Integrated Annual Report

Chairman's report



COVID-19 continues to affect the lives and livelihoods of people across the world.

Within Transaction Capital, we have lost four employees to COVID-19. We extend our deepest sympathies to the families, friends and colleagues of Christopher Guy Harradine, Hilton Esterhuizen, Nompumelelo Jivane and Sherizia Shalande Mouers.

While efforts to limit the spread of the disease have seen some success in South Africa and Australia, the socioeconomic cost has been unprecedented and has sharply raised sovereign debt. A resurgence of infections in key economies indicates that we are far from an end to the pandemic.

We remain concerned about the ongoing impact on livelihoods, with uneven signs of economic recovery and further shocks to the global economy still possible. The recovery of South Africa’s fragile economy is in any event likely to lag that of the global economy, with some analysts anticipating that GDP will reach 2019 levels only by 2024.

The pandemic has intensified already pernicious socioeconomic risks in South Africa, in particular inequality, poverty and access to adequate healthcare, which may lead to elevated social instability.

However, the group’s divisions are well positioned in relation to demographic and socioeconomic trends, to allow us to create shared value through good commercial returns and meaningful social impact. This positions the group to deepen our support for our stakeholders and broader society.

We have made good progress in deepening the group’s social relevance by introducing measurable ESE frameworks in SA Taxi and TCRS. These provide stakeholders with an objective view of the group’s impacts and inform our long-term strategy. The frameworks also considered specific United Nations Sustainable Development Goals as part of the development process, thus aligning our sustainability efforts and reporting to this important global initiative.

Operating environment

In South Africa, initial expectations were that GDP would retract by as much as 6% in 2020. The unprecedented pressure on the domestic economy now has banks, analysts and government warning that GDP could retreat as much as 10%, the largest contraction in nearly 90 years.

The country’s official unemployment rate rose to 30.8% (September 2020) compared to 29.1% a year earlier. This is South Africa’s highest unemployment rate in 12 years, with more than 2.2 million jobs lost in the second quarter of the 2020 calendar year alone. This will intensify the pressure on already indebted consumers.

The Australian economy recently entered its first recession in nearly 30 years. Real GDP is expected to fall 1.5% in the year to June 2021 before rebounding 4.75% in 2022. Unemployment is forecast to peak at 10% in December 2020 before slowly recovering to 6.5% by June 2022.

Resilience and growth

With a near 20-year track record for high-quality earnings growth and attractive risk-adjusted returns, the group achieved compound annual growth in core headline earnings per share of 23% for the five years to 30 September 2019. Prior to the effects of COVID-19, the group was on track to deliver earnings growth in line with this past performance.

COVID-19 subdued the group’s performance for the 2020 financial year, interrupting our long-term growth trend. However, SA Taxi and TCRS demonstrated resilience in their agile responses to the volatile dynamics accompanying the pandemic. Their operational, financial and strategic flexibility allowed them to quickly align their operating models, financial structures and growth plans to prevailing economic realities and emerging opportunities. Operational activity in many instances is now nearing or exceeding pre-COVID-19 lockdown levels. The group’s swift responses to the impacts of the pandemic underpinned a decisive recovery in our divisions and enabled significant strategic progress in the year.

This recovery validates the group’s robust business model. We are invested in attractive market segments, with highly defensive businesses able to withstand difficult economic conditions and benefit from emerging opportunities. Effective implementation of measures to stabilise the group, protect the group’s balance sheet and secure ample funding to invest in growth have placed the group among the few businesses that have managed to improve their prospects during this extraordinary time.

The group’s good standing with investors allowed us to issue nearly R900 million of new equity on a pre-emptive basis to facilitate a transformational and value-accretive investment in a non-controlling 49.9% of WeBuyCars on 11 September 2020, establishing our third market vertical.

Shareholder matters

COVID-19 has tested the group’s people, business model and operational processes, as well as its relationships with stakeholders and governance systems like never before. I am pleased that Transaction Capital’s directors, executives and employees have remained true to the group’s values and principles.

The board and its committees provided intensified input and oversight over the year to ensure that all governance processes and controls remained effective, and informed decisions were made, backed by extensive modelling and risk analysis.

Our businesses are financially technical, highly specialised and vertically integrated. As such, assembling a diverse board with relevant skills and experience has been an ongoing strategic imperative.

The board welcomed Ms Sharon Wapnick, Mr Ian Kirk and Dr Suresh Kana as independent non-executive directors during the year. As highly seasoned directors, they bring considerable skills and experience to the board, which now comprises nine non-executive directors, eight of whom are independent, and five executive directors. Dr Kana has also been appointed as lead independent director, effective 1 November 2020.

