2019

Integrated Annual Report

Divisions

  • SA TAXI
  • TRANSACTION CAPITAL RISK SERVICES

A VERTICALLY INTEGRATED
MINIBUS TAXI PLATFORM

UTILISING SPECIALIST CAPABILITIES,

ENRICHED PROPRIETARY DATA
AND TECHNOLOGY
TO PROVIDE

DEVELOPMENTAL FINANCE,

INSURANCE AND OTHER SERVICES

TO EMPOWER SMEs

AND CREATE SHARED-VALUE
OPPORTUNITIES, THUS

ENABLING THE SUSTAINABILITY

OF THE MINIBUS TAXI INDUSTRY.

An innovative and pioneering business model with operations expanding throughout the financial services 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.
Innovative technology and valuable client and market insights developed from overlaying granular telematics, credit, vehicle and other data to enable precise and informed origination, 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 small- and medium-sized enterprises (SMEs) that may otherwise not easily have access to credit from traditional financiers.
Providing complementary business services that assist SMEs to maximise cash flow and protect their income-generating assets, thus improving their ability to succeed, as well as offering value-added services to wider industry stakeholders.
Empowering under-served and emerging SMEs to build their businesses, which in turn creates further direct and indirect employment opportunities.
Creating shared-value opportunities by providing services to the wider industry, and facilitating engagement and investment.
Contributing to the recapitalisation and sustainability of the minibus taxi industry, a critical pillar of the public transport sector servicing the majority of South Africa's working population.

PERFORMANCE OVERVIEW

38%

HEADLINE EARNINGS

R519 million

   

21%

HEADLINE EARNINGS ATTRIBUTABLE TO THE GROUP

R446 million

(56% of group earnings)

   

17%

NON-INTEREST REVENUE

R584 million

             

16%

GROSS LOANS AND ADVANCES

R10.8 billion

   

17.9%

NON-PERFORMING LOAN RATIO

from 17.5% in 2018

   

3.2%

CREDIT LOSS RATIO

from 3.5% in 2018

             

24.6%

RETURN ON EQUITY

from 35.0% in 2018

   

Financial ratios exclude once-off costs of R100 million (R81 million attributable to the group) relating to SA Taxi's ownership transaction with the South African National Taxi Council (SANTACO), which arose in the first half of 2019. These costs are non-cash costs and in accordance with IFRS 2 – Share-based Payment.

Comparative 2018 numbers have been restated for the early adoption of IFRS 17 – Insurance Contracts, with no material impact on headline earnings.

STRATEGIC AND OPERATIONAL HIGHLIGHTS

Delivering on growth

OWNERSHIP TRANSACTION BETWEEN SA TAXI AND SANTACO

  • SANTACO acquired a 25% stake in SA Taxi for R1.7 billion, finalised on 6 February 2019.
  • Settled ~R1 billion of debt, yielding interest savings.
    • ~R76 million pre-tax interest expense saving for 2019 (~R55 million after tax).
  • First trickle dividend paid in June 2019.
    • Majority of which was invested into industry road safety projects led by SANTACO.

DEBT CAPITAL MARKETS

  • SA Taxi's funding requirements for 2020 are met.
  • Potential for future growth to be funded via cheaper senior debt.
  • Exploring opportunities with local developmental finance institutions.

SA TAXI FINANCE

  • Book growth accelerated to 16% against ~12% per year since listing, driven by:
    • Number of loans originated 11% (2018: 3%).
    • Increased Toyota production.
    • Vertical integration in support of Nissan's minibus taxi initiative.
    • The launch of a lower interest rate product attracting a more diverse customer base.
    • Strong momentum in the sale and finance of fully refurbished pre-owned minibus taxis as a more affordable but reliable alternative to buying new vehicles.

SA TAXI PROTECT

  • Gross written premium 20%.
    • Increase in customer acquisition in the open market through our network of over 100 brokers.
    • Stable penetration of SA Taxi's growing financed customer base, with the majority of SA Taxi Finance's clients choosing to be insured through SA Taxi Protect.
    • Broadened product offering (currently comprising comprehensive vehicle cover, passenger liability, instalment protection and credit life cover), with SA Taxi's insurance clients now holding more than two insurance products each.
  • Reduced cost of claim through efficiencies in SA Taxi Auto Repairs and SA Taxi Auto Parts.
  • Focus on increasing the proportion of SA Taxi Protect insurance claims processed internally by SA Taxi Auto Repairs to further improve the claims ratio and enable even more competitive premium pricing.
  • Investment in technology to further enhance claims administration, prevent insurable events and ultimately reduce the cost of claims.
  • Early adoption of IFRS 17 (to align with IFRS 9).

