Wrap Text
Interim Results for the half year ended 31 March 2016
Transaction Capital Limited
Registration number: 2002/031730/06
(Incorporated in the Republic of South Africa)
("Transaction Capital" or "the company" or "the group")
JSE share code: TCP
ISIN code: ZAE000167391
Tax reference number: 9466/298/15/6
TRANSACTION CAPITAL
INTERIM RESULTS
for the half year ended 31 March 2016
COMMENTARY
HIGHLIGHTS
- Headline earnings per share up 20% to 37.0 Cents
- Headline earnings up 19% to R210 million
- Return on average equity up to 15.9% from 15.0%
- Return on average assets up to 4.2% from 3.9%
- Gross loans and advances up 11% to R7 143 million
- Non-performing loan ratio improved to 17.0% from 17.9%
- Credit loss ratio improved to 3.2% from 3.9%
- Non-interest revenue up 7% to R611 million
- Interim dividend up 20% to 12 cents per share
The financial tables and commentary incorporated in this announcement provide a comparison of the 2016 half year results prepared in accordance with
IFRS 9 with: (i) the 2015 published half year results prepared in accordance with IAS 39 and (ii) pro forma 2015 half year results calculated as if IFRS 9
was adopted on 1 October 2014. Throughout this document, all comparatives are pro forma numbers calculated as if IFRS 9 was adopted on 1 October
2014.
INTRODUCTION
At the core of Transaction Capital's 2015 three year strategy is the reconstitution of its portfolio of assets into two autonomous and decentralised divisions of
scale, being the asset-backed lending and risk services divisions. The combination of the restructured divisions, together with their leading and defensive
market positioning has enabled robust organic earnings growth for Transaction Capital during the first half of the 2016 financial year.
While both the asset-backed lending and risk services divisions perform better in a positive economic environment, they are also highly defensive businesses
intentionally positioned to withstand a challenging macro- and socio-economic context as currently experienced in South Africa. Thus, notwithstanding the
stressed economic and regulatory environment, Transaction Capital's financial, credit and operational performance was in line with expectations for the first
half of the 2016 financial year, growing headline earnings per share organically by 20% to 37.0 cents, whilst continuing to report an improvement in all
credit metrics.
ENVIRONMENT
South Africa's economic growth remains constrained, exacerbated by various macro- and socio-economic challenges. Employment levels have remained low
for a prolonged period, with little or no real wage growth. Economic pressure has intensified due to currency weakness, a 125 basis point increase in the
repo interest rate over the last 12 months, and increased electricity and fuel costs. The combined effect of these conditions results in pressure on the
economy as a whole with both the already distressed consumer and the small-to-medium enterprise (SME) sectors remaining vulnerable.
The regulatory environment remains volatile. Regulatory changes have been proposed or enacted regarding caps on interest rates, fees and related credit
insurance premium charges. Legislation containing amendments to the National Credit Act (specifically as regards the prescription of debt) was enacted
almost 18 months ago while regulations regarding affordability assessments have recently been introduced. Recent court activity regarding the use of
emolument attachment orders has been widely publicised and awaits clarification from the Constitutional Court. Finally, authenticated collections are set to
replace non-authenticated early debit orders (NAEDO) as the primary debit order collection mechanism from 1 October 2016, although at this late stage
there remains uncertainty as to the final process and the ability of the banks to implement in time.
Whilst the abovementioned regulatory changes are largely irrelevant to the asset-backed lending division, Transaction Capital's risk services division (TCRS)
has been actively engaging with all relevant stakeholders regarding the authenticated collections process and lobbying through industry bodies.
FINANCIAL PERFORMANCE
Half year ended 31 March Movement
2016 2015 2015 2016 IFRS 9 2016 IFRS 9
IFRS 9 IFRS 9 IAS 39 v 2015 IFRS 9 v 2015 IAS 39
Consolidated income statement
Headline earnings Rm 210 176 177 19% 19%
Net interest income Rm 429 402 448 7% (4%)
Non-interest revenue Rm 611 573 573 7% 7%
Consolidated statement of financial position
Equity Rm 2 739 2 457 3 131 11% (13%)
Shareholder statistics
Headline earnings per share cents 37.0 30.9 31.1 20% 19%
Performance indicators
Gross loans and advances Rm 7 143 6 447 7 056 11% 1%
Provision coverage % 7.6 9.0 5.3 (16%) 43%
Non-performing loan ratio % 17.0 17.9 24.3 (5%) (30%)
Non-performing loan coverage % 44.7 50.5 21.8 (11%) 105%
Non-performing loans Rm 1 213 1 151 1 712 5% (29%)
Capital adequacy ratio % 42.8 41.3 45.4 4% (6%)
Net interest margin % 12.3 12.9 13.0 (5%) (5%)
Credit loss ratio % 3.2 3.9 4.8 (18%) (33%)
Cost-to-income ratio % 63.1 65.2 62.3 (3%) 1%
Return on average assets (ROA) % 4.2 3.9 3.7 8% 14%
Return on average equity (ROE) % 15.9 15.0 11.9 6% 34%
Effective tax rate % 22.6 19.0 19.0 19% 19%
Interim dividend per share cents 12.0 10.0 10.0 20% 20%
Total dividend cover times 3.1 3.1 3.1 0% 0%
Transaction Capital's operations delivered strong results in line with expectations, despite challenging market conditions. Headline earnings grew by 19% to
R210 million and headline earnings per share increased by 20% to 37.0 cents per share. Net interest income increased by 7%, driven by an 11% growth
in gross loans and advances and increases in the prime interest rate, offset in part by a higher average cost of borrowing of 11.0%. Non-interest revenue
increased by 7% to R611 million, mostly driven by growth in SA Taxi's direct vehicle sales following the opening of its dedicated taxi vehicle dealership.
Return on average equity increased to 15.9% in the current period driven by the increase in earnings and effective but conservative capital deployment.
Transaction Capital's equity and debt capital position remains robust, despite the IFRS 9 equity charge during the prior financial year, with a capital
adequacy level of 42.8% and uninterrupted access to the debt capital markets.
