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Edited Transcript of TCP.J earnings conference call or presentation 26-Nov-19 8:00am GMT

Full Year 2019 Transaction Capital Ltd Earnings Call

Sandton Nov 27, 2019 (Thomson StreetEvents) -- Edited Transcript of Transaction Capital Ltd earnings conference call or presentation Tuesday, November 26, 2019 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* David M. Hurwitz

Transaction Capital Limited - CEO & Executive Director

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Presentation

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David M. Hurwitz, Transaction Capital Limited - CEO & Executive Director [1]

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Good morning, everybody. Welcome to Transaction Capital's results presentation for the year ended 30 September 2019. Most of you know me, but my name is David Hurwitz. I'm the CEO of Transaction Capital, and I'll be presenting results today.

We're going to start off with the group financial highlights. We're extremely pleased with the way Transaction Capital has performed this year, with our results being ahead of consensus. Both headline earnings and headline earnings per share increased by 18%. At SA Taxi, we saw headline earnings growing by 38% and our attributable portion thereof growing by 21%. And in TCRS, we saw headline earnings growing by 15%. So really a fantastic results.

Dividends continue to grow faster than earnings. This year, dividends per share grew by 22%, up to ZAR 0.61 per share, and that is due to our high cash conversion rates. We still have about ZAR 950 million worth of undeployed capital on our balance sheet, which provides us with a very strong and robust balance sheet, which is appropriate for this type of an environment. But it does creates a slight drag on our return on equity. This year, we delivered a return on equity of 18.7%, and that's driven by a ROE at SA Taxi of 24.6% and a ROE at TCRS of 20.9%. If we were to strip out that excess cash, our return on equity would have been 21.9%.

Turning to SA Taxi. As I said, headline earnings up by 38%. That's all organic growth driven by a 16% growth in our gross loans and advances. Despite the slight increase in our NPLs, up to 17.9%, our credit loss ratio improved sitting at 3.2%. And this is really driven by further efficiencies in our SA Taxi Auto Repairs facility, both in efficiencies and repairs and also in efficiencies in importing and procurements of parts. Both our NPLs and our credit losses are within our risk tolerances and within our expectations. NIR this year grew by 17%, up to ZAR 584 million.

If we look at TCRS, TCRS grew headline earnings by 15% driven by very, very strong acquisition of portfolios to be acquired as a principal and collection of those portfolios. This year, we invested ZAR 1.2 billion into NPL portfolios. You can see that that's up 79%. And the carrying value of our book now sits at ZAR 2.4 billion. This will underpin future annuity flows. It's very important to understand that this is a book, which now provides us very predictable annuity flows over the medium term, which will underpin revenue growth.

Capital strategy continues to be conservative. We have ZAR 950 million worth of capital on our balance sheet, which is -- I'm not talking about it as being excess. I'm talking about it as being undeployed because a large proportion of this has been allocated towards strategic organic growth opportunities, which I'll talk about a little bit later.

The excess amount is available for acquisitive activity, which will make earning upside potential -- earnings upside potential going forward. We've been listed for about 7.5 years now, and Transaction Capital has performed really, really well. If you take a look at the last 5 years, TC has delivered a 20% compound annual growth in headline earnings. We've delivered 31% compound annual growth in dividends, so that you can see through the 5-year cycle dividends have continued to grow quicker than earnings, which is a result of our high cash conversion rates. And this has resulted in a great return for our investors where we've delivered 33% on a compound annual growth basis.

Looking at some of the highlights in the divisions. I'm going to start off with TCRS. But the first thing that we see is very robust performance in Recoveries Corporation, which is our Australian business, with our Australian strategy absolutely on track. This year, revenue grew in low double-digit percentages, which is all organic revenue driven mainly by the acquisition of new clients as well as new mandates. We managed to keep our operating costs stable, which allowed us to generate significant operational leverage, and a lot of this was attributable to the deployment of our proven technologies in South Africa into this Australian business.

I've spoken about investing more into NPLs. This year, we invested ZAR 122 million into NPL portfolios in Australia. That's up from ZAR 23 million a year ago. And a small thing, we did acquire 25% of a leading debt administration business in May 2019.