SA TAXI AUTO REPAIRS AND SA TAXI AUTO PARTS

  • Repair and refurbishment capacity increased to ~220 minibus taxis per month in SA Taxi Auto Repairs' combined autobody repair and mechanical refurbishment centre.
  • Launched SA Taxi Auto Parts in March 2018 and the salvage operation shortly thereafter.
    • Retails well-priced new and pre-owned auto parts targeting open market taxi operators, which broadens the market exposure of SA Taxi's brand and services and presents potential opportunities for cross sell organic revenue growth.
  • Positive impact on the finance business with lower average refurbishment cost (down ~4% to 10%1), higher recovery on repossessed vehicles, and thus lower loss in the event of default.
  • Positive impact on the insurance business with lower average repair cost and thus lower cost of claims.

SA TAXI REWARDS

  • Established in close collaboration with SANTACO.
  • Leverages the industry's purchasing power to enable minibus taxi operators to procure higher quality parts and consumables at a lower cost.
    • Enhances safe and sustainable public transport.
    • Ultimate beneficiaries are the minibus taxi operators and the industry.
  • Currently comprises
    • Fuel programme in partnership with Shell.
    • Tyre programme in partnership with Bridgestone (which provides operators with a high quality and safer tyre designed specifically for minibus taxis, available at a lower cost).
    • Further programmes aimed at parts procurement under consideration.

1. Reduction in the cost of refurbishment is dependent on the nature of the refurbishment or repair.


  • SA TAXI'S IMPACT
  • MARKET CONTEXT
  • OPERATIONAL PERFORMANCE
  • BUSINESS ACTIVITIES

DELIVERING SHARED VALUE FOR THE MINIBUS TAXI INDUSTRY

As the primary form of public transport in South Africa, the minibus taxi industry has a significant impact on the environment, society and the economy. Through its unique market position, SA Taxi is able to have a positive and meaningful impact on this dominant form of transport through inclusive economic growth and responsible environmental initiatives.

FINANCIAL
INCLUSION
  SME
EMPOWERMENT
  SUSTAINABLE
JOB CREATION
  IMPROVING PUBLIC
TRANSPORT INFRASTRUCTURE
  ENVIRONMENTAL
SUSTAINABILITY
       
        Financial inclusion        
             
FACILITATING ASSET OWNERSHIP BY BLACK SMEs
               
 

~80%
SA Taxi customers classified as previously financially excluded and under-banked.

   

~640
Empirica score below which banks are unlikely to offer finance.

   

~590
Average Empirica score at which SA Taxi grants finance.

 

                 
        SME empowerment        
             
 

100%
Black-owned SMEs
2018: 100%.

 
 

25%
Women-owned SMEs1
2018: 23%.

 
 

22%
Owners under the age of 35 years1
2018: 23%.

 
                 
      Sustainable job creation      
         
 

~1.8
Direct jobs per taxi vehicle
2018: ~1.8.

   

>145 000
Direct jobs created by SA Taxi's fleet since 2008
2018: >130 000.

   

~600 000
Indirect jobs enabled by the minibus taxi industry2
2018: ~600 000.

   

>15 000
Direct jobs created by SA Taxi's fleet in 2019
2018: >13 000.

SUPPORTING ECONOMIC TRANSFORMATION AND INCLUSIVE GROWTH
 

R3.8 billion
Loans originated creating 8 591 SMEs in 2019
2018: R3.3 billion loans originated creating 7 734 SMEs.

   

R25.7 billion
Loans originated creating 81 014 SMEs since 2008
2018: R21.9 billion loans originated creating 72 423 SMEs since 2008.

             
      Improving public transport infrastructure      
         
 

8 591
Reliable new and pre-owned minibus taxis placed on the road in 2019.

   

Commuter experience improved
Through replacing an aged minibus taxi fleet.

   

Road safety projects
Majority of first trickle dividend to SANTACO invested into Hlokomela road safety project.

   

Tyre rewards programme
Higher safety specifications at lower cost.

    Environmental sustainability      
       
 

SA Taxi contributes to reducing the carbon footprint of the minibus taxi industry through modernising the minibus taxi fleet, which ultimately reduces greenhouse gas emissions.

   

9.8%
Abatement on carbon emissions3.

   

SA Taxi is also focused on promoting environmental and social sustainability through its business operations.

SUSTAINABLE CONSUMPTION     RESPONSIBLE WASTE DISPOSAL     ALIGNMENT WITH GLOBAL PRINCIPLES     PLATINUM GIIRS RATING

SA Taxi Auto Repairs and SA Taxi Direct reducing energy consumption through the installation of solar panels in 2017.

   

100%
Waste from SA Taxi's direct operation recycled.

   

Green Bond Principles, International Finance Corporation Sustainability Framework and United Nations Sustainable Development Goals are considered.