OPERATIONAL HIGHLIGHTS AND STRATEGY
Each of the divisions is performing in line with expectations regarding growth rates, with the following being the most notable developments:
ASSET-BACKED LENDING - SA TAXI
Half year ended 31 March Movement
2016 2015 2015 2016 IFRS 9 2016 IFRS 9
IFRS 9 IFRS 9 IAS 39 v 2015 IFRS 9 v 2015 IAS 39
Financial performance
Headline earnings Rm 118 96 97 23% 22%
Net interest margin % 11.0 11.1 11.5 (1%) (4%)
Average cost of borrowing % 10.4 10.3 10.3 1% 1%
Cost-to-income ratio % 48.4 47.7 43.2 1% 12%
Credit performance
Gross loans and advances Rm 6 688 5 967 6 576 12% 2%
Carrying value of written off book Rm - - 32 0% (100%)
Impairment provision Rm (522) (556) (352) (6%) 48%
Non-performing loan ratio % 18.0 19.3 26.0 (7%) (31%)
Credit loss ratio % 3.4 4.1 5.1 (17%) (33%)
Provision coverage % 7.8 9.3 5.4 (16%) 44%
Non-performing loan coverage % 43.3 48.3 20.6 (10%) 110%
The asset-backed lending division (comprising SA Taxi) operates as a specialist asset-backed lender and short-term comprehensive insurer, currently focusing
predominantly on servicing independent SMEs mainly in the minibus taxi industry, but with the intention to expand into other adjacent markets or asset
classes.
The national minibus taxi fleet of approximately 200 000 privately owned vehicles is responsible for 69% of all South African household commuter trips. SA
Taxi estimates that only 70 000 to 80 000 of these minibus taxi vehicles are subject to finance. As at 31 March 2016, SA Taxi's R6 688 million loans
and advances portfolio comprises 25 591 vehicles, and thus accounts for one in every three of the financed national minibus taxi fleet. The under-
capitalised and ageing national fleet, exacerbated by the under-supply of premium minibus taxi vehicles in our local market, continues to create a robust
demand for the vehicles, finance, short-term comprehensive insurance and related services provided by SA Taxi. In addition, despite the depressed consumer
economy, commuters' use of minibus taxis has remained consistently high due to transport spend being non-discretionary and minibus taxis comprising the
dominant component of public transport.
The division continues to entrench its leading 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 line with
SA Taxi's strategic objective to achieve deep vertical integration within its market segment, during the first six months of this financial year SA Taxi opened its
dedicated minibus taxi vehicle dealership and also established a new auto body repair facility to augment its existing mechanical refurbishment capabilities.
SA Taxi anticipates selling, financing and insuring an estimated 2 000 vehicles per year directly via its newly launched dedicated minibus taxi vehicle
dealership. This dealership is considered to be one of the largest dedicated minibus taxi dealerships in the country selling new and pre-owned Toyota
minibuses, Nissan minibuses, Toyota bakkies and the bespoke Toyota Corolla metered taxi vehicles. The profitability of new and pre-owned vehicles
financed directly through SA Taxi's dealership outstrips the profitability of loans originated through other sales channels (i.e. affiliated and non-affiliated
dealerships). This can be ascribed to a much greater proportion of non-interest revenue earned in the direct sales channel (being product margin and
increased insurance revenue) and reduced impairment charges. A greater focus on retail marketing and the potential expansion of SA Taxi's geographical
dealership footprint will assist in originating greater volumes through SA Taxi's direct sales channel.
After a capital investment of R25 million, SA Taxi's auto body repair facility commenced operations at the beginning of February 2016. SA Taxi's combined
auto body repair and mechanical refurbishment facility now spans more than 20 000 square metres.
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" and, more recently, point-to-point metered taxis.
A significant proportion of SA Taxi's management attention is focused on building the foundation of a point-to-point metered taxi business of scale, with the
intention of consolidating, recapitalising and formalising the existing metered taxi industry, estimated to comprise 17 000 vehicles in the national fleet. SA
Taxi purchased Zebra Cabs in November 2015, resulting in an entire fleet of 84 vehicles (as at March 2016) being upgraded to Toyota Corollas and
rebranded as Zebra Cabs. Zebra Cabs provides customised luxury vehicles, a technology platform (including a booking app with multiple payment
channels) and a niched combined sales channel that the industry does not currently have access to. Zebra Cabs has commenced operations in Gauteng,
and in time will expand its footprint into the Western Cape and thereafter KwaZulu Natal.
The Zebra Cab business model remains agnostic to the payment platform method and allows for cash collections, point of sale devices installed in the
vehicle, the UBER application (for those operators who have chosen to use multiple lead generators), corporate sales, web based sales and centralised call
centre and dispatch.
Following SA Taxi's vertically integrated business model, Zebra Cabs will procure its vehicles via SA Taxi's established procurement channels and thereafter
sell these vehicles via its direct dealership. SA Taxi will provide the finance, insurance, telematics data, vehicle servicing capability, multiple booking systems
and payments channels required to support the metered taxi operator, thus enhancing their chances of establishing a sustainable metered taxi small business.
Zebra Cabs plans to have 3,000 metered taxis in its portfolio by 2020.
The asset-backed lending division increased headline earnings attributable to the group by 23% to R118 million for the six months ended 31 March 2016.
Gross loans and advances grew at 12% as credit granting criteria remain consistently conservative and the supply of new Toyota minibus taxis remained
constrained after Toyota closed its local assembly facility for five months during the prior year to enable the plant to be reconfigured. Supply had not yet fully
recovered by the start of the 2016 financial year, but has subsequently normalised. The de-recognition of the written off book, higher impairment charge,
and lower gross loans and advances under IFRS 9 have been explained in Annexure 1 (Pro forma financial effects of the adoption of IFRS 9).
Further, as the recently launched Nissan minibus taxi is still relatively new to the industry, SA Taxi is cautiously tracking the Nissan vehicles' credit
performance before growing the portfolio aggressively. Despite being a small proportion of monthly origination, financing long distance minibus taxi routes
remains profitable for SA Taxi. Historically a variety of long distance models were financed including the Mercedes, Volkswagen and Iveco. Going
forward, SA Taxi intends to focus its efforts solely on the sale of Mercedes primarily via its direct dealership thus increasing profitability as product margin,
efficiencies and increased volumes are captured.
