Strategy

STRATEGIC OBJECTIVE 01 ORGANIC GROWTH

LEVERAGE SPECIALISED CAPABILITIES AND DEVELOP INDUSTRY SOLUTIONS TO DEEPEN VERTICAL INTEGRATION WITHIN EXISTING MARKET SEGMENTS, AND APPLY THESE COMPETENCIES TO CREATE NEW POSITIONS WITHIN ADJACENT AND NEW MARKET SEGMENTS, THEREBY DRIVING ORGANIC GROWTH.

 
SA TAXI
 
Ground-breaking ownership transaction with SANTACO
  • Operational benefits of a stronger and enhanced relationship with SANTACO expected to support higher growth.
  • Further cooperation through initiatives designed to deliver sustainable benefits to SA Taxi's clients and the industry.
     

Triangle 13%

to R9.4 BILLION

GROSS LOANS AND ADVANCES

   
  Triangle 7% NUMBER OF LOANS ON BOOK
  Triangle 9% VALUE OF LOANS ORIGINATED

 

 

Triangle11%

to R979 MILLION

NET INTEREST INCOME

in line with book growth

     

to 11.0%

NET INTEREST MARGIN (2017: 11.4%)

  AVERAGE INTEREST RATE ON ORIGINATION 23.6%
(2017: 24.4%)
      FUNDING COSTS 20
BASIS POINTS TO 11.6%

(2017: 11.4%)
 
National Credit Act maximum rate capped at 33.5%  
Repo rate 25 basis points
year-on-year

 

   
 

GEARING

to 7.4 times

              (2017: 7.7 times)

  Post the SANTACO equity
transaction, gearing set to
reduce substantially with the
allocation of R1 billion to settle
debt, yielding interest savings.
Future growth to be funded
through cheaper senior debt.

 

 

Triangle 26%

to R540 MILLION

NON-INTEREST REVENUE

driven by SA Taxi's insurance business

     

GROSS WRITTEN PREMIUM

23% to R687 MILLION

  NUMBER OF INSURANCE CLIENTS 10%       PRODUCTS PER CLIENT TO 2.0 (2017: 1.8)  
>85% of SA Taxi's financed clients insured by SA Taxi. Broadened open market client base, supported by broker network strategy initiated during 2018.   Broadened product offering, including credit life and Road Cover, with additional products in development in conjunction with the industry.

 

 
Taxi Auto Parts (TAP) launched in March 2018
  • Enhancing margin through retail of well-priced and quality new and refurbished vehicle parts to minibus taxi operators.
  • Lowering cost of parts to SA Taxi's own refurbishment centre and its network of preferred external autobody repairers.
  • Supporting management of credit and insurance risk (see strategic objective 2 below).
  • Includes newly launched salvage operation, which optimises the salvage value of vehicles that are not economically viable to refurbish, resell or refinance.
 
Expanding the dealership network
  • Polokwane opened in October 2018, with additional dealerships under consideration to expand provincial coverage.
  • To include retail of new and refurbished vehicles and spare parts, and distribution of parts to SA Taxi's network of preferred external autobody repairers.
 
Loyalty programmes launched and in development
  • Black Elite fuel loyalty programme launched in April 2018.
  • Additional programmes in development.
  • Demonstrates deeper vertical integration and establishes a new base for expanding non-interest revenue earnings.
  • Enables SA Taxi and minibus taxi operators, drivers and their associations to participate in broader industry spend.
 
SA Taxi's Connected Services division established
  • Providing services across Wi-Fi, fuel and media.
  • Broadening SA Taxi's total addressable market.
 

STRATEGY COMMENTARY:

       

FINANCIAL PERFORMANCE:

   
             
  Q&A with David Hurwitz, CEO | Q&A with Terry Kier, SA Taxi CEO       Financial director's report  
 
TCRS
 

Collection services segment

Diversified across geographies, revenue models, sectors, client base and mandates

       

 

Triangle54%

to R1 374 MILLION

PURCHASED BOOK DEBTS

Triangle60%

to R2 989 MILLION

ESTIMATED REMAINING COLLECTIONS

     
  • 37 NPL portfolios acquired for R662 million with a face value of R13.6 billion (2017: 29 portfolios acquired for R356 million with a face value of R5.2 billion).
  • Revenue from principal collections 22%.
  • Current South African economic context favours acquisition of NPL portfolios.
  • Diversifying in alternative asset classes, including secured loans, debt review portfolios and consumer debt prior to write-off.
  • Acquiring NPL portfolios on a private bilateral basis.
  • Exploring selective NPL acquisitions in Australia.
 