   

Awarded Global Impact Investing Rating System (GIIRS) rating in 2018
GIIRS determines an overall rating of a fund's social and environmental impact, with SA Taxi achieving the highest level in the Overall Impact Business Model Rating.

 
      Supporting our people      
           
HIGHLIGHTS
               
 

63 promotions
Of which 61 were black employees*
2018: 45 promotions of which 37 were black employees.

   

37%
Of employees are women
2018: 39%.

   

86%
Of employees are black*
2018: 84%.

               
 

53
Training programmes conducted, of which 8 are accredited
2018: 55 training programmes conducted, of which 17 were accredited.

   

9
Average training hours per employee
2018: 12.

   

88%
Of employees who received training are black*
2018: 69%.

HEADCOUNT AT YEAR END
 
  GENDER AFRICAN   COLOURED   INDIAN   WHITE   TOTAL  
  Male 623   17   21   104   765  
  Female 357   16   20   65   458  
  TOTAL 980   33   41   169   1 223  
    80%   3%   3%   14%   100%  
 
                 
1. On 2019 originations.
2. Department of Transport Minister Dipuo Peters' address at National Council of Provinces Budget vote NCOP 2014/15.
3. Percentage of tonnes of carbon dioxide equivalent abatement saved in 2019 through SA Taxi's financing activities.
* Black includes African, Coloured and Indian South Africans.
  GROWING MINIBUS TAXI USAGE    
    Driven by:
  • Preferred mode of public transport due to competitive pricing, accessibility and reliability.
  • Most bus and rail commuters still use minibus taxis for transport to and from stations.
  • New passenger vehicles sales 43% since 2013.
  • Population growth 11% since 2013 and increasing commuter density due to urbanisation.
  • The minibus taxi industry is also transforming due to increased regulation and capitalisation, driving a better service for commuters.
  Minibus taxis are the dominant form of public transport in South Africa and provide an essential service. As such, spend on minibus taxi transport is non-discretionary for most South Africans. This renders the minibus taxi industry defensive and growing, with operators remaining resilient in a challenging environment.  
  Minibus taxi usage increased >20% since 2013  
  69% of all households use minibus taxis (from 59% in 2003), which also service 75% of all work and educational public transport trips.  
     

Source: Stats SA Land Transport Survey 2018. | NAAMSA Sales Results. | National Treasury Public Transport & Infrastructure system report. | Department of Transport – Transport Infrastructure report. | Passenger Rail Agency of SA. | SA Bus Operators Association. | FIN 24 – "New public transport system" 14/10/2017. Websites: Rea Vaya, MyCiTi, Rustenberg Rapid Transport.

STRUCTURAL ELEMENTS SUPPORTING THE
RESILIENCE OF THE MINIBUS TAXI INDUSTRY

                   

Dominant and growing mode of public transport.

   

Integrated component of the public transport network.

   

Commercially self-sustainable.

   

Demand exceeding supply for minibus taxi vehicles.

  • Ageing national fleet requiring replacement and recapitalisation.
  • Driving higher demand for vehicles that are reliable and efficient.
                   
               
This is driving higher demand for vehicles, finance and allied ser vices
supplied by SA Taxi, resulting in:
Improved credit
performance as SA Taxi is
selective on credit risk, due
to limited supply.
  Improved recoveries as
asset retains value due to
demand exceeding supply.
  Liquid market for SA Taxi's
high-quality and affordable
pre-owned vehicles.

ENVIRONMENT FOR MINIBUS TAXI OPERATORS

Minibus taxi operators remain resilient in a challenging economic environment

      Vehicle prices      
           
 
 

R451 600
Toyota HiAce (diesel) price1
24% since 2015.

   

~R2 350
Impact on monthly instalment since 2015.

   

4.2%
Toyota vehicle prices in 2019.

 
      Interest rates      
           
 

6.7%
Average repo rate2
2015: 5.8%.

   

15.25% – 26.75%
Risk-based pricing interest rate range.

 
      Fuel prices (including fuel levies)      
           
 
 

6%
Petrol price3 at R15.53 per litre.

   

10%
Diesel price3 at R14.34 per litre.

   

Fuel prices only 6% lower than the all-time high reached in October 2018.

 
      Minibus taxi scrapping allowance      
           
 
       

36%
to R124 000.

     
 

MUTED FARE INCREASES

1. Toyota recommended retail price, including VAT, as at 30 September 2019.
2. Average repo rate for the year ending 30 September 2019.
3. Source: www.energy.gov.za: 12-month rolling average petrol price (September 2018 to September 2019).

