2019

Integrated Annual Report

Strategy

Transaction Capital is an active investor in and operator of credit-orientated assets including distressed debt, speciality credit and other alternative assets. Central to our business model is to identify value assets; to apply our specialist expertise to assess, price, underwrite and mitigate the inherent credit risk of these assets; and to fund their growth with an optimal balance of equity appropriately leveraged with debt, according to our sophisticated capital management approach.

Our strong decentralised divisional management teams manage these assets within well-governed, efficient operational platforms. SA Taxi and Transaction Capital Risk Services (TCRS) operate in specialised, under-served segments of the South African and Australian financial services markets. They are strategically well positioned in their markets and are defensive, delivering shared value through good commercial returns and meaningful social impact, even in low-growth environments.

To drive sustainable future earnings growth, we continue to leverage our intellectual property (IP), leading technologies and low-cost scalable platforms into alternative credit-orientated asset classes in adjacent market segments and selected larger geographic markets.

STRATEGIC OBJECTIVE 1 ORGANIC GROWTH

  • Leverage specialised capabilities at group and divisional level to develop industry solutions that deepen vertical integration within existing market segments, driving good commercial returns and positive social impact.
  • Apply these competencies to create new positions within adjacent and new market segments, and new geographies to drive organic growth.

 

KEY OUTCOMES IN 2019

SA TAXI
  • The division concluded the ground-breaking ownership transaction with the South African National Taxi Council (SANTACO), with immediate financial and operational benefits, and strong prospects for medium-term growth through greater penetration of the minibus taxi value chain.
    • Strategic partnership with SANTACO is informing a deeper understanding of customers, driving collaborative new product development and access to a larger addressable market.
    • Initiatives under way to support the profitability of minibus taxi operators and the sustainability of the minibus taxi industry.
SA TAXI DIRECT
  • Number of minibus taxis sold grew by 14% on last year.
  • Pre-owned market buoyant in challenging economic environment for operators.
SA TAXI FINANCE
  • Strong growth in the loans and advances portfolio.
    • Supported by momentum in the finance of refurbished pre-owned minibus taxis.
    • Operators continue to seek a more affordable but reliable alternative to buying a new minibus taxi in a challenging economic environment.
  • Good take-up of new lower interest rate finance product.
SA TAXI PROTECT
  • Expanded total addressable market of insurance clients in the open market via its broker network.
  • Broadened the product offering with credit life and other products.
SA TAXI AUTO REPAIRS AND SA TAXI AUTO PARTS
  • Repair and refurbishment capacity increased to approximately 220 minibus taxis per month in SA Taxi Auto Repairs.
  • Majority of SA Taxi Auto Parts retail customers are new to SA Taxi, exposing SA Taxi's brand and services to a wider market.
SA TAXI REWARDS
  • Established in partnership with SANTACO.
  • SA Taxi Rewards commenced a new tyre rewards programme in partnership with Bridgestone.
  • Further rewards programmes aimed at parts procurement are under consideration.

 Q&A with David Hurwitz, CEO

 Q&A with Terry Kier, SA Taxi CEO

 CFO's report

TRANSACTION CAPITAL RISK SERVICES
TCRS SOUTH AFRICA
  • The division's high IP, rich data, scale and capital position continues to support the acquisition of non-performing consumer loan portfolios (NPL portfolios) in the current economic conditions, securing predictable annuity revenue growth to underpin its future performance.
    • Invested R1 064 million in NPL portfolios (2018: R639 million).
  • TCRS is now also acquiring NPL portfolios prior to write-off and those collected via legal process, which is extending its total addressable market.
  • Efforts to drive the development of the NPL portfolio market include:
    • Educating clients on best practice in selling their NPL portfolios.
    • Increasing sophistication in accessing higher volumes of portfolios sold on a bilateral, contractually recurring basis (known as a forward flow model).
    • Introducing new sellers to the market.
  • In contingency and fee-for-service (FFS) collection services, TCRS is deepening its penetration in traditional and adjacent market segments, according to its sector specialisation strategy.

 Q&A with David Hurwitz, CEO

 Q&A with David McAlpin, TCRS CEO

TCRS AUSTRALIA
  • Recoveries Corporation's contingency and FFS collections business is growing by deepening penetration in traditional market segments and adjacent sectors.
    • New mandates from existing clients and new clients won.
  • Its cautious and selective acquisition of NPL portfolios as principal continues.
    • Invested R122 million in NPL portfolios (2018: R23 million).