Triangle 19%

CONTINGENCY AND FEE-FOR-SERVICE (FFS) REVENUE

     
  • G rowing revenue from adjacent sectors with insurance, telecommunications and public sector contributing 38% of contingency revenue in South Africa (2017: 27%).
  • Bespoke solutions developed, including early stage collections and legal collections (debt review and debt administration).
  • Acquisition of Recoveries Corporation, enabling geographic diversification.
 

Transactional services segment

Transaction Capital Business Solutions developing an online client portal and technology-based origination system.

     

Value-added services segment

Road Cover fully integrated and performing to expectation, with encouraging growth prospects.

 

STRATEGY COMMENTARY:

       

FINANCIAL PERFORMANCE:

   
             
  Q&A with David Hurwitz, CEO | Q&A with David McAlpin, TCRS CEO       Financial director's report  
    For growth initiatives per segment:

IN BRIEF

Transaction Capital's divisions are focussed on narrow market segments, enabling them to identify, develop and implement highly customised solutions specific to those markets. This level of specialisation enables them to operate in under-served and higher-risk market segments.

 
     

STRATEGIC OBJECTIVE 02 RISK AND CAPITAL MANAGEMENT

JUDICIOUSLY INVEST EQUITY CAPITAL, CONSERVATIVELY LEVERAGED WITH LOCAL AND INTERNATIONAL DEBT, INTO ACCURATELY ASSESSED ASSET CLASSES TO ACHIEVE SUPERIOR RISK-ADJUSTED RETURNS.

Proactive risk management regulated by the enterprise-wide risk management framework, and enhanced by leveraging the benefits achieved through vertical integration and the constant application of technology, data and analytics to evaluate appropriate metrics.

 
CAPITAL MANAGEMENT
 
Maintained robust access to debt capital markets
     
 

RAISED ~R4.9 BILLION

in debt facilities in 2018

   
USD100 MILLION eight-year facility with African Development Bank
R1.0 BILLION Transsec 3 initial and tap issuance
 

CONTINUE TO DIVERSIFY FUNDING SOURCES

     
Diverse debt investor base of 45 FUNDERS
10 NEW INVESTORS in 2018
 

Triangle to 11.8%

GROUP AVERAGE COST
OF BORROWING

(2017: 12.0%)

     

   SA TAXI’S FUNDING REQUIREMENTS FOR THE 2019
   FINANCIAL YEAR ARE SECURED

 

5.2%

MARGIN ABOVE REPO RATE

 

FOREIGN DEBT COMPONENT STABLE AT

20%

fully hedged to Rand

 

CAPITAL ADEQUACY POSITION
REMAINS ROBUST AT

30.9%

     
 

22.9%

EQUITY

 

8.0%

SUBORDINATED DEBT

 
Net ungeared and liquid group balance sheet
     
 

EXCESS CASH OF

~R650 million on balance sheet

 

EXCESS CASH OF

~R1 billion post SANTACO equity transaction

 
 

STRATEGY COMMENTARY:

       

FINANCIAL PERFORMANCE:

   
             
  Q&A with Mark Herskovits, executive director: capital management       Financial director's report  
 
FUNDING PHILOSOPHY
 

FUNDING PHILOSOPHY

 
CREDIT RISK MANAGEMENT – SA TAXI
 

3.3%

CREDIT LOSS RATIO

(2017: 3.2%;
2018 half-year: 3.7%)

     

IMPROVED QUALITY AND EFFICIENCIES IN REFURBISHMENT CENTRE

Average refurbishment cost 4% ( 20% since 2016), despite inflationary pressure on spare parts costs.

Via TAP, SA Taxi is able to import and locally procure quality parts directly at a lower cost, and distribute these to SA Taxi’s own refurbishment centre as well as its network of preferred external autobody repairers. Through TAP, SA Taxi is also able to optimise the salvage value of vehicles.

Recovery on repossession >73% of loan settlement value.

 

   
Target
credit loss
ratio
remains
3% to 4%

 

 
 
 

17.7%

NON-PERFORMING
LOAN RATIO

(2017: 17.1%)

     
DIFFICULT ECONOMIC CONDITIONS
minibus vehicle prices
fuel costs
Offset by the reduced average cost to refurbish repossessed vehicles and higher recoveries on the resale of these vehicles.
   
PROVISION COVERAGE OF 4.0%
  • Lower risk loan origination strategy targeting higher credit quality taxi operators.
  •  exposure to older vehicle models.
  • Annualised TAP impact on average refurbishment cost 12%.
  • After tax credit loss covered at 1.7 times.
 
