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Interim results for the half year ended 31 March 2017
Transaction Capital Limited
Registration number: 2002/031730/06
(Incorporated in the Republic of South Africa)
JSE share code: TCP
ISIN code: ZAE000167391
Tax reference number: 9466/298/15/6
("Transaction Capital" or "the company" or "the group")
Interim results for the half year ended 31 March 2017
COMMENTARY
HIGHLIGHTS
SHARE STATISTICS PERFORMANCE
- Core headline earnings per share(1) 43.3 cents up 17% (2016 37.0 cents)
- Net asset value per share 581.3 cents up 22% (2016 477.2 cents)
- Interim dividend per share 15.0 cents up 25% (2016 12.0 cents)
FINANCIAL PERFORMANCE
Growth in core headline earnings(1)
- Transaction Capital Group R254 million up 21%
- Transaction Capital Risk Services R93 million up 33%
- SA Taxi R144 million up 22%
Core return on average equity (ROE)(1)
- Transaction Capital Group 16.1%
- Transaction Capital Risk Services 20.6%
- SA Taxi 24.1%
(1) Core financial ratios exclude once-off acquisition costs of R22 million incurred during the first half of the financial year.
INTRODUCTION
Transaction Capital is a non-deposit taking financial services group specialising in higher-risk segments of the financial services market. The group's
divisions, SA Taxi and Transaction Capital Risk Services (TCRS), are positioned distinctly in relation to South Africa's demographic and socio-
economic realities. This underpins their leading market positions and enables them to deliver both social and commercial benefits.
The group has delivered robust organic earnings growth consistently since it listed on the Johannesburg Stock Exchange (JSE) five years ago.
Although SA Taxi and TCRS perform better in a positive economic environment, they are also defensive businesses able to withstand difficult
economic conditions.
In line with its strategy to buy and develop complementary businesses that support the growth of its divisions, and to diversify internationally,
Transaction Capital acquired the following businesses in TCRS during the period:
- 100% of Recoveries Corporation in Australia, effective 1 January 2017.
- 75% of Road Cover, effective 1 December 2016.
- 51% of The Beancounter, effective 1 December 2016.
Each business is cash generative with a proven track record and scalable business model, which the group is well placed to develop through
active management and potential bolt-on acquisitions. Further information regarding the acquisitions may be found in the Stock Exchange News
Service (SENS) announcement released on 22 November 2016, available on www.transactioncapital.co.za.
During the first half of the 2017 financial year, Transaction Capital continued to generate consistent organic earnings growth, which was
accelerated by the earnings accretive business acquisitions. The group's earnings growth for the full 2017 financial year, excluding once-off
acquisition costs, is expected to exceed the earnings growth achieved last year.
Transaction Capital grew core headline earnings by 21% to R254 million. Core headline earnings per share grew by 17% to 43.3 cents per
share, diluted slightly by the 28.4 million shares issued as part of the R418.9 million accelerated bookbuild concluded on 2 February 2017. This
enhanced the group's balance sheet, increasing net asset value per share by 22% to 581.3 cents per share, and creates the capacity and
flexibility for further acquisition opportunities.
SA Taxi grew headline earnings by 22% and generated an ROE of 24.1%, while TCRS grew core headline earnings by 33% and generated a
core ROE of 20.6%. TCRS incurred once-off acquisition costs of R22 million during the period.
Shareholders are reminded that the group early adopted IFRS 9 in the 2015 financial year, resulting in a more conservative and lower-risk balance
sheet and a higher quality of earnings. This early adoption has removed uncertainty relating to the implementation of IFRS 9 on future financial
results and ratios.
TRANSACTION CAPITAL RISK SERVICES
For the half year
ended 31 March
2017 2016 Movement
Financial performance
Core headline earnings attributable to the group(1) Rm 93 70 33%
Purchased book debts
Value of purchased book debts acquired Rm 210 41 >100%
Purchased book debts Rm 930 571 63%
Estimated remaining collections Rm 1 492 1 063 40%
(1) Core financial ratios exclude once-off acquisition costs of R22 million incurred during the first half of the financial year.
ENVIRONMENT AND MARKET POSITIONING
TCRS is a technology-led, data-driven provider of customer management solutions in South Africa and Australia. The division's scalable and
bespoke platform improves its clients' ability to originate, manage and collect from their customers, mitigating risk and maximising value throughout
the customer engagement lifecycle.
TCRS acts as an agent on an outsourced contingency or "fee-for-service" basis, or as a principal in acquiring and collecting on clients' non-
performing loan portfolios. This diversified revenue model across various consumer credit sectors is central to its defensive positioning, which
enables TCRS to continue delivering positive performance under a variety of market conditions.
South African consumers remain vulnerable, with persistently high levels of household debt-to-disposable income, low economic growth and high
unemployment. Of the 24.31 million credit-active South African consumers at December 2016, 9.76 million had impaired credit records. This
climate favours the acquisition of non-performing loan portfolios as a principal.