 Q&A with David Hurwitz, CEO

 Q&A with David McAlpin, TCRS CEO

TC GLOBAL FINANCE
  • TC Global Finance was established to pursue credit-orientated asset growth in select international markets.
    • Specific niches in the fragmented distressed debt and specialised credit market in Europe are being targeted, with initial returns meeting expectations.

 Q&A with David Hurwitz, CEO

IN BRIEF

Transaction Capital's divisions are focused 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 2 RISK AND CAPITAL MANAGEMENT

  • Maintain conservative capital management approach by accessing and deploying capital optimally and efficiently in funding credit-orientated alternative asset growth.
  • Apply an investment approach that emphasises exhaustive due diligence investigation, data analysis and risk quantification to add value to the design and implementation of operational strategy and ensure risk is kept within tolerance levels, thereby creating value for shareholders in a unique manner.

 

KEY OUTCOMES IN 2019

CAPITAL MANAGEMENT
GROUP
  • Strong balance sheet provides the financial capacity and strategic flexibility to fund organic and acquisitive growth opportunities.
    • Group balance sheet debt-free at holding company level, with undeployed capital of R950 million.
  • Optimisation of the group's capital structure continues, with capital adequacy strengthening to 29.9% (2018: 28.3%).
    • 26.7% equity and 3.2% subordinated debt.
  • Track record for strong growth and good commercial returns continues to support robust access to equity capital from a well-managed and supportive shareholder base.
  • Maintained favourable access to debt capital markets.
    • R8.2 billion in debt facilities raised from 38 funding transactions.
    • Average cost of borrowing reduced to 11.1% (2018: 11.5%).
  • Stated dividend policy of 2 to 2.5 times earnings met.

 Q&A with David Hurwitz, CEO

 Capital management report

SA TAXI
  • Settled approximately R1.0 billion of interest-bearing debt, improving its capital adequacy ratio to 22.4%.
  • Raised R5.5 billion in debt facilities, with funding requirements secured for the 2020 financial year.
  • Issued R1.7 billion of Moody's credit-rated and JSE-listed debt via its Transsec 4 securitisation programme in the lowest priced Transsec issuances to date.
  • Exploring opportunities with local developmental finance institutions (DFIs) to replace more expensive international DFI funding.

 Capital management report

TCRS
  • Restructured TCRS's funding arrangements to support its increased capital requirements, creating one simplified and efficient structure across TCRS South Africa.

 Capital management report

SA TAXI

CREDIT RISK MANAGEMENT
  • Increasing demand for and volume of repossessed and refurbished minibus taxi vehicles sold enabled the division to maintain credit losses within expectations.
    • Demand driven by operators seeking to lower monthly instalments by purchasing a reliable and affordable alternatives to new minibus taxis in an environment of high fuel and vehicle prices.
    • Average of 220 pre-owned vehicles financed by SA Taxi Finance per month (2018: ~150).
    • SA Taxi Auto Repairs and SA Taxi Auto Parts continued to reduce the average cost to repair vehicles.
  • Conservative credit granting criteria and strong collection performance kept non-performing loans (NPLs) and the credit loss ratio in line with expectations.

 CFO's report

TCRS

INVESTMENT RISK MANAGEMENT
  • The division's existing NPL portfolio is delivering predictable annuity revenue growth.
    • Estimated remaining collections up 50% to R4.5 billion.

 Q&A with David Hurwitz, CEO

 Q&A with David McAlpin, TCRS CEO

 CFO's report

SA TAXI

INSURANCE RISK MANAGEMENT

  • Reduced cost of claim achieved through efficiencies in SA Taxi Auto Repairs and SA Taxi Auto Parts.
    • Supported lower claims ratio and stable premiums, enhancing competitiveness.
    • Expansion of SA Taxi Auto Repairs' facility currently under way to increase capacity to repair insured vehicles and further lower the cost of claim.
  • Early adoption of IFRS 17 – Insurance Contracts, resulting in a more robust balance sheet due to increased provisions and eliminating future uncertainty relating to the adoption of IFRS 17 on results.

 Q&A with David Hurwitz, CEO

 Q&A with Terry Kier, SA Taxi CEO

 CFO's report

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.

STRATEGIC OBJECTIVE 3 DATA, TECHNOLOGY AND ANALYTICS

  • Leverage data, analytics and technology to scale and support highly competitive and efficient operating platforms that deliver sustainable and profitable growth.
  • 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.

