Integrated Annual Report
2020

with TERRY KIER / SA TAXI CEO

How did COVID-19 affect SA Taxi and how has it recovered?

  • SA Taxi performed well until mid-March, despite disruptions experienced earlier in the year. Industrial action at the Toyota plant dampened vehicle supply and, as a result, the origination of new loans and insurance policies. Nonetheless, we were on track to grow earnings in line with past years.

    This changed when the national lockdown was declared on 27 March 2020. SA Taxi Direct, other external dealerships, SA Taxi Auto Repairs and
    SA Taxi Auto Parts had to close, which stopped all loan originations, refurbishments and parts sales during April and May 2020. The Toyota plant was also closed, putting further strain on the supply of minibus taxis to the market.

    However, we quickly put in place measures to soften the impact on our clients and on us, and both the industry and SA Taxi proved to be remarkably resilient in extraordinary circumstances.

    As things stand, our core business is performing well. Loan origination levels in SA Taxi Finance remain healthy, and collections on our financed book are recovering within expectation, reaching around 85% of pre-COVID-19 levels in September 2020. Demand for minibus taxis remains strong and in line with pre- COVID-19 levels, as evidenced by the increase in loan applications for both new and pre-owned vehicles compared to last year.

    To meet this demand, and given pressure on minibus taxi operator affordability due to the rising cost of new vehicles, we will continue to drive the sale and finance of our fully refurbished pre-owned minibus taxis, lowering the cost of ownership for an operator. Our increased refurbishment capacity at SA Taxi Auto Repairs will support a higher supply of pre-owned vehicles to our dealerships and, in turn, increased loan origination activity.

    Our insurance division, SA Taxi Protect, posted a reasonably good performance for the year. Claim activity was lower, especially at the height of the lockdown, but we did see higher lapse rates as COVID-19 affected the affordability of insurance cover. Despite this, our broader insurance offering and our strategy to target clients not financed by SA Taxi supported high single-digit growth in the number of policies on book. Gross written premiums were up 10% for the year.


What measures did you put in place to support your clients?

  • Our primary objective is to support the financial health of minibus taxi operators and the industry more broadly. The first thing we did was to implement initiatives that ensured that the minibus taxi operators we finance were able to survive the lockdown and associated restrictions on passenger numbers, which placed strain on their income and made it difficult for many of them to service their loans. We introduced a relief programme for clients in good standing, allowing them to defer their loan instalments for April 2020, and pre-paid their insurance over this period to ensure cover was maintained (which is mandatory for all operators financed by SA Taxi).

    We also provided specific payment relief to qualifying clients for May and June 2020. This was mainly for operators of long-distance routes who were especially hard hit by the restrictions on interprovincial travel, which were kept in place for longer. Total payment relief provided to our clients amounted to some R400 million. To help the industry get back on its feet once lockdown restrictions were eased, we also provided a limited time offer to qualifying clients on new loans originated, whereby they could choose either a lower interest rate of 15% or R25 000 towards their deposit, balancing meaningful support with what we could afford.

    While this short-term relief has no doubt helped, we expect the pressure on operators to last for the next three to four years. With the virus showing signs of resurgence, the risk of prolonged or tighter restrictions, at least in so-called COVID-19 hotspots, will remain. Even under lockdown level 1, with almost all restrictions lifted (including for interprovincial travel), minibus taxi activity was still down at around 90% of pre-COVID-19 levels, with interprovincial travel operating at around 70% capacity. Whereas our industry is certainly more resilient than most, it will not escape the economic hardship ahead.

    The support we provided to our clients did of course affect SA Taxi’s profitability, but it has been critical in sustaining our clients, who are all SMEs. Our focus has always been on creating solutions that benefit minibus taxi operators and the wider industry, which allowed us to quickly develop solutions under such unique circumstances. We worked hand-in-hand with the industry to help our clients weather the worst of the crisis, which was quite simply the right thing to do. But I do not think one can underestimate the longer-term benefits for SA Taxi of getting closer to our clients during this incredibly tough time. It will stand us in good stead as the country emerges from the impact of the pandemic, and looks to accelerate the reconstruction and recovery of a very fragile economy.


Which features of the minibus taxi industry make it more resilient than others?

  • Public transport is a non-discretionary expense for many South Africans. People need to travel long distances to work (or to find work) and to access services, and most South Africans rely on minibus taxis as the most affordable and convenient option. While this makes the minibus taxi industry indispensable to South Africa’s economic productivity, with commuter mobility a precursor to economic activity, and minibus taxis as the country’s dominant mode of public transport, it does not mean the industry is impervious to external shocks. In fact, it is very connected to the socioeconomic realities of the people it serves. Although most commuters are dependent on the industry, the reality is that fewer people are travelling than before COVID-19.

    Certain factors helped soften the impact on minibus taxi operators. Lower fuel prices and interest rates helped reduce their operating costs, while fare increases of on average 7% for the financial year ending 30 September 2020 supported their income. Also, minibus taxis were able to resume operations earlier than other forms of public transport. However, restrictions on passenger numbers and lower commuter activity linked to the economic slowdown and higher unemployment have placed considerable pressure on operators. We believe the industry will recover quickly given its essential status, as it will benefit early as economic activity recovers.

