Q&A with TERRY KIER: SA TAXI CEO
SA TAXI CEO
Q: AS DETAILED IN THE Q&A WITH DAVID HURWITZ, CEO, SA TAXI'S TRANSFORMATIONAL OWNERSHIP TRANSACTION WITH SANTACO DEMONSTRATES A COMMITMENT TO SHARED VALUE. HOW IMPORTANT IS THIS TRANSACTION FOR SA TAXI AND THE INDUSTRY?
This transaction and the resulting partnership is truly groundbreaking. It provides broad-based participation in the value chain in an entirely black-owned industry, comprised entirely of SMEs. The industry has developed without government subsidy into the most critical component of the South African integrated public transport system.
The transaction augments SA Taxi's social impact, which extends to financial inclusion, job creation, skills development and economic transformation, all of which underpin the sustainability of the industry. More broadly, by enabling taxi operators to replace old vehicles with new, safer and lower emission minibus taxis, SA Taxi assists in improving this critically important component of South Africa's integrated public transport network.
The alignment of interests required to conclude the transaction has formalised the industry ecosystem to an extent not achieved before, providing a framework for wide-reaching initiatives to grow and support the sustainability of the minibus taxi industry at all levels.
For example, SA Taxi continues to work closely with SANTACO leadership on other initiatives designed to deliver sustainable benefits to SA Taxi's clients and the industry as a whole. These include:
- A highly competitive credit life product, launched in October 2017 and developed by SA Taxi in response to a request from SANTACO.
- The Black Elite fuel loyalty programme in partnership with Shell, launched in April 2018. By providing a platform for operators to benefit from their fuel spend, which is a major operating cost in their business, it makes their business more sustainable, which enhances positive payment behaviour. In the future, similar programmes will be considered, including related rewards and benefits.
- Providing over 70 patrol vehicles, worth more than R20 million, to various regional, provincial and national taxi associations to support industry self-regulation and road safety.
- Funding and facilitating Project Refentse, launched in March 2018, to provide certificated skills training for unqualified technicians currently repairing vehicles at taxi ranks.
- Approaching various industry stakeholders, specifically government, regarding subsidies, funding, or increasing scrapping allowances to facilitate the recapitalisation of the national minibus taxi fleet.
For SA Taxi specifically, the capitalisation of its balance sheet increases its net asset value of R1.6 billion at year end to approximately R3 billion. This will reduce gearing significantly and position SA Taxi strongly for its next wave of organic growth, which will be funded predominantly by more efficiently priced senior debt. Despite the capitalisation, accretive earnings growth in the coming financial year will enable SA Taxi to generate a return on equity of about 20%.
Q: THERE IS A REAL SENSE OF EXCITEMENT ABOUT THE TRANSACTION. WHAT BROADER IMPACT DO YOU SEE IT HAVING OVER TIME?
SA Taxi seeks to deliver commercial benefit and social value. I believe that this transaction will truly support economic emancipation, and in doing so, underpin social transformation.
We must remember the historical context of the industry, which was started in response to the dislocation of people who were removed from urban areas and places of economic activity. The minibus taxi industry rose out of an urgent need to transport this disenfranchised population, giving them access to work and opportunity. Without any formal support, this industry managed to grow and succeed.
Over the past decade, we have seen greater formalisation of the industry. The transaction with SANTACO stands as a statement of support for the crucial role of the minibus taxi industry in South Africa's economy, and ensures that there is greater participation both in the revenue streams of the industry and in the broader economy.
In terms of the pressure on the industry, I believe that the transformational nature of the deal will help drive social change. Firstly, with greater economic participation, there will be a longer-term view of creating wealth, which stands to benefit all areas of the industry. For example, we are already seeing instances of associations banning older, unsafe vehicles and training drivers, so formalising and improving the service and experience offered to commuters. The transaction represents substantial support for the members of SANTACO to grow and improve their businesses.