Although these macro- and socio-economic challenges affect consumers' ability to repay debt, regulatory changes regarding affordability
assessments have prompted more responsible and lower levels of credit extension, particularly in the retail sector. This may result in earlier
rehabilitation of the consumer over the medium term.
The business acquisitions made in the period will diversify TCRS' earnings over time, by geography and by sector. Specifically, Recoveries
Corporation's revenue is generated in hard currency from outsourced collections in the insurance, telecommunication, utility and public sectors in
Australia, whilst Road Cover allows TCRS to enter the adjacent value-added services market segment in South Africa.
ORGANIC GROWTH PERFORMANCE (EXCLUDING THE EFFECT OF THE BUSINESS ACQUISITIONS)
CONTINGENCY AND FEE-FOR-SERVICE REVENUE
TCRS' strategy to deepen its penetration in its traditional market segments (retailers, specialist lenders and banks) and grow revenue from adjacent
sectors supported its organic earnings growth in South Africa.
In 89% of its 217 outsourced collection mandates, TCRS is ranked as either the top or second best recoveries agent. Furthermore, the adjacent
insurance, telecommunication and public sectors now contribute 9% of TCRS' contingency and fee-for-service revenue.
ACQUISITION OF NON-PERFORMING LOAN PORTFOLIOS AS PRINCIPAL
The current economic context, and TCRS' strong capital position, data analytics capability, technology and scale have enabled greater acquisitions
of non-performing loan portfolios in South Africa from risk averse clients who prefer an immediate recovery against their non-performing loans.
During the first half of the 2017 financial year TCRS acquired 13 portfolios with a face value of R2.8 billion for R210 million. TCRS now owns
180 principal portfolios with a face value of R18.1 billion, valued at R930 million at 31 March 2017, up 63% from R571 million a year before.
Revenue from the collection of non-performing loans as principal has grown by 19%, a strong result when compared to the 9% growth for the half
year ended 31 March 2016. Estimated remaining collections has increased to R1.5 billion from R1.1 billion at 31 March 2016, which is
expected to support positive performance in future.
OPERATIONAL PERFORMANCE
Before taking the business acquisitions into account, TCRS improved its operational leverage with total costs for the half year decreasing by 7%.
The technological and operational enhancements implemented last year, together with aggressive cost containment initiatives, contributed to an
improved cost-to-income ratio of 74.9% compared to 81.5% in the prior half year period. Prior to the effect of the acquisitions, TCRS grew
earnings organically in the high-teens.
EFFECT AND INTEGRATION OF RECENT BUSINESS ACQUISITIONS
Effective 1 December 2016, the earnings of Road Cover and The Beancounter were consolidated for four months. Effective 1 January 2017,
Recoveries Corporation's earnings were consolidated for three months. The operational integration of the three businesses, to ensure they deliver on
their investment cases, remains a key strategic and operational focus. Each of the businesses is performing in line with expectations.
In Recoveries Corporation, TCRS will apply the group's analytics, pricing expertise and capital to the purchase of non-performing loan portfolios in
a highly fragmented Australian debt collection market. As most debt recovery activity in the Australian industry is according to this model, this
presents good prospects for growth. Recoveries Corporation is the market leader in the Australian insurance recoveries sector, and will facilitate the
growth of TCRS' fledgling insurance recoveries offering in South Africa.
Opportunities in Road Cover include offering their products to the mass consumer market in South Africa through TCRS' existing banking, retail,
insurance, telecommunications and other clients. A strategy to deliver Road Cover's product directly to consumers via data analytics, lead
generation and direct marketing channels is also being pursued.
CONCLUSION
TCRS' diversified revenue model supported core headline earnings growth of 33% to R93 million for the half year ended 31 March 2017. Robust
organic growth, augmented by the earnings accretive business acquisitions, underpinned this result.
As Recoveries Corporation was consolidated for only part of the period and currency movements were negligible, the impact of the foreign
exchange translation loss on earnings was insignificant.
SA TAXI
For the half year
ended 31 March
2017 2016 Movement
Financial performance
Headline earnings attributable to the group Rm 144 118 22%
Non-interest revenue Rm 195 150 30%
Net interest income Rm 412 356 16%
Net interest margin % 11.0 11.0
Credit performance
Gross loans and advances Rm 7 757 6 688 16%
Non-performing loan ratio % 17.2 18.0
Credit loss ratio % 3.3 3.4
ENVIRONMENT AND MARKET POSITIONING
SA Taxi is a vertically integrated platform incorporating vehicle procurement, retail, finance, insurance, repossession, spare part procurement and
refurbishment capabilities. Combined with SA Taxi's proprietary data, these specialist competencies enable the division to extend asset-backed
developmental credit, distribute bespoke taxi insurance and sell focused vehicle models and other allied business services to taxi operators. By
helping taxi operators to ensure the sustainability of their businesses, SA Taxi has a business model that delivers a commercial benefit while
improving this fundamental mode of transport.
