Nutun Limited · JSE:NTU
Nutun — Transaction Capital — FY2016 Earnings Presentation
43 slides from Nutun's earnings presentation, November 2016
Slide 1: Results for the year ended 30 September
RESULTS FOR THE YEAR ENDED 30 SEPTEMBER
Slide 2: Results for the year ended 30 September
.¢ ) — —— ) “SO > RESULTS FOR THE YEAR ENDED 30 SEPTEMBER
Slide 3: 2016 Financial & Operational Highlights
TRANSACTION CAPITAL GROUP STRUCTURE 2016 FINANCIAL & OPERATIONAL HIGHLIGHTS (FY16 vs. FY15) CEO: Terry Kier, 9-year group tenure CEO: David Hurwitz, 11-year group tenure CEO: Dave McAlpin, 8-year group tenure R249 MILLION¹ R7.2 BILLION R458 MILLION¹ 80.6 CPS R168 MILLION R728 MILLION HEADLINE EARNIN
Slide 4: Group Strategic & Operational Highlights
GROUP STRATEGIC & OPERATIONAL HIGHLIGHTS UNGEARED & LIQUID ACQUISITION ACTIVITY DEBT CAPITAL MARKETS BALANCE SHEET 3 acquisitions within Transaction Capital Uninterrupted access to the debt capital After acquisitions Risk Services (TCRS) markets • Capital adequacy >35% • 100% of Recoveries Corporati
Slide 5: Group Strategic & Operational Highlights
GROUP STRATEGIC & OPERATIONAL HIGHLIGHTS EARLY ADOPTION OF IFRS 9 RESTRUCTURE OF • More conservative provisioning CONDITIONAL SHARE PLAN FOUNDERS SHAREHOLDING methodology Founders’ individual shareholdings • Higher quality of earnings • Approved on 20 October 2016 consolidated into a single holding
Slide 6: Group Portfolio Mix
GROUP PORTFOLIO MIX COMPOSITION OF EARNINGS POST ACQUISITIONS TO BE MORE EVENLY WEIGHTED 9% 13% 37% 34% 2016 2015 IFRS 9 IFRS 9 54% 53% SA Taxi TCRS GEO Rm Growth Contribution Headline earnings 2016 2015 2016 2016 2015 SA Taxi¹ 249 208 20% 54% 53% TCRS 168 134 25% 37% 34% GEO 41 51 (20%)² 9% 13% Tot
Slide 7: Environment
ENVIRONMENT 2 , \ ? ' _" \\ | uA \ \\\ \\ \ RESULTS FOR THE YEAR ENDED 30 SEPTEMBER
Slide 8: Environment
ENVIRONMENT MACRO-ECONOMIC ENVIRONMENT • Macro- & socio-economic challenges constrain growth in South Africa › Political: political instability & potential sovereign rating downgrade › Social: persistent low employment levels with low real wage growth; continued social unrest › Economic: currency re
Slide 9: Acquisitions
ACQUISITIONS RESULTS FOR THE YEAR ENDED 30 SEPTEMBER
Slide 10: Acquisition Criteria
ACQUISITION CRITERIA MARKET POSITION CAPABILITIES • Established platforms with robust organic growth • Delivering predictable, quality earnings with high cash conversion • Deep knowledge of its industry & chosen market segments rates • Strong management team • Niche market participant within Transac
Slide 11: 100% of Recoveries Corporation Group Limited
ACQUISITIONS 100% OF RECOVERIES CORPORATION GROUP LIMITED • Founded in 1991 in Melbourne Australia • Provides consumer customer management solutions to a well-diversified blue-chip client base within government, insurance, banking & finance, utilities & telecommunications market sectors • Services i
Slide 12: 75% of Road Cover
ACQUISITIONS 75% OF ROAD COVER • Founded in 2005 • Offers proprietary value-added services to mass consumer market on a subscription basis • Services include administration of RAF claims, COID Act claims & claims against various road agencies & municipalities • Products typically embedded in other s