    While other modes of public transport such as bus and commuter rail are subsidised, government currently provides no subsidy to the minibus taxi industry. The pandemic has certainly underlined how indispensable the minibus taxi industry is to local and national economic activity, and it appears government has taken note. The Minister of Transport has made a real effort to engage with and understand the nuances of the industry, and indications are that the ministry is considering new regulations, which may provide more financial security for operators.

    Properly considered regulations, implemented correctly, will formalise the industry to a greater extent, ultimately benefitting commuters. For operators, subsidisation would improve their cash flows, also positive for SA Taxi. Through our strategic partner and shareholder, SANTACO,
    SA Taxi has provided data and discussion papers on request to government. We wait to see what resolutions are reached between the industry and government, and appreciate how difficult and complex the process will be to provide subsidies to 250 000 operators nationally.

    I believe that stakeholders like SA Taxi remain fundamental in supporting the industry’s development, and our seat at the table in industry discussions is a meaningful one. I think we all realise that change is required, especially to ensure the industry becomes more focused on what is best for commuters and better managing its broader impact on society. This is necessary for the industry to become more widely recognised and appreciated as the national asset that it is.


What was the most important factor underpinning SA Taxi’s resilience during this period?

  • The philosophy that infuses the way we run SA Taxi is crucial to our resilience. Looking after our clients, our staff and other stakeholders in our value chain, is very much part of our DNA. I believe this has a lot to do with our ability to adapt quickly both to emerging risks and opportunities. During the initial stages of the pandemic, our partnership with SANTACO and a good working relationship with the National Taxi Alliance (NTA) gave us first-hand insight into what our clients most needed, and how best to accommodate them within our means. As I have alluded to already, the credibility of our commitment to the industry allowed us to get closer to our clients than ever before. Given the uncertainty in the early days of the pandemic, it was crucial to be in constant communication with all our stakeholders, but this really is the way we do things in the normal course of running our business.

    For every decision we took regarding payment relief, we consulted with both SANTACO and the NTA. This gave us access to all levels of the industry, from leadership to grassroots level in the regions and associations. We also engaged directly with the Department of Transport and our funders and shareholders on these relief measures. What became clear to us is that SA Taxi is considered a pivotal roleplayer in the industry, and our consultative approach and willingness to listen and take the advice of our partners is recognised and appreciated.

    Given the urgent need for financial support across the industry, we took a decision in conjunction with the group to continue paying a dividend to SANTACO. The dividend maintained the deal’s relevance at a critical time for SANTACO and its members and enabled continued repayment to debt investors during this period. Part of the dividend was allocated to COVID-19 related initiatives, including testing and providing personal protective equipment at taxi ranks, which directly benefits the safety of minibus taxi operators and commuters.

    Ultimately, the support we received from our funders, without exception across banks and debt funders locally and internationally, cushioned us in supporting our clients, staff and other stakeholders.


And the impact on SA Taxi’s employees?

  • Early on in the crisis, we identified the need to update our people frequently on SA Taxi’s COVID-19 response, especially to assure them of business stability and job security. Besides knowing that their jobs and salaries were secure, and that the business would get through the worst and make a return to growth fairly quickly, it was important for people to know that they matter – not just as employees with a job to do, but also as colleagues and individuals.

    We were fortunate in being able to continue paying our employees their full salaries and not having to retrench any staff, as we managed to maintain our business momentum even during lockdown.

    We implemented a work-from-home policy during the height of the lockdown. However, in our experience working remotely is problematic over an extended period, as employees have no connection to the lived culture of the organisation, and it supresses our ability to engage and collaborate in generating new ideas and innovating. Also, SA Taxi is fundamentally a client-focused business, and our clients want to come in and engage with our people about their businesses. We continue to use video conferencing and remote working tools where necessary and appropriate to ensure the safety of our employees, but our objective is to have all our teams back at work, engaging with our clients in person, to the extent that it is practical as the pandemic runs its course.

    Part of our success is our ability to connect individually and in person with all our employees across the business, to make sure we are all aligned in achieving the objectives of our business. I believe being disconnected from the culture of the business slowly dissipates the energy levels of employees and their understanding of their role as part of a bigger collective. Further to this, we started slowly migrating our employees back to work, with all income-producing divisions back at their respective workplaces from 1 November 2020. Some support and shared-services employees will continue to rotate between remote-working and office-based shifts.

    We take our obligation to create a safe environment for all our people seriously and have put in place the necessary measures to reduce the risk of at-work infection. While there has been an additional layer of costs, directly in meeting COVID-19 protocols and indirectly in rolling out technologies to support work-from-home teams and platforms, we kept costs under control. Our core cost-to-income ratio improved to 43.2% (2019: 44.2%) as our investment in technology drove operational efficiencies.

    We have been very fortunate at SA Taxi. Only 74 of our colleagues were infected with COVID-19 in a workforce of close to 1 300 people and all of them have recovered. When a case was identified, we shut down those areas and deep cleaned, with full isolation protocols observed. As reported last year, we established an onsite clinic at our head office complex in Midrand where most of our employees are based, which supported our COVID-19 response. We have increased the nurses and doctors available at the clinic, and employees had access to a dedicated reporting line for COVID-19 assistance.