With 69% of all South African households utilising minibus taxis, this dominant mode of transport is responsible for more than 15 million commuter
trips per day, with no reliance on any government subsidy. In contrast, bus and rail transport requires huge capital investment and ongoing
subsidisation from government to build, maintain and operate, and on a combined basis only accounts for 11 million commuter trips per day. For
the majority of South African commuters, therefore, minibus taxi transport is a non-discretionary expense that offers the most accessible and
cheapest means of travel. This structural element of South Africa's public transport system makes the minibus taxi industry resilient and defensive
regardless of the socio-economic environment.
On balance, the economic drivers affecting a minibus taxi operator's business model remain favourable. For the three-year period from January
2014 to December 2016, Toyota has increased the price of its minibus taxi vehicle by an average 8.7% a year, to a current price of about
R400 000. Petrol prices have remained below January 2014 levels for 25 of the 36 months. The repo interest rate has increased by 200 basis
points over the same period. Commuter fares, which are set by minibus taxi associations taking operators' costs and commuter affordability into
account, have been increased appropriately. This can be measured by SA Taxi's improving key credit metrics, demand for minibus taxi vehicles
exceeding supply and the proportion of repeat loans originated to existing clients, which during the rolling 12 months ended 31 March 2017
was approximately 23%.
SA Taxi estimates that of the 200 000 national minibus taxi fleet, only 70 000 to 80 000 of these are financed with the remainder estimated to
be older than nine years. The limited supply of minibus taxi vehicles into the local market extends the under-capitalisation and age of the national
fleet. This structural element has resulted in long-term demand exceeding the supply of minibus taxi vehicles, underpinning SA Taxi's credit
performance as it achieves high prices for its refurbished vehicles and remains selective on credit risk.
VEHICLE FINANCING ACTIVITIES
SA Taxi's loans and advances portfolio comprises 27 142 vehicles, approximately one in every three of the financed national minibus taxi fleet.
SA Taxi grew the number of loans originated during the first half of 2017 by 11%, now financing more than 40% of local new Toyota minibus taxi
sales compared to 38% in 2015.
SA Taxi's loans and advances portfolio grew by 16% to R7.8 billion in the period. The combined effect of SA Taxi's 6% growth in the number of
loans on book and minibus taxi price increases supported this result.
Net interest income grew by 16% in line with book growth, to R412 million. SA Taxi's net interest margin remained stable at 11.0%. An increasing
interest rate environment anticipated from the downgrade of South Africa's credit rating is not expected to have a meaningful impact on SA Taxi's
net interest margin or credit metrics as clients are able to afford higher repayments.
Despite the political uncertainty and concerns regarding South Africa's credit rating, SA Taxi still raised more than R4 billion in debt facilities during
the period, securing its annual debt requirements for the 2018 financial year.
SA Taxi is funded by more than 30 distinctive debt investors, and continues to diversify its funding sources by accessing offshore capital pools. In
addition to securing more than R2 billion of debt funding from European Development Finance Institutions (DFIs) since 2010, in February 2017 SA
Taxi secured further debt facilities in excess of R2 billion from American DFIs. This long-term debt is raised in foreign currency and is fully hedged to
Rand.
Reduced credit losses have resulted in an improved risk-adjusted net interest margin of 7.7% for the period. SA Taxi's credit loss ratio remained well
within the internally set risk tolerance level of 3% to 4%, improving to 3.3% compared to 3.4% in the prior period. SA Taxi is able to recover more
than 73% of the loan value when re-selling repossessed vehicles, as the security value of a taxi vehicle is enhanced in its refurbishment centre, the
largest minibus taxi repair facility in Africa. The average cost to repair repossessed vehicles reduced further, driven by efficiencies achieved through
SA Taxi's investment in its combined auto body repair and mechanical refurbishment centre.
A positive second order effect of vehicle manufacturers increasing new minibus vehicle prices is that pre-owned vehicle prices follow a similar
trend. As SA Taxi's pre-owned product becomes more viable to its customers, SA Taxi is able to recover more when re-selling pre-owned
refurbished vehicles in its retail dealership.
The non-performing loan ratio remains within management's expectations, improving to 17.2% from 18.0% in the prior period. A combination of
continued strong collection performance, loans of superior credit quality originated via its retail dealership and conservative credit granting criteria
supported this improvement.
With the early adoption of IFRS 9, SA Taxi's provisioning model is even more conservative, now based upon expected credit risk/loss (previously
incurred credit loss). As a result of fewer non-performing loans, a cheaper average cost to repair repossessed vehicles and higher recoveries when
re-selling such vehicles, provision coverage has reduced to 5.8%. At this level, SA Taxi's after tax credit loss remains conservatively covered at 2.4
times.
NON-INTEREST REVENUE
Non-interest revenue for the half year increased by 30% to R195 million, now comprising 32% of SA Taxi's revenue after interest expense
compared to 26% in 2015. SA Taxi's vertically integrated business model allows for diversified non-interest revenue streams, including revenue
earned from the sale of vehicles, telematics services and insurance offerings.
VEHICLE RETAIL OPERATIONS
SA Taxi's retail dealership, one of the largest dedicated taxi dealerships in the country selling Toyota, Nissan and Mercedes minibuses, and
bespoke Toyota Corolla point-to-point taxi vehicles, has grown its annual vehicle turnover to more than R650 million.