MINIBUS TAXIS ARE THE PREFERRED MODE OF PUBLIC TRANSPORT DUE TO COMPETITIVE PRICING, ACCESSIBILITY AND RELIABILITY

Short-distance route – Soweto to Johannesburg (23km)

  Minibus taxi   Train   Bus   BRT   Uber  
ACCESSIBILITY On route   Station and
scheduled
  Scheduled stops   Scheduled stops   E-hail  
AFFORDABILITY                    
2017 R14.00   R9.50   R14.80   R13.50   ~R260.00  
Increase 14%   0%   20%   11%   8%  
2018 R16.00   R9.50   R17.80   R15.00   ~R280.00  
RELIABILITY One association
with ~1 400
members.
  Runs every 10 to
20 minutes.

Stops at 7pm.
  A few buses
operating on
the route.
  Volume of buses
< peak capacity

required.
  On demand.  
EFFICIENCY          

~R25 000 per month
AVERAGE MINIBUS TAXI OPERATOR PROFITABILITY1

Long-distance route – Johannesburg to Durban (595km)

  Minibus taxi   Train   Bus – Eldo   Bus – Greyhound  
ACCESSIBILITY On route   Station and
scheduled
  Scheduled stops   Scheduled stops  
AFFORDABILITY                
2017 R290.00   R360.00   R240.00   R390.00  
Increase 3%   8%   0%   1%  
2018 R300.00   R390.00   R240.00   R395.00  
RELIABILITY Three associations
with ~900
members.
  Three times per
week.
  Seven departures each per day, with
fewer on Saturdays and Sundays.
EFFICIENCY        

~R37 000 per month
AVERAGE MINIBUS TAXI OPERATOR PROFITABILITY1

MINIBUS TAXI OPERATORS REMAIN RESILIENT IN AN ADVERSE ECONOMIC ENVIRONMENT.

Latest available information for train, bus and BRT is for 2018. Minibus taxi fares for 2019 are as follows: Soweto to Johannesburg – R17.00. | Johannesburg to Durban – R320.00.

1. Based on SA Taxi's affordability calculator at origination. Average operator profitability varies based on profile of their financial deal (with factors across new versus pre-owned vehicle, loan term, deposit paid, region, association, route dynamics and demand, and insurance products subscribed to). SA Taxi's operator profitability model remains conservative considering the rise in maintenance costs per kilometre in 2018, and accounting for fuel price increases and exchange rate movements.
Source: Industry information. Websites: Metrorail, Bus Rapid Transport, Rea Vaya, Various bus companies. Uber SA app.

Serving higher quality taxi operators to create a more sustainable minibus taxi industry

  NEW ORIGINATION VOLUMES BY RISK GRADE     CREDIT PROFILE OF LOANS ON BOOK
     
     

71 months

Average loan term at origination.

 

38%

Average approval rate.

>R6 000

Minimum monthly operator profit.

 

48 months

Average remaining loan term.

3.2%

Credit loss ratio.

 

>75%

Recovery rate on repossession.

 

  SA TAXI OPERATOR PROFILE                  
                   
 

1.2

Vehicles per customer.

   

3.6 years

Average age of vehicles.

   

47 years

Average age of owners.

   

88%

Toyota vehicles.

   

~29%

Loans originated to repeat customers (during 2019).

SA TAXI'S CREDIT-GRANTING PHILOSOPHY

Niche-specific risk assessment of loans originated
A CREDIBLE
OPERATOR
    IN A SUITABLE
VEHICLE
    ON A PROFITABLE
ROUTE
    MANAGED BY A CREDIBLE ASSOCIATION
           
           

This capability evaluates each taxi owner as a small business and not solely on their individual credit score, enabling us to extend credit in this niche, under-served market segment.

ADHERENCE TO SET RISK APPETITE AND STRATEGY THROUGH APPROPRIATE GOVERNANCE

Assurance through independent audit, monitoring specific risk metrics and effective corporate governance frameworks.

   

INFORMED DECISIONS THROUGH CONSISTENT ANALYSIS OF THE LOANS BOOK AND ORIGINATIONS

Regular stress testing and evaluation of the book origination over the short and long term, embedding scenario-based thinking.

   

MANAGED BY A SUSTAINABLE CREDIT ORIGINATION AND MANAGEMENT PLATFORM

Managing the team and systems that deliver excellence at high volumes by mastering their required competencies.

SA Taxi's vertically integrated business model enables it to participate in margin across the minibus taxi value chain. Underpinned by its data and telematics capabilities, SA Taxi applies and deepens its specialist competencies across the value chain to deliver a comprehensive service to the minibus taxi industry, supporting its growth and sustainability.

  SA TAXI DIRECT (Retail)
 
 

Procurement and retail of new and pre-owned minibus taxis.

 13%

to ~R900 million Vehicle turnover.

    ~7%

Average retail margin per vehicle.

   

Vehicles sold through SA Taxi Direct results in:

  • Product margin earned.
  • High take-up of SA Taxi insurance and allied products.
  • Improved credit performance due to a better-informed customer.