If you take a look at our second strategic highlight in this business is really in collections revenue in South Africa we saw growth of more than 20%. What we really saw was excellent collection revenue from books that we've acquired as a principal, which positively offset the expected slowdown in agency collections in South Africa to enable us still to grow revenues in our South African collections business at above 20%, which we are very, very proud of.

And finally, we've identified a few strategic growth opportunities for us to deploy some of our undeployed capital into. The first will be -- and I'm going to talk about all of these a little bit later in the presentation, but the first will be continued NPL portfolio acquisitions in South Africa at similar levels to what we've seen at least this year, accelerated NPL portfolios in Australia and, of course, the establishment of TC Global Finance.

If you look at SA Taxi, some of the strategic highlights there. The first one is the onus of transaction with SANTACO, where SANTACO acquired a 25% stake in SA Taxi for ZAR 1.7 billion, which was finalized in -- on the 6th of February this year. About ZAR 1 billion of this -- of the proceeds from this transaction went into settling debt, which has given us a savings of about ZAR 76 million pretax and ZAR 55 million after tax. More importantly, the first trickle dividend under this transaction has been paid, the majority of which was invested into a road safety project by SANTACO.

A few other highlights in this division. In SA Taxi Finance, we saw book growth accelerate to 16%. If you take a look from IPO up to the beginning of this year, book growth grew at about 12%. And this year, we were at 16%. I'll come back to all of these and give a little bit of detail as we go through the presentation.

In SA Taxi Protect, we saw our gross written premiums increase by 20%, and the business also implemented or early adopted IFRS 17. In SA Taxi Auto Parts, the initiative to retail both new and preowned parts targeting open taxi operators, not only finance clients or insured clients of our business, is progressing really well. And finally, in SA Taxi Rewards, we launched our tire program with Bridgestone where we are able to deliver a higher specification tire into the market with a much higher safety standard but at a lower cost. All of these initiatives are aimed at increasing our total addressable market in the minibus taxi industry.

We often get the question around how is it that we sustain our growth, and the next 2 slides show that we're not just doing more of the same. It's not just we're doing more of the same and able to grow by doing more of the same. We're expanding our total addressable markets. We're moving into adjacent markets always within our competencies. And in some instances, we've moved into new geographies, again, all within our competencies. This is what our business looked like in 2014. And by implementing all of these strategies that I've just spoken about, this is what our book look -- our business looks like in 2019. So you can see there's a lot that we've added on to this business, which will allow us to keep our earnings growing as we go forward by expanding our earnings base.

Let's now focus on Transaction Capital Risk Services. TCRS' diversified business model allows us to perform well in both a positive and a negative economic environment. Firstly, TCRS is diversified across 4 business activities: collection services, which is our biggest business activity; transactional services; value-added services; and more recently, specialized credit. Within collection services, TCRS has a diversified revenue model, again, allowing us to do well in both a positive and a negative environment. Agency collections thrive in a positive economic environment, whilst the current environment is conducive to both the collection and purchase of NPL portfolios as a principal.

This year in South Africa, as I said, we had excellent performance above expectation in collections on our principal portfolios which offset the slowdown in collection of our agency -- of agency collections.

TCRS is further diversified in terms of geography. So we operate across 3 geographies in terms of client and in terms of mandates. This gives you a picture. I don't think this is printed in the presentation because it's got all of our clients in there. But you can see that we operate across 9 sectors, and our strategy has been to diversify to not only operate in the consumer credit sectors, retailers, banks and specialist lenders, but also into sectors where we collect accounts receivables, which are not linked to the consumer credit environment. And this has helped us, again, to be very defensive and to grow regardless of the state of the consumer economy. You can see -- well, you can't see exactly from the slide, but we do have about 124 clients across these 9 sectors, about 80 or so in South Africa and just under 50 in Australia. And these clients give us about 300 mandates, just under 200 in South Africa and just over 100 in Australia. So a very diversified business, no gatekeepers and no single concentration risk.

In South Africa, TCRS continues to be defensively positioned in the macro and socioeconomic environment, which places huge pressure on the South African consumer over the medium term. In South Africa, there are 37 million adults, 25 million are credit active, and about 10.2 million or 40% are considered to be nonperforming. This is driven by things like high levels of household debt to income sitting at about 72%, high levels of unemployment sitting at about 29%, youth unemployment sitting at about 58%. And although inflation is pretty low at 4.1%, we still see inflation being higher than average wage growth, which, again, puts pressure on the consumer.