SA Taxi's exposure to Entry-level vehicles has significantly reduced resulting in improving credit quality for the portfolio. Entry-level vehicles are now carried at
a fair value of R90 million and account for less than 1.5% of the value of SA Taxi's loan portfolio.
The net interest margin decreased marginally to 11.0% as a result of a slightly higher cost of funding of 10.4%. The credit loss ratio has improved to 3.4%
for the half year, as recovery rates have improved slightly to 72%, owing to the nature of the loan which is secured by an asset of value which can be
enhanced through the Taximart refurbishment operation. The efficiency of the procurement, repair and resale operations of Taximart, now one of the largest
Toyota repair centres in Africa, assists in maintaining low levels of ultimate credit loss.
The non-performing loan ratio has improved to 18.0% due to a combination of continued strong collection performance and conservative credit granting
criteria, which are continuously enhanced via the analytics applied to SA Taxi's telematics data. This data is accumulated daily from each minibus taxi and
applied to credit score cards, route profitability assessments, collection strategies and insurance pricing. Provision coverage remains high at 7.8% being
3.2 times SA Taxi's after tax credit loss.
SA Taxi continues to uplift, diversify and enhance its non-interest revenue via the procurement and direct sales of new and refurbished vehicles and its
short-term comprehensive vehicle insurance product. SA Taxi requires all minibus taxis financed by it to be fully insured, and has thus designed a bespoke
insurance product to meet its taxi owners' specific needs, including comprehensive vehicle cover, passenger liability as well as business interruption cover. In
addition to product design, SA Taxi is also responsible for distributing the insurance product, collecting premiums and managing claims including parts
procurement and refurbishment. Given these responsibilities, SA Taxi participates in the underwriting profits associated with this insurance business. As at 31
March 2016, 81.4% of SA Taxi's financed clients chose to also insure with SA Taxi, with the remaining financed clients being insured with other reputable
insurers. Additionally, SA Taxi insures a further 3 299 non-financed minibus taxis.
With moderate growth in gross loans and advances, improving credit metrics and a stable cost-to-income ratio of 48.4% it is evident that SA Taxi's credit,
operational and financial performance has been robust in the first six months of the 2016 financial year.
TRANSACTION CAPITAL RISK SERVICES (TCRS)
Half year ended 31 March Movement
2016 2015 2015 2016 IFRS 9 2016 IFRS 9
IFRS 9 IFRS 9 IAS 39 v 2015 IFRS 9 v 2015 IAS 39
Performance
Headline earnings Rm 70 61 61 15% 15%
Non-interest revenue Rm 461 457 457 1% 1%
Purchased book debts Rm 571 523 604 9% (5%)
Cost-to-income ratio % 81.5 82.4 82.4 (1%) (1%)
The TCRS division (comprising MBD, Rand Trust, BDB and Principa) 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.
TCRS will generally perform better in a positive economic environment, when the South African consumer has greater disposable income thereby enhancing
TCRS's ability to grow agency collection revenue and generate returns from acquired non-performing loan portfolios.
Of the 24 million credit-active South African consumers as of December 2015, 10 million have impaired credit records. TCRS's ability to grow agency
revenue and generate returns from acquired non-performing loan portfolios has remained constrained during the half year, mainly caused by negative key
economic indicators such as increased inflation, increased interest rates, low economic growth and static employment rates, all contributing to increased
financial pressure on an already distressed and vulnerable consumer credit sector.
However, TCRS is a defensive business intentionally positioned to withstand difficult economic conditions. Thus, the depressed consumer economy provides
opportunity for TCRS to take advantage of its strong market position and reputation as well penetrated and new clients display increased demand for
collection and related credit risk management services. Further, TCRS may apply its strong balance sheet and extensive data towards the selective
acquisition of certain of the increased number of non-performing portfolios available for purchase.
The TCRS strategy includes combining, augmenting and refining its distinctive competencies to achieve deep vertical integration within its chosen market
segments and clients. TCRS enjoys deep penetration into the credit retail and specialist lending segments of its market, and aims to increase revenue from
the Tier 1 banks where its penetration has been disproportionately lower. Further, the provision of business process outsourcing (BPO) services to TCRS's
traditional clients whereby all or parts of the collection process is outsourced, has been identified as an opportunity for growth.
In addition to the economic factors referred to above, the changes to the legislative environment regarding prescription, affordability rules, interest rate caps
and credit life insurance are also not conducive to the extension of credit, which in the medium term may result in declining volumes of matters handed over
to TCRS by clients who are governed by the NCA. Cognisant of this environment, TCRS's strategy remains to create new positions within identified adjacent
markets where competencies could be applied towards increasing revenue generated from non-NCA regulated clients including the outsourced collection of
outstanding claims in the public, insurance and telecommunication sectors. TCRS is well positioned to assist municipalities in enhancing the collection of both
their performing and non-performing debtors portfolios and remains cautiously optimistic about its prospects in this market. Many municipalities remain
financially unstable due to inefficient collection processes compounded by poor financial management. Accordingly, TCRS's ability to recover outstanding
amounts remains a challenge and legal action is often required to enforce payments. TCRS continues to work closely with municipal clients to refine its
business model and is confident that the municipal business will mature.
In the context of this challenging operating environment, it is pleasing to report that the TCRS division grew headline earnings by 15% driven by a slight
increase in non-interest revenue, together with operational leverage achieved through tight cost control. A continued focus on effective cost management
contributed to an improved cost-to-income ratio of 81.5%.
In addition, various new technologies are being investigated that are expected to enhance productivity within the call centres in the 2017 financial year.
Growth in non-interest revenue was impacted mainly by Rand Trust and Principa, who have battled to grow revenue as a result of the weak economy.
TCRS aims to apply excess capital to pioneer innovative and bespoke capital solutions to deliver superior risk adjusted returns. In this regard, TCRS initiated
exclusive negotiations for the structured and on-going sales of portfolios with some of its larger clients, and has successfully concluded the acquisition of a
portfolio on a private basis. TCRS currently owns 159 principal book portfolios, with 3 new distressed debt portfolios purchased during the first half of the
2016 financial year for R41 million.
