The reconstitution of Transaction Capital’s portfolio of assets under two distinct divisional pillars and the devolvement of authority and responsibility to competent divisional management teams, initiated post the sale of Paycorp and Bayport in 2014, is now largely complete. This has enabled superior operational and financial performance, preceded by greater management focus on enhancing the capabilities and differentiating factors unique to Transaction Capital’s operating divisions.

Under the leadership of David Hurwitz, appointed as CEO in January 2014, executive management has further strengthened the market-leading and defensive positioning of the group’s divisions, achieved in an environment characterised by heightened macro- and socio-economic challenges. The board remains confident in the capabilities of the executive team, is comfortable that it is constituted appropriately for the size and complexity of the group, supports the strategies and plans management has formulated for the divisions, and is satisfied with the growth projections for the short and medium term.


The ability of the new divisional structure to deliver superior returns to shareholders was affirmed during the year. Headline earnings increased by 19% to R393 million and the group showed an improvement across most performance metrics and all credit metrics, despite the challenging economic environment. The defensive positioning of the group’s divisions augers well for their continued strong performance over the medium term.

Transaction Capital elected to early adopt IFRS 9, which requires the application of a forward-looking expected credit loss model resulting in earlier recognition of expected credit losses than under IAS 39. Transaction Capital is the first listed financial services company in South Africa to early adopt IFRS 9 and in doing so has removed any uncertainty as to the effects of the new model on the results and balance sheet structure of the group.Shareholders were advised of the details of the change in a SENS announcement on 18 November 2015, and is discussed in more detail in the CFO’s report to stakeholders.

I refer shareholders to the detailed reviews of the CEO and CFO for their analysis of the performance of the group and the operating context within which it was achieved.

The intention for the surplus cash which arose from the disposals in 2014 remains unchanged; to be deployed in the existing businesses to enhance their organic growth drivers and to make appropriate acquisitions that further entrench their leading market positions. The board supports management’s cautious approach to acquisitions, considering the low-growth and challenging environment in South Africa, elevated asset values and the attractive risk-adjusted returns being achieved organically from the divisions.

The CEO’s report to stakeholders provides more detail of management’s strategic intentions and expectations for the future.


In line with the group’s support of mechanisms that drive positive social change, MBD and Principa undertook broad-based black economic empowerment ownership transactions during the year by means of the broad-based iThemba Trust, which acquired 17% of the ordinary shares in the respective businesses.The trust provides a vehicle for participants to share in the growth and profitability of the businesses, and is structured to avoid a future position, as has been the case with some other transactions in the market, where it owes external funders more than the investment is worth upon maturity. The beneficiaries of iThemba include education initiatives, general welfare organisations aimed at the betterment of communities, and emerging entrepreneurs.


Subsequent to year-end, Ethos Private Equity disposed of its 8% shareholding in Transaction Capital by way of a book build. Since the inception of Transaction Capital, Ethos has been a supporter of and investor in the company and some of its subsidiaries. Transaction Capital’s relationship with Ethos has been constructive and appreciated. As a result of the disinvestment, Shaun Zagnoev tendered his resignation as an independent non-executive director on 8 December 2015. We express our thanks to Shaun for his invaluable input over the years.

The board now comprises nine directors of whom five are non-executive and four are defined as independent. The nominations committee may consider additional appointments in the year ahead. The board and its sub-committees are properly constituted as required by the Companies Act and King III.

The annual performance evaluation of the board, conducted in November 2015, found that the board is effective in its direction of the group. The governance report in this report provides more information on the findings of the evaluation and the activities of the board in the year.

I am pleased to welcome all new shareholders who invested in Transaction Capital during the year. The Ethos sale has increased Transaction Capital’s free float and enabled additional institutional investors to join our lists for the first time. Transaction Capital had 798 shareholders on its register at year-end.


I would like to thank my colleagues on the board for their ongoing guidance and commitment, and extend my appreciation to our highly proficient management teams at group executive office and subsidiary levels. I also thank our bankers, funders and advisers for their continued support.

26 January 2016



At the core of Transaction Capital’s 2015 three-year strategy is the reconstitution of its portfolio of assets into two autonomous and decentralised divisions of scale, being the asset-backed lending and risk services divisions. The restructuring of the divisions, together with their leading and defensive market positions, has enabled Transaction Capital to achieve strong organic growth despite South Africa’s challenging macro- and socio-economic environment.

Transaction Capital’s financial, credit and operational performance was in line with expectations for the 2015 financial year. Headline earnings per share grew by 20% to 69.0 cents, together with an improvement across all credit metrics.