Slide 13: Transaction Capital Risk Services
CAPITAL RISK ) » WA « Co _ C) i i ON E YEAR ENDED 30 SEPTEMBER SERVICES
Slide 14: Transaction Capital Risk Services (TCRS)
TRANSACTION CAPITAL RISK SERVICES (TCRS) 1 Innovative & bespoke TRANSACTION CAPITAL technology systems that drive superior performance RISK SERVICES IS A & efficiency TECHNOLOGY-LED, 4 Assisting its clients to optimise their 2 Generating in-depth insights balance sheet by accelerating cash from the
Slide 15: TCRS Market Context
TCRS MARKET CONTEXT CHALLENGING CONSUMER CREDIT ENVIRONMENT IN SOUTH AFRICA, OF THE 35 MILLION ADULTS* THERE ARE: A GROWING UNSECURED CONSUMER NON-PERFORMING LOAN MARKET 9.7 MILLION NON-PERFORMING (11%) CREDIT CONSUMERS 24 MILLION (NCR Q2 2016) 59 105 63 67 89 11 MILLION 78 CREDIT ACTIVE CONSUMERS O
Slide 16: TCRS Market Positioning: Data & Analytics
TCRS MARKET POSITIONING DATA & ANALYTICS MASTER DATA UNIVERSE (MDU) 9.2 MILLION 95% 1 in 4 UNIQUE & VALID ID NUMBERS COVERAGE OF SOUTH AFRICA’S South African adults Each uniquely scored with a TCRS NON-PERFORMING CREDIT CONSUMERS propensity to pay score Up to ASSOCIATED 5 > 6 MILLION unique & valid
Slide 17: TCRS Market Positioning
TCRS MARKET POSITIONING SCALABLE TECHNOLOGY PLATFORM 1 CORE 2 CAMPAIGN 3 DIALER & WORK- TRANSACTIONAL BUILDER FORCE MANAGEMENT TECHNOLOGY SYSTEM • Real time management tools • Enhances scale of • Customised per client • Automated messaging ContactAbility 1 • Ease of use • Champion Challenging • Sche
Slide 18: TCRS Defensive Business Model
TCRS DEFENSIVE BUSINESS MODEL IN AN ENVIRONMENT OF FALLING YIELDS, TCRS PRODUCES STEADY RETURNS PRINCIPAL BOOKS YIELD PERFORMANCE Oct 13 Dec 13 Feb 14 Apr 14 Jun 14 Aug 14 Oct 14 Dec 14 Feb 15 Apr 15 Jun 15 Aug 15 Oct 15 Dec 15 Feb 16 Apr 16 Jun 16 Aug 16 Gross profit % Yield % Monthly gross yields
Slide 19: TCRS Operational Performance
TCRS OPERATIONAL PERFORMANCE R16bn R300 MILLION Customer Management FACE VALUE OF Solutions COLLECTED EACH MONTH, RESULTING FROM UNSECURED CONSUMER We rank 1st or 2nd DEBT MONITORED by our clients in 91% ~400 000 BY THE NCR of 254 MANDATES (▲41%) PAYMENTS RECEIVED EACH MONTH R80bn¹ on panels where w
Slide 20: TCRS Diversified Business Model: Customer Management Solutions
TCRS DIVERSIFIED BUSINESS MODEL CUSTOMER MANAGEMENT SOLUTIONS ORIGINATE MANAGE COLLECT IDENTIFY & WIN NEW CUSTOMERS ENABLE PAYMENT PROCESSING SOLVE CLIENTS’ IMPAIRED DEBT PROBLEM USING DATA ANALYTICS AND CUSTOMER MANAGEMENT THROUGH COLLECTIONS & RECOVERIES LEAD GENERATION & PAYMENT & ACCOUNT MANAGEM
Slide 21: TCRS Diversified Business Model: Capital Solutions
TCRS DIVERSIFIED BUSINESS MODEL CAPITAL SOLUTIONS MANAGE COLLECT RECEIVABLES MANAGEMENT SOLVE CLIENTS’ IMPAIRED DEBT PROBLEM THROUGH & WORKING CAPITAL FINANCE ACQUISITION OF NPLs & OTHER CAPITAL SOLUTIONS SME FINANCING DEBT PURCHASING • Invoice discounting • Spot book acquisition • Trade finance • B
Slide 22: TCRS Financial Performance
TCRS FINANCIAL PERFORMANCE • Headline earnings ▲25% to R168m › All organic growth • Services EBITDA (TC Recoveries & Principa) ▲27% 86.9 to R239m 82.5 77.4 • Agency revenue ▲2% › Focus on margin generative revenue › Selective on mandates • Principal revenue ▲10% 53 • Cost-to-income ratio improved to
