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Pre-close Trading Update
Transaction Capital Limited
(Incorporated in the Republic of South Africa)
Registration number: 2002/031730/06
JSE share code: TCP
ISIN: ZAE000167391
(“Transaction Capital” or “the Group”)
PRE-CLOSE TRADING UPDATE
On the 12th and 16th September 2013, Transaction Capital will be holding two meetings with
analysts and investors ahead of its closed period for the year ending 30 September 2013.
This statement details the information that will be covered in those meetings.
“With two weeks to its conclusion, Transaction Capital’s first full year as a public company is
early evidence of all that was intended and represented at the time of listing.
The strategic positioning, capital structure and organisation architecture has resulted both in
operational and financial performance in line with expectations, and a material corporate
transaction that demonstrates the group’s ability to identify, develop and when appropriate,
dispose of entities in the interests of shareholders.”
Mark J. Lamberti
Chief Executive Officer
OPERATING ENVIRONMENT
Despite historically low interest rates, the slow growth of the South African economy is
expected to endure through 2014. There is unanimity that the causal factors are structural
unemployment, over indebtedness, tightening credit extension by lenders, and sharply
rising costs of energy and services, with labour unrest being an exacerbating factor.
Extensive empirical and anecdotal evidence indicates a stressed consumer credit
environment. The high percentage of debtors in default, the rising number of loans to
individual debtors, regulatory uncertainty, and generally deteriorating credit metrics, have
caused banks and lenders to tighten credit standards, increase rejection rates and reduce
levels of origination.
Credit related regulatory uncertainty is abating slightly as certain policies are announced
and the authorities’ moderate initially aggressive positions in response to lender’s lobbying
and self-regulation. However, clarity is yet to emerge on credit life insurance pricing,
emolument attachment orders, in duplum and affordability calculations, the value under
which Naedo debit orders operate, and the credit information amnesty. The lack of
enforcement of existing law and regulation constitutes a significant threat to
unsophisticated consumers and compliant lenders.
OPERATIONAL PERFORMANCE
Corporate Activity
On 6 August 2013, Transaction Capital entered into an agreement to dispose of 100% of
Paycorp for a consideration of R937 million, subject to the fulfilment of certain conditions
precedent.
The effective date of the transaction will be the last business day of the month in which the
conditions precedent are fulfilled or waived, expected to be before November 2013. On
30 August 2013 Transaction Capital announced that the Competition Commission had
granted unconditional approval for the transaction. The fulfilment of the remaining
conditions precedent will be announced in due course. The proceeds will be deployed to
deliver shareholder value through strategic acquisitions and/or capital management
initiatives.
Asset backed lending
SA Taxi – minibus taxi finance
The estimated national fleet of 200 000 privately owned minibus taxis remains the primary
means of transport for most South African commuters. The replacement of aging vehicles
continues to create a robust demand for the mini bus taxi finance provided by SA Taxi.
Growth in gross loans and advances continues in the low-teens, with new vehicle origination
almost entirely comprised of Premium vehicles.
Recent strong collection trends have been encouraging, resulting in a stable credit loss ratio
of approximately 6%, while provision coverage has increased moderately.
Rather than refurbish or refinance repossessed Entry Level vehicles, SA Taxi has decided to
accelerate write-off and related insurance claims against these vehicles. This change has
allowed for greater efficiencies in the repair and resale operations of Taximart, which now
focuses exclusively on Premium vehicles.
Rand Trust – invoice discounting and commercial receivables management to SME’s
The demand for working capital by small and medium enterprises continues to provide a
compelling and growing opportunity for Rand Trust.
Although a small part of Transaction Capital’s earnings and assets, Rand Trust has
experienced strong levels of book growth and improved earnings potential as added
product offerings, new clients and higher utilisation levels from existing clients have allowed
the business to achieve greater economies of scale and improved profitability.
Unsecured lending
Bayport – unsecured credit and related products
Reports by the National Credit Regulator and major credit providers indicate a continual
slowing in the high rate of unsecured lending growth experienced in 2011 and 2012.
As a listed entity, Bayport Securitisation (RF) Ltd publishes extensive monthly information on
Transaction Capital’s website, some of which follows.
