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Business Update for Financial Year Ending 31 March 2024
Capital Appreciation Limited
Incorporated in the Republic of South Africa
(Registration number 2014/253277/06)
Share code: CTA ISIN: ZAE000208245
(the "Group" or "CTA" or "Capital Appreciation")
BUSINESS UPDATE FOR FINANCIAL YEAR ENDING 31 MARCH 2024
This announcement provides shareholders and other interested parties with a brief update on
the Group's operating performance for the 2024 financial year, as well as the state of the markets
in which we operate.
The Group has performed well in a market and financial year characterised by continued weak
business confidence and low economic growth. Even though these conditions caused some
clients to delay their decisions for major projects and capital spend, there continued to be strong
demand for the Group's technology solutions, products and services.
Despite the challenging conditions, we are pleased to report that increased business activity in
the Payments division, improved expense management and strong cash flows resulted in a robust
improvement in the Group's financial performance in the second half of the financial year. Both
the Payments and Software divisions have continued to attract new clients, diversify their
revenue sources, and grow their market shares. The financial results benefited from higher
finance income, a considerably reduced expected credit loss raised, after tax, for GovChat and,
the contribution of the Dariel Group (acquired July 2023).
Payments division
The Payments division made pleasing progress in the past financial year, gaining market share in
the point-of-sale terminals market, introducing new payments software solutions to the market
and acquiring new clients. Although terminal sales were slow in the first half of the year, they
recovered meaningfully in the second half, ultimately reaching levels close to the prior year. In
addition to growth in terminal sales, the size of the leased terminal estate doubled from the prior
year. This will increase revenue and profits in the years ahead.
Payments-related annuity revenue streams continued to experience high double-digit growth, as
the division rolled out proprietary Value Added and transaction-related software solutions.
Annuity revenue now comprises 56% of Payments' total revenue, up from 50% a year ago. The
division's new strategic software development partnership with ACI Worldwide, a leading global
provider of real-time digital payments, is progressing well with final testing almost complete. This
collaboration allows multi-lane retailers globally to transact seamlessly across PIN Entry Devices
(PEDs) from multiple equipment manufacturers and will open new market segments for the
Payments division, in addition to generating licencing revenue.
The Payments division successfully reduced operating expenses year-on-year through excellent
expense management. Together with the benefits of scale, this has supported a strong
improvement in margins.
Software division
The Software division continued to be affected by the implementation of cost-cutting measures
and the delay or deferral of contracts by its clients in the second half of the financial year. With
strong bench capability built in the first half of the year, the division is well positioned and
adequately resourced to service its clients, however, the impact of the delayed contracts has
impacted profitability.
Despite this, the Software division managed to generate good revenue growth, attract several
new clients, develop expertise in the FMCG sector and deliver several operational
accomplishments. Synthesis was recently recognized by MyBroadband as the preferred software
development company in South Africa for large business projects. The division also continued to
build on its capabilities, investing further in its Generative AI capabilities and rounding out its
Cloud division by augmenting its AWS leadership position with the addition of leading skills in
Azure (Microsoft) and GCP (Google Cloud Platform). Synthesis was recognized with an
"Excellence prize" from AWS for its cutting-edge Generative AI solution.
Concurrent with the successful integration of the Dariel Group into the division we have
implemented remedial plans to address the over-capacity issues, with a strong focus on cost
optimisation, scale and efficiency.
GovChat update
The Competition Tribunal has granted GovChat the right to intervene as a direct party in the
Competition Commission's prosecution of Meta. Going forward, the costs of the litigation against
Meta will be shared by CTA and a group of certain other GovChat shareholders. As a result, the
Group has limited its further funding of GovChat and its attributable losses will be materially
lower for the 2024 financial year.
Strong balance sheet
Capital Appreciation's operating companies all generate significant cash flow, with healthy cash
conversion from operations. The Group will continue to invest in growth-oriented initiatives as
appropriate. After the payment of the initial cash consideration for the Dariel acquisition,
dividends, share repurchases, and other investment initiatives this year, the Group still maintains
a strong and unencumbered balance sheet with cash available consistent with prior reporting
periods. This will be employed to fund organic growth, acquisition opportunities, investments, as
well as further share repurchases.
Looking forward
The Payments division and Software division both continue to see strong demand for their
products, services and solutions and have a positive outlook for the year ahead.
Capital Appreciation's closed period will commence on 1 April 2024. The Group intends to release
its 2024 audited annual results on or about 4 June 2024.
The information contained in this business update has not been reviewed or reported on by the
external auditors of the Group.
Johannesburg
25 March 2024
Sponsor: Investec Bank Limited
Date: 25-03-2024 02:45:00
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