Secondly, as mentioned by David, part of the dividend income will support relevant infrastructure and other developmental projects that will upgrade and improve the operating environment for the industry and the 15 million commuters who use this network. This is vital in an industry that needs to be acknowledged for the role it plays in our economy. Greater investment in infrastructure will also further integrate the industry into the national transport network.
And lastly, the transaction provides a catalyst for formal engagement between the industry and its stakeholders, be it vehicle manufacturers or tyre companies, government or commercial hubs. In enhancing the legitimacy and negotiating power of the industry, it can, for example, extract value from its substantial buying power, lobby for greater support from government, work with local government to improve supporting infrastructure, and sit with property developers and businesses to negotiate for dedicated services to enhance the experience of commuters around their places of work and even malls.
This presents an opportunity to develop an iconic transport network in South Africa. The industry already provides a high level of convenience for commuters, but greater formalisation of and participation in the industry value chain will drive improvements that can transform this essential component of public transport into a public service all South Africans are proud of.
Q: HOW DOES SA TAXI'S INTEGRATED BUSINESS MODEL DRIVE PERFORMANCE AND SUPPORT ITS CLIENT BASE?
The vertical integration of SA Taxi's business model is key to its ability to drive growth while benefitting its clients through competitive pricing and value-added services.
SA Taxi finances approximately 650 minibus taxis per month, with a loan book of R9.4 billion across 30 000 clients. Over the past 10 years, we have invested over R21 billion in loans that have created over 70 000 minibus taxi SMEs. Around 80% of our clients are classified as previously financially excluded, the developmental financing we provide fills a critical funding gap that supports these entrepreneurs who would otherwise remain outside the formal economy.
We finance minibus taxis through a dealership network that includes affiliated Toyota, Nissan and Mercedes dealerships, and non-affiliated specialist dealerships. SA Taxi's own retail dealership, TaxiMart Direct, offers affordable new and pre-owned taxis, and generates turnover of approximately R800 million per year. The loans we originate through SA Taxi's dealership support enhanced product margins and insurance revenue, as well as better credit performance.
SA Taxi is expanding its dealership network, with a dealership opened in Polokwane during October 2018 and additional dealerships under consideration.
Our finance and retail operations continue to perform well due to the demand for new and quality pre-owned vehicles exceeding supply. These operations also create an opportunity for SA Taxi to provide value-adding products and services. This includes vehicle telematics that track vehicle location and mileage and driver behaviour, which is used throughout our value chain to provide critical insights for enhanced decision-making, as well as provide information to operators to help them manage their businesses better. It also includes our insurance offering, and autobody and mechanical refurbishment offered through TaxiMart.
SA Taxi's insurance business is the main driver of non-interest revenue. SA Taxi Protect, established in partnership with Guardrisk, provides affordable comprehensive vehicle cover, including passenger liability insurance and business interruption cover. Over 85% of our financed client base is covered by this offering. We continue to grow the insurance offering, with strong growth in credit life. Additional products are being developed in collaboration with the industry.
We are also growing the base of open market clients who are not financed by SA Taxi. To support this growth, SA Taxi initiated its broker network strategy during 2018, with more than 100 brokers now participating.
Our bespoke insurance offering is designed and tailored for the specific needs of operators and the sector, based on our long-standing participation in the industry. We accumulate extensive data on current clients and historical data on past incidents, which is used to accurately price insurance risk.
Claims ratios improved further during the year as the proportion of insurance claims processed via SA Taxi's combined autobody and mechanical refurbishment centre continued to grow. Also, the average cost to refurbish and repair repossessed or insured vehicles reduced further, underpinned by greater efficiency achieved in SA Taxi's refurbishment centre. Enhancing the value of repossessed vehicles through refurbishment enables SA Taxi to recover more than 73% of loan value on the sale of repossessed vehicles, which supports our ability to manage insurance premiums, reduce excesses and lower shortfalls for taxi operators.
As a new component of our integrated business model, SA Taxi established its own parts, distribution and salvage operation, TAP, in March 2018. Through TAP, the business is importing quality parts at a lower cost and distributing these to SA Taxi's own refurbishment centre as well as its network of preferred external autobody repairers.
