Project delays knock Capital Appreciation’s revenue

Admire Moyo
By Admire Moyo, ITWeb's news editor.
Johannesburg, 04 Dec 2023
Capital Appreciation CEO Bradley Sacks.
Capital Appreciation CEO Bradley Sacks.

Fintech group Capital Appreciation has increased gross revenue by 3% to R554.2 million. This emerged when the company today announced interim results for the six months ended 30 September.

While revenue grew, earnings before interest, taxes, depreciation and amortisation (EBITDA) declined by 8% to R126.9 million.

Headline earnings increased by 108% to R80.6 million, partly benefiting from a three-month contribution from recently acquired Dariel Solutions, higher finance income and a reduced expected credit loss raised, after tax, for GovChat of R9.4 million (2022: R56.3 million).

According to the company, the cash-generative nature of the business was evident, with cash from operations of R159.9 million, up 55% on the prior year.

The software division generated top-line revenue growth of 31% to R288.3 million, with significant increases in cloud, data and digital consulting services, says the firm.

It adds that areas such as intelligent data have been growing significantly. Software revenue growth was nevertheless lower than expected due to unforeseen temporary delays in project commencements, it notes.

Key sales opportunities were also concluded towards the end of the reporting period. This affected the opportunity to translate those into revenue within the current period, but bodes well for the next period, it explains.

Software EBITDA dips

Capital Appreciation points out that the delays in project commencements reduced profitability in the software division, as the resources and expenses for these anticipated projects were already committed.

This resulted in software EBITDA decreasing by 12.6% to R39.8 million. Management expects the delays to be temporary, as most projects are mission-critical and strategically important to the division’s major customers.

It points out that the software division has successfully concluded two acquisitions in the past 19 months.

“The opportunities to collaborate across the three different companies within the division are exciting. The enlarged group is also well-positioned to benefit from cost savings and economies of scale and will also be able to compete for larger, multi-year projects, both locally and internationally,” says the firm.

The payments division posted robust growth in annuity revenue, up 24%. According to the company, the demand for payments-related software solutions (SaaS) accelerated notably in the period, resulting in a 35% increase in transaction-related income.

Terminal sales fell short of expectations, as customers chose to temporarily delay new terminal orders due to weak consumer confidence and unfavourable economic conditions, and certain clients chose to acquire new terminals through leasing, the JSE-listed company says.

The firm says the latter had a favourable impact on terminal rental income, which doubled in the period. The total terminal estate grew by 9%.

The lower point-of-sale terminal sales resulted in revenue for the payments division decreasing by 16.7% to R265.3 million. However, the division’s strategy of licensing proprietary software resulted in improved gross profit margins and it also benefitted from single-digit growth in operating expenses, holding EBITDA constant at R117.5 million.

“The growing rental book is expected to have a longer-term positive impact on the payments division, as it will provide steady annuity income over the life of the lease. It will also deliver additional sources of revenue in the form of maintenance and support services for terminals, as well as increased value-added transactional activity and software licence fees.”

The group’s revenue mix continued to evolve with the introduction of new products, services and geographies, it adds.

“Capital Appreciation’s quality skills are in demand globally, as evidenced by international revenue increasing by 21%, as the group continued to expand its presence outside of South Africa. Foreign currency revenue generated from global customers now comprises 14% of group revenue. The continued diversification of revenue streams creates notable further growth opportunities for the group.”

B2B deal

Capital Appreciation recently entered into an agreement that will culminate in the group owning 33% of AssetPool, a cloud-first, SaaS business-to-business (B2B) platform focused on asset management, tracking, maintenance, compliance and verification.

Clients include DHL, Fidelity ADT, Balwin Properties, Thiess Mining, K2 Medical and Bosch-Rexroth, operating in more than 30 countries across Africa, the UK, the US and Australia.

Cash generated from operations increased by 55% to R159.9 million. The group had cash resources of R486.3 million at 30 September, which will be applied to fund organic growth, the development of new solutions and to pursue acquisition opportunities. Given the appropriate circumstances, the group will continue to consider further repurchases of shares in the market.

Capital Appreciation CEO Bradley Sacks says: “We are pleased with the ongoing strong demand for our products and services.

“Our continued investment in growth-related initiatives − including additional skills, new technology solutions, developing proprietary owned software and international expansion − has positioned the group well to meet this demand.

“We believe considerable opportunities for growth in the medium- and long-term exist and we are confident performance in the second half of the year will exceed that of the first half.”