South Africa’s economic growth remains constrained. Employment levels remain low, with real wage growth largely stagnant. Economic pressure has intensified due to the accelerated currency weakness in the second half of the year, a 75 basis point increase in the repo interest rate over the last 18 months (with a likelihood of further increases in 2016 as the US Federal Reserve Bank raises rates), and higher electricity and fuel costs. These conditions are contributing to an increase in social unrest and protest action and, together with electricity supply constraints, are creating higher risk for consumers and small- and medium-sized enterprises (SMEs).

While both the asset-backed lending and risk services divisions perform better in a positive economic environment, they are also highly defensive businesses intentionally positioned to withstand difficult economic conditions, as evidenced by this year’s financial performance.

The estimated national fleet of some 200 000 privately owned minibus taxis remains the primary means of transport for most South African commuters, accounting for an estimated 69% of all household trips. The replacement of ageing minibus taxis and under-supply of premium minibus taxis in the South African market continue to create robust demand for vehicle finance and related services provided by SA Taxi. Commuters’ use of minibus taxis remains consistently high even in a depressed economy, as transport spend is non-discretionary.

Prevailing economic conditions are resulting in the risk services division’s clients taking further steps to mitigate credit and operational risks associated with their customer base, reduce costs, simplify processes, raise capital and manage working capital. This provides substantial opportunity for the division to leverage its strong market position and reputation to extend credit risk management and capital solutions.

The dynamic regulatory landscape continues to create uncertainty in the financial services sector. Regulations pertaining to caps on interest rates, fees and related credit insurance premium charges have either been proposed or enacted. Amendments to the National Credit Act (specifically in relation to the prescription of debt) came into effect early in 2015, and regulations regarding affordability assessments have also been introduced. Finally, recent court activity regarding the use of emolument attachment orders has been widely publicised and awaits clarification from the Constitutional Court. Any financial impact on the risk services division is not expected to be material, as business processes were aligned and amended in anticipation of these changes almost three years ago. The asset-backed lending division falls largely outside the ambit of these changes.


The reconstitution of Transaction Capital’s portfolio of assets under two distinct divisional pillars and the devolvement of authority and responsibility to competent divisional management teams is largely complete. This has enabled Transaction Capital to focus on deploying its capital and resources to drive organic and acquisitive growth, thus enhancing the scale and entrenching the leading market positions of its divisions.

Transaction Capital’s businesses have, over a number of years, developed and refined the greater level of specialisation required to operate in market segments perceived to be of higher risk. A cornerstone of Transaction Capital’s strategy is to augment and refine these competencies to achieve deep vertical integration within its chosen market segments, and to leverage its existing and scalable platforms to create defensible positions within identified adjacent market segments.

Management remains circumspect and conservative in its acquisitive search, considering the low-growth and challenging environment in South Africa, elevated asset values and the attractive risk-adjusted returns being achieved organically from the divisions. Transaction Capital favours a narrow focus on assets whose value can be enhanced by active management within its existing divisions, and thus applies stringent criteria when evaluating potential investments to ensure acquisitions will either enhance its specialist capabilities, enable access to adjacent market segments or diversify risk through international expansion.

In light of Transaction Capital’s defensive positioning within the current macro- and socio-economic context, management believes that Transaction Capital is well positioned to continue achieving similar levels of organic growth in the medium term.


Transaction Capital’s scalable operating platforms, significant cash on hand and access to diverse funding sources place the group in a strong position to pursue organic and acquisitive growth, in line with its strategy. I extend my thanks to the board, the executive teams and our people for their efforts towards realising our vision of creating value for all stakeholders.

26 January 2016




The benefits of early adopting IFRS 9 include:

  • Closer alignment of accounting policies to Transaction Capital’s operational and risk management policies and strategic intentions.
  • Lower balance sheet risk due to increased provisions; an approach favoured by management especially considering the challenging economic conditions.
  • Removing future uncertainty relating to the implementation of IFRS 9 on financial results and ratios. In addition to these broader benefits, the following are two specific benefits of early adoption for the group’s divisions:
  • Asset-backed lending: The compulsory reclassification of entry-level vehicle loans to fair value under IFRS 9 requires the division to consider all forward-looking information and risks in the measurement of the asset class at market-related discount rates, rather than applying information arising from past events as required by IAS 39. This forward-looking methodology results in lower fair values for this category of assets under IFRS 9 than the net carrying value (after provisions) as calculated according to IAS 39. This aligns with management’s strategy to accelerate the discontinuance of the entry-level vehicle loan portfolio, now comprising only 2% of loans and advances, and thus achieving the objective of operating an exclusively premium vehicle business from a financial perspective.
  • Risk services: The application of IFRS 9 results in a better alignment of the amortisation profile of purchased book debts with the expected collections profile
  • The initial adoption of IFRS 9 results in a one-off adjustment of R672 million to the opening retained earnings balance for the financial year ended 30 September 2015. This is required in order to account for the cumulative effect of IFRS 9 treatment in prior years. The following table reflects the reconciliation of the opening retained earnings balance pre and post IFRS 9 adoption.