 
INSURANCE RISK MANAGEMENT – SA TAXI
 
Further improvement in insurance claims ratios
  • Growth in proportion of insurance claims processed via SA Taxi’s combined autobody and mechanical refurbishment facility.
  • TAP supporting further claims ratio improvements:
    • Direct import or local procurement of quality parts at a lower cost for use in SA Taxi’s own refurbishment centre, and for distribution to its network of preferred external autobody repairers.
    • Optimising the salvage value of vehicles.
     
   
   
    This supports a reduction in the
cost of claims as the average
cost to repair insured vehicles
reduces.
   
 

STRATEGY COMMENTARY:

       

FINANCIAL PERFORMANCE:

   
             
  Q&A with Terry Kier, SA Taxi CEO       Financial director's report  
 
INVESTMENT RISK MANAGEMENT – TCRS
 
COLLECTION MULTIPLE VINTAGE PERFORMANCE      

2.4 times

2018 COLLECTION MULTIPLE

  • Exceeds internal target of ˜2.2 times.
  • Continues performance trend of recent vintages all above internal target (2014 to 2018).
  • Estimated remaining collections 60% to R3.0 billion, which will underpin future performance.
  • Strong cash conversion rates.

IN BRIEF

Transaction Capital is sufficiently capitalised to fund organic growth, to take advantage of opportunities to deploy capital into its existing businesses, and to acquire complementary businesses that can be enhanced by or contribute to its specialist capabilities.

Despite the challenging economic conditions, the divisions continue to manage risks effectively and achieve appropriate risk-adjusted returns.

   
 

STRATEGY COMMENTARY:

       

FINANCIAL PERFORMANCE:

   
             
  Q&A with David McAlpin, TCRS CEO       Financial director's report  
 

STRATEGIC OBJECTIVE 03 DATA, TECHNOLOGY AND ANALYTICS

GENERATE IN-DEPTH INSIGHTS FROM THE CONTINUOUS COLLECTION AND ANALYSIS OF DIVERSE, ACCURATE AND VALUABLE DATA SETS TO ENABLE PRECISE DECISIONING AND PROACTIVE RISK MANAGEMENT.

LEVERAGE DATA, TECHNOLOGY AND ANALYTICS WITHIN A DYNAMIC SERVICING PLATFORM TO DRIVE PROFITABLE GROWTH.

 
SA TAXI
 
Data and telematics
     
  • Proprietary database enriched with data accumulated daily from each minibus taxi and applied to credit decisions, collections, repossessions and insurance activities.
  • Ongoing investment in information technology, data management and predictive analytics:
    • To further reduce risk, prevent insurable events and reduce the cost of insurance claims.
    • To further improve processing capabilities and extract operational efficiencies.
    • Piloting system to enable live vehicle diagnostics.
    • Roll-out of DreamTech, a technology-enabled system that feeds information regarding accidents or insurable events into SA Taxi.
 
 

STRATEGY COMMENTARY:

   
     
  Q&A with Terry Kier, SA Taxi CEO  
 
TCRS
 
Continued investment and optimisation
     
  • Optimisation of workforce management, dialer, propensity-to-pay scorecards and right time to call.
  • Implementation of new technologies, including artificial intelligence.
  • Adapting to changes in consumers' preferred method of communication to non-voice channels.
  • Expansion and commercialisation of master data universe.
  • Expanding TCRS' technology, business intelligence and analytics capabilities into Recoveries Corporation in Australia.
 
 

STRATEGY COMMENTARY:

   
     
  Q&A with David McAlpin, TCRS CEO  

IN BRIEF

Both divisions continue to invest in data, technology and analytics, which enhance efficiencies, improve margins and enable value-added services.

STRATEGIC OBJECTIVE 04 ACQUISITIVE GROWTH

TARGET QUALITY ASSETS OPERATING WITHIN TRANSACTION CAPITAL'S FOCUSSED MARKET SEGMENTS THAT WILL ENHANCE ITS CAPABILITIES, AND WHOSE BUSINESS MODELS AND VALUE CAN BE ENHANCED THROUGH ACTIVE MANAGEMENT.

 
TCRS
 
Assessing bolt-on acquisitions in South Africa to support sector and mandate diversification, and to grow the value-added services business:
  • Acquired Accsys as a bolt-on to Transaction Capital Payment Solutions in December 2017, providing flexible human resource and payroll solutions to SMEs.
 
Assessing bolt-on acquisitions of specialist collectors in Australia to build Recoveries Corporation's data, capabilities and scale.
 

STRATEGY COMMENTARY:

   
     
  Q&A with David McAlpin, TCRS CEO  
 
INVESTMENT CRITERIA
 
BUSINESS MODEL

IN BRIEF

Transaction Capital has a proven track record of creating value through identifying, pricing, acquiring and integrating new businesses, and then developing them to achieve scale and leading positions in their market segments.

