An innovative and pioneering business model with operations expanding throughout the financing and asset value chain, building a scalable platform that can be leveraged in adjacent markets
A unique blend of vehicle procurement, retail, repossession and refurbishment capabilities, with financing and comprehensive
insurance competencies for focused vehicle types
Valuable client and market insights developed from overlaying granular telematics, credit, vehicle and other data to enable precise and informed origination and collection decisioning and proactive risk management
Enabling financial inclusion by proficiently securing funding from both local and international debt investors to judiciously extend developmental credit to SMEs that may otherwise not have access to credit from traditional financiers
Providing complementary business services that assist SMEs to maximise cash flow and protect their income-generating asset, thus improving their ability to succeed
Empowering under-served and emerging SMEs to build their businesses, which in turn creates further direct and indirect employment opportunities
Contributing to the recapitalisation and sustainability of the taxi industry – a critical pillar of the public transport sector servicing the majority of South Africa’s working population
Headline earnings ▲ 20% to R249 million, 54% of the group
Non-interest revenue ▲ 30% to R315 million
Gross loans and advances ▲ 15% to R7.2 billion
Non-performing loan ratio 17.4%, from 18.2% in 2015
Credit loss ratio improved to 3.1%, from 3.9% in 2015
Return on equity 25.5%, from 28.4% in 2015
Download SA Taxi’s divisional overview including societal relevance, market context, business activities and Q&A
TERRY KIER SA Taxi CEO
What is your view on SA Taxi’s performance in the year, and what are some of the strategic highlights?
SA Taxi has continued to perform well in an environment where many companies have struggled to grow revenue and profit. We operate in a market that provides a crucial service to most of South Africa’s working population, which is core to the defensive nature of SA Taxi. Our credit performance remains robust, which indicates both the excellent credit risk management within SA Taxi and the maturation of the minibus taxi industry more broadly, where we’re seeing operators generally run better businesses.
This year we expanded our capabilities considerably. The launch of our retail dealership in Midrand in February 2016 has enabled us to benefit from the greater profitability of vehicles financed directly through our own dealership – both in terms of the greater proportion of non-interest revenue earned and better loan performance. We anticipate selling, financing and insuring more than 2 600 vehicles a year through our dealerships, which in addition to Midrand will include Durban and potentially Polokwane. We will also consider extending our dealer footprint nationally depending on the performance of these initial dealerships.
The launch of our auto body repair centre will benefit our insurance business from a cost of claim perspective, our finance business from a credit loss perspective and enable us to build our presence in the pre-owned market. Together with our refurbishment capability, we can put quality pre-owned vehicles back into the market that are safe and more affordable, and we can be sure that the vehicle will be a valuable and reliable asset to the operator which mitigates credit risk.
The maturation of our risk methodology has enabled us to offer interest rates competitive with those of major banks, which together with our specialisation in minibus taxis and our ability to enhance an operator’s business has resulted in us starting to attract customers of a higher credit quality.
Take us through some of SA Taxi’s initiatives to grow into adjacent market segments?
Zebra Cabs represents a major step in opening a new vertical for SA Taxi, in which we can apply the capabilities we’ve refined in the minibus taxi business. Under SA Taxi’s ownership, the business has delivered in line with our projections and has become a stable yet evolving part of our portfolio. We’ve learnt many valuable lessons over the past months, and we continue to engage with international metered taxi companies to understand this type of business in more mature markets.
The technology platform we’ve deployed that underpins the metered taxi business provides significant room for further development. The benefit of this platform to SA Taxi is that it provides us with rich data that, through our analytics capabilities, will enable us to build scorecards and models needed to scale this business over time.
One of the biggest differences between the metered and minibus taxi businesses is the need to help drivers acquire customers. The ability to hail a cab using the platform is essential, but we also need to make sure it offers greater accessibility and convenience. One way to improve accessibility is to implement a technology-driven ranking capability, so being able to monitor when a driver leaves their allocated space at a hotel, and making sure another driver is ready to take that space so that we maintain a constant presence at key passenger locations. From a convenience perspective, we’ve implemented frictionless payment and introduced a call centre to facilitate corporate bookings.
As with the minibus taxi business, these initiatives aim to support the sustainability of SMEs, not for philanthropic reasons, but to mitigate default risk by helping their business generate more revenue and providing other capabilities that support and protect value in their business. Our auto body repair centre can quickly undertake the frequent small repairs required by metered taxi vehicles, such as dents and scratches, given the importance of a metered taxi driver projecting a professional image. Likewise, we provide drivers with a course in customer service, to contribute to building a service culture in the local industry.
