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Transaction Capital enjoys boost in earnings thanks to minibus taxi industry

In the insurance segment premiums were kept flat; claims ratios improved.

NOMPU SIZIBA: Taxi industry funder Transaction Capital reported its half-year financials today [Wednesday].For the six months ended March 2019, the company reported earnings per share up 17% at 59.4 cents. It says that its net asset value per share rose 30% to 810.4 cents, while it sits on a cash pile of R1 billion. Shareholders are set to get an interim dividend of 27 cents/share; that’s up 29% on the year prior.

I’m joined on the line now by David Hurwitz, the CEO of Transaction Capital. Thanks very much for joining us, David. You’ve come out with quite positive numbers and you attribute this in part to your acquisition of some new businesses. Just tell us about that.

DAVID HURWITZ: Thank you very much. We are very pleased with the results and in truth they are pretty much in line with what we’ve shown over the last five years. Over the last five years we’ve been able to grow headline earnings by an average of just under 20% per year, and we’ve been able to grow our dividend by about 35% per year.

So this year’s performance is pretty much in line with what we’ve shown over the medium term. We actually haven’t bought businesses. Part of our business is involved in collection of non-performing debt, and we do this in two ways. On the one hand we collect as an agent, where you earn a contingency fee, depending upon the success of your collection rate. The other way of doing this is where we actually buy non-performing accounts from the banks and from the retailers and the specialist lenders, insurers, telcos and so forth.

What we’ve seen over this last period is that our book-buying activities have increased significantly as consumer-facing businesses in South Africa are very nervous to hold debts or accounts that look to be non-performing. So we’ve been able to buy a lot of debt and collect really well on that.

NOMPU SIZIBA: How is it that you manage to get non-performing loan books and actually ensure that they do perform – and you get a return on them? Are you more aggressive?

DAVID HURWITZ: No, it is all about data and technology. We are the largest both agency-collector and book-buyer in South Africa, and we’ve got a huge database of non-performing South Africans. Really what this does is we score how much debt they owe to all of our different clients. We would have this type of data so we can aggregate it. We also score contact ability, because you can never collect debt if you can’t contact a person. This all filters into what we call a propensity-to-repay score. When did this person last pay us, how easy it is to contact him, how much debt does he have, and what is the likelihood of him paying.

Once we’ve done that, then we can really focus our efforts and we can do this at a very large scale. So we collect on about I think it’s just under R60 billion worth of debt a year, and this is all non-performing debt and we do it at high scale to drop our average cost of collection. So it’s all about data, and then having a very scalable platform that allows you collect as cheaply as possible.

NOMPU SIZIBA: All these abilities that you are talking about – they fall under your Transaction Capital Risk Services division – is that right?

DAVID HURWITZ: Yes, that’s right. We do this in South Africa and we are also a player in the Australian market in this regard.

NOMPU SIZIBA: In terms of your SA Taxi business, I see it did very well indeed, delivering headline earnings growth of 31%. To what extent do you see new demand for credit – that is, new players coming on the market and buying new taxis – or is it more a thing of owners buying replacement vehicles?

DAVID HURWITZ: We have both, but more predominantly owners replacing vehicles. While the environment for a taxi operator is very difficult – because fuel prices are high, the prices of vehicles are high and unemployment is high, which means there is less economic activity and fewer people moving around the country – we still see that minibus taxi is a resilient industry, and the bulk of our population relies on public transport; and minibus is the largest form of public transport. So the minibus taxi industry is under pressure, but resilient. The one positive factor is that the scrapping allowance for minibus taxis was just recently increased by about 36% to R124 000 per old vehicle, and that is really for older vehicles to be taken off the road and replaced with a newer vehicle. Once that happens, that’s very advantageous for our business, because of course we provide the finance. Also we buy and sell cars, we finance cars and we insure cars. We sell the tracking devices around those cars, and even when needed we service and refurbish the cars as well. So with older vehicles coming off the road and being replaced by newer vehicles, that really bodes well for us.

NOMPU SIZIBA: That allowance that you are talking about – where does it come from? Government?

DAVID HURWITZ: That does come from government. Remember that taxis, besides the scrapping allowance, the taxi receives no other subsidy. So bus and train, first of all infrastructure, is built by government and then the operators receive a monthly subsidy based on the number of commuters they move around. And this is the only subsidy that minibus taxis would receive from government.

NOMPU SIZIBA: David, what about your insurance segment of the business? How much did you see gross written premiums rise by there, and were the insurance payouts in line with your expectations?

DAVID HURWITZ: In both of those areas we did slightly better than we had expected. Gross written premium grew by about 23%, which was a very good result. That was done really by broadening our client base and broadening our profit base. Our average premium per customer remained flat. So it just means that we’ve attracted more customers into our business and that’s really driven by just being more efficient than our competitors.

Our claims also improved slightly, and I spoke about us being more efficient than our competitors because we only do one type of vehicle, being the minibus taxi. Because about 85% of our vehicles are Toyotas, and because we do all of our own refurbishment work ourselves, we are able to become very efficient in the refurbishment process and we procure parts directly from overseas and we are able to drop the cost of repairing a car.

So one of the stats that we talk about from last year to this year is our ability to repair a car reduced from kind of the mid-R70 000 per car to about the mid-fifties. And when you are dropping R20 000 off each repair, that really does make you more competitive. So we were able to keep premiums flat, but grow our client base, and even improve our claims ratio.

NOMPU SIZIBA: How are you using technology to ensure that the level of driver recklessness is kept in check – not just from an insurance perspective, but for the taxi owners to also be made aware of the quality of driving used in the operation of their taxis?

DAVID HURWITZ: Really what we need is if a taxi operator does well then we do well. And driving a car recklessly, besides for the moral hazards for society, is also just bad for the minibus taxi operator’s business. So we require a tracking or telematics device to be in every vehicle that we finance and every vehicle that we insure. Over the years – we’ve been in this industry for 20 years – we keep on educating our customers. The larger part of this education is to provide them with data around where their vehicles are, how hard they are braking, how good their drivers are actually driving. And besides giving us benefit in our insurance business, it actually educates the taxi operator.

We are also implementing rewards programmes, which allow taxi operators to get benefits and even to participate in some of their spend, and we’ve got a reward programme with Shell. For example, when a taxi operator fills up at Shell, he swipes his card and he gets something back. All of these programmes are built around having a better quality taxi operator who knows more about his business and he can drive better. That’s real shared value – better for commuters, better for the country, better for the taxi operators, better for our business and our shareholders.

NOMPU SIZIBA: You’ve been talking about quite amazing growth over the last five years. What’s your expectation for the next five years?

DAVID HURWITZ: Five years is a long time. On all of our three-year models we believe that we can continue to grow at similar rates. We’ve done this since the IPO seven years ago, growing earnings in the high teens, and growing dividends a little quicker than earnings. We believe that with all of the initiatives that we have on both sides of our businesses we can keep that up. Certainly our models are saying for three years, but I would be happy to say that it would be for five as well.

NOMPU SIZIBA: Alright David, we’ll leave it there. Thank you very much for your time, sir.

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I find it truly repugnant that a listed company is profiting greatly from an industry that has caused the deaths of over 100,000 people in the last 20 years. I would like to know what TC is doing to bring standards and safety in the mini-bus taxi-industry. I guess it is no use asking what Government is doing about this disgraceful stain on our society called the taxi industry. That a lawless, violent, reckless, gangster industry has the privilege of transporting citizens yet does so in such a disgraceful way is shocking beyond belief.

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