If you take a look at our index, Transaction Capital’s consumer credit rehabilitation index, we see that over the last -- well, since the middle of '17, this thing has really just moved sideways, a few increases, a few decreases. But really, what we see is that the ability of the South African consumer to rehabilitate himself still remains extremely unlikely driven by all of these economic factors. It's quite interesting to see that unsecured credit extension has actually increased by about 9%, if you take a look at the NCR stats. I don't exactly understand it. I don't know why credit extension would be happening in this type of an environment. But this is actually positive for TCRS as it will provide some collection opportunities going forward. All in all, as I said, the current environment is negative for agency collections but positive for acquiring NPL portfolios.

The main thing about what's positive for acquiring NPL portfolios is that we see that our clients, being the banks, the retailers and some of the insurers, telcos, et cetera, mindful of the risk in the environment who want to sell their portfolios and not hold this type of consumer risk at the moment. And when we buy these portfolios, we are able to price for the environment to try and lock in the similar returns that we will make in good times and both bad times.

Finally, the last thing, I get a lot of questions on this, but the National Credit Amendment Bill, or better known as the Debt Relief Bill, was enacted in August 2019. We do not expect any material -- and actually, in fact, we expect a very immaterial impact from this bill on our business.

If you take a look at the Australian environment, the Australian consumer, a little bit different but also a little bit similar. The Australian consumer is employed, but highly leveraged. There is a high ability to contact and to transact with this consumer, both from call centers and also digitally. And lastly, what we see in Australia, similar to South Africa, is greater leniency in credit extension with credit extension starting to grow. So quite a positive environment in Australia for both the acquisition and collection of portfolios.

I'm now going to focus on a few strategic growth initiatives where TC has allocated some of our undeployed capital towards. This slide shows that the South African market is both small when compared to some of the other international markets for distressed debt but also extremely underdeveloped, with TCRS leading the development of the sector as we go forward. We're leading the development of the sector, first of all, by educating sellers as to how to sell their portfolios, and this has been -- the benefit of this is we are seeing more and more sellers coming into the market as we progress along this.

The other thing that we're doing to develop this market is that we are expanding the types of asset classes that we are buying. So historically, we focus on acquiring written-off nonperforming consumer loans. Now we're also acquiring consumer loans pre write-off. We consume -- we are buying consumer loans that are collected in a legal process, things like debt review. And what we're also doing is buying loans on a bilateral basis, but also on a contractual recurring basis, on a monthly contractual basis, as we do in Australia. And this has helped us to develop the South African market and to grow the South African market where we are now buying books or investing into these books at a value of over ZAR 1 billion for the year.

Finally, I just wanted to draw your attention -- I'm going to focus on it now, but just to draw your attention to the size of the Australian market in relation to the South African market and also the size of the huge European market.

The second strategic growth initiative -- so the first one is to buy books in South Africa at least at the same rate as we've done in the past. The second growth initiative where we've allocated capital is to accelerate the acquisition of portfolios that we're acquiring in Australia. We're still going to be -- I'm using the word accelerate. We're still obviously going to be extremely cautious, but we will accelerate our activities here.

You'll see that we invested ZAR 122 million this year into NPL portfolios in Australia, and that's up by ZAR 23 million. But we really are ready to start increasing those investments. It's, first of all, underpinned by our growing Australia database. So I always get the question, how are you buying books in Australia? You don't have a database. We've been there now for 3 years. We bought an existing business. We've got this database, and that's the first thing underpinning this investment.

The second thing underpinning this investment is the deployment of proven South African technologies into the Australian business to lower our cost ratios and to become more and more efficient. And this is working really, really well. We've proved that our tech can travel.

And the last thing is that it's underpinned by TCRS' analytics and pricing expertise. So we do have a strong team of analysts in Australia, but we've got a second team in South Africa, more experienced than our Australian counterparts, and we can do double checking. Very important to understand that the asset class that we are buying in Australia is written-off nonperforming consumer loans which is an asset class, which we have 20 years or more of experience in South Africa. So this is one -- this is the second area where we will deploy some of our capital.