Our Bakkie pilot – which I spoke about last year – was called off as we learnt that we couldn’t build scale in this adjacent market by leveraging our existing capabilities. Although the business we wrote was good, our established approach to assessing credit risk – which for minibus taxis would consider the profitability of the route and quality of the asset – was not sufficient for the Bakkie market as we found that we would need to assess each individual business type, for example plumbers or couriers. To create a defensible position in an adjacent market sector we need to build volume, and the complexity in assessing risk for individual tradespeople didn’t align to SA Taxi’s approach.
How have you ensured sufficient funding for SA Taxi, given concerns of a sovereign ratings downgrade over the past year?
In August 2016, we returned to the local listed debt capital markets tapping Transsec 2 – our S&P Global-rated and JSE-listed securitisation programme – with an issuance of R513 million of debt. The tap issuance was privately placed with nine investors, three of which were first-time investors, at a weighted average cost of funding of 241 basis points above three-month JIBAR, which is about 100 basis points lower than SA Taxi’s average cost of funding.
In October 2016, following S&P Global’s review of the Transsec 1 structure, the ratings on the class A notes was re-affirmed at zaAAA, and the ratings on the class B notes were upgraded from zaAA to zaAA+, class C notes from zaA to zaA+, and class D notes from zaBBB- to zaBBB+. These improvements in credit ratings correlate to SA Taxi’s strong performance across all metrics.
Diversifying our funding sources and accessing offshore capital pools remain key focus areas for our debt capital team. SA Taxi has accessed more than R1.5 billion of debt funding from the European DFI capital market since 2010, and is successfully penetrating the global DFI capital markets.
Looking further ahead, what are some of the opportunities SA Taxi is exploring?
Our primary focus will continue to be to drive organic growth. Within the minibus and metered taxi verticals, we constantly ask “what else does this industry need?”, and look to develop new products or services that leverage our existing capabilities. Any acquisitions we consider will be smaller acquisitions that enable us to augment our capabilities, with a specific focus on the ongoing enhancement of our data and using technology to create new ways to support our SME clients.
One example in terms of technology is developing an application for minibus taxi operators that will provide them with real-time information on the performance of their vehicles. As the minibus taxi industry has matured, we’ve seen greater appetite for the tools and insights that can help operators to better manage their business, and we’ve got the rich data needed to further empower them as business owners. Looking even further ahead, we will consider opportunities for sharing technologies we’ve developed and insights gained across the minibus and metered taxi businesses.
Innovative and bespoke technology systems that drive superior performance and efficiency.
Generating in-depth insights from the continuous collection of accurate and valuabel data to develop a consolidated view of an individual that enables precise and informed internal and external decisioning.
Improving its clients' ability to originate, manage and collect from their customers throught their lifecycles, thus maximising value.
Assisting its clients to optimise their balance sheet by accelerating cash flow through structured capital solutions.
Proactive workforce management and technology faciitate a flexible and dynamic servicing capability able to meet a client's unique requirements.
Regarded as a trusted partner by large consumer-facing business and credit providers across multiple industries
Enabling clients to generate higher risk-adjusted returns through their engagements with their customers at the point of origination, managment and collection
Headline earnings ▲ 25% to R168 million, 37% of the group
Total income ▲ 1% to R1.1 billion
Purchased book debts ▲ 30% to R728 million
Asset turn over ratio 71.1%
Cost-to-income ratio improved to 77.4%, from 82.5% in 2015
Return on equity 31.5%, from 27.8% in 2015
Download the Transaction Capital Risk Services review including Q&A
DAVID McALPIN Transaction Capital Risk Services CEO
What has been the impact of the challenging economic environment, and how has TCRS responded?
Again this year South African consumers’ ability to service their debt has remained under pressure. This is largely due to negative factors such as higher inflation and interest rates, low economic growth and static employment rates. Despite these challenges, TCRS has continued to perform positively by actively realising opportunities that emerge in such an environment, and enhancing our technology and data capabilities to become more effective and efficient at what we do.
The buying of non-performing loan portfolios is certainly one of our success stories for the year. We’ve seen a greater number of non-performing loan portfolios come to market as credit providers seek to realise immediate or upfront value from their books in a challenging collections
environment. We’ve thus stepped up our book buying activity considerably but conservatively, utilising our strong balance sheet and extensive data to selectively acquire 13 new portfolios for R184 million – the highest amount we’ve spent on book acquisitions in a single year. We’ve also become more proactive, engaging clients directly to negotiate on an exclusive basis and structuring more complex transactions such as gain share agreements to enable clients to continue participating in the value of these books.
Although our agency business continues to perform well, the tough consumer environment is making collections more challenging. We’ve mitigated the short-term impact by driving productivity improvements through technology and data. However, with the amendments to the National Credit Act (NCA) making it more difficult for credit providers to extend credit to consumers, we do expect growth in the national unsecured credit book to taper considerably over the next few years. We have thus continued to invest in expanding into adjacent market sectors not regulated by the NCA, specifically the insurance, telecommunications and municipal sectors, with key executives appointed to drive penetration into this client base.
