Transaction capital risk services
Strategic and operational highlights
REPOSITIONING FOR GROWTH
CONSERVATIVE APPROACH TO
ANTICIPATED IMPACT OF COVID-19
PROTECTING THE BALANCE SHEET
- Estimated remaining collections
expected to decline 4% over
- Adjustment to carrying value of
purchased book debts up 270% to
R588 million (2019: R159 million).
- Adjustments ensure future yields
align with past performance and
protect the balance sheet.
A RESILIENT PERFORMANCE IN A CHALLENGING ECONOMIC AND OPERATING
ENVIRONMENT, WITH PRE-PROVISION PROFIT UP 12%
- Collection services in South Africa and Australia proved resilient in weak
- Operational flexibility demonstrated through quick alignment of operating models,
financial structures and growth plans.
- Growth of 14% in 2020 collections revenue.
- Strong performance from Recoveries Corporation in Australia:
- Earnings growth in line with pre-COVID-19 expectations.
- ~R100 million revenue from collection on NPL Portfolios acquired.
- Growth rate three times higher than 2019.
- Headline earnings of R55 million attributable to the group.
COLLECTIONS1 ON NPL PORTFOLIOS OWNED AS A PRINCIPAL PERFORMED BETTER THAN EXPECTED
- Future collections are
however expected to
recover more slowly and
over a longer period.
Figures expressed as a % of pre-COVID-19 levels.
1. Collections on NPL Portfolios owned as a principal in South Africa.
CORE PRE-PROVISION PROFIT
ADJUSTMENT TO THE CARRYING
VALUE OF PURCHASED BOOK DEBTS
CORE HEADLINE EARNINGS FROM CONTINUING
OPERATIONS ATTRIBUTABLE TO THE GROUP
COST PRICE OF PURCHASED BOOK DEBTS ACQUIRED
(2019: R1.2 billion)
ESTIMATED REMAINING COLLECTIONS
R5 181 million
R2 385 million
STRUCTURAL REALIGNMENT OF TCRS
- Integration of Transaction Capital Payment Services, Fihrst
and Accsys to establish Transaction Capital Transactional
- Creates a single scaled transactional services platform.
- Disposal of Principa, a sub-scale business non-core to
TCRS operations, concluded.
- Wind-down of Transaction Capital Business Solutions
portfolio ongoing, with portfolio accounted for as a
discontinued operation with assets available for sale.
PROGRESS MADE ON IMPLEMENTING ENHANCED
- Formalises a shared-value model for delivering commercial
returns and social benefits.
- Informs strategy development and sustainability initiatives.
- Provides measurable ESE reporting to stakeholders through
an objective view of corporate impact.
WELL PLACED TO RESUME LONG-TERM
TRACK RECORD OF GROWTH
- Business model will gain in relevance in a
post-COVID-19 environment as:
- The effective functioning of consumer credit
sector is critical to economic recovery.
- Indebtedness has increased and this
impairs consumers’ ability to service debt,
which creates larger NPL Portfolios to
manage or acquire (referred to as the debt
cliff in financial commentary).
- TCRS is well positioned to win new mandates
and acquire NPL Portfolios due to its:
- Capital flexibility.
- Highly effective work-from-home
- Proactively restructured staff complement
and infrastructure to accommodate
- Ongoing focus on efficiencies, with
expected cost savings of ~R90 million in
- Strategic initiatives remain valid as market
TCRS remains defensively positioned in a challenging macro- and socioeconomic
environment, with pressure on South African consumers exacerbated by the adverse
impact of COVID-19.
10.0 MILLION CREDIT CONSUMERS ARE NON-PERFORMING (~40% of credit-active consumers)2
Unsecured loans significantly more overdue than secured loans (Q2 20203):
- 7.6 million individuals with 13.3 million loans.
- 77% overdue.
Mortgage and vehicle asset
lending R1 400 billion
- 3.9 million loans.
- 23% overdue.
Elevated levels of unemployment (Q3 20204)
- 30.8% – the highest rate in 12 years.
- By expanded definition, unemployment at 43.1%.
- Youth unemployment at 43.0%.
- 2.2 million jobs lost in Q2 2020.
Not factored into unemployment levels:
which are further increasing strain on consumers and impacting household debt.
RATIO5 AT 72.8%
from 72.7% in Q2 2019)
Monthly household income
deteriorating compared to
three years ago6
and middle class
|Upper middle class
and top end
||R8 000 – R22 000
- Challenging economic environment strained by COVID-19.
- Cautious approach expected by lenders.
- Consumers’ propensity to repay debt deteriorating with weak economic conditions exacerbated by COVID-19.
- Q3 2020 decreased 3.4% compared to Q3 2019 – the largest decline since the index’s inception in June 2017.
IMPACT OF COVID-19 ON
- Larger NPL Portfolios (per BA 900
returns in September 2020, provisions
for year-to-date increased by ~37%,
with credit extension only up by ~2%).