And the third area is into the fragmented segment of the European distressed debt and specialist credit market. Again, this is TC Global Finance. Again, we're going to be extremely selective. I've been talking about this now for over 1 year. And you can see that we've invested EUR 2.7 million into this fragmented end of the market, EUR 1.4 million of that was after the September year-end. We plan to have a portfolio that is diversified by asset class, by asset originator, by collection platform and by geographic region. And we will do this by co-investing in partnership with specialty credit managers.

We see these initiatives as an opportunity to leverage TCRS' high IP and low-cost infrastructure with the ultimate intention to own our own operational platform in these geographies, which will further diversify our revenue model, further expand our total addressable market and obviously then expand our earnings base, all of this done within TCRS' core competencies. We don't have to jump into areas that we don't understand, and we won't.

Taking a look at how we've performed in this book buying space. What this slide shows is that we are buying books very well. But more importantly, it's easy to get cash out the door. More importantly, we're collecting on these books really, really well. This year, in South Africa, we invested over ZAR 1 billion in South African NPLs for the first time ever, up from ZAR 639 million in the year before. As I said, we invested ZAR 122 million in Australia. The carrying value of our book is up by 73% to ZAR 2.4 billion. Our estimated remaining collections, which is the cash flows, which we estimate to come out of these portfolios over the medium to long term, is up by 50% to ZAR 4.5 billion. And this is the asset, both the carrying value and the cash flows coming off that carrying value, which will give us predictable and already earned revenue flows going forward over the medium term. Revenues from our principal collections -- if we strip out agency, revenues from principal collections grew by more than 30%.

We've covered most of the strategic growth initiatives already, so I'm only going to talk about 1 or 2 things. First of all, as always, we continue to invest into data. We continue to invest into technology, and we continue to invest into analytics, including things like artificial intelligence, including things like digital collections, which is working very, very well in Australia and including our master data universe. We continue to expand these technologies from South Africa into Australia, and that too is working very well. We continue to search for and consider bolt-on acquisitions both in Australia and South Africa, again, absolutely within our core competency. And lastly, outsourcing from Australia into our high IP and low-cost collection environment in South Africa, which is in pilot phase, could also deliver future efficiencies going forward.

It's been about, as I said, 7.5 years since listing. And if you just strip out TCRS' performance over that period, you can see that we've done really, really well. Looking at just the last 5 years, we've delivered 29% compound annual growth in headline earnings and 20% compound annual growth in noninterest revenue.

Our performance this year continues to be very good on similar type of trajectories. Headline earnings, up 15%; noninterest revenue, up 15%; organic revenue from collection services, up 21%; organic revenue from principal collection services, up more than 30%. And our cost-to-income ratio improved again, now sitting at below 80% at 78.9%.

I'm not going to play this again. I just wanted to remind you of it. It gives you a great understanding of our diversified business model. It's a video that we prepared at the half year results. And if you haven't watched it, I really urge you to please log on to the website and take a look. Also, what I wanted to say is that just to log on to the TCRS website. This video is both on ours and their website, but going to the TCRS' website as well, which has been redone and was launched on Friday, I think, or today even, Friday -- launched on Friday.

Let's now focus on SA Taxi. The minibus taxi market context remains unchanged. The industry is so defensive and growing with resilient taxi operators despite the current economic environment. This is driven by the following structural elements within the minibus taxi industry. First of all, the minibus taxi industry is the dominant mode of public transport, hence, it is an essential service. And spend on minibus taxi is nondiscretionary for most South Africans. 40% of South Africans rely on public transport.

The second thing is that the minibus taxi industry is growing. What we see is that about 40% of the population rely on minibus taxi, 40% use their own cars, and 20% walk. The 40% that use their own cars, while vehicle sales are down 43% over that period in total. And people that are walking, we're seeing increased commuter density due to urbanization. So both of those factors are moving into public transport, and minibus taxi accounts for by far the greatest component of public transport.

Lastly, another structural element, minibus taxi industry is self-sustainable and not reliant on government for a subsidy. We would want that subsidy, but currently, we do not have that subsidy as to bus and train. Regardless of all of this, we still see a very challenging environment for the minibus taxi operators. So it's not just that things are great. It's still a hell of a hard out there for a minibus taxi operator. What we're seeing is that the price of a car, it's been increasing over the last few years by at least 4% to 5%. Toyota increased prices by 4.2% this year. And the price of fuel, although that moves around, if you take a look at the fuel price, it is only the 12-month rolling fuel price. That's only about 6% below our all-time high. So those 2 factors place significant pressure on a minibus taxi operator.