GROUP EXECUTIVE OFFICE
The group executive office contributed R22 million to headline earnings in the current six-month period, an increase of 16% from the prior six-month period
earnings of R19 million, largely driven by cost savings as a result of the simplified group office structure.
FUNDING, CAPITAL ADEQUACY AND EXCESS CAPITAL
Transaction Capital's equity and debt capital position is robust. Capital adequacy levels at 31 March 2016 remain high at 42.8% and the group is well
positioned to take advantage of and fund organic and acquisitive growth opportunities.
Excess capital held since the sale of two of its subsidiaries, Bayport Financial Services 2010 (Pty) Ltd and Paycorp Holdings (Pty) Ltd in the 2014 financial
year, positioned Transaction Capital well to early adopt IFRS 9 and absorb the resulting one-off equity adjustment. In summary, the early adoption of IFRS 9
results in the following benefits to Transaction Capital:
- Accounting policies are more closely aligned to Transaction Capital's operational and risk management policies and strategic intentions;
- Increased provisions result in lower balance sheet risk, an approach favoured by management, especially in challenging economic conditions; and
- Future uncertainty relating to the implementation of IFRS 9 on financial results and ratios has been removed.
With growing concerns regarding a potential downgrade of South Africa's credit rating to junk status, the local funding market remains characterised by
constrained liquidity and issuers paying a premium for access to a reduced funding pool. As local investors have been more cautious in their approach,
Transaction Capital has intensified its fundraising capacity and hence enjoyed uninterrupted access to both local and international funding pools. For the
financial year to date, SA Taxi has almost fulfilled its annual debt requirement at this early stage in the year.
The expected increase in the cost of borrowing, exacerbated by the cost of foreign exchange swap pricing on foreign currency denominated debt, is offset
in part by a partial pass through to customers on new business originated by the asset-backed lending division.
PROSPECTS
The reconstitution of Transaction Capital's portfolio of assets under two distinct divisional pillars and the devolvement of authority and responsibility to
competent divisional management teams is largely complete. This has enabled Transaction Capital to focus on deploying its capital and resources to drive
organic and acquisitive growth, thus enhancing the scale and entrenching the leading market positions of its divisions.
These divisions operate in market segments of the financial services sector perceived to be of higher risk that require a greater level of specialisation, which
the group's businesses have developed and refined over a number of years. Transaction Capital's strategy is to augment and refine its specialised
competencies to achieve deep vertical integration within its chosen market segments, as well as to leverage its existing and scalable platforms to create
defensible positions within identified adjacent market segments.
In light of Transaction Capital's positioning within this socio-economic context, management believes that it is well positioned to achieve continued growth in
the medium term.
DIRECTOR APPOINTMENT
The group was pleased to announce the appointment of Mr Moses Kgosana as an independent non-executive director of the company and chairman of the
audit, risk and compliance (ARC) committee with effect from 14 March 2016, and looks forward to his valued contribution.
FORMATION OF ALCO
Transaction Capital's asset and liability committee (ALCO) oversees and monitors the activities and risks arising from the management of Transaction Capital's
assets and liabilities. With effect from 1 April 2016, ALCO was constituted as a formal committee of the board. Refer to the announcement released on the
Stock Exchange News Service on 29 March 2016 for more details.
DIVIDEND DECLARATION
In line with the stated dividend policy of 3 to 4 times, the board has declared a interim gross cash dividend of 12 cents per share for the six months ended
31 March 2016 to those members recorded in the register of members on the record date appearing below. The dividend is declared out of income
reserves. A dividend withholding tax of 15% will be applicable to the dividend to all shareholders that are not exempt from the dividend withholding tax,
resulting in a net dividend of 10.20 cents per share. The salient features applicable to the interim dividend are as follows:
Issued shares as at declaration date 567 290 582
Declaration date Tuesday 10 May 2016
Last day to trade cum dividend Friday 3 June 2016
First day to trade ex-dividend Monday 6 June 2016
Record date Friday 10 June 2016
Payment date Monday 13 June 2016
Share certificates may not be dematerialised or rematerialised between Monday, 6 June 2016 and Friday, 10 June 2016, both dates inclusive.
On Monday, 13 June 2016 the cash dividend will be electronically transferred to the bank accounts of all certificated shareholders where this facility is
available. Where electronic fund transfer is not available or desired, cheques dated 13 June 2016 will be posted on that date. Shareholders who have
dematerialised their share certificates will have their accounts at their CSDP or broker credited on Monday, 13 June 2016.
BASIS FOR PREPARATION
The results of the group for the half year ended 31 March 2016 are unaudited and have been prepared in accordance with the requirements of
International Financial Reporting Standards (IFRS), IAS 34: Interim Financial Reporting, the SAICA Financial Reporting Guides as issued by the Accounting
Practices Committee and Financial Pronouncements as issued by the Financial Reporting Standards Council, the JSE Limited Listings Requirements, the going
concern principle and the requirements on the South African Companies Act, 71 of 2008.
The accounting policies and their application are in terms of IFRS and are consistent, in all material respects, with those details in Transaction Capital's prior
year annual financial statements.