- Balance sheets and operations
- Increasing appetite to sell
- Shift from fixed to variable cost
structures through outsourced
TCRS’S BUSINESS MODEL GAINS RELEVANCE IN A POST-COVID-19
- Credit rehabilitation crucial in growing an inclusive and efficient credit economy.
- TCRS supports the healthy functioning of credit markets by continuing to restructure and recover
NPL Portfolios on behalf of clients.
TCRS strongly positioned to accelerate the acquisition of NPL Portfolios and win agency
collection mandates due to our:
- 20 years’ experience in acquiring NPL Portfolios.
- Ability to adjust pricing methodology to current market conditions, to achieve targeted returns
and collection multiples.
- Omni-channel and data analytics capabilities that support ongoing contacting and transacting
- Work-from-home capabilities instituted quickly and efficiently, with increased productivity.
1. Stats SA, adults aged 15 to 59. | 2. National Credit Regulator (NCR) data at June 2020. | 3. XDS Credit Stress Report: Q2 2020. |
4. Stats SA – 12 November 2020; increase of 6% from 29.1% (Q3 2019). | 5. December 2020 and June 2019 – Trading Economics website. |
6. UCT Liberty Institute of strategic marketing – Impact of COVID on household income.
AUSTRALIAN CONSUMERS EMPLOYED BUT HIGHLY LEVERAGED
Unemployment at 6.9% (September 2020)
- Increasing unemployment an emerging risk.
Persistently high levels of household debt to disposable income at ~190%
- Monthly debt servicing costs at >50% (excluding home loans).
Economy entered its first recession in almost 30 years
- Decline in economic activity exacerbated by COVID-19.
DEBT COLLECTION ENVIRONMENT
- Risk of unemployment increasing.
- Respond well to non-voice and
digital channels, with high levels of
- Significant support from government
support programmes, but these are
coming to an end.
- Fragmented collections market with ~550 participants and
early-stage market consolidation.
- Lower access to funding and increasing regulatory compliance
- Decreasing sales of NPL Portfolios prompting shift towards FFS.
- Decreasing sales of NPL Portfolios prompting shift towards FFS.
||IBIS World Report Debt Collection in Australia 2020; market share based on revenue. | 2. Debt Sale Market Update by Bravure Group 2020; based on price
paid for NPL Portfolios.
Defensive positioning and a diversified business model support performance in varying
market conditions and reduce concentration risk.
ALL BUSINESSES UNDERPINNED BY LEADING CAPABILITIES IN DATA, TECHNOLOGY AND ANALYTICS
Ongoing investments into data, technology and analytics inform precise and informed internal and external decision-making.
1. Approximate revenue composition at 30 September 2020.
Strategic growth initiatives to create value
As market dynamics post-COVID-19 become clearer, the acquisition of NPL Portfolios in South Africa, Australia and Europe provide opportunities to accelerate capital deployment for attractive risk-adjusted returns, with funding requirements for these acquisitions into 2022 already secured.
IN SOUTH AFRICA
TCRS is leading the expansion of this underdeveloped and growing sector in the collections market.
- New sellers are entering the market, with TCRS educating clients on best practice for the sale of NPL Portfolios to support balance sheet strength.
- TCRS is expanding the asset classes in which it invests, including NPL Portfolios sold prior to write-off, those collected via legal process, and portfolios sold on a bilateral or recurring contractual basis.
ACQUISITION OF NPL PORTFOLIOS IN AUSTRALIA
- Australia’s collections market is significantly larger than that of South Africa.
- It mainly comprises unsecured consumer loan and credit portfolios, a market segment where TCRS has over 20 years’ experience in South Africa.
- Further investment is underpinned by:
- A growing database in Australia informing improved book pricing and collections.
- The deployment of technologies proven in South Africa into the Australian business.
- TCRS’s analytics and pricing expertise.
COMMON MARKET ATTRIBUTES FOR AUSTRALIA AND EUROPE
- The Australian and European collections markets are significantly larger than in South Africa.
- A small position in these large markets provides a meaningful growth opportunity for TCRS and the group.
ACQUISITION OF NPL PORTFOLIOS IN EUROPE
- Our strategy remains valid and will continue to be pursued, while maintaining a cautious and selective approach.
- The portfolio will be diversified by asset originator, collection platform and geographic region, with:
- Direct investment on a bilateral basis, and/or
- Co-investment in partnership with specialist credit managers.
- Provides a hard-currency revenue stream for the group.
BUILDING SCALABLE SERVICING PLATFORMS THAT LEVERAGE THE GROUP’S IP AND TCRS’S BUSINESS MODEL
- Opportunity to leverage TCRS’s high IP and low-cost infrastructure developed in South Africa into other geographies.
- Market entry within TCRS’s skill set and competencies.