SA Taxi Direct's pre-owned minibus taxis are rebuilt to a high quality and are mechanically robust, providing a reliable and affordable alternative to buying new vehicles in this challenging environment.

 

GROWTH INITIATIVES

Expanding retail network, with KwaZulu-Natal, Western Cape and Mpumalanga under consideration in the medium term.

  SA TAXI FINANCE
 
 

Developmental credit provider offering bespoke vehicle finance for the minibus taxi industry.

 16%

to R10.8 billion Gross loans and advances.

     6%

to 32 441 Number of loans on book.

     23.7%

Weighted average interest rate at origination

2018: 23.6%.

    11.1%

Average cost of borrowing

2018: 11.4%.

   

15.25

26.75%

Risk-based pricing interest rate range.

12.2%

Net interest margin

2018: 11.2%.

    17.9%

Non-performing loan ratio

2018: 17.5%.

    3.2%

Credit loss ratio

2018: 3.5%.

    9.0%

Risk-adjusted net interest margin

2018: 7.7%.

Financing an average of:

  • ~500 new vehicles per month (2018: ~475).
    • Toyota production , Nissan volume and new finance
      products with lower risk customer offering.
  • ~220 pre-owned vehicles per month (2018: ~150).
    • A reliable and affordable alternative for operators in a challenging environment.
 

GROWTH INITIATIVES

  • Further enriching SA Taxi’s proprietary database.
  • Continue investing in technologies that mitigate risk.
  • Continue developing its strategy of vertical integration to support Nissan’s minibus taxi initiative, as SA Taxi hasdone with other minibus taxi vehicle models in the past.

  SA TAXI PROTECT (Insurance)
 
 

Bespoke, comprehensive vehicle insurance and value-added products tailored for the minibus taxi industry.

  20%

to R823 million
Gross written premium.

     > 30 000

Insurance clients1.

     > 2.0

Products per client.

    > 100

Broker network to expand total addressable market.

New claims management system Enhanced value proposition.

    Adoption of IFRS 17
Aligning accounting and finance business.
  • Premiums remained stable.
  • customer acquisition in open market via broker network.
  • Stable penetration of SA Taxi’s growing financed portfolio.
  • Broadened product offering (credit life and other).
  • cost of claim via SA Taxi Auto Repairs due to efficiencies in operations, lower cost of parts procurement and savings via salvage.

 

 

GROWTH INITIATIVES

  • Expansion into the open market (i.e. insurance clients not financed by SA Taxi Finance).
  • Opportunity to furthercost of claim by proportion of claims currently repaired by SA Taxi Auto Repairs.
  • New products being developed.

  SA TAXI REWARDS (Connected services)
 
 

Rewards programmes, including fuel, tyres and parts for the minibus taxi industry.

Fuel reward programme
Launched April 2018 in partnership with Shell.

 

   

 Tyre reward programme
Launched October 2019 in partnership with Bridgestone.

 ~R1 800

Original retail price.

    ~R1 350

Reduced price for taxi operators.

GROWTH INITIATIVES

  • Leverage telematics and rewards programme data to connect with more than 250 000 minibus taxi operators, offering new and existing products.
  • Further programmes aimed at parts procurement under consideration.
1. All minibus taxis financed by SA Taxi must be fully insured, with the majority of SA Taxi’s financed clients independently electing to be insured by SA Taxi Protect.

 

  SA TAXI AUTO REPAIRS
 
 

Dedicated autobody and mechanical refurbishment facility, servicing SA Taxi Finance and SA Taxi Protect.

 20 000m²

Workshop facilities.

     ~220 per month

Internal vehicle refurbishment capacity.

    ~4% to 10%

Average refurbishment cost1.

Rebuilds high quality pre-owned minibus taxis, mitigates credit risk and insurance losses:

  • cost of refurbishment.
  • quality of repair.
  • loss given default in SA Taxi Finance.
  • claims ratio in SA Taxi Protect.

GROWTH INITIATIVES

  • Retail to minibus taxi operators, targeting existing clients and open market minibus taxi operators. This is exposing SA Taxi’s brand to a wider market and facilitating cross-sell organic growth opportunities.
 
SA TAXI AUTO PARTS

Procurement, salvage, distribution and retail of well-priced new and refurbished vehicle parts for distribution into SA Taxi Auto Repairs and to external repairers, and retail to minibus taxi operators.

 

Launched in March 2018.

     > 2 000

unique parts sold.

    ~7 500 m²

workshop, storage and retail facilities.


Cost of refurbishment
  • Import and locally procure new parts from source.
  • Salvage operations recover and refurbish used parts to a high quality.
Supply to SA Taxi Auto Repairs ~R6 million per month.
Supply to external autobody repairers Opportunity to cost of insurance claims by supplying preferred autobody repairers servicing SA Taxi Protect.
Retail to minibus taxi operators >R3 million per month.