 

KEY OUTCOMES IN 2019

SA TAXI
  • Leveraging telematics and data analysis to enhance safety by changing driver behaviour in the minibus taxi industry.
  • Invested around R100 million in different technology systems, including an insurance claims administration system and a stock management system, to support operational efficiencies.
  • SA Taxi Protect claims management system enhancing its customer value proposition.

 Q&A with David Hurwitz, CEO

 Q&A with Terry Kier, SA Taxi CEO

TCRS
  • Continued to investigate and implement new technologies in artificial intelligence and digital communications, and apply behavioural science in collection services in South Africa.
  • Enriched the master data universe in South Africa and building the Australian database.
  • Investments in data and analytics, and deployment of technologies proven in South Africa, supported improved performance in Recoveries Corporation in Australia.
  • Database development and ongoing investment in new technologies should enable TCRS to deliver higher productivity and operational efficiencies, particularly in Australia.

 Q&A with David Hurwitz, CEO

 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 4 ACQUISITIVE GROWTH

  • Target quality assets in focused market segments, in line with defined acquisition criteria, to enhance the specialised capabilities, growth prospects and value of divisions.

 

KEY OUTCOMES IN 2019

TCRS
  • The division continues to assess opportunities for complementary bolt-on acquisitions in adjacent sectors in South Africa and Australia.
    • TCRS Australia acquired a 25% stake in a leading Australian debt administration business, Lanyana Financial Group.

 Q&A with David McAlpin, TCRS CEO


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 5 PEOPLE

  • Maintain best practice governance standards, led by a board with skills relevant to the group's strategy and markets.
  • Identify, assess, develop and partner with entrepreneurial, innovative and experienced founders, owners and managers of businesses.
  • Develop, engage and reward employees and executives to engender an entrepreneurial, high-performance, ethical and inclusive culture.

 

KEY OUTCOMES IN 2019

GROUP
  • Transaction Capital supports transformation objectives in South Africa that seek to address historical imbalances.
    • From 2019, transformation targets included as qualitative measures in the discretionary component of short-term incentives for key executives.

 Remuneration report

SA TAXI
  • Increased the representation of employees who are black to 86% (2018: 84%).
  • Increased training for black employees to 88% (2018: 69%).

 SA Taxi's impact: Supporting our people

TCRS
  • Continued to refine and implement the division's employee value proposition, based on a unified and standardised human resources framework.
    • In South Africa, Investors in People Organisation accreditation affirmed for Transaction Capital Recoveries at 'developed' level against the new standards.
  • Established talent structures to develop a pool of selected successors, supported by a mentorship programme.
  • Ongoing focus on training and development.
  • TCRS Australia focused on developing greater management depth, supported by enhanced management and performance systems.

 Q&A with David McAlpin, TCRS CEO

     
PEOPLE PHILOSOPHY
  • Board succession planning seeks to balance specialised understanding of the group's businesses with new perspectives to enhance strategic guidance, oversight and control.
  • The group executive office has an experienced and specialised leadership team with proven entrepreneurial, merger and acquisition, technical, financial and risk management skills.
  • Divisional executives are accountable for the competitiveness, relevance and performance of their respective businesses, with active support from the group executive office.

These objectives are operationalised within the divisions in the following way:

     
           
                                   
                                   
                                   
                                   
                                   
                                   
 

Entrepreneurial, high-performance and ethical culture

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

 

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 by applying broader experience to a narrow focus.

 

Reward

Fair remuneration commensurate with the level of skill, experience, seniority and industry practice.

Performance incentives applied to drive specific behaviours that support group, divisional or departmental performance and ensure alignment with the group's sustainability and transformation objectives.

 

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.

 
   
           

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 processes.

The Transaction Capital ethics charter defines our vision, mission and values, and outlines our approach to operating as a values-based group. It is implemented in the divisions through a dedicated ethics structure.

 

In TCRS, senior managers employed to deepen the division's penetration into adjacent market segments apply their professional experience and skills to a narrower market segment compared to their previous roles.

 

In SA Taxi, long-serving senior management apply their experience across the division to support ongoing specialisation in each segment.

 

The Transaction Capital Limited Conditional Share Plan 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 those of shareholders.

 

TCRS's employee value proposition provides a unified and standardised human resources framework 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.

 


IN BRIEF


With 4 662 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.