Vehicles financed directly through SA Taxi's dealership outstrip the profitability of loans originated through affiliated and non-affiliated dealerships.
Product margin, greater insurance revenue and better credit performance is achieved through this channel. The strategy of retailing new and
pre-owned taxi vehicles through a SA Taxi owned dealership continues to present an organic growth opportunity.
SA Taxi's combined auto body repair and mechanical refurbishment centre spans more than 20 000 square metres and is estimated to be the
largest buyer of Toyota spare parts in Africa. This centre is designed to feed SA Taxi's dealerships with approximately 220 quality refurbished taxi
vehicles per month. This, together with its retail dealership channel and well-regarded brand, has enabled SA Taxi to establish the sale, financing
and insuring of pre-owned vehicles as a core and profitable product offering.
INSURANCE OPERATIONS
SA Taxi's short-term insurance business continues to be a key driver of non-interest revenue. SA Taxi requires its financed minibus taxis to be fully
insured, and has designed a bespoke insurance product to meet its taxi owners' specific needs, including comprehensive vehicle cover, passenger
liability as well as business interruption cover. SA Taxi is also responsible for product distribution, premium collections and claims management, and
earns the underwriting profits associated with this insurance business.
At 31 March 2017, more than 85% of SA Taxi's financed portfolio was insured directly through SA Taxi, compared to 81.4% at the 2016 half
year. Over this period, the number of insurance policies taken up by non-financed clients increased by 23%.
In response to client demand, newly developed insurance products specifically designed for taxi operators will be introduced later this year, such
as credit life and warranty products. In addition, management is currently investigating offering Road Cover products to SA Taxi's client and
commuter base.
SA Taxi intends to earn additional margin and hence improve insurance underwriting profits by processing a greater proportion of its insurance
claims via SA Taxi's combined auto body and mechanical repair facility.
UNIQUE USE OF DATA AND TECHNOLOGY
Technology remains key to mitigating SA Taxi's risk. Data is accumulated daily from each minibus taxi and applied to credit score cards, route
profitability assessments, collection strategies and insurance pricing. SA Taxi's use of data and analytics has progressed over the years from
repossession (tracking a vehicle's physical location), to credit decision-making (to assess the prospective profitability of a proposed route), to
collections (determining current profitability based on kilometres travelled in a specific month), to insurance (whether the vehicle's average movement
pattern has changed pointing to potential vehicle damage or theft). Leveraging this data to develop an application for minibus taxi operators
represents the next step in SA Taxi's technology evolution. This data-rich application will provide operators with real-time information on the
performance of their vehicles, enabling them to better manage their business. Revenue from telematics services increased by 7% from the prior
period.
POINT-TO-POINT TAXI OPERATIONS
The point-to-point taxi fleet, consisting of both metered and e-hail taxis, is not yet a significant component of SA Taxi's loans and advances portfolio.
Management remains focused on leveraging SA Taxi's existing skill set in the procurement, sale, financing and insuring of point-to-point taxis.
OPERATIONAL PERFORMANCE
SA Taxi's cost-to-income ratio has increased to 50.1% from 48.4% for the half year mainly due to continued investment in SA Taxi's retail dealership
and insurance businesses as well as the establishment of the auto body repair centre and point-to-point taxi business.
CONCLUSION
With 16% growth in gross loans and advances, stable net interest margins, 30% growth in non-interest revenue, improving credit performance and
a marginally higher cost-to-income ratio it is evident that SA Taxi's credit, operational and financial performance is robust. This translated into 22%
growth in headline earnings of R144 million for the period.
GROUP EXECUTIVE OFFICE
The group executive office contributed R17 million to the group's headline earnings in the first half of the 2017 financial year, a decrease of 23%
from the prior comparative period. This result is largely due to the deployment of more than R500 million of capital in December 2016 to fund
business acquisitions accretive to TCRS' earnings.
PROSPECTS AND STRATEGY
Transaction Capital's strategy is to drive organic growth by enhancing and developing each division to achieve deep vertical integration within
current and adjacent market segments. The composition of its portfolio and the defensive positioning of its divisions augurs well for the group's
performance going forward.
Acquisitions remain a key component of Transaction Capital's growth strategy. The group favours a conservative approach with a narrow focus on
businesses operating within existing or adjacent market segments. More than R500 million was deployed in December 2016 to fund the business
acquisitions made in the period. The R418.9 million of additional equity capital raised in February 2017 has ensured that the balance sheet
remains well capitalised, liquid and ungeared at a holding company level. This will enable the group to pursue acquisition opportunities with the
flexibility of immediate cash settlement.
In addition, the share issue is also expected to help continue building trading liquidity in Transaction Capital shares.
Transaction Capital continues to enjoy strong support from both local debt investors and international DFIs. During November 2016, Transaction
Capital established a R2 billion credit rated and JSE-listed Domestic Note Programme. Transaction Capital has been accorded a A-(ZA) (Long Term,
National Scale) and A1-(ZA) (Short Term, National Scale) credit rating from Global Credit Ratings Co. It is expected that this programme will
enable the group to gain access to a new capital pool at an attractive cost.