Ms Theresa Palos stepped down as company secretary to focus on her broader role across the group. We welcomed Ms Sharon Nayger as our new company secretary from 1 November 2020. Ms Nayger is an admitted attorney with more than 20 years’ experience in law and finance.

I am particularly pleased to announce the acquisition by Royal Bafokeng Holdings (RBH) of 1.8% in Transaction Capital (representing 12 million ordinary shares) via a secondary purchase of shares in the market. The acquisition became effective on 20 November 2020. RBH is expected to increase its stake by a further 1.9% in January 2021, subject to shareholder approval, which is the next step in a planned long-term strategic relationship with RBH.

As announced via SENS on 18 and 19 February 2020, Transaction Capital’s founders, Jonathan Jawno, Michael Mendelowitz and Roberto Rossi, sold a collective 69 million Transaction Capital shares in equal proportion through their respective shareholding vehicles (Pilatucom Holdings Limited, Rutland Trust and Sugar Tube Trust) via an accelerated bookbuild offering. The founders remain materially invested in the group, each retaining 5.5% for a total combined shareholding of approximately 16.5% (109 million shares).

Subsequently, as announced via SENS on 17 September 2020, the family of Roberto Rossi is undertaking a process to rearrange the ownership of their interest in Transaction Capital, but with no change in absolute holdings. The Sugar Tube Trust distributed its shares to Roberto Rossi, who will then dispose of the shares to Pilatucom Holdings Limited (50% of the shares of which are held by trusts of which Roberto Rossi is a contingent discretionary beneficiary) once formalities are finalised. As announced via SENS on 26 November 2020, the family of Michael Mendelowitz is also undertaking a process to rearrange the ownership of their interest in Transaction Capital, but with no change in absolute holdings. The Rutland Trust distributed its shares to Michael Mendelowitz, who will then dispose of the shares to Pilatucom Holdings Limited (33.3% of the shares of which will be held by a trust of which Michael Mendelowitz is a contingent discretionary beneficiary) once formalities are finalised.

Transaction Capital’s free float has increased to 81% (2019: 68%), with a concomitant increase in the average daily number of shares traded by 129% to 1.3million (2019: 0.6 million). We have also seen an increase in local and international institutional shareholdings. GIC Private Limited (formerly known as Government of Singapore Investment Corporation) increased its shareholding in the group to 5.19% in February 2020, followed by the Public Investment Corporation SOC Limited increasing its shareholding to 15.03% in July 2020. Over the year, foreign institutional ownership has increased to 24% (2019: 18%).

Transaction Capital’s ordinary dividend policy is 2.0 to 2.5 times cover. After extensive deliberation and in view of the impact of COVID-19, the board has opted to retain capital and not to pay a dividend for 2020. This cautious and conservative approach to preserve capital will help to ensure adequate financial capacity and flexibility to weather adverse economic conditions and invest in our strategic growth initiatives.

Prospects and appreciation

Our current assessment of operating conditions and growth prospects sees the group resuming its strong organic growth trend in the coming year, with 2021 exceeding 2019 levels in line with pre-COVID-19 growth rates. Should this expectation materialise, we anticipate being in a position to resume dividend payments within our stated dividend policy in the medium term.

The business models of SA Taxi, TCRS and WeBuyCars have gained relevance in the COVID-19 environment, underpinned by the defensive characteristics of their market sectors. For SA Taxi, the nature of minibus taxis as an essential service in South Africa meant that they continued to operate during the national lockdown, with other modes of public transport faltering. In TCRS, the rise in consumer indebtedness has created larger NPL Portfolios to manage or acquire. And in WeBuyCars, more consumers are opting for used vehicles as disposable income is under strain and new vehicle prices increase.

Although SA Taxi, TCRS and WeBuyCars are well placed to return to their long-term track records for growth, further sharp downturns in socioeconomic conditions in South Africa remain the primary downside risk to our expectations for growth and returns in the years ahead.

The group has enjoyed widespread support from our bankers, funders and advisers for many years. But in a year marked by such volatility, it has brought to the fore the depth of these relationships and the importance of trusted partnerships in trying times. Your support has enabled our divisions to become even more relevant to their clients and the group to invest – almost without interruption – in our planned and new growth initiatives. We are indebted to you for your trust in Transaction Capital.

The group’s directors, executives and employees have demonstrated exemplary skills and perseverance over the year. It is due to your dedication that Transaction Capital is well placed to build on its long-term track record for growth for 2021 and beyond, despite facing the most difficult year in the group’s history.