APPROVAL BY THE BOARD OF DIRECTORS
Signed on behalf of the board of directors:
D M Hurwitz M D Herskovits
Chief executive officer Chief financial officer
10 May 2016
Sponsor: Deutsche Securities (SA) Proprietary Limited
SUMMARISED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 31 March 2016
2016 2015
Unaudited Unaudited Change
Rm Rm %
Assets
Cash and cash equivalents 965 698 38
Tax receivables 24 14 71
Trade and other receivables 546 783 (30)
Inventories 97 16 >100
Loans and advances 6 601 6 715 (2)
Purchased book debts 571 604 (5)
Other loans receivable 40 297 (87)
Equity accounted investments - 6 (100)
Other investments 425 342 24
Intangible assets 43 18 >100
Property and equipment 65 53 23
Goodwill 200 197 2
Deferred tax assets 249 97 >100
Total assets 9 826 9 840 (0)
Liabilities
Bank overdrafts 22 2 >100
Tax payables 32 16 100
Trade and other payables 203 244 (17)
Provisions 12 14 (14)
Interest-bearing liabilities 6 691 6 243 7
Senior debt 5 523 5 118 8
Subordinated debt 1 168 1 125 4
Deferred tax liabilities 127 190 (33)
Total liabilities 7 087 6 709 6
Equity
Ordinary share capital and premium 460 483 (5)
Reserves 113 116 (3)
Retained earnings 2 134 2 504 (15)
Equity attributable to ordinary equity holders of the parent 2 707 3 103 (13)
Non-controlling interests 32 28 14
Total equity 2 739 3 131 (13)
Total equity and liabilities 9 826 9 840 (0)
SUMMARISED CONSOLIDATED INCOME STATEMENT
for the half year ended 31 March 2016
2016 2015
Unaudited Unaudited Change
Rm Rm %
Interest and other similar income 806 781 3
Interest and other similar expense (377) (333) 13
Net interest income 429 448 (4)
Impairment of loans and advances (112) (165) (32)
Risk adjusted net interest income 317 283 12
Non-interest revenue 611 573 7
Operating costs (656) (636) 3
Non-operating profit 2 2 0
Equity accounted earnings - (1) (100)
Profit before tax 274 221 24
Income tax expense (62) (42) 48
Profit for the period 212 179 18
Attributable to non-controlling equity holders 2 2 0
Attributable to ordinary equity holders of the parent 210 177 19
Basic and headline earnings per share 37.0 31.1 19
Diluted basic and headline earnings per share 36.6 30.9 18
SUMMARISED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the half year ended 31 March 2016
2016 2015
Unaudited Unaudited Change
Rm Rm %
Profit for the period 212 179 18
Other comprehensive income (17) (48)
Fair value losses arising on the cash flow hedge during the year (3) <1 0
Deferred tax <1 <1 0
Fair value losses arising on valuation of assets held at fair value through
other comprehensive income (14) (48) (71)
Total comprehensive income for the period 195 131 49
Attributable to non-controlling equity holders 2 - 100
Attributable to ordinary equity holders of the parent 193 131 47
SUMMARISED HEADLINE EARNINGS RECONCILIATION
for the half year ended 31 March 2016
Headline earnings is equal to profit after tax for the period as there are no headline earnings adjustments required.
SUMMARISED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the half year ended 31 March 2016
Share Ordinary Non-
capital and Other Retained shareholders controlling Total
premium reserves earnings equity interests equity
Balance at 31 March 2015 483 116 2 504 3 103 28 3 131
IFRS 9 transitional adjustments - - (674) (674) - (674)
Revised opening balance 483 116 1 830 2 429 - 2 457
Total comprehensive income - 3 226 229 2 231
Profit for the period - - 226 226 2 228
Other comprehensive income for the period - 3 - 3 - 3
Dividends paid - - (57) (57) - (57)
Grant of share appreciation rights - 7 - 7 - 7
Share appreciation rights - settlements - (4) (8) (12) - (12)
Issue of shares 12 - - 12 - 12
Repurchase of shares (27) - - (27) - (27)
Balance at 30 September 2015 468 122 1 991 2 581 30 2 611
Total comprehensive income - (17) 210 193 2 195
Profit for the period - - 210 210 2 212
Other comprehensive income for the period - (17) - (17) - (17)
Dividends paid - - (67) (67) - (67)
Grant of share appreciation rights - 8 - 8 - 8
Repurchase of shares (8) - - (8) - (8)
Balance at 31 March 2016 460 113 2 134 2 707 32 2 739
SUMMARISED CONSOLIDATED STATEMENT OF CASH FLOWS
for the half year ended 31 March 2016
2016 2015
Unaudited Unaudited Change
Rm Rm %
Net cash generated/(utilised) by operating activities 347 (482) (>100)
Net cash utilised by investing activities (25) (9) (>100)
Net cash utilised by financing activities (8) - 100
Dividends paid (67) (57) 18
Net increase/(decrease) in cash and cash equivalents 247 (548) (>100)
Net cash and cash equivalents at the beginning of the year 696 1 244 (44)
Net cash and cash equivalents at the end of the year 943 696 35
SUMMARISED SEGMENT REPORT
for the half year ended 31 March 2016
Asset-backed lending Risk services Group executive office Group
2016 2015 2016 2015 2016 2015 2016 2015
Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited Unaudited
Rm Rm Rm Rm Rm Rm Rm Rm
Condensed income statement
for the half year ended 31 March 2016
Net interest income 356 368 30 32 43 48 429 448
Impairment of loans and advances (111) (163) (1) (2) - - (112) (165)
Non-interest revenue 150 113 461 457 - 3 611 573
Total operating costs (245) (208) (400) (403) (11) (25) (656) (636)
Non-operating profit - - 2 2 - - 2 2
Equity accounted earnings - - - (1) - - - (1)
Profit before tax 150 110 92 85 32 26 274 221
Total headline earnings 118 97 70 61 22 19 210 177
Condensed statement of financial position
at 31 March 2016
Assets
Cash and cash equivalents 422 258 87 72 456 368 965 698
Loans and advances 6 166 6 256 435 459 - - 6 601 6 715
Purchased book debts - - 571 604 - - 571 604
Other investments 425 342 - - - - 425 342
Group loans - 187 - 12 - (199) - -
Other assets and receivables 835 786 342 328 87 367 1 264 1 481
Total assets 7 848 7 829 1 435 1 475 543 536 9 826 9 840
Liabilities
Bank overdrafts 18 - - 2 4 - 22 2
Interest-bearing liabilities 5 571 5 109 530 432 590 702 6 691 6 243
Group loans 1 144 1 103 119 279 (1 263) (1 382) - -
Other liabilities and payables 130 204 234 231 10 29 374 464
Total liabilities 6 863 6 416 883 944 (659) (651) 7 087 6 709
Total equity 985 1 413 552 531 1 202 1 187 2 739 3 131
UNAUDITED RESULTS
FAIR VALUE DISCLOSURE
for the half year ended 31 March 2016
The fair values of financial assets and liabilities have been disclosed below:
Carrying Fair Carrying Fair
value value value value
2016 2016 2015 2015
Rm Rm Rm Rm
31 March
Assets
Loans and advances 6 601 6 593 6 715 6 708
Purchased book debts 571 571 604 604
Other loans receivable 40 40 297 297
Trade and other receivables* 631 631 734 734
Cash and cash equivalents 965 965 698 698
8 808 8 800 9 048 9 041
Liabilities
Interest-bearing liabilities 6 691 6 592 6 243 6 275
- Fixed rate liabilities 797 723 849 885
- Floating rate liabilities 5 894 5 869 5 394 5 390
Trade and other payables** 314 314 186 186
Bank overdrafts 22 22 2 2
7 027 6 928 6 431 6 463
Net exposure 1 781 1 872 2 617 2 578
* Prepayments are not financial assets and therefore have been excluded from trade and other receivables.
