SIKI MGABADELI: Asset-backed lender Transaction Capital says it performed ahead of expectations over the six months to March 31. It reported a 20% climb in headline earnings to R177m and improved its credit metrics. The group, which through its SA Taxi business, finances independent SMEs in the minibus taxi industry, grew gross loans and advances by 15% and they reduced the value of their non-performing loans.
CEO David Hurwitz is our guest this evening. David, thanks for your time this evening. Why do you think you were able to achieve double-digit growth in this tough economic climate?
DAVID HURWITZ: Thanks for having us. Yes, we have achieved double-digit growth in headline earnings per share and we believe we’ve done this really by following our strategy and the positioning of our business to be very well positioned in the current market environment.
So there was quite a lot of restructuring of our group that started over a year ago. We sold our unsecured lending business, we sold our payment services business, and that gave us a very good platform to grow our asset-backed lending business and our risk services business. And, quite frankly, we’ve achieved that in the business. We now have two phenomenal businesses, very well positioned, very strong management teams, and CEOs in those businesses with long group tenure – and they’ve been able to achieve a very good result in a very difficult market condition.
SIKI MGABADELI: How have you been able to reduce your NPL ratio, because this is a very difficult time for most lenders when it comes to non-performing loans.
DAVID HURWITZ: The credit environment is very difficult out there. Most credit providers have had a very tough time in managing their credit exposure. We’ve implemented strategies for two years now, where our origination strategies have been very, very conservative. A lot of it goes to the type of products that we are financing. We used to finance quite a lot of Chinese product and we’ve really pulled that back to be financing in the main Toyota product as well as some German product – which has helped us to reduce our non-performing loans.
SIKI MGABADELI: So Taximart is then performing quite well?
DAVID HURWITZ: Taximart is performing very well. Effectively what we do is we aren’t just a finance business which asses credit and advances capital. We participate in the entire vertical market. In Taximart what we do is we procure new vehicles from Toyota and we sell those vehicles and participate in the margin there.
In addition what we do is when we repossess the vehicle we refurbish that vehicle in Taximart. Taximart is probably the largest purchaser of spare parts from Toyota in southern Africa and we refurbish our vehicles and then we sell them. That allows us to recover quite a lot more on our repossessed loans that the average asset-backed lender would.
SIKI MGABADELI: SA Taxi also finances bakkies that are used by small and medium enterprises as income-producing assets. That’s quite interesting, because of course that’s the market we are all watching as in job creation. What are you seeing on that side?
DAVID HURWITZ: Well, we finance both in the taxi industry, because taxi operators are small and micro enterprises, and we decided to expand into the bakkie space about two years ago with a pilot. We invested about R60m into this pilot and we’ve announced to the market today that the pilot has been successful and now is a full-blown product line SA Taxi will continue to finance bakkies for SMEs to utilise them for income-producing purposes. We will focus mainly on Toyota for the meantime because we understand that product and our Taximart facility can refurbish that product if we do need to repossess. But we’ve seen that the default rate in the SME space around our bakkie portfolios is very similar to the default rate in terms of our taxi industry. So typically two out of every …[indistinct] SMEs will succeed, if you look at general market conditions. In our portfolio we are seeing two or less out of every 10 failing. So it really is an inverse of that ratio and, because we are able to support our SMEs and because we are able to pick our credit very well, we are seeing 80% of our SMEs performing very well in this …segment.
SIKI MGABADELI: What’s your outlook, David?
DAVID HURWITZ: We’ve spoken about the view that we are able to sustain this level of earnings growth over the medium term and we are very comfortable with that. We have also increased our dividends which we will take as proportion of our earnings as being represented by cash-generative earnings as opposed to credit-rated earnings. So it is up 67% and we believe we can sustain those levels this far.
The outlook for us is that we have two fantastic businesses of scale with strong management teams, very well positioned in the market. They are defensive businesses, they [look to] the market upturn but they are able, as you can see, to yield a very good result in a difficult environment. And what we want to do is we want to grow those businesses to be larger and more profitable. We’ll do that organically as we have over the last six months and we also have some money available to make acquisitions if the opportunities present themselves.