Considering Transaction Capital's defensive positioning within the socio-economic context, management is confident about the group's prospects.
The combination of robust organic growth together with the accretive acquisitions supports good growth in the medium term. In addition, earnings
will become more evenly weighted between its two divisions after the business acquisitions.
DIVIDEND DECLARATION
In line with the stated dividend policy of 2.5 to 3 times, the board has declared an interim gross cash dividend of 15 cents per share for the six
months ended 31 March 2017 to those members on the record date appearing below. The dividend is declared out of income reserves. A
dividend withholding tax of 20% will be applicable to the dividend to all shareholders that are not exempt from the dividend withholding tax,
resulting in a net dividend of 12 cents per share. The salient features applicable to the interim dividend are as follows:
Issued shares as at declaration date 609 456 734
Declaration date Wednesday 24 May 2017
Last day to trade cum dividend Tuesday 20 June 2017
Final day to trade ex-dividend Wednesday 21 June 2017
Record date Friday 23 June 2017
Payment date Monday 26 June 2017
Tax reference number: 9466/298/15/6
Share certificates may not be dematerialised or rematerialised between Wednesday 21 June 2017 and Friday 23 June 2017, both dates
inclusive.
On Monday 26 June 2017 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 26 June 2017 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 26 June 2017.
BASIS FOR PREPARATION
The financial information on which this announcement is based has not been reviewed and reported on by Transaction Capital's external auditors.
The unaudited results of the group for the half year ended 31 March 2017 have been prepared in accordance with the requirements of the JSE
Limited Listings Requirements for preliminary reports, and the requirements of the Companies Act, 71 of 2008, applicable to summary financial
statements. The Listings Requirements require preliminary reports to be prepared in accordance with the framework concepts as a minimum and the
measurement and recognition requirements of International Financial Reporting Standards (IFRS), IAS 34: Interim Financial Reporting and the SAICA
Financial Reporting Guides as issued by the Accounting Practices Committee and Financial Pronouncements as issued by the Financial Reporting
Standards Council. 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:
David Hurwitz Ronen Goldstein
Chief executive officer Financial director
24 May 2017
Enquiries:
Phillipe Welthagen - Investor Relations
Telephone: +27 (0) 11 049 6700
Sponsor: Deutsche Securities (SA) Proprietary Limited
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AT 31 MARCH 2017
2017 2016
Unaudited Unaudited Change
Rm Rm %
Assets
Cash and cash equivalents 782 965 (19)
Taxation receivable 30 24 25
Trade and other receivables 617 546 13
Inventory 222 97 >100
Loans and advances 7 785 6 601 18
Leased assets 28 - 100
Purchased book debts 930 571 63
Other loans receivable 32 40 (20)
Other investments 590 425 39
Intangible assets 212 43 >100
Property and equipment 122 65 88
Goodwill 696 200 >100
Deferred tax assets 314 249 26
Total assets 12 360 9 826 26
Liabilities
Bank overdrafts 147 22 >100
Taxation payable 13 32 (59)
Trade and other payables 420 203 >100
Provisions 45 12 >100
Interest-bearing liabilities 7 895 6 691 18
Senior debt 6 959 5 523 26
Subordinated debt 936 1 168 (20)
Deferred tax liabilities 250 127 97
Total liabilities 8 770 7 087 24
Equity
Ordinary share capital 1 046 460 >100
Reserves 139 113 23
Retained earnings 2 358 2 134 10
Equity attributable to ordinary equity holders of the
parent 3 543 2 707 31
Non-controlling interests 47 32 47
Total equity 3 590 2 739 31
Total equity and liabilities 12 360 9 826 26
CONDENSED CONSOLIDATED INCOME STATEMENT
FOR THE HALF YEAR ENDED 31 MARCH 2017
2017 2016
Unaudited Unaudited Change
Rm Rm %
Interest and other similar income 939 806 17
Interest and other similar expense (475) (377) 26
Net interest income 464 429 8
Impairment of loans and advances (125) (112) 12
Risk-adjusted net interest income 339 317 7
Non-interest revenue 843 611 38
Operating costs (868) (656) 32
Non-operating (loss)/profit (2) 2 <(100)
Profit before tax 312 274 14
Income tax expense (75) (62) 21
Profit for the period 237 212 12
Attributable to ordinary equity holders of the parent 232 210 10
Attributable to non-controlling equity holders 5 2 >100
Basic and headline earnings per share (cents) 39.5 37.0 7
Diluted basic and headline earnings per share (cents) 39.3 36.6 7
Core headline earnings per share (cents) 43.3 37.0 17
Core diluted headline earnings per share (cents) 43.0 36.6 17
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
FOR THE HALF YEAR ENDED 31 MARCH 2017
2017 2016
Unaudited Unaudited Change
Rm Rm %
Profit for the period 237 212 12
Other comprehensive income (4) (17) (76)
Fair value losses on cash flow hedge (2) (3) (33)
Deferred tax on above <1 <1 0
Exchange differences on translation of foreign
operations (2) - 100
Fair value losses arising on valuation of assets held at
fair value through other comprehensive income <(1) (14) (100)
Total comprehensive income for the period 233 195 19
Attributable to ordinary equity holders of the parent 228 193 18
Attributable to non-controlling equity holders 5 2 >100
CONDENSED HEADLINE EARNINGS RECONCILIATION
FOR THE HALF YEAR ENDED 31 MARCH 2017
Headline earnings is equal to profit after tax for the period as there are no headline earnings adjustments required.
