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Results and cash dividend declaration for the year ended 30 September 2019
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: ZAE000167391
Tax reference number: 9466/298/15/6
TRANSCAPITAL INVESTMENTS LIMITED
Registration number: 2016/130129/06
(Incorporated in the Republic of South Africa)
Bond Company code: TCII
Tax reference number: 9748/456/16/8
RESULTS AND CASH DIVIDEND DECLARATION
FOR THE YEAR ENDED 30 SEPTEMBER 2019
HIGHLIGHTS
- Core headline earnings per share(1) up 18% to 131.3 cents (2018: 111.7 cents)
- Total dividend per share up 22% to 61.0 cents (2018: 50.0 cents)
Core headline earnings attributable to the group(1)
- Transaction Capital Group(2) up 18% to R803 million (2018: R682 million)
- SA Taxi up 21% to R446 million (2018: R368 million)
- Transaction Capital Risk Services up 15% to R313 million (2018: R273 million)
RESULTS OVERVIEW
Transaction Capital has achieved compound annual growth in core headline earnings per share of 20% over the past five years.
Despite the economic deterioration in South Africa, Transaction Capital delivered excellent organic growth. Core headline earnings and core headline earnings per share
increased 18% to R803 million (2018: R682 million) and 131.3 cents (2018: 111.7 cents) respectively this year.
Basic earnings per share increased 6% to 118.8 cents (2018: 111.7 cents) and basic headline earnings per share increased 5% to 117.5 cents (2018: 111.7 cents).
These results include R84 million once-off transaction costs in relation to SA Taxi's ownership transaction with SANTACO, which are excluded from core headline
earnings, R81 million of which was non-cash. Net asset value per share increased 30% to 799.1 cents (2018: 616.8 cents) and total income increased 15% to
R3 967 million (2018: R3 435 million).
The balance sheet is ungeared and liquid at a holding company level. Our capital strategy remains conservative in the current economic conditions, with undeployed
capital of more than R950 million. The majority of this is surplus to the capital adequacy requirements of our divisions. SA Taxi's funding requirements for 2020 are met.
Our growth expectations assume no accretive investment of the surplus capital, making further upside in earnings possible in the medium term.
Over the past five years, dividends per share have grown faster than earnings growth at 31% per year. This year, the total dividend per share was 22% higher at
61 cents per share, supported by high-quality earnings and healthy cash conversion rates.
PROSPECTS AND STRATEGY
The main driver of organic growth for TCRS will be accelerated acquisitions of non-performing consumer loan portfolios (NPL Portfolios). In South Africa this will be driven
by macro factors and TCRS's active involvement in developing and broadening this sector. In Australia we aim to take a more meaningful position in this sizeable
collections market. Future performance will be underpinned by TCRS's existing NPL Portfolio which supports growing and predictable annuity revenue growth.
Expanding and enriching its database, and ongoing investment in technologies should enable TCRS to deliver even higher operational efficiencies, particularly in
Australia. The successful deployment of technologies proven in South Africa into our Australian operations demonstrates our ability to transport these capabilities to other
geographies. The pilot to outsource certain functions to South Africa continues. This could support revenue growth in addition to providing a scalable platform for third
party offshoring solutions.
Establishing TC Global Finance will complement TCRS's organic growth opportunities in the fragmented segment of the European specialised credit market. We will
continue to deploy capital conservatively, the progression of which is dependent on the returns achieved on initial investments. To date approximately EUR6.0 million has
been committed for investment.
With its strong balance sheet, TCRS is continually assessing opportunities for adjacent and vertically integrated bolt-on acquisitions.
In SA Taxi, we expect SA Taxi Finance to sustain mid-teen growth in gross loans and advances, supported by a continuation of the trends seen in 2019. Toyota increasing
minibus taxi production, growing uptake of SA Taxi's lower interest rate product and strong momentum in the sale and finance of its pre-owned minibus taxis is expected.
SA Taxi continues to develop its strategy of vertical integration to support Nissan's minibus taxi initiative.
SA Taxi Protect will continue to grow gross written premiums by broadening its product offering and expanding its client base through its broker network. There is still
scope to improve the insurance claims ratio via technology, data management and predictive analytics, along with procurement and operational efficiencies in SA Taxi
Auto Repairs and SA Taxi Auto Parts. Retailing well-priced parts by SA Taxi Auto Parts is set to boost non-interest revenue.
With SANTACO as a shareholder, SA Taxi aims to drive growth over the medium term, to the benefit of taxi operators and the industry. This will include accessing
cheaper funding, expanding market share through a finance product for low-risk customers and designing bespoke minibus taxi insurance products.
Transaction Capital's entrepreneurial management teams will continue to innovate new opportunities and implement their growth strategies with discipline and focus. We
expect this to achieve organic earnings and dividend growth over the medium term, at least in line with the group's past performance.
Any forecast financial information has not been reviewed or reported on by the company's auditors.
1. Transaction Capital's core financial ratios exclude once-off costs of R84 million attributable to the group relating to SA Taxi's ownership transaction with the South
African National Taxi Council (SANTACO), which arose in the first half of the 2019 financial year. R81 million of these costs are non-cash and in accordance with
IFRS 2. A further R3 million relates to early debt settlement costs.
