to be applied, whilst other criteria are quantitative and can easily be substantiated to the actual performance of the Group. The members of Group Remco have engaged executive management regarding the more qualitative and judgemental areas and are satisfied that the judgements exercised are based on actual achievements and represent a fair representation. These areas have been highlighted in the tables below.

With regard to the annual guaranteed packages, the objective is to ensure a competitive rate of pay, with the annual review taking into account current market rates, with increases essentially being related to SA inflation rates historically.

With regard to the STI:

individual rewards are based on a combination of Group and individual performance, using both financial and non- financial metrics, with the financial metrics representing a 60% weighting and non-financial representing a 40% weighting;

the financial metrics are based on the following:

Normalised HEPS growth - this should be the foundation upon which share price appreciation and shareholder wealth creation rests;

ROE – this is a prominent measure in the market amongst most stakeholders in businesses that have a high capital demand as well as those that have proprietary investments on balance sheet, as it is a good representation of management’s effective use and return on shareholders’ equity; and

Sustainable revenue streams (annuity income), as measured by the percentage of annuity income as a proportion of total income - this is a key driver of business sustainability and organic growth.

the non-financial metrics are based on the following:

Clients and customers – Assets under management, retention rates and business volumes are considered key to business  sustainability;

Leadership and people – Incorporates relationships with management, business owners, shareholders, other stakeholders (e.g. market analysts) which are key to the successful and ongoing sustainability of the Group; and

Risk and control – audit, risk and compliance is an essential element in ensuring sound corporate governance within the Group, especially as custodians of client funds.

The measurements achieved, the maximum percentage weighting allocations, the resultant percentages achieved, and the resultant actual allocations for the prior year ended 31 March 2017 were as follows:

 

Measure - 2017

Year ended 31 March 2017 - measurements achieved

Maximum percentage weighting allocation

Year ended 31 March 2017 – resultant percentage achieved

Year ended 31 March 2017 – resultant actual allocation

Growth in normalised HEPS – quantitative

-16.20%

35

0

0

Return on equity – quantitative

16.25%

15

75

11.25

Annuity revenue – quantitative

90.50%

10

100

10

Clients and customers – quantitative & judgemental

80%

10

80

8

Leadership and people – judgemental

100%

15

100

15

Risk and control – qualitative & judgemental

100%

15

100

15

 

 

100

 

59.25

The measurements achieved, the maximum percentage weighting allocations, the resultant percentages achieved, and the resultant actual allocations for the current year ended 31 March 2018 that were recommended by Group Remco to the Board on 12 June 2018, who confirmed their approval thereof, are as follows:

Measure - 2018

Year ended 31 March 2018 - measurements achieved

Maximum percentage weighting allocation

Year ended 31 March 2018 – resultant percentage achieved

Year ended 31 March 2018 – resultant actual allocation

Growth in normalised HEPS – quantitative

7.1%

35

50

17.5

Return on equity – quantitative

20.20%

15

100

15

Annuity revenue – quantitative

85%

10

100

10

Clients and customers – quantitative & judgemental

80%

10

80

8

Leadership and people – judgemental

100%

15

100

15

Risk and control – qualitative & judgemental

80%

15

80

12

100

 

77.5

With regard to LTI:

individual rewards are based on a combination of Group and individual performances, using both financial and non- financial metrics with the financial metrics representing a 60% weighting and non-financial representing a 40% weighting, with the incentives vesting over a rolling three year period;

the financial metrics are based on the following:

Normalised HEPS growth over time should be the foundation upon which the share price should appreciate and shareholder wealth creation rests. It is an effective and enduring target. Sustainable growth in normalised HEPS is important to achieving long term performance and therefore this measure is based on a rolling 3 year basis; and

That shareholders will ultimately be prepared to reward Executives who manage organisations with share prices that outperform their peers (defined, in this case, as the Financial 15 Index).

the non-financial metrics are based on the following:

Succession Planning – from a long-term perspective it is important that Group entities identify and groom candidates who are able to replace key Executives should the need arise in the fullness of time;

Staff Retention – the Group is a ‘people driven’ business with teams of experts in various subsidiaries and it is therefore critical that these teams are motivated and are retained within the Group over time; and

Risk and control – audit, risk and compliance is an essential element in ensuring sound corporate governance within the Group both in the short and long-term, especially as custodians of client funds.