    1. The movements in gross loans and advances and the impairment provision are further analysed as follows:

    The decrease in gross loans and advances excluding entry-level vehicles of R35 million results from interest being suspended in line with IFRS 9. The full balance of the written off book has been de-recognised in line with the expected credit loss model requirements of IFRS 9.

    2. The decrease in the purchased book debts is a result of the change to an expected loss model, resulting in shorter amortisation profiles for purchased book debts.

    3. Total tax impact of the initial application adjustments.

    Shareholders are referred to the SENS announcement released by Transaction Capital on 18 November 2015, available on the company website, for further detail on the early adoption of IFRS 9. Shareholders are also referred to the group data sheet, which further sets out the impact of the adoption and presents pro forma information for the 2014 financial year as per the explanation at the outset of this report. This will enable a like-for-like comparison between current and prior year results.

    Unless otherwise indicated with *, all 2014 comparative numbers in this report are pro forma, calculated as if IFRS 9 was adopted on 1 October 2013. Numbers marked with * are based on previously published 2014 results prepared in terms of IAS 39. All pro forma financial information has been reported on by Deloitte & Touche in terms of the International Standard on Assurance Engagements 3420 – Assurance Engagements to Report on the Compilation of Pro Forma Financial Information. Their Reporting Accountant’s Report can be inspected at the group’s registered office. All performance indicators are calculated on a continuing basis unless stated otherwise.


    In line with the group’s strategy to grow loans and advances conservatively while focusing on credit quality, gross loans and advances grew 10% to R6 713 million and the credit quality of the book improved.

    Effective collection strategies, strict credit origination criteria and the improved quality of repossessed vehicles refurbished by Taximart have continued to drive improved credit metrics. The non-performing loan (NPL) ratio showed excellent improvement from 18.8% to 17.0%, the credit loss ratio improved from 4.2% to 3.6%, and NPL coverage strengthened from 47.9% to 48.6%. Compared to 2014 IAS 39, the NPL coverage dramatically increased from 22.1% to 48.6%, highlighting the conservative provisioning requirements of IFRS 9.


    Credit providers continued to realise capital and value through the sale of late stage debtors’ books, with high activity levels in the purchase of distressed debt being a feature of the 2015 financial year. MBD was an active bidder on most books that came to market, albeit at lower prices than in the past. During the year, MBD acquired book debts with a face value of R5.3 billion for a cost of R166 million, and incurred an amortisation cost of R114 million due to the cash flows generated by the larger portfolio. Newly acquired portfolios need to season depending on the nature of the book and the collections environment, thus the full benefit of these portfolios is still to be realised. MBD owns 154 diversified principal book portfolios at year-end.


    Cash and cash equivalents of R1.1 billion (net of bank overdrafts) are available at year-end, a significant portion of which has been allocated to future organic and acquisitive growth targets.


    Other investments represent the group’s investment in the insurance cell captive of the asset-backed lending division. The investment is carried at fair value while movements are recognised in other comprehensive income.

    Capital management

    Generating an apprropriate risk-adjusted return on the capital deployed within the divisions remains a key strategic objective.

    Following the disposal of Paycorp and Bayport and the capital distribution of 210 cents per share to shareholders in the prior year, the group’s equity and debt capital position remains strong.

    The group’s capital adequacy ratio at year-end is 43.3%, comprising 29.0% equity and 14.3% subordinated debt, which results in a gearing ratio of 3.8 times. The group remains favourably capitalised after the IFRS 9 equity adoption charge, has enjoyed uninterrupted access to debt capital markets, and is thus well positioned to fund organic and acquisitive growth opportunities.


    Return on equity increased to 16.7% in the 2015 financial year, driven by higher headline earnings, effective but conservative capital deployment, and the lower equity base resulting from the IFRS 9 adoption.

    The board approved and declared a final dividend of 12 cents per share on 24 November 2015, bringing the total dividend declared for the year to 22 cents per share. Dividend cover of 3.1 times is in line with the group’s dividend policy of maintaining a cover ratio of three to four times annual headline earnings.