2. Transaction Capital's group core headline earnings includes R44 million from the group executive office, R313 million from Transaction Capital Risk Services (TCRS)
and R446 million from SA Taxi.
2018 balances have been restated for the early adoption of IFRS 17 - Insurance Contracts which has no material impact on headline earnings.
DIVIDEND DECLARATION
Following the interim dividend of 27 cents per share (2018: 21 cents per share), and in line with our stated dividend policy of 2 to 2.5 times, the board of directors has
declared a final gross cash dividend of 34 cents per share (2018: 29 cents per share) for the six months ended 30 September 2019 to those members on the record date
below. The dividend has been declared out of income reserves. A dividend withholding tax of 20% will be applicable to the dividend for all shareholders that are not
exempt from the dividend withholding tax, resulting in a net dividend of 27.2 cents per share.
The salient features applicable to the final dividend are as follows:
Issued shares as at declaration date 612 398 686
Declaration date Tuesday 26 November 2019
Last day to trade cum dividend Tuesday 10 December 2019
Ex-dividend Wednesday 11 December 2019
Record date Friday 13 December 2019
Payment date Tuesday 17 December 2019
Tax reference number: 9466/298/15/6
Share certificates may not be dematerialised or rematerialised between Wednesday 11 December 2019 and Friday 13 December 2019, both dates inclusive.
The cash dividend will be electronically transferred to the bank accounts of all certificated shareholders, where this facility is available, on Tuesday 17 December 2019.
Where electronic fund transfer is not available or desired, cheques dated 17 December 2019 will be posted on that date. Shareholders who have dematerialised their
share certificates will have their accounts at their CSDP or broker credited on Tuesday 17 December 2019.
SA TAXI
For the year ended 30 September
2018
2019 Restated Movement
FINANCIAL PERFORMANCE
Core headline earnings Rm 519 376 38%
Core headline earnings attributable to the group Rm 446 368 21%
Non-interest revenue Rm 584 498 17%
Net interest income Rm 1 217 979 24%
Net interest margin % 12.2 11.2
Core cost-to-income ratio % 44.2 45.6
CREDIT PERFORMANCE
Gross loans and advances Rm 10 753 9 264 16%
Non-performing loan (NPL) ratio % 17.9 17.5
Credit loss ratio % 3.2 3.5
SANTACO OWNERSHIP TRANSACTION
The ownership transaction with SANTACO was finalised on 6 February 2019. Of the R1.2 billion net proceeds from the transaction, SA Taxi settled R1.0 billion of
interest-bearing debt. The immediate financial benefit of the transaction (interest expense savings of R55 million post tax), and the operational benefits of a stronger
relationship with SANTACO, have been accretive to SA Taxi's earnings. SANTACO received its first trickle dividend in June 2019, of which the majority was invested into a road safety
campaign.
For the period 6 February 2019 to 30 September 2019, Transaction Capital consolidated 81.4% of SA Taxi's headline earnings, compared to 98.5% previously.
SA Taxi's total headline earnings increased by 38%, with Transaction Capital's attributable portion of SA Taxi's headline earnings increasing by 21% in 2019.
SA TAXI FINANCE AND SA TAXI AUTO REPAIRS
- Gross loans and advances, comprising 32 441 loans, grew 16% to R10.8 billion. Growth of 11% in the number of loans originated, higher vehicle retail prices,
Toyota's increased production of taxis, SA Taxi's launch of a lower interest rate product for better quality customers and higher loan origination volumes of Nissan
vehicles supported this growth.
- Net interest income grew 24% to R1.2 billion, with the net interest margin improving to 12.2% mainly as a result of the settlement of interest-bearing debt of R1.0 billion
in February 2019.
- The NPL ratio of 17.9% remained in line with expectations of about 18%. Conservative credit granting criteria and strong collection performance was offset marginally
by the difficult economic conditions.
- Improved recoveries on repossessed vehicles supported an improved credit loss ratio of 3.2%. This was partially attributable to a lower average cost to refurbish
vehicles due to efficiencies in SA Taxi Auto Repairs, combined with SA Taxi Auto Parts' cost-efficient procurement of parts.
SA TAXI DIRECT
- The number of minibus taxis sold through the retail dealerships grew 14%, generating revenue of about R900 million. New dealerships are being considered in the
medium term.
SA TAXI PROTECT
- Gross written premium grew 20% to R823 million, driven by new customer acquisition.
- The business broadened its client base via its broker network, specifically targeting open market clients (i.e. insurance clients not financed by SA Taxi Finance).
- The majority of SA Taxi Finance's clients choose to be insured through SA Taxi Protect.
- SA Taxi Protect's competitive advantage is its ability to reduce its cost of claim through efficiencies in SA Taxi Auto Repairs and SA Taxi Auto Parts, which supports a
competitively priced insurance premium.
- Early adoption of IFRS 17 aligns insurance provisioning policies to IFRS 9 and results in a more robust balance sheet.