What we see from this slide is that regardless of all of this, minibus taxis is the preferred mode of public transport. First of all, because it's priced extremely affordably, a little bit more expensive than train and pretty much at the same level of bus, but it is far more reliable than both of those modes of transport. And it is extremely, extremely accessible, far more accessible than those 2 modes of transport.

It's interesting to note that despite the challenging environment for minibus taxi operators that I just spoke about and despite the fact that demand for minibus taxi services is relatively inelastic, the industry, because of the environment, could not increase or did not increase prices dramatically this year. So you can take a look at this, where we see in various regions, no or very little increase in fares going forward this year. Eventually, the industry will have to catch up and increase fares going forward, probably in the next year.

I'm now going to take you on a little bit of a virtual tour of SA Taxi's Midrand campus, which I think will give you a really good understanding of our vertically integrated business model. This vertically integrated business model allows SA Taxi to achieve a few things. First of all, it allows us to achieve margin through the entire vertical chain, including financing our vehicles, insuring vehicles, vehicle retail, rewards programs -- running out of fingers, rewards programs, telematics programs in both parts retail and the salvage of parts from vehicles that are not economically viable to repair.

So a deep investment into the vertical where we can participate in margin the whole way through. It allows us to broaden our total addressable market and more deeply penetrate the minibus taxi market from our 30,000 customers into a total market of 250,000 customers or taxi operators. It allows us to reduce credit risk. It allows us to reduce insurance risk. It allows us to increase our noninterest revenue, which is all -- which is highly cash flow generative. But most importantly, it allows us to provide our customers with an excellent value proposition and an excellent client experience.

So we're going to start off with SA Taxi Finance, where this business started, the finance element of this business. And you'll see that about 80% of our customers would battle to get traditional finance from a bank or a traditional finance here. They would not easily qualify for this type of finance. Typically, what we see is that our customers are self-employed. They are all previously disadvantaged individuals. They're running their own SME, which is cash-based. They don't have sets -- typically do not have sets of accounts. They have no credit record or a very thin credit record, maybe some retail credit experience. And they're coming to us, not looking for ZAR 30,000 or ZAR 40,000. They're coming to us for ZAR 0.5 million.

So how is it that we are able to finance this type of a customer? I think the first thing is that SA Taxi utilizes its proprietary data, which is continuously refreshed to, first of all, estimate expected route profitability, which we'll use for credit underwriting and then also establish monthly route profitability, which we utilize for collections. So it's clear to see that our proprietary data and analytics that we put into this data is a significant competitive advantage. This has allowed us to build SA Taxi Finance with gross loans and advances of ZAR 10.8 billion. This book yields about 23%. We have a cost of funding at 11.1% and a net interest margin of 12%. We have NPLs within our tolerances of 17.9% resulting in a credit loss of 3.2% and hence a risk-adjusted net interest margin of 9%.

Some of the strategic highlights this year. The first one I touched on briefly. We've seen our book growing at a faster rate this year. Leading up to the beginning of this year since IPO, our book grew at 12%. And this year, our book has grown by -- has grown at 16%. The finance of new vehicles has increased to 500 vehicles a month. This is driven, first of all, by increased Toyota production, by increase in Nissan volume, which has come back because of our strategy to vertically integrate into the Nissan value chain and, very importantly, by new finance products, which are aimed at lower-risk customers, at lower interest rates. So all of that has assisted in new vehicle -- the financing of new vehicles increasing from about 470 units per month up to about 500 units per month.

More importantly, however, is that the financing of preowned vehicles has gone up from about 150 a month last year to 220 vehicles a month this year, and I'll come back and talk about that in a moment.

So that's the finance division. How is it though that we are able to take an NPL portfolio of 17.9% and convert that into a credit loss ratio of 3.2%? And this goes to our vertically integrated model. The model that we follow is to repossess a car to refurbish that car. We strip the whole thing. We do everything from panel work to mechanical work to build that car to a very, very high quality. We then take that car. We put it into our dealership. We resell it. We refinance it, and we reinsure it. And that really allows us to achieve this metric of NPLs of about 18% and credit losses of between 3% and 4%.

