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Business Update for the six months period ending
30 September 2024
Capital Appreciation Limited
Incorporated in the Republic of South Africa
(Registration number 2014/253277/06)
Share code: CTA ISIN: ZAE000208245
(the "Group" or "Capital Appreciation")
BUSINESS UPDATE FOR THE SIX MONTHS PERIOD ENDING 30 SEPTEMBER 2024
This announcement provides shareholders and other interested parties with a brief update on
the Group's operating performance for the six months ending 30 September 2024 and the state
of the markets in which we operate.
Capital Appreciation is well-positioned in sectors with high demand for its products and services,
particularly regarding its divisions' ability to support clients' competitiveness, efficiency and
revenue growth aspirations. Digital transformation throughout the economy continues
unabated, and the Group's clients needs continue to evolve.
Weak business confidence is showing signs of improvement
The first quarter of the 2025 financial year continued to be marred by low business confidence,
reflecting the uncertainty ahead of the national elections. Businesses tended to match their
spending to this environment and defer major capital expenditure to future periods. Business
conditions and sentiment improved in Q2, with the newly elected Government of National Unity
fully operational and green shoots emerging in the local economy.
Capital Appreciation's Payments and Software divisions demonstrated resilience by growing
revenue while keeping expense growth below or in line with inflation. Both divisions remain cash-
generative with healthy cash conversion from operations.
The Group will continue to invest in growth-related initiatives, including the leased terminal
estate, as appropriate. Capital Appreciation retains a strong and ungeared balance sheet with
significant cash on hand available to fund organic growth, acquisition opportunities, investments,
and further share repurchases.
A strong performance from the Payments division, particularly in a low-growth economy
The Payments division, which is Capital Appreciation's largest division, secured two significant
multi-year contracts after the end of the 2024 financial year. These contracts have a tenure of
three to five years and could result in as many as 200 000 additional terminals being deployed
for clients. This will add to the existing estate of 357 000 devices (as at 31 March 2024) already
in the hands of clients. The Payments division benefits from estate management fees,
maintenance income, transaction-related income, and a combination of either terminal sales or
rental revenue, depending on a client's preference. Formalising these new contracts took time,
and initial terminal orders were only received in Q2. These orders were partially delivered in the
reporting period and delivery will be completed in Q3. Furthermore, the full benefit of the
annuity revenue earned on terminals deployed late in Q2 will only be reflected in H2, generating
further revenue momentum and solidifying the pipeline for the remainder of the financial year.
As reported at year-end, some clients are increasingly interested in leasing rather than
purchasing terminals. This has a positive long-term impact on the Payments division by providing
steady annuity income over the life of the lease and additional sources of revenue in the form of
maintenance and support services and value-added transactional activity. The impact on the
Group's financial results of the increase in the rental fleet is complementary to the rest of the
Payments' business but is a substitution of terminal sales income and gross profit for annuity
rental and other payments-related income. Payments annuity income again grew strongly during
this period.
The prospects for the Payments division remain strong, with several trends contributing to the
medium- to longer-term outlook — the recently awarded multi-year contracts, the technological
advances in the industry that promote continuous hardware upgrades, and the increased
opportunity to offer value-added services. In addition, the South African Government's
announcement to deprecate the 2G and 3G networks in 2027 will require extensive bank terminal
estate re-investment.
Payment-related software initiatives also continue to be a focus area, and together with new
product innovation, present Payments with a differentiated offering — device-agnostic solutions
across Africa and beyond.
Software division is well positioned for a return of capital spending
Consistent with other industry participants, the Software division faced a continued softer
market with prolonged sales cycles. Despite these conditions, the division attracted new clients
and concluded new contracts.
The overcapacity in bench resources persisted, worsened by the recent completion of some high-
value contracts that have not yet been replaced. As a result, the Software division's profitability
for the six months was disappointing and lower than the prior year.
The Software division has made a strategic decision to retain its valuable people assets. The
division's strong bench capability positions it well to take advantage of improved market
conditions. During this period, the excess bench capacity has been deployed to develop and
enhance intellectual property assets. Moreover, remedial plans have been implemented that
are expected to partially improve financial performance in the second half of 2025 and, more
particularly, in the 2026 financial year. This strategic decision reaffirms the Group's long-term
vision and commitment to its people and assets.
Looking ahead, the division's medium-term outlook remains positive. No committed client
projects have been cancelled, the Software division's skills and intellectual property are in high
demand, and its projects are considered mission-critical and strategically important. At the end
of the period, the Software division concluded new long-term contracts, the benefits of which
will be visible in the years ahead.
GovChat has exited Business Rescue
Post the exit of GovChat from Business Rescue, operating expenses are minor and Expected
Credit Loss provisions are anticipated to be limited.
Retirement of Group CFO
Alan Salomon, one of the Group's founders, an executive director and Group CFO, advised the
Group of his intention to retire at the end of this calendar year.
Alan has played an essential role in the leadership and the Group's progress, and the Board
wishes to thank Alan for his years of contribution, partnership, and professional application.
We wish Alan much joy, comfort, health, and relaxation in his retirement.
The Company is pleased to announce that Sjoerd Douwenga was employed from 1 August 2024
as CFO designate and will replace Alan after an orderly transition. Sjoerd was previously the CEO
and CFO of Metair Investments, having spent his formative years at PwC. The Group looks
forward to Sjoerd's contribution in the years ahead.
The information in this business update has not been reviewed or reported on by the Group's
external auditors.
Capital Appreciation's closed period will commence on 1 October 2024. The Group intends to
release its interim results for the six months ended 30 September 2024, on or about 3 December
2024.
Johannesburg
17 September 2024
Sponsor: Investec Bank Limited
Date: 17-09-2024 01:46:00
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