OPERATIONAL PERFORMANCE
- The core cost-to-income ratio improved to 44.2%. SA Taxi's organic growth lifted core headline earnings 38%, resulting in the group's attributable portion of SA Taxi's
core headline earnings growing by 21% to R446 million.
TRANSACTION CAPITAL RISK SERVICES
For the year ended 30 September
2019 2018 Movement
FINANCIAL PERFORMANCE
Headline earnings attributable to the group Rm 313 273 15%
Non-interest revenue Rm 2 104 1 837 15%
PURCHASED BOOK DEBTS
Cost price of purchased book debts acquired Rm 1 186 662 79%
Carrying value of purchased book debts Rm 2 382 1 374 73%
Estimated remaining collections - 120 months Rm 4 480 2 989 50%
COLLECTION SERVICES - ACQUISITION OF NPL PORTFOLIOS AS PRINCIPAL
- Excellent revenue growth in the collection of NPL Portfolios acquired performed ahead of expectations and positively offset the impact of the expected slowdown in
contingency collections in South Africa.
- TCRS invested R1.1 billion in South African NPL Portfolios and a further R122 million into Australian NPL Portfolios.
- TCRS owns 273 NPL Portfolios which, valued at R2.4 billion, will support growing and predictable annuity revenue over the medium term.
- TCRS is following a cautious approach in the Australian collections market, which is significantly larger than the South African market and predominantly comprised of
unsecured consumer loan portfolios, an asset class where TCRS has almost 20 years of experience in South Africa. Underpinned by our growing Australian database
and TCRS's analytics and pricing expertise, a small position in this market provides a significant growth opportunity over the medium term.
COLLECTION SERVICES - CONTINGENCY AND FEE-FOR-SERVICE (FFS) REVENUE
- Recoveries Corporation in Australia posted a robust performance, growing revenue organically in low double digits by gaining new mandates and winning new clients.
Operating costs were stable, achieving significant operational leverage. Greater management depth, investment in data and analytics, the deployment of technologies
proven in South Africa into our Australia operations, and implementing business information, payment automation and collection technologies supported this result.
- The South African division performed in line with expectations in the difficult consumer credit environment.
TRANSACTIONAL AND VALUE-ADDED SERVICES
- Transaction Capital Payment Solutions and Road Cover, as service-orientated businesses, were impacted by the challenging operating environment in South Africa.
Notwithstanding this, both contributed positively to earnings growth.
TRANSACTION CAPITAL SPECIALISED CREDIT
- TC Global Finance was established in 2019 to pursue growth opportunities in select international markets. The fragmented European specialised credit market, which is
many times larger than the South African and Australian markets, presents an attractive growth opportunity. TCRS is targeting niche higher-yielding credit-orientated
alternative assets in this market directly through bilateral transactions and indirectly via co-investments in partnership with its network of specialist credit managers.
- TCRS has invested EUR2.7 million to date, with EUR1.4 million thereof invested after 30 September 2019. Initial returns are in line with communicated expectations.
A portion of our undeployed capital has been allocated towards this strategic organic growth initiative.
- Transaction Capital Business Solutions proactively curbed gross loans and advances growth to the SME sector since the second half of 2018, cognisant of the higher
risk in this sector.
OPERATIONAL PERFORMANCE
TCRS's cost-to-income ratio improved to 78.9%, driven by continued investment in technology. Excellent growth in revenue from the collection of NPL Portfolios and a
robust performance from our Australian collections business supported headline earnings growth of 15% to R313 million. Outsourcing certain functions from Australia to
our South African low-cost centre of excellence, currently in pilot phase, could support future efficiencies and enable additional organic growth.
FOR FURTHER INFORMATION: This short-form announcement is the responsibility of the directors and is only a summary of the information in the full announcement and does not
contain full or complete details. Any investment decisions by investors and/ or shareholders should be based on consideration of the full announcement published on SENS and
available for viewing at https://senspdf.jse.co.za/documents/2019/JSE/ISSE/TCP/FY19_SENS.pdf and our website https://www.transactioncapital.co.za/SENS.php. The full announcement
is also available at our registered office and the offices of our sponsor for inspection, at no charge, during office hours. Copies of the full announcement may be requested by
contacting Theresa Palos on telephone +27 (0) 11 049 6700, email: TheresaP@transactioncapital.co.za or fax: +27 (0) 11 049 6899.
26 November 2019
Sponsor: RAND MERCHANT BANK (a division of FirstRand Bank Limited)
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), Sean Doherty (Chief financial officer), Mark Herskovits, Jonathan Jawno, Michael
Mendelowitz, Kuben Pillay (Lead independent director)*, Phumzile Langeni*, Diane Radley*, Buhle Hanise*, Roberto Rossi**, Paul Miller**
(* Independent non-executive) (** Non-executive)
Company secretary:
Theresa Palos
Auditors:
Deloitte & Touche, Deloitte Place, The Woodlands, 20 Woodlands Drive, Woodmead, Sandton, 2196
Transfer secretaries:
Computershare Investor Services Proprietary Limited, Rosebank Towers, 15 Biermann Avenue, Rosebank, 2196
Date: 26-11-2019 07:05:00
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