So if you look at our NPLs, 1/3 of the NPLs or 6 of the 18 mils, that's the guy who makes a payment, misses a payment, makes a payment, misses a payment. We never end up repossessing him, but he always stays in NPL. 2/3 actually get repossessed. We follow that strategy of repossess, rebuild, resell, refinance. And we are able to recover more than 75% of our loan value, which means that we lose about 25% of our loan value. 25% of 12 is the 3% targeted credit loss, 3% to 4%.

So this model is extremely different to a typical financier who would repossess an auction. You're reassessing a minibus taxi with a few hundred thousand kilometers on the clock, lots of dings and dents here and there. You're not going to get a great recovery from it, especially if you put it on auction. They might get a 30% recovery, which means 70% of the NPLs end up being written off. So again, this investment into this vertical of repair, resell, refinance is huge.

This is the repair facility, SA Taxi Auto Repairs, including an auto body facility as well as a mechanical facility. We have -- it's a huge facility. It spans about 20,000 square meters. We have the ability to repair about 220 vehicles per month. It's one of the largest panel facilities in Southern Africa, and it focuses -- the amazing thing is that it focuses exclusively on minibus taxis, all of which are white, and the majority of which are Toyotas. About 85% of these are Toyotas. So you can see that we get huge efficiencies in this process of repair. We get huge efficiencies of procuring parts, and this allows us to reduce loss given default, as we are able to reduce the cost of refurbishment.

This year, some of the highlights in this division is that this year, we are able to reduce our cost of repair by about 4% to 10%, depending on the type of work that we were doing. And this is driven, as I said, by, first of all, efficiencies in SA Taxi Auto Repairs and efficiencies in parts procurement via SA Taxi Auto Parts. We then take these refurbished vehicles, and we put them into our dealership. So this is SA Taxi Direct, our dealership network. You can see that we sell both new minibus taxis as well as preowns. And you can actually see that's just not a good picture that we took. The preowns look pretty much like the news. And even when you go under the hood and take a look at the engine, you'll see that, that engine is either a fully refurbished engine or a new engine put into that vehicle. So the preowned vehicle is really a very good prospect for a minibus taxi operator. What we see is if you take a look at our preowns, that these preowns are rebuilt to a very high quality. It's become a very trusted brand in the industry, and it provides both a reliable but also a very affordable alternative to a minibus taxi operator in this environment.

So I spoke earlier that our financing of preowned vehicles has gone up from 150 a month to 250 a month, and this is the exact reason. We are selling more preowned vehicles because they are reliable but affordable, and we are financing more preowned vehicles.

Vehicles sold through this dealership do provide us with a few benefits besides for just being able to move our preowned stock. First, we get product margin. So besides for an increased recovery, we also get product margin. We see that when we sell a car through our dealership, we see a high take-up of our add-on or auxiliary products such as insurance, et cetera. And of course, the last thing that we see is improved credit performance because the customers in this dealership are better informed.

We then stopped and we realized that it's clear that our industry data and our auto repair capabilities are significant competitive advantages. But how could we leverage these competencies to move into an adjacent sector? Because we're always looking to keep the growth going, and what we realized is that we can use this to enter into the adjacent minibus taxi insurance sector.

So first of all, our telematics capabilities is utilized to -- for insurance underwriting, for premium pricing and for both claim prevention and claim detection. Then we use SA Taxi Auto Repairs to manage the cost of claim down allowing us to have more profitability in the sale of the business, which can then allow us to have better premium pricing for our customers. If you take a look at SA Taxi Protect, our insurance business, we've got ZAR 823 million worth of gross written premium, which, this year, grew by 20% driven mainly by increased customer acquisition in the open market via our broker network. So this is around selling insurance products to clients who don't take our finance.

The second thing is that we have had stable penetration of our finance portfolio. So our finance clients have had a stable penetration of choosing our insurance product. And lastly, we have broadened our product offering, not just selling comprehensive insurance but add-on products like credit life, et cetera.

We also see the ability to reduce our cost of claim via this auto repair capabilities. So efficiencies in our operations, that would be the repair operation, procuring parts at a lower cost, and something I haven't spoken about yet, but being able to salvage parts from vehicles that are not economically viable to repair. So this is a new thing that we've added on. When you can't repair the car, we strip it. The parts that are still workable, sometimes we need to refurb them, and you put them back into your repair facility.