Slide 23: TCRS Purchased Book Debts Performance
TCRS FINANCIAL PERFORMANCE PURCHASED BOOK DEBTS PERFORMANCE ESTIMATED REMAINING COLLECTIONS (ERC) VINTAGE PERFORMANCE AS AT 30 SEPTEMBER • Principal revenue ▲10% › Purchased book debts ▲30% to R728m › 13 portfolios acquired for R184m this year › 167 principal books owned in total 2013 1.50 0.68 2.18
Slide 24: TCRS Brand Integration
TCRS BRAND INTEGRATION REBRANDED IN 2016 Operational competencies include: MBD • Collection & recovery services & debt purchasing • Working capital, property & trade finance & Rand Trust commercial receivables management solutions to SMEs • Payment processing services • Data analytics & technology c
Slide 25: SA Taxi
SATAY jj \ \ WW ANY — \ *s \ 7, y 30 SEPTEMBER RESULTS FOR THE YEAR ENDED
Slide 26: SA Taxi
SA TAXI 1 An innovative & pioneering business model with operations expanding SA TAXI IS A VERTICALLY throughout the financing & INTEGRATED TAXI 4 Enabling financial inclusion by asset value chain, building a proficiently securing funding from both scalable platform that can be PLATFORM UTILISING lo
Slide 27: SA Taxi Market Context
SA TAXI MARKET CONTEXT MINIBUS TAXI INDUSTRY IS RESILIENT & DEFENSIVE DESPITE SA’S ECONOMIC CLIMATE • Minibus taxis are the dominant form of public transport • Majority of commuters who utilise public transport are heavily Other 66% Minibus taxi reliant on minibus taxis Walk 21% 1% • Usage of minibu
Slide 28: SA Taxi Market Context: Integrated Public Transport Network
SA TAXI MARKET CONTEXT INTEGRATED PUBLIC TRANSPORT NETWORK - JOHANNESBURG Bus & train rely on minibus taxis infrastructure Source: SA Taxi telematics data as at 11 October 2016 | National Land Transport Strategic Framework 2015 28
Slide 29: SA Taxi Market Context: Demand for Minibus Vehicles
SA TAXI MARKET CONTEXT STRUCTURALLY DEMAND FOR MINIBUS VEHICLES EXCEEDS SUPPLY DEMAND: AN AGEING NATIONAL FLEET IN SOUTH AFRICA THERE ARE ON AVERAGE OVER 9 YEARS OLD ~200 000 AN AGEING FLEET THAT IS UNSAFE, REQUIRING REPLACEMENT & RECAPITALISATION MINIBUS TAXIS DRIVING HIGHER DEMAND FOR VEHICLES, FI
Slide 30: SA Taxi Market Positioning
SA TAXI MARKET POSITIONING IN SOUTH AFRICA THERE ARE ~17 000 ~200 000 68% OF ALL PUBLIC TRANSPORT TRIPS TO WORK TO 69% OF HOUSEHOLDS UTILISE MINIBUS TAXIS MINIBUS TAXIS 20 000 70% OF INDIVIDUALS WHO ATTEND EDUCATIONAL METERED TAXIS INSTITUTIONS ARE ESTIMATED TO USE MINIBUS TAXIS IN SOUTH AFRICA R7.2
Slide 31: SA Taxi Market Positioning: Vertically Integrated Model
FINANCE REFURBISHMENT VERTICALLY INTEGRATED BUSINESS MODEL INSURANCE SA TAXI MARKET POSITIONING Approved route vs. route actually travelled 0 5 10 15 20 25 30 00:00 - 01:00 01:00 - 02:00 02:00 - 03:00 03:00 - 04:00 04:00 - 05:00 05:00 - 06:00 06:00 - 07:00 07:00 - 08:00 08:00 - 09:00 09:00 - 10:00 1
Slide 32: SA Taxi Vertically Integrated Business Model
SA TAXI MARKET POSITIONING VERTICALLY INTEGRATED BUSINESS MODEL ENABLING SMEs SERVICING SMEs MANAGING RETURNS FROM SMEs EQUITY ALLOCATION INSURANCE COLLECTIONS REPOSSESSION FINANCIAL SERVICES & DEBT RAISING • 85% of financed customers • >R250m collected per month • Asset retains value due to choose