STRATEGIC OBJECTIVE 05 PEOPLE

DEVELOP, ENGAGE AND REWARD EMPLOYEES AND EXECUTIVES TO ENGENDER A HIGH-PERFORMANCE CULTURE.

The group executive office has an experienced and specialised leadership team with proven entrepreneurial, merger and acquisition, technical, financial and risk management skills. The necessary expertise, capabilities and skills of key operational functions are devolved to its divisions, and divisional executives are accountable for the performance of their respective businesses. The divisions are supported by the capabilities of the group executive office, as and when required. Strong institutionalised governance, regulatory and risk management practices are maintained at the group executive office and divisional level.

 
PEOPLE PHILOSOPHY
 

Entrepreneurial, high-performance culture

A sense of ownership and motivation to innovate, within specific business models and risk parameters.

 

Transaction Capital establishes cohesive leadership teams within its divisions that have the responsibility and requisite level of operational authority to deliver on clearly defined strategies.

The group preserves sufficient flexibility of management to support entrepreneurial spirit, while maintaining management accountability and robust risk management processes.

 

Executive capability

Executives are appropriately qualified and have deep experience within their areas of specialisation. This intellectual capital is typically applied over a much smaller asset base at Transaction Capital than in larger organisations, with the concomitant expectation of higher performance.

Specialisation


Executives, management and employees are expected to become specialists in their role.

 

In TCRS, senior managers are employed to deepen the division's penetration into adjacent market segments, and apply their professional experience and skills to a narrower market segment compared to their previous roles. For example, specific senior managers focus only on collections in the public or telecommunications sectors, or originations in the insurance sector.

In SA Taxi, the long-serving senior management team applies its experience across the division to develop deeper specialisation in each segment.

 

Reward

Fair remuneration commensurate with the level of skill, experience, seniority and industry practice, and performance incentives where appropriate.

 

The Transaction Capital Limited Conditional Share Plan, approved by shareholders on 20 October 2016, is a mechanism to attract and retain key employees while providing them with the opportunity to share in the success of the division, and to align their interests with shareholders.

 

Meaningful employment

Engender an understanding of the broader social context applicable to each employee's role, in line with the social relevance of Transaction Capital's divisions.

 

TCRS is formalising its employee value proposition and leadership charter across the full spectrum of benefits, including ongoing training and development, and opportunities for professional growth.

The SA Taxi Way defines the culture of the business.

 
 
SA TAXI
 

HIGHLIGHTS

45

promotions of which
37 are black*

 

93%

of high-potential
employees retained

 

39%

of employees
are women

84%

of employees
are black*

 

55

training programmes conducted,
of which 17 are accredited

 

12

average training hours
per employee

69%

of employees who received
training are black*

  * Black includes African, Indian and Coloured South Africans.
HEADCOUNT AT YEAR-END
GENDER     AFRICAN     COLOURED     INDIAN     WHITE     FOREIGN
NATIONALS
    TOTAL  
Male     524     15     17     105     7     668  
Female     329     14     19     65     3     430  
Total     853     29     36     170     10     1 098  
      78%     3%     3%     15%     1%     100%  
 

STRATEGY COMMENTARY:

   
     
  Q&A with Terry Kier, SA Taxi CEO  
 
TCRS
 

HIGHLIGHTS

“INVESTORS IN PEOPLE
ORGANISATION”

accreditation affirmed in
January 2018

 

115

promotions of which 61% are
women and 85% are black*

 

88%

of high-potential
employees retained

74%

of employees are women

 

92%

of employees are black*

 

218

training programmes conducted,
attended by ~16 800 delegates

63

average training hours
per employee

 

95%

of employees who received
training are black*

  * Black includes African, Indian and Coloured South Africans.
HEADCOUNT AT YEAR-END
GENDER     AFRICAN     COLOURED     INDIAN     WHITE     TOTAL  
Male     438     67     105     103     713  
Female     1 372     255     287     115     2 029  
Total     1 810     322     392     218     2 742  
      66%     12%     14%     8%     100%  
 

STRATEGY COMMENTARY:

   
     
  Q&A with David McAlpin, TCRS CEO  

In addition to the statistics provided above, TCRS employs 580 employees at Recoveries Corporation in Australia.

IN BRIEF

With 4 445 employees, Transaction Capital acknowledges its role in creating meaningful employment opportunities and empowering its talent.

The success of the group, especially in a persistently challenging local economy, comes down to our ability to attract, retain and develop our people. They are the foundation of our ability to engage meaningfully with our clients, innovate in respective markets, leverage technology and data, and create shared value for our stakeholders.