The last opportunity that we see is an ability, again, to manage the cost of claim down because at the moment, only a small proportion of our claims are repaired within the SA Taxi Auto Repairs facility. To the extent that we can get more of our clients going through our own facility, again, we're not going to be paying prices to someone else to repair, and that allows us to drop the cost of time. We've already taken premises on the campus. You'll see it on the picture. This will give us the ability to increase capacity within this region. And over the medium term, we need to consider if we take those premises or if we take premises in other regions as well.

Lastly, just some highlights in this business. We implemented some new IT systems, mainly claims management systems, which will enhance our value proposition and also enhance efficiencies. And I'll talk about it a little bit later, but we also adopted IFRS 17, aligning our accounting standards across the business.

SA Taxi Auto Parts was launched in March 2018 with initial aim to, first of all, reduce the cost of refurbishment, which will reduce credit losses and also reduce our cost of claim. You can see we've achieved this really nicely. At the moment, what we're doing is parts to the value of ZAR 6 million per month are being procured from source of our salvage and supplied into SA Taxi Auto Repairs. So that's the first element, supply these parts into our repair facility to drop the cost of repair.

The next element or opportunity that we see is to supply parts into the insurance repair industry. So where we are, as I said, only a small proportion of our own repairs are being done internally. Where these repairs are not done internally and they are outsourced, we are supplying that outsourced agent with our parts, again, to drop his cost of repair.

And the last -- I shouldn't say the last -- the next opportunity is to retail both new and refurbished parts to minibus taxi operators, targeting both our existing clients but also minibus taxi operators in the open market to expose SA Taxi's brand to a wider or the wider minibus taxi market and to facilitate cross-sell organic growth opportunities. So as these operators are coming into our retail facility, which you can see over here -- that, by the way, is the salvage facility. But as they come into our retail facility, the first thing we're asking them is where is your finance from, where is your insurance from, do you need a rewards program, et cetera.

The last thing I'm going to talk about in this vertically integrated business model is SA Taxi Rewards, which was established in the 2018 year, with the intention to leverage the industry's purchasing power to negotiate better pricing for taxi operators and, of course, to benefit the entire industry. These are some of the programs that we have. We have a fuel program where a taxi operator can get cashback on their fuel spend. This allows them to have extra cash to invest into their business to have a more sustainable business.

This year, we launched in October, our program with Bridgestone, which we are extremely proud about. What we've been able to deliver is a cheaper tire into the industry, a saving of about ZAR 350 per tire. But this tire is actually built to a higher specification and is, because of the high specification, far safer than the tires that the taxi industry is currently utilizing. So lower cost, better safety. We estimate that about 1/4 of all accidents in the minibus taxi industry happen because of poor tire quality, and we are now able to deliver a cheaper tire at a high specification.

This will have knock-on benefits everywhere. The other knock-on benefit is for commuters who will have a safer ride, and that will -- that has knock-on effect on all of us as South African citizens. A minibus taxi operator can save money and invest more into their business to make their business more sustainable. And the knock-on effect for us is that, of course, first of all, we'll be making money off this program a little bit. But the main driver for us is lower accidents, which means lower claims and means taxi operators' ability to repay their premiums and installments to us improves.

There are further programs in development at the moment, which you'll see coming to the market over the course of the next year. The ultimate intention here is to leverage our telematics and rewards programs data, to connect eventually to the full 250,000 minibus taxi operators in South Africa, facilitating the expansion of our market and to cross-sell other products, again, into the industry.

Again, 7.5 years since listing, SA Taxi performing really, really well. Over the past 5 years, we've delivered 21% compound annual growth in headline earnings of a 14% compound annual growth in our gross loans and advances. Through this period, credit metrics have either remained stable or improved, never really deteriorated. We've been taking our gross written premium for the last 3 years, which has grown at 22%. And 1/3 of our revenue now comes from what we call noninterest revenue, which is of a very high cash flow generation nature, very high cash conversion rates.

Our performance continues into the year. Headline earnings, up 38%; our attributable portion, up 21%; NIM has expanded to 12%. To some extent, we normally target a NIM in the 11s. To some extent, this has increased and will continue to increase next year because of the reduction of the debt in this business through some of the proceeds via the industry transaction. Net -- noninterest revenue, up 17%; gross written premium, up 20%; and our cost-to-income ratio improving now below 45%.