GROWTH INITIATIVES

  • Retail to minibus taxi operators, targeting existing clients and open market minibus taxi operators. This is exposing SA Taxi's brand to a wider market and facilitating cross-sell organic growth opportunities.
   


Data and telematics capabilities are core to SA Taxi’s business activities and are key to mitigating risk. The division 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, SA Taxi continues to invest in information technology, data management and predictive analytics, as well as technologies that improve processing capabilities and extract operational efficiencies.

SA Taxi has been tracking minibus taxis for ~12 years.

   

On average, each of SA Taxi’s vehicles travels ~6 100 kms per month.

   

SA Taxi’s vehicles operate on ~5 500 routes covering ~800 000 kms.



1. Reduction in the cost of refurbishment is dependent on the nature of the refurbishment or repair.

A TECHNOLOGY-LED,
DATA-DRIVEN
PROVIDER

OF SERVICES AND

CAPITAL SOLUTIONS RELATING

TO CREDIT-ORIENTATED

ALTERNATIVE ASSETS ORIGINATED
AND MANAGED THROUGH

SCALABLE AND BESPOKE PLATFORMS

OPERATING IN SOUTH AFRICA,

AUSTRALIA AND SELECT

INTERNATIONAL MARKETS.

Innovative and bespoke technology systems that drive superior performance and efficiency.
Generating in-depth insights from the continuous collection of accurate and valuable data to develop a consolidated view of a position, which enables precise and informed internal and external decisioning.
Including customer management, collection and payment service solutions, and subscription-based value-added services.
Lending and capital investment solutions that balance permanent equity optimally leveraged with appropriate debt.
Applying highly specialised expertise to originate new or acquire and/or service existing distressed debt, speciality credit and other alternative assets.
Actively investing in platforms that enable us to continue building our dynamic and flexible servicing capability and fintech solutions, allowing deeper vertical integration.
Proud of our South African roots, from which we leverage our high intellectual property (IP) and know-how, together with South Africa's low-cost collection infrastructure and technology environment, to deploy into new markets.

PERFORMANCE OVERVIEW

15%

HEADLINE EARNINGS ATTRIBUTABLE TO
THE GROUP

R313 million

(39% of group)

   

79%

COST PRICE OF PURCHASED
BOOK DEBTS ACQUIRED

R1.2 billion

   

73%

CARRYING VALUE OF PURCHASED
BOOK DEBTS

R2.4 billion

             

50%

ESTIMATED REMAINING COLLECTIONS

R4.5 billion

   

15%

NON-INTEREST REVENUE

R2.1 billion

   

COST-TO-INCOME RATIO

78.9%
from 80.0% in 2018

RETURN ON EQUITY

20.9%
from 20.0% in 2018

             

STRATEGIC AND OPERATIONAL HIGHLIGHTS

Delivering on growth

ROBUST PERFORMANCE FROM RECOVERIES CORPORATION IN AUSTRALIA

       
Revenue by low double-digit %, all constituting organic growth through new mandates and clients. Operating costs stable.   Significant operational leverage achieved.
       
       
       
Deployment of technologies proven in South Africa into the Australian business. Acquired 25% of leading debt administration business in May 2019.   Invested R122 million in non-performing consumer loan portfolios (NPL portfolios) (2018: R23 million).
       

 

COLLECTIONS REVENUE IN SOUTH AFRICA >20% DESPITE CHALLENGING ENVIRONMENT

Excellent revenue growth in the collection of NPL portfolios performed ahead of expectations and positively offset the expected slowdown in contingency collection revenues.

  ACQUISITION OF NPL PORTFOLIOS AS PRINCIPAL IN SOUTH AFRICA    
  The current South African economic context favours the acquisition of NPL portfolios.   Invested R1 064 million into NPL portfolios
(2018: R639 million).
 
         
  256 NPL portfolios owned with a face value of R22.6 billion.   Revenue from principal collections >30%.  
CONTINGENCY AND FEE-FOR-SERVICE (FFS) COLLECTION
SERVICES PERFORMED IN LINE WITH EXPECTATIONS
         
Difficult consumer credit environment leading to constrained credit extension and lower volumes handed over.   Structural market shift with clients opting to sell NPL portfolios earlier to focus on core business and optimise their balance sheets.   Transaction Capital Risk Services (TCRS) continues to deepen its penetration in both its traditional and adjacent market segments, according to its sector specialisation strategy.
 