The measurements achieved, the maximum percentage weighting allocations, the resultant percentages achieved and the resultant actual allocations for the year ended 31 March 2017 were as follows:

Measure - 2017

Year ended 31 March 2017 - measurements achieved

Maximum percentage weighting allocation

Year ended 31 March 2017 – resultant percentage achieved

Year ended 31 March 2017 – resultant actual allocation

Growth in 3 year rolling normalised HEPS - quantitative

5.3%

35

50

17.5

Relative Share Price performance - quantitative

109.5%

25

100

25

Succession Planning - judgemental

100%

15

100

15

Staff Retention - quantitative

90%

15

90

13.5

Risk and Control – qualitative & judgemental

100%

10

100

10

 

 

100

 

81

The measurements achieved, the maximum percentage weighting allocations, the resultant percentages achieved, and the resultant actual allocations for the year ended 31 March 2018 that were recommended by Group Remco to the Board on 12 June 2018, who confirmed their approval thereof, are as follows:

Measure - 2018

Year ended 31 March 2018 - measurements achieved

Maximum percentage weighting allocation

Year ended 31 March 2018 – resultant percentage achieved

Year ended 31 March 2018 – resultant actual allocation

Growth in 3 year rolling normalised HEPS - quantitative

-2.8%

35

0

0

Relative Share Price performance - quantitative

-70%

25

0

0

Succession Planning judgemental

100%

15

100

15

Staff Retention – quantitative

90%

15

90

14

Risk and Control – qualitative & judgemental

80%

10

80

8

100

37

The allocation of the pool between the Group Executive Directors, based on the achievement of the metrices referred to above, is decided on by the Group Remco, after consultation with the CEO and, if need be, with the Chairman of the Board.

In respect of the year ended 31 March 2018, the following factors were taken into account in the implementation of the existing policy, it being noted that this Remco Report will be subject to a non-binding advisory vote by shareholders at the upcoming AGM:

there were no termination payments nor sign-on, retention or restraint payments made to any Group Executive Director;

no amounts were awarded or paid in accordance with the Remco Policy whereby an amount of up to 5% of realised extraordinary capital profits formed part of the incentive bonus as part of the STI or LTI;

there was compliance with (and no deviations from) the Remco Policy;

whilst the above resultant weighted performance scores resulted in an actual STI bonus pool of R20,857 million, the Committee exercised their discretion/judgement and determined the final awards, as set out above. Of the total amount which the application of the above percentage allocations indicated should be the bonus pool, only R15,925 million was allocated to the Group Executives due to the fact that there were in effect only two Executive Directors employed for a large part of the year and not three as in the prior years, with R14,425 million being allocated to the Group Executives in terms of STI, being the amount which the application of the percentage allocations would have indicated was attributable to the two Executives had there been three Executives for the year. A special bonus of R1, 500 million was reallocated to the LTI pool from the surplus of R6,432 million (i.e. the difference between R20,857 million and R14,425 million) in recognition of the extraordinary performance of the two Executives who performed the services ordinarily performed by three Executives in a year in which there were extraordinary demands placed upon them; and

In accordance with feedback received from shareholders, the LTI rewards will no longer be cash settled but rather equity settled (with the award values being converted into a quantum of shares with such quantum of shares being purchased by the Company in the market to meet such obligations for settlements occurring in June 2018 to June 2020). Dividends declared on the LTIs awarded will accrue to the Executive Directors on vesting date and earn interest at the prevailing market related interest rates.

Details of the Group Executive Directors’ remuneration are set in  Note 4.1  of the annual financial statements.

Non-Executive Directors receive fixed fees for their services as Directors of the Board and as members of Board sub-committees. These fees are benchmarked regularly and shareholders are required, at the AGM, to approve such fees.

The graph below demonstrates the relationship between the Group’s results and Group Executives’ remuneration, including STI awards, share-based payments over the past five years and the LTI awards vested in respect of the years ended 31 March 2014 (being the first such award in terms of the policy set out above), to 31 March 2018.

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The fees for Non–Executive Directors for 2018/19 (approved at the 2017 AGM) and the proposed fees for 2019/20 year (to be approved at the 2018 AGM) are set out below and represent a 5% increase:

Existing annual fee –
2018/2019

Proposed annual fee –
2019/2020

Board

 

 

Chairman

R552,500

R580,200

Board member

R202,000

R212,100

Audit Committee

 

 

Chairman

R349,700

R367,200

Member

R206,500

R216,900

Remuneration Committee

 

 

Chairman

R235,100

R246,850

Member

R175,000

R183,750

Risk and Compliance Committee

 

 

Chairman

R175,000

R183,750

Member

R100,000

R105,000

Social and Ethics Committee

 

 

Chairman

R60,000.00

R63,000

Member

R30,000

R31,500

In addition, it is proposed that, with effect from 1 April 2018,in the event of the NED’s being required to perform additional services or to undertake special projects, the Executive Directors shall have the discretion to remunerate the NED’s for such services or projects at a fair and reasonable rate.

The New Remuneration Policy effective 1 April 2018 (“New Policy”)

Below is an overview of the New Policy which will be effective for the 2019 financial year, noting that the changes set out below are mainly related to the STI and LTI, with the remainder of the remuneration policy being unchanged (including assessment of the Group Executive Directors, the three elements of overall remuneration, the degree of discretion/ judgement to be applied by Remco and the annual guaranteed packages as set out above with regard to the existing Remco Policy).