** Revenue received in advance and deferred lease liability are not financial liabilities and therefore have been excluded from trade and other payables.
LEVEL DISCLOSURES
2016 (IFRS 9)
Level 1 Level 2 Level 3 Total
2016
Financial assets at fair value through profit or loss
Entry-level vehicles - - 90 90
Other financial assets - - 148 148
Financial assets at fair value through other comprehensive income
Derivatives - 125 - 125
Investment in unlisted entity - - 425 425
Total - 125 663 788
2015 (IAS 39)
Level 1 Level 2 Level 3 Total
2015
Financial assets at fair value through other comprehensive income
Derivatives - 42 - 42
Available for sale financial assets
Available-for-sale financial investment - - 343 343
Total - 42 343 385
Reconciliation of Level 3 Fair Value Measurements of Financial Assets
2016 (IFRS 9)
Fair value
Fair value through other
through comprehensive
profit or loss income Total
IFRS 9 adjusted opening balance 266 343 609
Total gains or losses In profit or loss (25) - (25)
In other comprehensive income - (14) (14)
Other movements (3)* 96 93
Closing balance of fair value measurement 238 425 663
* Other movements include charges on accounts less collections received and write off's.
2015 (IAS 39)
Fair value
through Available
profit or loss for sale Total
Opening balance - 238 238
Total gains or losses In profit from discontinued operations - - -
In other comprehensive income 15 15
Purchases - 90 90
Closing balance - 343 343
Sensitivity analysis of valuations using unobservable inputs
As part of the group's risk management processes, stress tests are applied on the significant unobservable parameters to generate a range of potentially
possible alternative valuations. The financial instruments that most impact this sensitivity analysis are those with the more illiquid and/or structured portfolios.
The stresses are applied independently and do not take account of any cross correlation between separate asset classes that would reduce the overall effect
on the valuations. A significant parameter has been deemed to be one which may result in a change in the fair value asset or liability of more than 10%.
This is demonstrated by the following sensitivity analysis which includes reasonable range of possible outcomes:
Movement in fair value given the 10% change in significant assumptions:
2016 2015
10% 10% 10% 10%
SA Taxi - loans and advances: Entry-level vehicles Favourable Unfavourable Favourable Unfavourable
Significant unobservable input and description of assumption
Average probability of default 52 (8) - -
Average loss given write-off 50 (50) - -
Average collateral value 2 (2) - -
Discount rate: The rate used to discount projected future cash flows to present value. 4 (3) - -
Average effective interest rate 4 (4) - -
Total 112 (67) - -
2016 2015
10% 10% 10% 10%
SA Taxi - investment in unlisted entity Favourable Unfavourable Favourable Unfavourable
Significant unobservable input and description of assumption
Premium per policy: average insurance premium per policy in a year 16 (16) 11 (11)
Gross loss ratio: Reported claims (excluding the movement in the claims that are
incurred but not yet reported reserve) expressed as a percentage of gross written
premium in a year 84 (84) 44 (44)
Mid-term insurance cancellations: Number of policies cancelled during a year
expressed as a percentage of total policies insured at the beginning of a year 5 (5) 6 (6)
Discount rate: The rate used to discount projected future cash flows to present value 17 (16) 11 (10)
Total 122 (121) 72 (71)
2016 2015
10% 10% 10% 10%
MBD - other financial assets Favourable Unfavourable Favourable Unfavourable
Significant unobservable input and description of assumption
Cash flows: change in the expected revenue 3 (4) - -
Cash flows: Change in expected costs 1 (1) - -
Discount rate: The rate used to discount projected future cash flows to present value 3 (3) - -
Total 7 (8) - -
ANNEXURE 1
Pro forma FINANCIAL EFFECTS OF THE ADOPTION OF IFRS 9
The pro forma statement of financial position as at 31 March 2015, income statement and statement of comprehensive income of Transaction Capital
Limited (hereafter referred to as TCL) for the six months ended 31 March 2015 set out below have been prepared to show the impact of the adoption of
IFRS 9 on the consolidated financial statements of TCL.
The pro forma statement of financial position, income statement and statement of comprehensive income have been prepared for illustrative purposes only
and because of their nature, may not fairly present TCL's financial position, changes in equity, results of operations or cash flows, nor the effect and impact
of the adoption of IFRS 9 going forward.
The directors of TCL are responsible for the compilation, contents and preparation of financial information giving effect to the adoption of IFRS 9. Their
responsibility includes determining that the pro forma financial information has been properly compiled on the basis stated, the basis is consistent with the
accounting policies of TCL and the pro forma adjustments are appropriate for the purposes of the pro forma financial information disclosed pursuant to the
Listing Requirements.
The pro forma statement of financial position, pro forma income statement and the pro forma statement of comprehensive income are presented in a manner
consistent in all respects with IFRS, the Revised SAICA Guide on Pro Forma Financial Information and the basis on which the historical financial information
has been prepared in terms of accounting policies of TCL.
The pro forma statement of financial position set out below presents the effects of the adoption of IFRS 9 on the financial position of TCL as at 31 March
2015 based on the assumption that the adoption of IFRS 9 was implemented on 1 October 2014.
The pro forma income statement and statement of comprehensive income set out below presents the effects of the adoption of IFRS 9 on the consolidated
results of TCL for the six months ended 31 March 2015 based on the assumption that the adoption of IFRS 9 was implemented on 1 October 2014.