Credit performance, also extremely robust. Gross loans and advances, up 16%, which I've spoken about. NPLs, up slightly, it's ever so slightly at 17.9% but still below our tolerances and within our expectations. And this is driven, to some extent, by the environment that I spoke about earlier. Regardless of these, credit losses have actually improved to 3.2%, and that's driven by this investment into reducing the cost of repair and increasing our recoveries.

Provision coverage, stable at 4.8%, again, driven by the improved average cost to repair and a stable credit distribution or construct of our gross loans and advances. So I just want to stop on that for a second. If you take a look of the construct of our book between the different stages, stage 1, 2 and 3, which is delinquency stages, that's remained stable regardless of the environment.

This year, we elected to early adopt IFRS 17 because it's very closely aligned to IFRS 9. So just like IFRS 9, what IFRS 17 does is that it's a forward-looking statement, which provides not only for incurred claims or losses but also expected losses. You can see that provisions under the old statement covered incurred claims, which, under IFRS 17, is the exact same number. But now we have an additional provision both for expected claims as we look forward into our insurance business. These provisions and this new statement will result, again, just like IFRS 9, a far more robust balance sheet. If there are any funders in the market -- in the audience, listen to this, because your balance sheet is better, and we expect better pricing.

We had an adoption charge of ZAR 370 million after tax, which goes through retaining -- retained income or opening equity. And we do not expect any material impact at all or, I should say, in the inverse, any immaterial impact on earnings from the adoption of the statement. Again, I remind you of this video. If anyone hasn't seen it, please take a look at it. It gives you, again, a great understanding of our vertically integrated business model.

Moving on to the last section of the presentation, capital management, shareholding, Board of Directors, et cetera. Most of this has been covered. If you take a look at this statement, I have already spoken about the very conservative balance sheet that we have, with ZAR 950 million of undeployed capital and the fact that a lot of this capital is earmarked for organic growth opportunity. The other thing that you can see from the slide, which you will go through in your own time, is that we've had very robust access to the debt capital markets, and activity in those markets have been very good, with SA Taxi fully funded for at least the next 12-month period.

If you take a look at our shareholding, our dividend and the Board. I've spoken about dividends growing faster than earnings, which is a kind of pattern that will continue for our business going forward. The only other items to highlight is that our foreign institutional shareholding is now up to 18.4%. It's up slightly from last year but significantly from 2017. And we continue to bolster our Board by the appointment of independent nonexecutive directors. This year, we appointed Buhle Hanise on the 1st of January, and additional appointments are under consideration. In addition, we appointed Kuben Pillay as Lead Independent Director in July this year.

That actually brings us to the end of the presentation. What I still wanted to say is that we've put an appendix together with lots of reference slides that we've kept in the past, which we think are very, very useful for you guys. Those of you who want to go into greater detail can go through these slides. I'm not going to go through any of them at the moment, and I'm going to conclude.

And in conclusion, what I really wanted to say is that TC has been a consistent outperformer in this adverse environment over the last 7.5 years. Our entrepreneurial management teams will continue to invest into strategies and innovate new opportunities to drive high-quality organic earnings growth. This growth will continue as we expand our earnings base by going deeper into our total addressable market, by moving into adjacent sectors of our market and by moving into new geographies that are absolutely within our core competency. And for all of these reasons, we expect headline earnings and headline earnings per share growth at similar levels over the medium term.

That concludes the formal presentation, and we've now got about 10 minutes or so for questions, if there are any. Any questions?

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Unidentified Company Representative, [2]

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While we wait for questions inside the venue, can we just check if there are any questions on the conference call?

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Operator [3]

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At the current moment, there's no questions on the conference.

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David M. Hurwitz, Transaction Capital Limited - CEO & Executive Director [4]

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Anything here?

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Unidentified Company Representative, [5]

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We have no feedback as well on the webcast.

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David M. Hurwitz, Transaction Capital Limited - CEO & Executive Director [6]

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Okay. Well then we've got 10 extra minutes for cake and tea. I'm assuming the presentation was comprehensive. Obviously, as always, we are available for questions. You can contact either Phillipe, Sean, myself or anyone else in the Investor Relations team. Thank you very much.