Repossessed vehicles, or those involved in accidents that are not economically viable to repair, are passed to TAP's salvage operation, which optimises the salvage value of vehicles. Certain of the working parts are checked and refurbished to be sold through TAP, with others distributed into SA Taxi's own refurbishment centre. Finally, TAP also benefits taxi operators though the retail of well-priced new and refurbished vehicle parts.
Linking back across the business model, refurbished vehicles are sold through Taximart Direct, providing operators a more affordable alternative to purchasing new vehicles.
Wi-Fi in taxis and ranks, SA Taxi's telematics systems and the Black Elite fuel loyalty programme have culminated in SA Taxi's Connected Services division. We have seen strong take-up in the Black Elite programme. As a card-based system, this further enhances the data SA Taxi already provides to subscribed operators, giving them greater control and insight into their businesses.
The growth strategy for Connected Services is to communicate and transact with South Africa's 250 000 minibus taxi operators. SA Taxi is looking to extend the use of the card into transactions, across vehicle spare parts (through TAP) and integrating payments to operators for the channelled media sold through their taxis. Again, with telematics tracking the routes of each taxi, media can be targeted for greater impact for advertisers. We are also investigating expanding the card across the taxi industry ecosystem, for instance in procuring tyres or windscreens through deals with industry stakeholders that benefit operators through reduced pricing. This also stands to benefit SA Taxi by reducing its credit risk, with lower pricing enhancing the ability of operators to service their loans.
In time, Connected Services could also serve as a gateway to provide relevant financial products and services to the 9.9 million households, or 15 million commuters, who use SA Taxi's minibus taxi infrastructure. In effect, the minibus taxi will serve as a distribution channel for these transactions, with benefits accruing to the operators and drivers by sharing in the revenue of each transaction.
SA Taxi's integrated business model ensures that we participate in margins throughout the vertical and increase cash generation by growing non-interest revenue. It also improves our client value proposition by providing an all-encompassing service, and expands our total addressable market. Vertical integration enhances our ability to effectively manage credit and insurance risk.
For additional details on SA Taxi's integrated business model, view a YouTube video at https://www. youtube.com/ watch?v=uRJ xshsM2Kk
Q: WHAT IS THE ROLE OF DATA AND TELEMATICS IN SA TAXI'S BUSINESS MODEL?
Data and telematics underpin SA Taxi's operations and are key to mitigating risk. The business continues to enrich its proprietary database, with data accumulated daily from each minibus taxi and applied to credit decisions, collections, repossessions and insurance activities. In addition, we continue to invest in information technology, data management and predictive analytics specifically designed to reduce risk, prevent insurable events and reduce the cost of insurance claims, as well as technologies that improve processing capabilities and extract operational efficiencies.
SA Taxi is testing a system that will enable live vehicle diagnostics, to further improve its ability to proactively identify issues for taxi operators.
We have also rolled out DreamTech, a technology-enabled system that feeds information on accidents or insurable events into SA Taxi. This allows the repair channel to plan ahead for the necessary refurbishment, enhances the distribution of parts accordingly, and further reduces the cost of repairs. It also creates a record of the insurable event itself, supporting the claims process.
Q: SA TAXI'S STRATEGY IS DELIVERED BY ITS PEOPLE. WHAT MOTIVATES THE TEAM TO ACHIEVE ITS OBJECTIVES?
SA Taxi has an excellent and dedicated team that drives the culture of our business. We have been able to attract and retain great talent to build a team that understands the industry and thrives on its ability to drive real social change – in driving our nation forward. I think it is a hugely motivating factor to be able to go home after a day of work and know that you have helped to create and sustain small businesses.
We have also implemented the SA Taxi Way, which defines the culture of the business and sets the expected behaviours in the context of the work we perform across SA Taxi.
One of the key reasons for SA Taxi's success is the aggregation of ideas across the business. This is the driving force behind its ability to innovate, deepen its relevance in the industry and achieve excellent performance, despite the challenging economy in South Africa.