2017 2016
Unaudited Unaudited Change
Rm Rm %
Headline earnings 232 210 10
Transaction and other acquisition-related costs 22 - 100
Core headline earnings 254 210 21
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE HALF YEAR ENDED 31 MARCH 2017
Ordinary Non-
Share Retained shareholders controlling Total
capital Reserves earnings equity interests equity
Rm Rm Rm Rm Rm Rm
Balance at 31 March 2016 460 113 2 134 2 707 32 2 739
Total comprehensive income - 41 248 289 3 292
Profit for the period - - 248 248 3 251
Other comprehensive income for the period - 41 - 41 - 41
Dividends paid - - (68) (68) (1) (69)
Grant of share appreciation rights - 8 - 8 - 8
Settlement of share appreciation rights - (13) (29) (42) - (42)
Issue of shares 53 - - 53 - 53
Repurchase of shares (3) - - (3) - (3)
Balance at 30 September 2016 510 149 2 285 2 944 34 2 978
Total comprehensive income - (4) 232 228 5 233
Profit for the period - - 232 232 5 237
Other comprehensive income for the period - (4) - (4) - (4)
Dividends paid - - (104) (104) (1) (105)
Additional non-controlling interests arising on
acquisitions - - - - 9 9
Grant of share appreciation rights and conditional
share plan - 9 - 9 - 9
Settlement of share appreciation rights - (15) (55) (70) - (70)
Issue of shares 536 - - 536 - 536
Balance at 31 March 2017 1 046 139 2 358 3 543 47 3 590
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE HALF YEAR ENDED 31 MARCH 2017
2017 2016
Unaudited Unaudited Change
Rm Rm %
Net cash (utilised)/generated by operating activities (110) 280 <(100)
Net cash utilised by investing activities (646) (25) >100
Net cash generated/(utilised) by financing activities 448 (8) >100
Net (decrease)/increase in cash and cash equivalents (308) 247 <(100)
Cash and cash equivalents at the beginning of the
period 943 696 35
Cash and cash equivalents at the end of the period 635 943 (33)
CONDENSED SEGMENT REPORT
FOR THE HALF YEAR ENDED 31 MARCH 2017
SA Taxi TCRS Group executive office* Group
2017 2016 2017 2016 2017 2016 2017 2016
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 2017
Net interest income 412 356 28 30 24 43 464 429
Impairment of loans and advances (124) (111) (1) (1) - - (125) (112)
Non-interest revenue 195 150 642 461 6 - 843 611
Total operating costs (304) (245) (560) (400) (4) (11) (868) (656)
Non-operating (loss)/profit - - (2) 2 - - (2) 2
Profit before tax 179 150 107 92 26 32 312 274
Headline earnings attributable to equity holders of the parent 144 118 71 70 17 22 232 210
Transaction and other acquisition-related costs - - 22 - - - 22 -
Core headline earnings attributable to equity holders of the parent 144 118 93 70 17 22 254 210
Condensed statement of financial position
at 31 March 2017
Assets
Cash and cash equivalents 483 422 91 87 208 456 782 965
Loans and advances 7 305 6 166 480 435 - - 7 785 6 601
Leased assets 28 - - - - - 28 -
Purchased book debts - - 930 571 - - 930 571
Other investments 496 425 - - 94 - 590 425
Other assets and receivables 949 835 1 258 342 38 87 2 245 1 264
Total assets 9 261 7 848 2 759 1 435 340 543 12 360 9 826
Liabilities
Bank overdrafts 141 18 6 - - 4 147 22
Interest-bearing liabilities 6 757 5 571 794 530 344 590 7 895 6 691
Group loans 910 1 144 205 119 (1 115) (1 263) - -
Other liabilities and payables 199 130 541 234 (12) 10 728 374
Total liabilities 8 007 6 863 1 546 883 (783) (659) 8 770 7 087
Total equity 1 254 985 1 213 552 1 123 1 202 3 590 2 739
* Group executive office numbers are presented net of group consolidation entries.
BUSINESS COMBINATIONS
FOR THE HALF YEAR ENDED 31 MARCH 2017
Subsidiaries acquired
Proportion
of voting
equity
interests Consideration
acquired transferred
Principal activity Date of acquisition % Rm
Recoveries Corporation Group Limited Consumer customer
(Recoveries Corporation) management solutions 31/12/2016 100 477
RC Value Added Services Proprietary Proprietary value-added
Limited (Road Cover) services 01/12/2016 75 120
The Beancounter Financial Services Outsourced accounting,
Proprietary Limited (The Beancounter) payroll and tax services 01/12/2016 51 10
Refer to the announcements released on SENS on 14 November 2016 and 22 November 2016 for further detail with regards to the
abovementioned acquisitions.