  • TRANSACTION CAPITAL RISK SERVICES' IMPACT
  • MARKET CONTEXT
  • STRATEGIC GROWTH INITIATIVES TO CREATE VALUE
  • BUSINESS ACTIVITIES

TCRS's activities contribute broadly to the efficiency and effectiveness of the South African and Australian credit systems. This includes the acquisition of distressed book debts, which assists clients to strengthen their balance sheets by accelerating cash flow and removing NPLs, thus improving their ability to continue providing debt finance to the consumer market. TCRS also assists clients to lend responsibly, to identify which consumers to lend to, and to then collect successfully. This supports the affordability of credit by mitigating unnecessary pricing for risk.

Credit rehabilitation is a crucial element in growing an inclusive economy. In our collections business, the primary focus is on rehabilitating indebted consumers by helping them understand the importance of repaying their debts as a legal obligation, and structuring payments in a manner they can afford. This enables indebted consumers to remain active in the credit system.

TCRS also assists various public sector entities with their revenue enhancement and data analysis, offering receivables management solutions that span the entire collections life cycle. This supports the ability of public sector entities to deliver on their mandate, within a complex regulatory framework.

Through Transaction Capital Business Solutions, SMEs that may not otherwise have access to credit gain access to working capital finance.

R791 million

Loans originated to black-owned SMEs

2018: R596 million.

 

SUPPORTING OUR PEOPLE

TCRS regards its employees as a key asset, who are central to its ability to engage meaningfully with clients, innovate in respective markets, leverage technology and data, and create value for its stakeholders. We are committed to recruiting, developing and retaining high-calibre personnel to drive the growth of the group.

HIGHLIGHTS

Level 1

Transaction Capital Recoveries B-BBEE rating in 2019
2018: Level 2.

96%

Of high-potential employees retained

2018: 88%.

162

Promotions, of which 40% are women and 55% are black*

2018: 115 promotions, of which 61% were women and 85% were black.

93%

Of employees are black*

2018: 92%.

34

Average training hours per employee

2018: 63.

       

Investors in People Organisation (IiP)

Accreditation affirmed for Transaction Capital Recoveries at 'developed' level against new IiP standards in 2019.

74%

Of employees are women

2018: 74%.

376

Training programmes conducted, attended by ~17 900 delegates

2018: 218 training programmes conducted, attended by ~16 800 delegates.

76%

Of employees who received training are black*

2018: 95%.

* Black includes African, Coloured and Indian South Africans.

 

                         
      HEADCOUNT AT YEAR END      
  GENDER   AFRICAN   COLOURED   INDIAN   WHITE   TOTAL  
  Male   436   77   101   97   711  
  Female   1 364   256   279   104   2 003  
  TOTAL   1 800   333   380   201   2 714  
      67%   12%   14%   7%   100%  

In addition to the statistics provided above, TCRS employs 700 people at Recoveries Corporation in Australia.

 

BROAD-BASED BLACK ECONOMIC EMPOWERMENT

Transaction Capital Recoveries is the largest entity in TCRS, and we are pleased with the work done to achieve a Level 1 B-BBEE rating in December 2019.

Strategies are in place to improve the scores of other entities within the group.

EMPLOYMENT EQUITY

YOUTH EMPLOYMENT SERVICE (YES) PROGRAMME

TCRS's employment equity (EE) plan stipulates its approach to promoting equal opportunity and fair treatment across the division. A key focus is increasing the representation of black professionals, especially black women, in professionally qualified and skilled categories within the business.

All entities within TCRS have set EE targets, with aligned recruitment plans that are set against the economically active population. As part of the group's short-term incentive scheme, targets and performance incentives are in place for executives to support the implementation of divisional transformation objectives. TCRS has also introduced a transformation performance target for all managers, ensuring accountability for achieving transformation targets within their respective areas.

Established in 2018, the YES programme aims to curb high levels of youth unemployment in South Africa. Transaction Capital Recoveries recruited 50 young people to be part of our first intake into the YES programme. All 50 participants have completed debt recovery programme training and are currently undertaking a workplace experience placement for 12 months.

SOUTH AFRICA

MACRO- AND SOCIO-ECONOMIC ENVIRONMENT PLACING PRESSURE ON CONSUMERS OVER THE MEDIUM TERM



  • in credit extension.
    • Resulting in in collection opportunities.
  • Challenging consumer credit environment.
    • Contingency and FFS collections seeing yield in contingency collection mandates.
    • Acquisition of NPL portfolios as principal seeing in value and number of NPL portfolios offered for sale, and negotiating pricing of acquired NPL portfolios to earn constant yields.

 


National rehabilitation prospect trend (quarter-on-quarter)

Measures % change in rehabilitation prospects.

  • Scores propensity to repay debt.
  • Empirically based with a sample of >5 million South African consumers in credit default.

National rehabilitation prospects remain subdued, with limited improvement or deterioration.