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
2015 - Asset-backed lending 2015 - Risk services 2015 - Group executive office 2015 - Group
Unaudited Unaudited Unaudited Unaudited
Adjustments Pro forma Adjustments Pro forma Adjustments Pro forma Adjustments Pro forma
for the after the for the after the for the after the for the after the
adoption adoption adoption adoption adoption adoption adoption adoption
Amounts shown in Rm Before1 of IFRS 9 Notes of IFRS 9 Before1 of IFRS 9 Notes of IFRS 9 Before1 of IFRS 9 of IFRS 9 Before1 of IFRS 9 of IFRS 9
Cash and cash equivalents 258 - 258 72 - 72 368 - 368 698 - 698
Tax receivable 12 - 12 2 - 2 - - - 14 - 14
Trade and other receivables 586 (3) 1 583 196 - 196 1 - 1 783 (3) 780
Inventories 14 - 14 2 - 2 - - - 16 - 16
Loans and advances 6 256 (845) 5 411 459 (4) 455 - - - 6 715 (849) 5 866
Gross loans and advances 6 576 (765) 2,3 5 811 480 - 480 - - - 7 056 (765) 6 291
Written off book 32 (32) 4 - - - - - - - 32 (32) (0)
Impairment provision (352) (204) 2,5 (556) (21) (4) 9 (25) - - - (373) (208) (581)
Loans and advances held at fair value - 156 6 156 - - - - - - - 156 156
Purchased book debts - - - 604 (81) 10 523 - - - 604 (81) 523
Other loans receivable 5 - 5 - - - 292 - 292 297 - 297
Group loans 187 - 187 12 - 12 (199) - (199) - - -
Equity accounted investments - - - 6 - 6 - - - 6 - 6
Other investments 342 - 342 - - - - - - 342 - 342
Intangible assets 11 - 11 7 - 7 - - - 18 - 18
Property and equipment 28 - 28 22 - 22 3 - 3 53 - 53
Goodwill 60 - 60 76 - 76 61 - 61 197 - 197
Deferred tax assets 70 189 7 259 17 1 18 10 - 10 97 190 287
Total assets 7 829 (659) 7 170 1 475 (84) 1 391 536 - 536 9 840 (743) 9 097
Liabilities
Group loans 1 103 - 1 103 279 - 279 (1 382) - (1 382) - - -
Bank overdrafts - - - 2 - 2 - - - 2 - 2
Tax payables 4 - 4 12 - 12 - - - 16 - 16
Trade and other payables 154 - 154 75 - 75 29 - 29 258 - 258
Interest-bearing liabilities 5 109 - 5 109 432 - 432 702 - 702 6 243 - 6 243
Deferred tax liabilities 46 (46) 7 - 144 (23) 11 121 - - - 190 (69) 121
Total liabilities 6 416 (46) 6 370 944 (23) 921 (651) - (651) 6 709 (69) 6 640
Equity
Ordinary share capital 276 - 276 - - - 207 - 207 483 - 483
Ordinary share premium 317 - 317 157 - 157 (474) - (474) - - -
Reserves 119 - 119 7 - 7 (10) - (10) 116 - 116
Retained earnings 671 (613) 8 58 367 (61) 12 306 1 466 - 1 466 2 504 (674) 1 830
Total equity attributable to ordinary equity
holders of the parent 1 383 (613) 770 531 (61) 470 1 189 - 1 189 3 103 (674) 2 429
Non-controlling interest 30 - 30 - - - (2) - (2) 28 - 28
Total equity 1 413 (613) 800 531 (61) 470 1 187 - 1 187 3 131 (674) 2 457
Total equity and liabilities 7 829 (659) 7 170 1 475 (84) 1 391 536 - 536 9 840 (743) 9 097
Notes and assumptions
The "before" statement of financial position is the unaudited published consolidated financial results of TCL at
31 March 2015.
1. The adoption of IFRS 9 results in the increase of the provision on trade and other receivables to reflect an
expected loss.
2. This represents gross loans and advances, as well as the related provision which continue to be held at
amortised cost in accordance with IFRS 9 given TCL's business model to collect contractual cash flows
and includes premium level vehicles only.
3. This adjustment to gross loans and advances includes the following:
Reclassification of Entry-level gross loans and advances to loans and advances held at fair value* (728)
Reclassification of suspended interest on credit impaired assets (Premium vehicles)** (37)
(765)
* Included in this balance of R728m is repossessed stock of R55.5 million.
** The gross outstanding balance will increase each month based on the interest accrued for assets
considered to be in a credit impaired state. The gross loans and advances and the provision held
against these loans will be adjusted to reflect interest that has been suspended.
For more information, refer to note 1 in the consolidated income statement.
4. The adoption of IFRS 9 results in the reversal of the shortfall book valuation in accordance with
paragraph 5.4.4 of IFRS 9 as the effects of post write off recoveries are now considered in the IFRS 9
credit impairment model (R32 million).
5. The provision for doubtful debts after the adoption of IFRS 9 relates to the Premium vehicles. Included in
the IFRS 9 adjustment are the following:
Reclassification of the provision on Entry-level vehicles to 'loans and advances held at fair value' 104
Derecognition of suspended interest on credit impaired assets 37
Measurement impact of the adoption of IFRS 9* (345)
(204)
* The expected loss is calculated on the gross loans and advances by applying the following formula:
Expected loss = Gross loans and advances x Probability of default (PD) x Loss given default (LGD).
This approach is consistent with the methodology applied in the 2015 year-end audited financial results.
The expected loss calculations are performed before the interest in suspense (IIS) adjustments:
Pre-IIS IIS As
adjustment adjustment reported
Gross loans and advances 5 848 (37) 5 811
Provision for doubtful debts (593) 37 (556)
The LGD term is calculated explicitly using the appropriate time to default (TTD), exposure at default
(EAD), time to repossession (TTR), expected future recovery value and contractual interest rate.
6. Loans and advances held at fair value include Entry-level vehicles which have been reclassified to fair
value through profit and loss given TCL's business model of managing these assets on a fair value basis
in accordance with IFRS 9.
The fair value at 31 March 2015 represents management's expectation of future cash flows, taking into
account the discounted anticipated value of the collateral. This approach is consistent with the
methodology applied in the 2015 year-end audited financial results.
7. The adoption of IFRS 9 will result in the creation of, or increase in deferred tax assets based on IAS12,
'Income Tax'. The deferred tax asset has been recognised to the extent that it is probable that future
taxable profits will be available against which to utilise deductible temporary differences.