Were there any supply chain disruptions during this period, other than at the Toyota plant?

  • SA Taxi Auto Repairs and SA Taxi Auto Parts are able to buy and hold stock levels in bulk, which we had in place before the pandemic hit. Our supply chain is diversified across local and international suppliers, as well as through the salvage component of SA Taxi Auto Parts, so it was only peripheral items that we needed, most of which was available locally. As a result, we experienced no disruption in our production line. Going forward, we will make some changes to managing stock because we have seen that the benefit of holding stock far outweighs the minimal carrying cost. We will keep buying in bulk and holding stock longer, which will support continuity of supply.


How did SA Taxi’s focus on technology and data help in responding to the pandemic?

  • Our data and telematics again proved their value. We were able to track kilometres travelled for both local and interprovincial routes, as well as the level of operator activity. This information enabled us to proactively respond in providing debt relief and other measures, and to accurately model
    the rebound in volumes for our clients. As mentioned by David Hurwitz, commuter mobility is a precursor to economic activity, and the minibus taxi industry is recovering quickly and transitioning closer to normal activity as the economy reopens. We have been able to track this reliably through
    our telematics data. We also shared pertinent data and models with the industry and government to assist in their decision-making in relation to the industry as a whole, and we’ll keep sharing our insights and analysis for the betterment of the minibus taxi industry and the commuters who depend
    on it.

    The pandemic put pressure on our timetables for adoption and implementation of new technologies and strategic initiatives, such as our direct sales model that is run remotely from a central location. This has supported our ability to continue working with our dealer network over this period. We have also accelerated some of our initiatives around becoming more digital and more client-centric, utilising social media and electronic contacting, which will improve interactions with our clients and business partners and drive efficiencies.


Besides SA Taxi’s resilience, were there any other highlights during the year?

  • We adopted an ESE framework for SA Taxi, which has helped to formalise and focus much of the work that was already being done across the division as part of the ethos of the business. It is also enhancing our conversations with and reporting to shareholders and debt providers on an issue that is becoming increasingly material for them.

    We have significantly enhanced our ethics, people management and governance processes by strengthening capacity through a number of appointments, including an ethics officer to oversee the ethics management process and the rollout of an ethics plan in the business. We have not seen evidence of any increase in unethical behaviour, fraud or governance breaches, which may accompany a deterioration in the economic environment. Our ethics and risk functions are monitoring our operations to make sure we respond to any changes in this trend, and we continue to monitor claims behaviour in our insurance business, across credit life and comprehensive claims.

    We have also made new appointments in our people management teams, including hiring a new people executive in May 2020, who will report directly to me and work with all business leaders to drive the people and transformation agenda for SA Taxi. This role is supported by a transformation manager, appointed in June 2020, who will focus on driving employment equity, skills development, inclusivity and diversity across our business. Our focus on transformation will include the development of a tactical transformation plan underpinned by better transformation data and reporting.

    A major initiative on the go is SA Taxi’s job architecture process, starting with a clean-up of people data. The architecture process aligns each role’s requirements to skills and competencies, education and experience of employees to achieve defined role outcomes. This is then connected to the relevant job grade and associated Department of Labour level, which will support employment equity planning. Accelerated leadership candidates are already gaining good exposure across the business, which bodes well for talent development that supports effective transformation in our workforce. We are engaging directly with the Department of Employment and Labour to develop an enabling framework for employment equity outcomes.


Looking forward, what are the prospects for SA Taxi?

  • The management team and I are obsessed with growing this business in the upper teens. We are in the fortunate position that we do not have to focus on survival, which again speaks to the resilience of our business and our sector. For SA Taxi, our focus is on making sure our platform is cost-efficient, and then adding top-line growth. We are very confident that we are well positioned to achieve both. All indications are that our loan origination levels are coming back quickly and within the risk appetite that we are comfortable with.

    There is still real opportunity to grow SA Taxi organically. We are selling more pre-owned minibus taxis, partly driven by the rising costs of new vehicles as well as economic conditions, so our quality re-manufactured pre-owned minibus taxis are hitting the mark. We are also looking to establish a business that combines our telematics capabilities, rewards programmes, client data and finance offerings into a single transactional account relevant to the minibus taxi industry. With SANTACO as a strategic partner, I am confident in our ability to leverage our unique position in the market to drive growth over the medium term, to the benefit of minibus taxi operators and the broader industry.

    I am particularly proud of my team because I believe that we conducted ourselves with dignity by showing respect and compassion – not just to our employees and clients, but to our partners and the industry at large in a time when it was most needed. When we speak about resilience in this business, the real test of resilience for me is how you behave as an organisation towards the people who are your business – your employees, clients, business partners and your industry. The culture of this business is key to its resilience, simply by always respecting the people who will sustain us into the future. Ultimately, it is the quality of our relationships with key stakeholders that adds up to future value, way beyond what the balance sheet looks like.