The New Policy responds to shareholder concerns raised in respect of the existing Remco policy and addresses the Group’s new state post the unbundled proprietary assets, the proposed sale of the Securities business and changes in the Executive Director composition in the following ways:

1.       Changing the bonus pool base from Normalised PBT to Normalised PBT from Continuing Operations (excluding proprietary
          assets) and adjusting the percentage allocation to cater for 2 as well as 3 Executive Directors (it being noted that the bonus pool
          will decrease due to the proprietory assets having been unbundled and the proposed sale of the Securities business). This
          together with the new basis for determining the LTI components should address the shareholder concerns of an imbalance
          between the STI component and the LTI component, by increasing the LTI portion relative to the STI.

          The maximum bonus pool will clearly express the previous implicit assumption that the 4,5% of Normalised PBT from Continuing    
           Operations (excluding proprietary assets) was considered appropriate in relation to 3 Executive Directors and would be
           appropriately pro-rated downwards if there were fewer than three Executive Directors. Thus, the 3% and 1,5% STI and LTI      
           respectively will be pro-rated downwards to 3% of Normalised PBT from Continuing Operations (excluding proprietary assets) to
           2% and 1% STI and LTI respectively if there are only two Executive Directors. This clarification is deemed necessary so as to cater
           for a comparable base if there are changes in the Executive Director composition.

2.        Allocating more of the annual incentive award to LTI as opposed to the STI by allocating a maximum target amount of up to 1.0 x
           to 1.5 x multiple of annual guaranteed package of each Executive Director, the proportion of which is to be awarded will be
           evaluated by Remco with reference to the individual performance of each Executive Director in relation to the strategic objectives
           of the Group (‘Retention LTI’); and

3.        Deferring the vesting of the LTI awards from 25% in each of years 2 and 3 with 50% in year 4, to 50% vesting in each of years 3 and
           4 with settlement being in the form of Peregrine shares.

           The New Policy strives for remuneration at the median to upper quartile of comparable positions, targeting the upper quartile as a
           total remuneration benchmark (i.e. when STI and LTI are included), assuming performance criteria are met. This reinforces the
           focus on the performance side of reward.

           The allocation of the STI and LTI awards comprise the following and are subject to the following terms:

Incentive reward

Basis of determining reward

Vesting term

Performance conditions

Settlement in

STI

2/3 rd of maximum bonus pool

June of the year the reward is granted

Level of achievement of financial and non-financial metrics

Cash

Performance LTI

1/3 rd of maximum bonus pool

50% after 3 years, 50% after 4 years

Level of achievement of financial metric

Vested shares in Peregrine Holdings Limited + accrued dividends + interest thereon

Retention LTI

a maximum target amount of up to 1.0 x to 1.5 x multiple of annual guaranteed package of each Executive Director

50% after 3 years, 50% after 4 years

Individual performance of each Executive Director in relation to the strategic objectives of the Group

Vested shares in Peregrine Holdings Limited + accrued dividends + interest thereon

 

          By allocating more of the total annual incentive rewards to LTI, extending the first vesting of the LTI to three years and settling the
          LTI in Peregrine shares, as opposed to cash, the Board believes that it will improve the correlation between long-term shareholder
          value creation and Executive remuneration and will more appropriately demonstrate the link between remuneration and
          performance, thereby aligning Executive and Stakeholder interests better.

4.       Changing the performance metrics
4.1     The STI performance metrics have been changed by:
4.1.1  Adjusting the HEPS metric from Normalised HEPS growth to Normalised HEPS growth from Continuing Operations (excluding 
          proprietary assets which were held for a period of 6 months during the course of the 2018 financial year);

4.1.2  Reducing the weighting of ROE and increasing the hurdles;
4.1.3  Changing the annuity metric from that of a % of operating profit to annual growth in annuity revenue; and
4.1.4  Re-weighting the financial metrics accordingly, but retaining the previous allocation between financial and non-financial at 60%:
          40%.
4.2     LTI performance metrics have been changed by:
4.2.1  Removing all non-financial performance metrics; and
4.2.2  Changing the basis of the financial metric to a 3 year rolling normalised HEPS from Continuing Operations (excluding proprietary
          assets).

          By revising the performance metrics applicable to both the short and long-term incentive rewards, Executive remuneration is
          considered to be more closely aligned with the performance metrics that the Group is measured on by various stakeholders. In
          addition it will distinguish more clearly STI from LTI incentives, acknowledging the dual role played by long-term incentives –
          driving longer-term sustainable performance and managing the retention of Executives.

5.       In addition, the 5% of extra-ordinary gains incentive as mentioned above has been removed in totality and replaced with the
          possibility of a discretionary award, either towards STI or LTI, depending on performances achieved/work     
          undertaken by the Executive Directors during the year. Any such awards will require specific motivation and approval by both the
          Group Remco and the Board.

6.       Should there be a takeover or delisting of Peregrine Holdings Limited, the Executive Directors’ unvested shares, as well as
          dividends and interest thereon, shall early vest, in full, at the effective date of that change of control.

Details of the New Policy as set out above can be accessed here.

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BC Beaver
Remuneration Committee Chairman

31 July 2018
Johannesburg