Consideration transferred
Recoveries The
Corporation Road Cover Beancounter Total
Rm Rm Rm Rm
Cash 377 120 10 507
Contingent consideration arrangement* 100 - - 100
Total 477 120 10 607
* Under the contingent consideration arrangement, the group is required to pay Recoveries Corporation a further potential AUD10
million over an earn-out period ending 31 October 2018. A maximum potential first earn-out payment of AUD2.5 million is
payable at or about the end of June 2017 and AUD0.5 million is payable at or about the end of October 2017, subject to
achieving certain profit warranties, with a maximum last earn-out payment of AUD7 million payable at or about the end of
October 2018, again subject to achieving certain profit warranties. The present value of the contingent consideration on the
date of acquisition was AUD9 million which represents the estimated fair value of this obligation at this date.
There has been no change in the fair value of the contingent consideration since the acquisition date.
Acquisition-related costs amounting to R22 million (Recoveries Corporation R20.5 million, Road Cover R1.4 million and The Beancounter
R0.1 million) have been excluded from the consideration transferred and have been recognised as an expense in profit or loss in the current
period.
Assets acquired and liabilities recognised at the date of acquisition
Recoveries The
Corporation Road Cover Beancounter Total
Rm Rm Rm Rm
Current assets
Cash and cash equivalents 21 4 - 25
Trade and other receivables 72 - 1 73
Tax receivable 4 - - 4
Non-current assets
Property and equipment 18 2 - 20
Goodwill 147 - - 147
Deferred tax asset 14 1 - 15
Current liabilities
Provisions (30) - - (30)
Contingent liabilities raised in terms of IFRS 3 - (3) - (3)
Trade and other payables (60) - (1) (61)
Net assets acquired and liabilities recognised 186 4 - 190
The initial accounting for the acquisition of Recoveries Corporation has been provisionally determined at the end of the reporting period. For tax
purposes, the tax values of certain Recoveries Corporation assets are required to be reset based on market values of the assets at the date of the
acquisition. At the date of finalisation of these consolidated interim results, the necessary market valuations and other calculations from a tax
perspective had not been finalised and have therefore only been provisionally determined based on the directors' best estimate of the likely tax
values.
The receivables acquired in these transactions have a fair value of R73 million. The receivables acquired comprise principally trade receivables
with a gross contractual amount of R59 million. The best estimate at acquisition date of the contractual cash flows not expected to be collected are
R4 million.
On acquisition of Road Cover, and in accordance with the requirements of IFRS 3, the group recognised an additional contingent liability of
R3 million in respect of historic subscriber claims at acquisition date for which the costs associated with the settlement of claims is uncertain. The
contingent liability was measured with reference to historic trend analysis of costs incurred associated with subscriber claims at the acquisition date
and, if an outflow occurs, it is expected to be settled within 18 months of the acquisition date. There has been no change in the fair value of the
contingent liability since the acquisition date.
Non-controlling interests
The non-controlling interests in Road Cover (25%) and The Beancounter (49%) were measured at acquisition date at the non-controlling interests'
proportionate share of the identifiable net assets.
Goodwill arising on acquisition
Recoveries The
Corporation Road Cover Beancounter Total
Rm Rm Rm Rm
Consideration transferred 477 120 10 607
Plus: non-controlling interests (25% in Road Cover, 49%
in The Beancounter) - 9 <1 9
Less: intangible assets identified from business
combination (61) (40) (2) (103)
Plus: deferred tax on intangible assets identified from
business combination 14 10 1 25
Less: fair value of identifiable net assets acquired (186) (4) - (190)
Goodwill arising on acquisition 244 95 9 348
The consideration paid for the combination effectively included amounts in relation to the benefit of expected synergies, revenue growth, future
market development and the assembled workforce of Recoveries Corporation, Road Cover and The Beancounter. These benefits are not recognised
separately from goodwill because they do not meet the recognition criteria for identifiable intangible assets.
None of the goodwill arising on these acquisitions is expected to be deductible for tax purposes.
Net cash outflow on acquisition of subsidiaries
2017
Rm
Consideration paid in cash (excluding contingent
consideration arrangement) 507
Less: cash and cash equivalents balance acquired (25)
Net cash outflow 482
Impact of acquisitions on the results of the group
Included in profit attributable to equity holders of the group for the period, excluding acquisition costs, is R5 million attributable to the additional
business generated by Recoveries Corporation, R6 million attributable by Road Cover and R0.4 million attributable by The Beancounter. Revenue
for the period includes R115 million in respect of Recoveries Corporation, R23 million in respect of Road Cover and R4 million in respect of The
Beancounter.
Had these business combinations been effected at 1 October 2016, revenue for the group for the interim period would have been
R1 930 million, and the profit for the period attributable to equity holders of the group would have been R243 million. The directors consider these
pro forma numbers to represent approximate measure of the performance of the combined group on an annualised basis and to provide a
reference point for comparison in future periods.
