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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 23 and 24 March 2015, Transaction Capital will be holding meetings with analysts and
investors ahead of its closed period for the half year ending 31 March 2015. This statement
details the information that will be covered in those discussions.
No material changes have occurred subsequent to the SENS announcement released on 27
February 2015, entitled “Annual general meeting statement by the group chief executive
officer.”
OPERATING ENVIRONMENT
South Africa’s economic growth remains constrained, exacerbated further by the under-
supply of electricity. There has been little or no improvement in employment levels and real
wage growth. Interest rates have remained stable this year, but the reduced fuel price has
however eased financial pressure on businesses, including those in the small-to-medium
enterprise (SME) sectors. Expectations are that this benefit may be short-lived given the
anticipated fuel price increases in the short term. The combined effect of these conditions
results in pressure on the economy as a whole, with both the consumer and the SME sectors
of our economy remaining at risk.
OPERATIONAL PERFORMANCE
This statement addresses the group’s performance for the five months ending 28 February
2015 in comparison to the same period in the prior financial year.
Introduction
During the 2014 financial year, Transaction Capital initiated a group restructuring
commencing with the disposal of Paycorp and Bayport. Thereafter the board of directors
and its sub-committees were reconstituted to accommodate the requirements of the newly
established group. Concurrently the group executive office structure was simplified as most
group office functions were decentralised, devolving responsibility and authority to the
operating businesses.
During the first quarter of the 2015 financial year, Transaction Capital’s remaining divisions
were reconstituted to support the strategic objectives of the newly established group.
Transaction Capital is comfortable with the current composition of its portfolio which is
intentionally positioned to take advantage of South Africa’s macro-and socio-economic
context. The group’s reconstituted portfolio consists of two divisions of scale, being asset-
backed lending and risk services, both with strong market positions.
Notwithstanding the challenging economic and regulatory environment, it is gratifying that
Transaction Capital has made pleasing progress towards its strategic, operational and
financial objectives in the first five months of the 2015 financial year. The group is
performing ahead of expectations regarding growth rates, with the following being the most
notable developments.
Asset backed lending
The asset-backed lending division (comprising SA Taxi) operates as an unconventional asset-
backed lender, currently focusing predominantly on the financing of independent SMEs
mainly in the minibus taxi industry, but with the intention to expand into other
unconventional adjacent markets or asset classes.
The division continues to entrench its dominant market position encompassing the entire
value chain within the minibus taxi industry. This is achieved by augmenting its distinctive
competencies well beyond credit assessment, collections and capital mobilisation and
management. Distinctive competencies now also include vehicle and spare part
procurement, direct vehicle sales, vehicle refurbishment, short term comprehensive
insurance and telematics. In addition, SA Taxi continues to leverage its distinctive
competencies to create defensible positions within identified adjacent market segments,
financing asset classes such as bakkies, with the pilot now extended to include bakkies
utilised by consumers for utility purposes as well as by SMEs as income producing assets.
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 the aging
national taxi fleet continues to create a robust demand for the finance provided by SA Taxi,
whilst the reduced fuel price has benefited SA Taxi’s customers by facilitating additional
disposable income for their businesses.
Growth in gross loans and advances has contracted marginally to low-teens as at 28
February 2015 as credit granting criteria remain conservative. Credit performance continues
to improve following high quality originations, strong collection trends and an improved
quality of repossessed vehicles being produced by Taximart. The result is a continued
reduction in the credit loss and non-performing loan ratios, while provision coverage is
stable. Direct sales of new and refurbished vehicles continue to gain further traction
thereby increasing margins and improving credit metrics.
SA Taxi’s cost to income ratio has increased slightly, mainly due to the investment into SA
Taxi’s short-term insurance business, which continues to uplift and diversify SA Taxi’s
revenue base.
Risk services
The newly established risk services division (comprising MBD CS, Principa Decisions and
Rand Trust) is a provider of a comprehensive range of structured credit risk management,
debtor management, data management, collection, customer engagement, call centre and
capital solutions to South Africa’s largest credit providers, focusing predominantly on the
consumer credit life cycle as well as commercial solutions for SMEs.
The challenging consumer environment provides substantial opportunity for this division to
take advantage of its strong market position and reputation. It does so by applying its credit
and collections expertise, operational capacity, data base, experience and capital to its
client base, being South Africa’s largest credit providers. Many of these clients are displaying
an increased demand for structured and complex credit risk management and capital
solutions to better manage credit and operational risks, reduce costs, simplify processes,
raise capital and improve working capital cash flow.
The risk services division will entrench its market position by augmenting and combining its
distinctive competencies across the companies in the division. As with the asset-backed
lending division, the intention is to enhance and broaden its value proposition thereby
deepening its penetration into the client. In addition, the division will leverage its core skill
set to access adjacent market segments, such as the public, insurance and commercial
sectors.
The low-teen percentage increase in MBD CS’ collection revenues during this period was
encouraging, despite the challenging consumer environment. MBD CS continues to make
pleasing progress within its existing and newly identified clients, with further benefits being
realised from the lucrative historical and recent capital deployment. The cost-to-income
ratio improved slightly as MBD CS continues to target cost control as part of its strategy.
Legislation around the changes in the application of the principle of prescription have now
been enacted. All of MBD CS’ business processes are aligned for the change and the pricing
of new purchased book debts reflects its impact.
Rand Trust continues to experience strong levels of book growth with the growth trajectory
being consistent with growth levels reported for the 2014 financial year. Credit risk and
losses remain well managed, and collection metrics remain at robust levels.
The local environment for Principa remains challenging but the Qarar joint venture in the
Middle East continues to provide diversified revenue streams.
FUNDING AND CAPITAL ADEQUACY
The group remains adequately funded in terms of projected origination and cash
requirement levels. Capital adequacy levels remain high at 47% and the group is well
positioned to take advantage of and fund organic and acquisitive growth opportunities.
Transaction Capital continues to be proactive in its approach to debt funders to ensure that
they remain comfortable with the businesses within the group. To date the group has been
able to raise all funding required.
OUTLOOK
Transaction Capital is well positioned to meet its organic and acquisitive growth targets and
the organic growth trajectory is tracking ahead of previously communicated expectations.
The group is well capitalised to fund organic growth and to effect significant acquisitive
activity and has appropriate access to the debt capital markets.
2015 INTERIM FINANCIAL RESULTS
Financial results for the six months ending 31 March 2015 will be released on SENS on
Tuesday 5 May 2015.
The information contained in this announcement has not been reviewed by and reported on
by Transaction Capital's external auditors.
Sandton
23 March 2015
Enquiries:
Phillipe Welthagen - Investor Relations
Telephone: +27 (0) 11 049 6729
Sponsor:
Deutsche Securities (SA) Proprietary Limited
Date: 23/03/2015 08:30:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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