As a provider of low value (average R13 766) medium term (average 35.5 months)
unsecured loans to middle and lower income consumers, Bayport continues to experience a
high demand for its products.
Although gross loans and advances grew 31% to R5.7 billion in the 12 months to 31 July
2013, the current state of consumer credit health demands the utmost caution and risk
aversion, with the pursuit of credit quality reflected in a sharp decline of monthly
origination from R287 million in October 2012 to the lower base of R146 million in July
2013. Bayport’s level of disbursements continues to be determined by the Group’s risk
appetite rather than through aggressive products and marketing. New origination channels
are being explored including outbound call centre sales targeting higher credit quality
clients.
Provision coverage has increased to 19% with a non-performing loan coverage of 57% at
31 July 2013, in line with the increased non-performing loans (“NPL”) ratio of 34% at 31 July
2013. This increase is in line with: the guidance provided at the half year; the current
challenging credit environment; a rapidly seasoning portfolio arising from relatively lower
origination levels; and a slowdown in late stage collections as a result of operational
changes. Under these circumstances credit losses are elevated with vintage curves tracking
above historical trends.
As part of Bayport’s strategy to differentiate itself from other unsecured lenders, a credit
health program is in development, a component of which includes the sale of additional
insurance offerings to its client base.
Credit services
MBD Credit Services – debt collection as agent and principal
As a market leader, the company remains a major beneficiary of the demand for high quality
outsourced collections services, and credit provider’s elevated propensity to realise value
through the sale of late stage debtor’s books. Despite the high volume of work available,
collections are subdued in the current credit consumer environment.
Higher than expected levels of book purchases late in the prior financial year and during the
first half of this year necessitated an increase in MBD Credit Solutions’ collection capacity.
This disruption, together with a weakening credit consumer environment, has negatively
affected revenue generation, offset partially by historically low cost to income ratios.
Growth as well as the composition of revenue remains in line with the trends experienced
during the six months to 31 March 2013.
Principa – credit risk management consulting
While the demand for credit consulting services in South Africa has declined in line with
corporate caution, Principa’s joint venture in the Middle East, Qatar, is now fully operational
and is generating revenues and profit.
Payment services
Paycorp – deployer and operator of off bank premise ATMs
The vibrancy of the South African cash economy is reflected in continued growth of values
and volumes through the 4 500 ATM’s that comprise Paycorp’s core business ATM
Solutions. Exceptional operational efficiency remains a focus as does the growth of early
stage payments businesses Draw card and EFTPOS.
FUNDING
Debt capital markets remain supportive of Transaction Capital’s asset classes despite recent
debt capital markets failures and the Group remains adequately funded for projected
origination and cash requirement levels.
Since March 2013:
- Bayport Securitisation (RF) Ltd has issued debt of R525 million with the last public issue
being a 1-year bullet senior Class A note priced at a credit margin of 165 bps above 3
month Jibar.
- One new debt investor to the group has invested in Bayport Securitisation (RF).
- The group balance sheet remains strong with a capital adequacy of 38% at 31 July 2013.
The following rating actions occurred during the last quarter:
- Standard & Poor’s Ratings Services awarded a long term national scale rating of zaA (sf)
and a short term national scale rating of zaA–1(sf) to the Class A notes issued under the
Bayport Securitisation Programme.
- Global Credit Rating Co. (Pty) Ltd affirmed Bayport Securitisation local national scale
Class A note ratings of A(za)(sf)/A1(za)(sf). The outlook for the long term rating was
changed to negative from stable.
- Moody’s confirmed the rating for senior notes issued by the SA Taxi Securitisation at
Aa2.za (sf) and upgraded the mezzanine notes by three notches to A3.za (sf).
2013 FINANCIAL RESULTS
Financial results for the full year to 30 September 2013 will be released on 26 November
2013.
The information contained in this announcement has not been reviewed by or reported on
by Transaction Capital's external auditors.
Sandton
12 September 2013
Enquiries:
Phillipe Welthagen - Investor Relations
Telephone: +27 (0) 11 555 5004
Sponsor:
Deutsche Securities (SA) Proprietary Limited
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