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TRANSACTION CAPITAL LIMITED - Annual general meeting (AGM) statement by group chief executive officer ahead of the Companys AGM

Release Date: 07/03/2018 12:00
Code(s): TCP     PDF:  
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Annual general meeting (AGM) statement by group chief executive officer ahead of the Company’s AGM

Transaction Capital Limited
(Incorporated in the Republic of South Africa)
Registration number: 2002/031730/06
JSE share code: TCP
ISIN: ZAE000167391
Tax reference number: 9466/298/15/6
(“Transaction Capital” or “the Company” or “the group”)

ANNUAL GENERAL MEETING (AGM) STATEMENT BY GROUP CHIEF EXECUTIVE OFFICER
AHEAD OF THE COMPANY’S AGM TO BE HELD TOMORROW, 8 MARCH 2018

This statement made by the group chief executive officer details the information that will be
presented to shareholders at the AGM to be held on 8 March 2018 . It will also inform management’s
meetings with analysts and investors on 19 March, 26 March and 29 March 2018 ahead of the group’s
closed period. The information contained in this announcement has not been reviewed and reported
on by the group’s external auditors.

MACRO- AND SOCIO-ECONOMIC ENVIRONMENT

Our market-leading businesses, SA Taxi and Transaction Capital Risk Services (TCRS), are well
positioned strategically within their chosen markets and continue to demonstrate their defensive
character. Both divisions have adjusted to South Africa’s persistently challenging macro- and socio-
economic conditions, by refining and diversifying their scalable fintech platforms and achieving high
operational efficiency. This has extended their track record of high-quality organic earnings growth
into the 2018 financial year at comparable historical rates.

There are signs that recent political developments in South Africa are supporting a recovery in
consumer and business confidence. Greater exchange rate stability, lower interest rates and more
direct investment should stimulate the economy, with higher employment, consumer spending and
consumer credit extension. The minibus taxi industry should benefit from these conditions, with a
growing commuter base and stable or lower vehicle, spare part and petrol prices supporting more
affordable finance instalments. In an improving credit environment, the volume of matters flowing to
TCRS for collection will increase and returns on our acquired non-performing loan portfolios and
contingency matters already under management will improve.

While the pace and depth of the macro- and socio-economic recovery remain to be seen, we expect
our businesses to perform better in this more positive economic environment. However, Transaction
Capital has not provided for any economic upturn in our guidance, so there may well be upside
potential for our growth expectations over the medium term.

The group’s balance sheet remains well capitalised, liquid and ungeared, with excess capital of around
R650 million.

SA TAXI

The structural dynamics detailed in previous announcements and the group’s latest integrated report,
support the minibus taxi industry’s resilience. Even without financial support from government, the
dominance of this mode of public transport sustains the profitability of SA Taxi’s clients despite
difficult socio-economic conditions.

SA Taxi is operating in line with expectations. Toyota increased vehicle prices by 1% and SA Taxi’s book
has continued to grow in the mid-teens. Net interest margin remains above 11%. The credit loss ratio
is within our risk tolerance of 3% to 4%. The non-performing loan ratio remains within expectation,
due to robust collection performance, high quality loans originated in the retail dealership and
conservative credit granting criteria.

Refurbishment enables SA Taxi to recover more than 73% of the loan value on the sale of repossessed
vehicles. Efficiencies in SA Taxi’s combined auto body repair and mechanical refurbishment centre
continue to lower the average cost to repair repossessed vehicles. New initiatives in the refurbishment
and parts procurement channels could reduce this cost further.

SA Taxi’s diversified non-interest revenue streams include revenue from the sale of vehicles,
telematics services and insurance products. The insurance business is the main contributor to non-
interest revenue growing faster than our book. Broadening its client base to insure taxi operators not
financed by SA Taxi and enhancing its product offering, with credit life added from October 2017, is
supporting its performance. Operational efficiencies are improving loss ratios in both the financed and
non-financed insurance portfolios. The business aims to improve its offering by processing a higher
proportion of its insurance claims via SA Taxi’s combined auto body and mechanical repair facility.

SA Taxi’s funding requirements into the 2019 financial year are already secured. Credit, operational
and financial performance is expected to remain robust, with moderate growth in gross loans and
advances, a stable net-interest margin, growth in non-interest revenue, improving credit performance
and a cost-to-income ratio of less than 50%.

SA Taxi continues to work closely with industry leadership to achieve sustainable benefits for the
minibus taxi industry.

TRANSACTION CAPITAL RISK SERVICES (TCRS)

Transaction Capital’s Consumer Credit Rehabilitation Index (CCRI)(1), which indicates the rehabilitation
prospects of South African consumers already in a default position, improved marginally by 0.3% in
the final quarter of 2017 compared to the corresponding quarter in 2016. This shows that, although
credit active consumers remain vulnerable, a recovery may be underway.

TCRS’s diversified revenue model across various geographies and sectors supports its performance in
different market conditions. The current economic climate in South Africa favours the acquisition of
non-performing loan portfolios from risk averse clients who prefer an immediate recovery of their
non-performing loans. TCRS has acquired large non-performing loan portfolios during the first four
months of the 2018 financial year, which is expected to support good revenue growth from this

1. The Consumer Credit Rehabilitation Index samples over five million consumers in credit default from TCRS’ proprietary database, using
an algorithm to estimate their propensity to repay debt and progress towards financial rehabilitation.
segment in future. In Australia, TCRS continues to be cautious as it seeks to apply its analytics, pricing
expertise and capital raising capabilities to the selective purchase of non-performing loan portfolios
in a highly fragmented debt collection market.

Despite the difficult consumer credit environment in South Africa, contingency and fee-for-service
revenue is ahead of expectations as TCRS deepens its penetration in its traditional markets (retailers,
specialist lenders and banks). In addition, TCRS continues to grow its revenue from adjacent market
sectors (insurance, telecommunications and public sectors). Management’s focus remains on driving
organic earnings growth from existing operations, while ensuring the smooth operational integration
of the acquired businesses, Recoveries Corporation in Australia and Road Cover in South Africa, all of
which are in line with expectations.

Costs remain well contained across the division, supporting stable cost-to-income ratios before
considering the business acquisitions concluded in the 2017 financial year.

INTERIM RESULTS ANNOUNCEMENT

Transaction Capital’s interim results for the half year ended 31 March 2018 are expected to be
released on SENS on Wednesday, 16 May 2018.

Dunkeld West
7 March 2018

Enquiries:
Investor Relations
Telephone: +27 (0) 11 049 6700

Sponsor: RAND MERCHANT BANK (A division of FirstRand Bank Limited)




                                                    

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