Slide 33: SA Taxi Operational Performance
SA TAXI OPERATIONAL PERFORMANCE GEOGRAPHIC DISTRIBUTION CUSTOMER PROFILE 3%2% Gauteng 6% KwaZulu-Natal 6% Mpumalanga DEMOGRAPHICS VEHICLES ON BOOK 33% Western Cape 8% SA TAXI 100% 21% 1.2 83% CUSTOMER Eastern Cape BLACK OWNED WOMEN OWNED VEHICLES TOYOTA DISTRIBUTION North West SMEs SMEs PER CUSTOMER
Slide 34: SA Taxi Financial Performance
SA TAXI FINANCIAL PERFORMANCE • Headline earnings ▲20% to R249m 51.1 › All organic growth 48.9 48.7 • NIM ▼ from 11.3% to 11.1% › Funding costs ▲ by 60bps to 10.6% o 100bps ▲ in the repo rate o ▲ foreign debt component, fully hedged to rand o Pre-funding results in temporary negative cost of carry 1
Slide 35: SA Taxi Credit Performance
SA TAXI CREDIT PERFORMANCE • Gross loans & advances ▲15% to R7.2bn 47.0 45.9 › Number of Toyota loan clients ▲ 9.2% › Toyota vehicle prices ▲13.6% since 1 Oct 2015 38.3 › Active wind-down of Chinese vehicle portfolio › Credit granting criteria remain conservative • NPL ratio improved to 17.4% from 1
Slide 36: SA Taxi Credit Performance: Provisions
SA TAXI CREDIT PERFORMANCE IFRS 9 ADOPTION IN 2015: MORE CONSERVATIVE PROVISIONING METHODOLOGY ULTIMATE LOSS REMAINS UNCHANGED PROVISIONS ADOPTION Stage 1 Stage 2 Stage 3 Repo IMPAIRMENT STAGE IAS 39 Provisions IFRS 9 Provisions Improved construct of the book Improved quality of SA Taxi’s loans & ad
Slide 37: Capital Management
MANAGEMENT CAPITAL . \\ RESULTS FOR THE YEAR ENDED 30 SEPTEMBER
Slide 38: Capital Management
CAPITAL MANAGEMENT PERFORMANCE • Total debt issued R4.7bn ▲62% 45.4 4 637 43.3 • Uninterrupted access to the debt capital markets › 2017 almost fully funded 38.9 3 290 › R513 million Transsec 2 tap issuance 2 855 30.0 (40 bps < than initial Transsec 2 issuance) 22.0 › Diverse debt investor base (>30
Slide 39: Funding Philosophy
FUNDING PHILOSOPHY INNOVATION DIVERSIFICATION BY DIVERSIFICATION BY Innovation is encouraged to cultivate unorthodox thinking FUNDING STRUCTURE DEBT INVESTOR CATEGORY & develop pioneering funding solutions DIVERSIFIED & ENGAGED DEBT INVESTORS 21% 13% 1% • Diversification by geography, capital pool,
Slide 40: Shareholding
SHAREHOLDING • Directors shareholding holding unchanged at 46% • Founder’s shareholding ▲from 43.2% to 43.5% 6% 28% • Institutional shareholding ▲from 46% to 48% › Allan Gray ▲from 8% to 10% › Old Mutual ▲from 8% to 10% • Retail investors ▼from 8% to 6% 30 September 2016 • Foreign ownership ▲from 1.
Slide 41: Conclusion
CONCLUSION RESULTS FOR THE YEAR ENDED 30 SEPTEMBER
Slide 42: Investment Case
INVESTMENT CASE COMPELLING & UNIQUE AS WE EXECUTE ON OUR MISSION › Businesses occupy strong market positions › Experienced & specialised leadership › Highly defensive businesses able to withstand difficult IS LED BY SKILLED › Apply specialised intellectual capital over a TRANSACTION economic conditi
Slide 43: Disclaimer
DISCLAIMER This presentation may contain certain "forward-looking statements" regarding beliefs or expectations of the TC Group, its directors and other members of its senior management about the TC Group's financial condition, results of operations, cash flow, strategy and business and the transact