    Transaction Capital, as a non-deposit taking financial services business, relies on a proven wholesale funding model. In the year, the group continued to find support in debt capital markets, accessing approximately R2.9 billion in debt from 11 institutions. Interest-bearing liabilities increased 7% to R6 640 million.

    Pressure in the corporate credit market remains a concern, given that the macro-economic backdrop offers limited growth and increased credit risk in some cases. Market volatility, in terms of both price and demand, as well as deleveraging has resulted in less frequent issuances and limited new issuer placements. Established securitisation issuers are coming to market but are choosing to pre-place the lower-rated tranches of their issuances and are paying up to do so, although price does not always guarantee appetite. The local funding market is thus characterised by constrained liquidity and a reduced funding pool. Although local investors have been more cautious in their approach, Transaction Capital has enjoyed uninterrupted access to both local and international funding pools.

    Transaction Capital’s wholesale funding model continues to incorporate the following conservative principles:

    • A ‘positive liquidity mismatch’ is maintained, such that the average debt duration exceeds average asset duration, and cash collections from assets are used to redeem amortising debt. Thus, debt is raised primarily to fund asset growth and not to refinance mismatched debt.
    • Term instruments are generally issued on an amortising basis to reduce liquidity risk and match cash flows. Bullet instruments are issued opportunistically and only when the maturity date of such instrument coincides with a low point in the total debt repayment profile. This practice ensures that rollover risk is minimised.
    • No exposure to overnight or12-month rolling debt instruments exists.
    • Direct relationships between Transaction Capital’s capital markets team and the debt capital market participants allow debt investors to gain an in-depth understanding of the group’s businesses.
    • The majority of debt is raised in ring-fenced funding structures with no cross-default clauses, allowing investor diversification, ensuring no co-mingling of risk, and leveraging capital optimally per individual asset class.
    • Capital adequacy levels are targeted per asset class, using a bottom-up approach to capital management. .

    SA Taxi returned to the local listed debt capital markets during April and November 2015 with the issuances of credit rated debt instruments via the asset-backed note programme of Transsec (RF) Ltd, successfully raising slightly less than R1 billion on a cumulative basis. To augment SA Taxi’s access to the listed debt capital markets, the funding strategy remains innovative and continuously pursues multiple tactics to further diversify SA Taxi’s funding base and access new pools of capital. The remainder of SA Taxi’s debt requirement was successfully raised through both offshore and local unlisted funding sources.

    Rand Trust and MBD both secured additional term facilities which will be drawn down over the relevant availability periods. In addition, Rand Trust successfully rolled one maturing facility and attracted its first offshore debt investor.


    Headline earnings from continuing operations grew 19% from R330* million to R393 million and continuing headline earnings per share increased 20% from 57.3* cents per share to 69.0 cents per share. A combination of incremental contributions from all divisions, in terms of revenue growth and cost containment, underpinned these results.


    Net interest income increased 13%, driven by a 10% growth in gross loans and advances from R6 089 million to R6 713 million and increases in the prime interest rate, offset in part by a higher average cost of borrowings of 10.7% from 10.4% in the 2014 financial year.

    The impact of the early adoption of IFRS 9 on the net interest margin is illustrated in the graph above. Interest is now suspended earlier in line with the requirements of IFRS 9, resulting in reduced interest income compared to IAS 39 and a 0.3% decline in the yield on advances and the overall net interest margin.


    The group’s credit loss ratio improved by 14% to 3.6% in the current year due to effective collection strategies, strict credit origination criteria and an improved quality of repossessed vehicles refurbished by Taximart. .


    Non-interest revenue increased 5% to R1 195 million, driven mostly by MBD’s improved agency collections but offset by a more subdued contribution from insurance operations.


    The cost-to-income ratio improved to 64.2% (2014: 67.8%) due to the restructure of the group executive office in the prior year and cost containment and efficiencies in all businesses.


    Financial and operating performance

    The asset-backed lending division is the leading provider of financial and allied services to SMEs in the fixed route minibus taxi industry. The division continues to entrench its strong market position encompassing the entire value chain within the fixed route minibus taxi industry, by augmenting its distinctive competencies well beyond credit assessment, collections and capital mobilisation. SA Taxi continues to uplift, diversify and enhance its revenue through the procurement and direct sales of new vehicles, the re-sale of refurbished vehicles and telematics services. Another key component of the value chain from which SA Taxi benefits is its short-term insurance business which continues to grow both its financed and non-financed policy portfolios. New developments include the planned establishment of a dedicated SA Taxi panel repair facility and vehicle dealership, to augment Taximart’s refurbishment and direct sales capabilities.