FAIR VALUE DISCLOSURE
FOR THE HALF YEAR ENDED 31 MARCH 2017
The fair values of financial assets and liabilities have been disclosed below:
Carrying Carrying
value Fair value value Fair value
2017 2017 2016 2016
Rm Rm Rm Rm
Assets
Loans and advances 7 785 7 772 6 601 6 593
Purchased book debts 930 930 571 571
Other loans receivable 32 32 40 40
Trade and other receivables* 527 527 631 631
Cash and cash equivalents 782 782 965 965
Total 10 056 10 043 8 808 8 800
Liabilities
Interest-bearing liabilities 7 895 7 955 6 691 6 592
Fixed rate liabilities 238 238 797 723
Floating rate liabilities 7 657 7 717 5 894 5 869
Trade and other payables** 358 358 314 314
Bank overdrafts 147 147 22 22
Total 8 400 8 460 7 027 6 928
Net exposure 1 656 1 583 1 781 1 872
* Prepayments are not financial assets and therefore have been excluded from trade and other receivables.
** Revenue received in advance and deferred lease liabilities are not financial liabilities and therefore have been excluded from trade
and other payables.
LEVEL DISCLOSURES
FOR THE HALF YEAR ENDED 31 MARCH 2017
2017
Level 1 Level 2 Level 3 Total
Rm Rm Rm Rm
Financial assets at fair value through profit or loss
Entry-level vehicles - - 39 39
Other financial assets - - 172 172
Financial assets at fair value through other
comprehensive income
Derivatives - 56 - 56
Other investments 94 - 496 590
Total financial assets 94 56 707 857
Financial liabilities at fair value through other
comprehensive income
Derivatives - 6 - 6
Total financial liabilities - 6 - 6
2016
Level 1 Level 2 Level 3 Total
Rm Rm Rm Rm
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
Other investments - - 425 425
Total - 125 663 788
Reconciliation of level 3 fair value measurements of financial assets
2017
Fair value
Fair value through other
through comprehensive
profit or loss income Total
Rm Rm Rm
Opening balance 220 370 590
Total gains or losses
In profit or loss (53) - (53)
In other comprehensive income - - -
Other movements* 44 - 44
Closing balance of fair value measurement 211 370 581
Capital deployed to cell - 126 126
Closing balance of financial instrument 211 496 707
2016
Fair value
Fair value through other
through comprehensive
profit or loss income Total
Rm Rm Rm
Opening balance 266 343 609
Total gains or losses
In profit or loss (25) - (25)
In other comprehensive income - (14) (14)
Other movements* (3) - (3)
Closing balance of fair value measurement 238 329 567
Capital deployed to cell - 96 96
Closing balance of financial instrument 238 425 663
* Other movements include charges on accounts less collections received and write-off's for entry-level vehicles as well as movements in other
financial assets.
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 a reasonable range of possible
outcomes:
Movement in fair value given a 10% change in significant assumptions:
2017 2016
10% 10% 10% 10%
Favourable Unfavourable Favourable Unfavourable
SA Taxi - loans and advances: entry-level vehicles Rm Rm Rm Rm
Significant unobservable input and description of
assumption
Average collateral value 2 (2) 2 (2)
Discount rate: The rate used to discount projected
future cash flows to present value 2 (2) 4 (3)
Total 4 (4) 6 (5)
2017 2016
10% 10% 10% 10%
Favourable Unfavourable Favourable Unfavourable
SA Taxi - other investments Rm Rm Rm Rm
Significant unobservable input and description of
assumption
Premium per policy: average insurance premium per
policy in a year 15 (15) 16 (16)
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 95 (95) 84 (84)
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) 5 (5)
Discount rate: the rate used to discount projected
future cash flows to present value 6 (6) 17 (16)
Total 121 (121) 122 (121)
2017 2016
10% 10% 10% 10%
Transaction Capital Recoveries - other financial Favourable Unfavourable Favourable Unfavourable
assets Rm Rm Rm Rm
Significant unobservable input and description of
assumption
Cash flows: change in the expected revenue <1 (1) 3 (4)
Cash flows: change in expected costs <1 (1) 1 (1)
Discount rate: the rate used to discount projected
future cash flows to present value 1 (2) 3 (3)
Total 1 (4) 7 (8)
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, 2196,
P.O. 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), Ronen Goldstein (Financial director), Mark Herskovits,
Olufunke Ighodaro*, Jonathan Jawno, Moses Kgosana*, Kuben Pillay*, Phumzile Langeni*, Michael Mendelowitz, Roberto Rossi**,
(*Independent non-executive) (**Non-executive)
Company secretary:
Theresa Palos
Auditors:
Deloitte & Touche
Transfer secretaries:
Computershare Investor Services Proprietary Limited, 70 Marshall Street, Johannesburg, 2001
24 May 2017
Sponsor:
Deutsche Securities (SA) Proprietary Limited
Date: 24/05/2017 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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