1 Statistics South Africa, adults aged 15 to 59. I 2. NCR data at June 2019. I 3. June 2019 & 2018 – Bloomberg. | 4. Trading economics website.
5 Rate of inflation reported September 2019 – Bloomberg. | 6. Average repo rate for the years ending 30 September – Bloomberg.
7 Unsecured credit and credit facilities gross debtors book – NCR data at June 2019. | 8. BA900 Regulatory returns gross loans and advances at July 2019.



EUROPEAN DISTRESSED DEBT AND SPECIALISED CREDIT MARKET

MULTIPLE TIMES LARGER THAN THE SOUTH AFRICAN AND AUSTRALIAN MARKETS

  • Economic growth in Eurozone decelerating.
    • 1.1% gross domestic product increase year-on-year in the third quarter of 2019.
  • European regulators continuing to pressure banks to dispose of NPL portfolios earlier.
    • European distressed debt market reached its peak in 2018 with NPL portfoliodisposals with a face value of €205.1 billion.

To achieve attractive risk-adjusted returns, TCRS is targeting niche higher-yielding credit-orientated alternative assets in the fragmented segment of the European distressed debt and specialised credit market:

  • Directly through bilateral transactions.
  • Indirectly via co-investments in partnership with its network of specialist credit managers.

TCRS does not intend pursuing the larger concentrated segment of this market, which is characterised by high levels of competition from sizeable market participants with access to cheap capital and leverage to be deployed for moderate returns.

Source: IBISWorld Report – 'Debt Collection in Australia', April 2019. | Transaction Capital estimates per analysis of reported results by companies mentioned above.

DEFENSIVELY POSITIONED IN A CHALLENGING CONSUMER CREDIT ENVIRONMENT

Key to TCRS's success is its diversified business model, which supports performance in varying market conditions and reduces concentration risk.

  • Three geographies: South Africa, Australia and select international markets.
  • Four business activities: Collection services, specialised credit, transactional services and value-added services.
  • Collection services further diversified by revenue model, sectors, client base and mandates.

      TRANSACTIONAL SERVICES – (~10%)      
           
  Payment services and account management  
  Specialists in customised, innovative and flexible payment processing services, payroll services, and data analytics and software.  
  GROWTH INITIATIVES  
 
  Bolt-on acquisitions.   Implementation of new technologies to refine the integrated payment services platform.
 
     
      VALUE-ADDED SERVICES – (~5%)      
           
  Value-added services, lead generation and customer acquisition  
  Proprietary value-added services provided to the mass consumer market on a subscription basis.  
  GROWTH INITIATIVES  
 
  Bolt-on acquisitions.   Apply data and analytics to grow direct sales.
 
     
      SPECIALISED CREDIT – (~5%)      
           
  Capital deployment within specialised markets  
 
Origination and acquisition of credit-related alternative assets in South Africa and select international markets.   Specialist working capital finance and debtor administration solutions provided to SMEs.
 
  GROWTH INITIATIVES  
  TC Global Finance: Establish a meaningful position in the sizeable but fragmented segment of the European specialised credit market.  
     
      COLLECTION SERVICES – (~80%)      
           
 
Acquisition of consumer NPL portfolios as principal     Contingency and fee-for-service collection services
 
  GROWTH INITIATIVES  
 

South Africa

  • Continued NPL portfolio acquisition opportunities in an expanding underdeveloped sector.
  • in unsecured credit extension despite an over-indebted consumer.
  • Structural market shift with clients opting to sell NPL portfolios earlier to focus on core business and optimise their balance sheets.

Australia

  • Establish a more meaningful position in the sizeable Australian debt collection market.
  • Bolt-on acquisitions of specialist NPL portfolio acquirers.
   

South Africa

  • Grow adjacent sectors, including in consumer accounts receivables and insurance shortfalls.
  • Bespoke solutions, such as early stage collections and debt review.
  • Bolt-on acquisitions focusing on specialist collectors.

Australia

  • Leverage technology to drive further operational efficiencies.
  • Expand TCRS's proven technology, business intelligence and analytics to Recoveries Corporation.
  • Outsource to our low-cost, high IP centre of excellence in South Africa.
  • Bolt-on acquisitions focusing on specialist collectors.
 
  Collection services diversification  
   
     
      DATA, TECHNOLOGY AND ANALYTICS      
           
  TCRS's businesses are underpinned by ongoing investment into data, technology and analytics to enable precise and informed internal and external decisioning.  
  GROWTH INITIATIVES  
 
Process optimisation for workforce management, dialer, propensity to pay scorecards and right time to call.   New technology implementations including artificial intelligence and digital communications.   Expansion of the master data universe to include over 12 million identity numbers.
 
     

1. Approximate revenue composition at 30 September 2019. I 2. Profit share included in revenue at 30 September 2019.