    The division is realising its intention to apply its competencies in adjacent markets where it is able to create defensible positions, such as the financing of income-producing vehicles including bakkies used by SMEs as well as metered and Uber point-to-point taxis.

    With moderate growth in gross loans and advances, improving credit metrics and a stable net interest margin and cost-to-income ratio, it is evident that SA Taxi’s credit, operational and financial performance is robust. The division increased headline earnings by 20% to R212 million (R208 million attributable to ordinary equity holders of the parent) from R176 million in the prior year, by way of a 12% increase in gross loans and advances, no change in the impairment expense, and a continued diversification of its revenue streams. The stable impairment charge despite the growth in loans and advances was driven by improved credit quality and a better construct of its loans and advances, with only 2% being entry-level vehicles.

    Credit granting criteria remained conservative and access to new premium vehicles was interrupted from March 2015 onwards due to the temporary closure by Toyota of its local assembly facility for a full plant rebuild. The constrained supply of new Toyota minibus taxis did however provide SA Taxi with an opportunity to re-finance more of its repossessed and refurbished vehicles as well as the recently launched Nissan minibus taxi.

    Credit losses have improved from 4.4% in the prior year to 3.9% due to the higher quality of loans and advances, as well as the efficiency of the procurement, repair and resale operations of Taximart (now one of the largest Toyota repair centres in southern Africa).

    Continued strong collection trends and the improved quality of repossessed vehicles refurbished by Taximart has resulted in an improved NPL ratio of 18.2%, from 20.5% in the 2014 financial year.

    With entry-level vehicles comprising a minimal proportion of loans and advances, Transaction Capital expects the NPL ratio to remain below 20% and the credit loss ratio to remain around 4% over the medium term.

    The net interest margin has remained stable at a healthy level of 11.3%, while the cost of borrowing increased slightly from 9.7% to 10.0% due to the recent focus on raising offshore funding which is priced more expensively.

    SA Taxi’s cost-to-income ratio has improved slightly from 48.9% for the comparative period, and remains lean at 48.7%.


    Financial and operating performance

    The risk services division provides customer management and capital solutions, leveraging its large consumer credit data base, analytical capabilities and technology, thus improving its clients’ ability to originate, manage and collect from their customers. The division works with large consumer credit providers across multiple industries, including banking, credit retailers, telecommunications, insurance, specialist lending and the public sector, and provides working capital and commercial receivables management solutions to SMEs.

    At the beginning of the 2015 financial year, the executive team of the risk services division was restructured and augmented to facilitate the division’s strategic objectives. The reconstitution of this division has yielded promising results, with headline earnings increasing 16%* to R134 million. Despite earnings growth in MBD and Rand Trust exceeding 30%, the disappointing performance of Principa, driven mainly by losses in its Qarar joint venture, significantly tempered performance. For this reason, the Qarar joint venture was sold during September 2015 to Simah, Principa’s Saudi joint venture partner, for a profit of R8 million.

    The 11% increase in non-interest revenue from R861 million to R953 million during this period, despite the challenging consumer environment, was encouraging. The risk services division continues to make good progress with its existing and newly identified clients, with further benefits being realised from lucrative capital deployment opportunities. Revenue from principal collections increased by 25% to R386 million and revenue from agency collections increased by 16% to R375 million. Refer to the risk services divisional review of this report for a split of revenue per sector. The division progresses with caution in the municipal sector as most municipalities are in financial distress

    A continued focus on effective cost management contributed to an improved cost-to-income ratio of 82.5% from 86.9% in the prior year.


    The group executive office contributed R51 million to headline earnings in the 2015 financial year, an increase of 34% from the 2014 earnings contribution of R38 million. The increase was largely driven by cost savings as a result of the simplified group office structure as well as increased recoveries of costs from subsidiaries.


    It is Transaction Capital’s objective to ensure that appropriate, understandable and sustainable accounting policies are adopted and implemented, that are aligned with the group’s commercial realities, risks and strategies to the greatest extent possible. As discussed earlier in this report, the group has elected to early adopt IFRS 9. There were no further significant changes in accounting policies in the year under review. Accounting estimates have also been assessed for appropriateness and validity.


    No events which would have a material impact on either the financial position or operating results of Transaction Capital have taken place between 30 September 2015 and the date of the release of this report.


    The early adoption of IFRS 9 required a significant team effort by many people across the group. My sincere thanks to the group and operational finance teams for their diligence in ensuring that Transaction Capital is able to provide stakeholders with an accurate and meaningful analysis of its financial and operating performance, in line with the objectives set at the time of listing the group.

    26 January 2016

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