As the culmination of our two-year strategy to integrate all our operations under one management team with an overarching strategy, focused on managing risk for our clients across their customers’ lifecycle, all companies within TCRS were rebranded to leverage off Transaction Capital’s brand equity.
The strength of our services was reaffirmed in 2016, with Global Credit Ratings Co. upgrading the primary and special servicer ratings assigned to Transaction Capital Recoveries (previously MBD) to SQ1-(ZA) and SQ1(ZA) respectively; with the outlooks accorded as stable.
TCRS describes itself as technology-led – what are some of your key technology initiatives?
We’ve created a roadmap for our technology investments over the next few years. The first of these is our predictive dialer, which came online in 2016. In the collections business, knowing who, when and what number to call is probably the most fundamental step in the process, and the predictive dialer uses our analytics to do the legwork of scheduling calls for the appropriate time and determining whether the right party has answered the call. The productivity gains since the dialer came online have been immense – our number of monthly outbound calls has increased almost three-fold, resulting in over 4 million voice interactions per month.
What the predictive dialer has also allowed us to do is reduce our number of call centres, due to the increased number of matters our call centre agents can now deal with daily. Given that our call centre agents are highly incentivised based on performance, the higher number of voice interactions the predictive dialer enables creates an opportunity for them to lift their financial reward. Our call centre location strategy now centres on the three biggest
metros – Johannesburg, Cape Town and Durban. The rationalisation of our call centres resulted in around 450 retrenchments, of which we successfully relocated some 250 people.
The other big technology story for the year is our master data universe (MDU), which establishes a database of over 9.2 million unique ID numbers linked to past payment behaviour and contact details. The database is fully compliant with the Protection of Personal Information Act. We’ve built this database over time, drawing on internal and external sources, and keep the data current, relevant and accurate by constantly enriching it with the results of our campaigns and contact attempts
as well as information from non-performing loan portfolios we acquire. The MDU also allows us to bid on non-performing loan portfolios coming to market with more confidence as we’re able to more accurately assess their value, in terms of what we’ll be able to collect. We anticipate that this database will create significant operational leverage for the business in years to come.
The integration of the MDU and predictive dialer, with planned workforce management enhancements to be implemented in the 2017 financial year, is expected to impact positively on both revenue and cost savings over the next year. We’ll continue to look at other technology investments that can drive productivity and successful collections.
How have recent regulatory developments regarding financial services providers impacted TCRS?
In addition to the impacts of amended national credit regulations on our clients, two pieces of legislation we’ve been monitoring closely are around non- authenticated early debit orders (NAEDO) and emolument attachment orders. The effective date
for the migration from NAEDO to authenticated collections has been delayed to October 2019. This change will require consumers to give permission for debit orders to be loaded against their account, which although justified in terms of preventing debit order fraud, may create an avenue for consumers to delay debt repayment by frustrating the authentication process.
TCRS welcomes the Constitutional Court ruling on 13 September 2016 regarding emolument attachment orders (EAOs). We have not initiated any new EAOs as a collection mechanism for more than two years, and at end September 2016 less than 0.2% of our revenue was generated from historical EAOs.
Looking further ahead, what does the next year hold for TCRS?
Technology will remain a major theme of our investments going forward. We constantly scan the horizon to get a sense of where things are going
– if there is going to be disruption in our industry, we want to be at the forefront of that. Rich data for analytics, frictionless payment solutions and social media are areas we expect will continue to develop and present opportunities over the longer term, and we have been engaging with agile technology start-ups to see how we can further enhance our capabilities.
In terms of growing revenue from non-NCA clients, we’ve got the right people in place to grow into our target sectors, and I am confident we’ll make strong progress in this regard in the year ahead. Our technology and data investments will enable us to grow revenue from our core client base, and we will focus on increasing revenue from the Tier 1 banks, where we have generally been underrepresented.
Of the three acquisitions that took place during the year, two are South African companies that will enhance our current offerings, and one is Australian, where applying our non-performing loan book buying capabilities represents a significant untapped opportunity. This business is already strong in agency collections, including in the insurance, telecommunications and utilities sectors, and we look forward to working with the existing management team to both enhance our domestic capabilities, and to augment their expertise with our technology and data capabilities.
Acquisitions for the year are discussed in Strategic objective 4.
Collection and recovery services and debt purchasing.
Working capital, property and trade finance and commercial receivables management solutions to small- and medium-sized businesses.
(Formerly Rand Trust)
Payment processing services.
Data analytics and technology capabilities for customer management.