Deferred Deferred
tax tax
asset liability
Opening balance - 31 March 2015 70 46
Impact of the adoption of IFRS 9 189 (46)
Revised closing balance - 31 March 2015 259 -
8. The total impact on retained earnings as a result of the adoption of IFRS 9.
9. The adoption of IFRS 9 results in the increase of the provision on loans and advances of R4 million to
reflect an expected loss. Subsequent to this, there was a R0.1 million increase in the provision (charged
to the income statement). The contra debit to these entries are charges to retained earnings (R4 million
being adjusted to opening retained earnings for FY15 and R0.1 million impacting retained earnings via
profit & loss for the half-year period).
10. Purchased book debts are now carried at the uncapped amortised cost in accordance with IFRS 9 (previously
capped amortised cost) based on the Group's business model of activating cash flows from its purchased
book debts. The adjustment is calculated as the difference between the purchased book debts carrying value
per the prior year audited results and the amount computed by applying the revised expected loss model
compliant with IFRS 9. The following assumptions were made in the application of the expected loss model:
- The gross cash flows used as input to the expected loss model remained unchanged;
- The expected loss model was computed by applying a mathematical curve bringing forward the timing
of expected future credit losses in a manner consistent with past experience of their timing;
- The explanatory contribution of macro-economic factors was tested and found to be insignificant. It was
therefore concluded that the timing of future expected credit losses is sufficiently explained by
micro-economic factors within the purchased book debts;
11. The adoption of IFRS 9 will result in the decrease in deferred tax liabilities based on IAS12, 'Income Tax'.
12. The total impact on retained earnings as a result of the adoption of IFRS 9.
13. No events which would have a material impact on the financial position of the group have taken place
between 31 March 2016 and the date of release of this report.
CONSOLIDATED INCOME STATEMENT
for the half year ended 31 March 2016
2015 - Asset-backed lending 2015 - Risk services 2015 - Group executive office 2015 - Group
Unaudited Unaudited Unaudited Unaudited
Adjustments Pro forma Adjustments Pro forma Adjustments Pro forma Adjustments Pro forma
for the after the for the after the for the after the for the after the
adoption adoption adoption adoption adoption adoption adoption adoption
Amounts shown in Rm Before1 of IFRS 95 Notes of IFRS 9 Before1 of IFRS 95 Notes of IFRS 9 Before1 of IFRS 95 of IFRS 9 Before1 of IFRS 95 of IFRS 9
Interest and other similar income 675 (46) 1 629 66 - 66 40 - 40 781 (46) 735
Interest and other similar expense (307) (307) (34) - (34) 8 - 8 (333) - (333)
Net interest income 368 (46) 322 32 32 48 - 48 448 (46) 402
Impairment of loans and advances (163) 44 1,2 (119) (2) - (2) - - - (165) 44 (121)
Risk adjusted net interest income 205 (2) 203 30 30 48 - 48 283 (2) 281
Non-interest revenue 113 - 113 457 - 457 3 - 3 573 - 573
Non-operating profit and equity accounted earnings - - - 1 - 1 - - - 1 - 1
Operating costs (208) - (208) (403) - 4 (403) (25) - (25) (636) - (636)
Profit before tax 110 (2) 108 85 85 26 - 26 221 (2) 219
Income tax expense (11) 1 3 (10) (24) - 5 (24) (7) - (7) (42) 1 (41)
Profit after tax 99 (1) 98 61 - 61 19 - 19 179 (1) 178
Notes and assumptions
The "before" statement of income statement are the unaudited published consolidated financial results of TCL at
31 March 2015.
1. This represents interest suspended for the period 1 October 2014 to 31 March 2015, which under IFRS 9 is not
recognised. The interest raised on the gross balance of all credit impaired advances are adjusted to reflect interest on
only the net carrying value. The same approach is applied to all loans held at fair value. The calculation is as follows:
suspended interest = rate x gross outstanding balance - rate x net carrying value, where the rate = contractual interest
rate on the respective account.
2. This represents the movement on the IFRS 9 provision for the period 1 October 2014 to 31 March 2015 and includes
the following components:
Fair value gains and losses on 'loans and advances held at fair value'* (6)
Current year measurement impact of the adoption of IFRS 9* 4
Trade and other receivables -
Gross Loans and advances 4
Written off book -
Reclassification of suspended interest on credit impaired assets 46
44
* The provision and fair value at 31 March 2015 was calculated by applying the average of the restated IFRS 9
coverage ratio as determined at 30 September 2014 and the actual IFRS 9 coverage ratio as determined at 30
September 2015 to the gross loans balance at 31 March 2015. The movement results in a R1.65m increased
impairment charge for the year.
3. Represents the tax effects of the above IFRS 9 adjustments for the six months ended 31 March 2015.
Tax effect of IFRS 9 adjustments (@28%) - R460 623
4. No adjustment to the carrying amount of purchased book debts as relates to the 6 months ended 31 March 2015 is
required.
5. Deferred tax effect of the six months ended 31 March 2015 adjustment to the carrying amount of purchased book
debts.
6. All IFRS 9 adjustments represent adjustments of a continuing nature.
Transaction Capital Limited
Registration number: 2002/031730/06 (Incorporated in the Republic of South Africa)
("Transaction Capital" or "the company" or "the group")
JSE share code: TCP ISIN code: ZAE000167391
Tax reference number: 9466/298/15/6
Registered office: 230 Jan Smuts Avenue, Dunkeld West, Johannesburg 2196
PO Box 41888, Craighall 2024, Republic of South Africa
Tel: +27 (0) 11 049 6700
Fax: +27 (0) 11 049 6899
Directors: Christopher Seabrooke (chairman)* David Hurwitz (chief executive officer), Mark Herskovits (chief financial officer), Jonathan Jawno,
Moses Kgosana*, Michael Mendelowitz, Phumzile Langeni*, Dumisani Tabata*, David Woollam*, Roberto Rossi** (*Independent non-executive)
(**Non-executive)
Company secretary: Ronen Goldstein Auditors: Deloitte & Touche
Sponsor: Deutsche Securities (SA) Proprietary Limited Transfer secretaries: Computershare Investor Services Proprietary Limited, 70 Marshall Street,
Johannesburg, 2001.
Date: 10/05/2016 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
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