Araxi Limited (AXX) Earnings Call Transcript & Summary

Good afternoon to you, and thank you for joining us today at the Capital Appreciation interim results presentation, and that's for the 6 months, ending September 2022. My name is Howard Feldman, and I'm Head of Marketing and People, at Synthesis Software Technologies. On behalf of Chairman, Michael Sacks, it is my honor to welcome you to this event, which I hope you're going to find informative, illuminating and even inspiring. We will be following a very simple agenda today, Bradley Sacks, Chief Executive Officer of Capital Appreciation, will take us through the operational and strategic areas of the group followed by Alan Salomon, who is the Chief Financial Officer. He'll go through further details on the financial side. There will be a time for questions both on these areas. We'll also then be joined by Michael Shapiro, who's Managing Director of Synthesis Software Technologies for the software-related inquiries. You are able to submit your questions electronically. You can do that if you're watching on LinkedIn, you can do that in the comments or on the webcast, you should be able to send us your questions. What we'll do is we're going to put them together, try and consolidate them and try and get as many answers as possible to those questions. I'm going to give you the address now. I'll give it to you again later. If we aren't able to answer your questions of your further inquiries, you can always send them to [email protected]. So the last time, we had this presentation, Brad Sacks was recovering from COVID. It was a difficult time, of course, and it certainly made the presentation fairly challenging for him. What I thought was interesting is, in some ways, that is a metaphor for the state of the world at this stage in 2022. We struggled, just as Brad did as he went through his presentation, he still did, he still went through it, he rose to that challenge. And in fact, many of us in the industry and many of us around the world have had to do exactly that. And here we are at the end of 2022, a little bit stronger, maybe a little bit more experienced. But either way, we have gained immeasurably from some of the challenges that we had and that is something that I think is enormously positive. Well, without further ado, I am going to ask Brad Sacks to join us. Brad, a very good afternoon to you. And if I can ask you to take us through your part of the presentation.

Thanks, Howard, for that less than pleasant memory of my prior presentation. But as I've said to the team in the past, it doesn't matter how many times you get knocked down, what's important is how many times you get back up. And I think we have got back up as an organization through this period of COVID. COVID has been a silver lining for our industry, and we have capitalized on those events, and I am very proud of the results that the team has posted, which I will share with you during today's presentation. So as Howard indicated, the format of the presentation is consistent with what we have done in the past. Alan will come on for point #5 to talk about the financial performance. I will talk about prospects and then we will give you an opportunity to ask some questions as to what we have said. So welcome to the Capital Appreciation family. You can see that the growth -- the organization has grown over the course of the last few periods. We have built out our product set. We have increased the number of companies that fall within our organization, and each one has played an important part in the strategy of the group overall. So as I indicated, the trends that we saw at the beginning of COVID were things moving online, things going digital. That has not changed at all, as it relates to the areas in which we operate. There has been a continued, and I would say, in South Africa, in accelerating demand for digitalization. The rest of the world is a little bit further ahead, but it has increased the opportunity set for our business from both a payments and a software perspective. Notably, software in the sector in this half year's results, you will see has had an absolutely phenomenal and outstanding result. There has been an increased demand for payment terminals, which are important for the digital transformation. We are seeing particularly strong demand for the Android platforms, where we have two offerings and are very strong. And most recently, there has been a view that the 2G and 3G networks in South Africa need to be put aside, and we need to move to a much more robust 5G platform that is going to have incremental benefits for a whole host of things digital, including the demand for payment devices. The benefits of this through the software sector are evident in the increased demand that we are seeing across multiple industries. We started as a financial service sector-focused organization, but have expanded nicely into other areas, which we will share with you shortly. So ESG has been top of mind for institutions of late. But for us, this has been something that we have been focused on since the founding of Capital Appreciation. There are many elements, which are reflected on this slide. The one I'm going to focus on is job creation. If we have a look at the bottom right-hand corner, we have created 327 new jobs since the organization started. And I think that is a tremendous testament to what we have done. That's 3.5x the number of employees we started with when Capital Appreciation was first founded. In terms of our commitment that we have to the country overall, B-BBEE has been an important element of what we have done. And I am really pleased to report that both the synthesis and the Dashpay businesses have achieved Level 2 certification. This is something that we work on every day. It is something that forms the basis of our executive meetings regularly, and our hard work in this area is showing through. So well done to our team and thank you. If -- excuse me, one second -- if we look at the areas of growth, we have gone from financial services into the retail sector, those experiences and expertise has allowed us to expand into health care, telecoms and logistics in the software and services sector. The opportunity is now global for us, and we are delivering services in 20 countries across the globe. And that is a real feather in the cap as a team that is running that business. So I'm going to turn to our highlights. Alan will, obviously, spend more time on each of these elements in the presentation. But in a very difficult environment, our revenue was up 22.5%. Our Payments division revenue was flat, and our Software division revenue was up 75%. It's easy to save your way into prosperity. What's the hardest is to generate the revenue. And I think in this instance, we have done a really great job. There are a number of things which are noteworthy during this period. The one is that we have continued to invest substantial amounts of money in growth. We invested money in growth in the software division previously. We've spoken about that. We're going to continue to do that. And you can see the benefits of that coming through now in the service -- in the software division's growth of 75%. We think that there are equally good opportunities related to payments, and we have spent money to drive that with the beneficiary of the digitalization that we spoke about. And as you would have seen in our trading statement on Friday, we have elected to impair the loan that we had extended to GovChat and that has affected the results. But overall, the trading profit is solid. We have nice earnings. Most importantly, we generated over ZAR 103 million of cash from operations, and we have declared a dividend of ZAR 0.0425 per share. We have ZAR 0.40 of cash per share on our balance sheet. And overall, we are pretty proud of these results, and I want to thank the team publicly for all of their efforts in this regard. So the two items that have affected our results this period, I'm going to walk through. One of them is investing for tomorrow in our future. We have invested about ZAR 15 million in the launch of the Halo Dot offering and the launch of Dashpay Glass, which I will showcase for you a little bit later on in our international expansion. Those are expenses, which have shown through our income statement for which revenue will only be recognized and posted in future periods. And so that will have an impact on our earnings in this quarter. We have grown the business substantially on a year-on-year basis. We have 81 new employees net, that has resulted in ZAR [ 19 million ] of incremental costs. New hires are not productive immediately when they join. It takes a little bit of time to bring them into the fold. So we will start to see the benefit of that in the future periods. And there is an element of the Responsive acquisition that we did that has increased cost by ZAR 6 million. On Friday, we announced that we have elected to impair the GovChat loan. This was done as a matter of prudence and to be conservative. The platform itself is functioning very well. It is very robust. There are international opportunities in the public sector, which we have spoken about, which we continue to pursue. But the reason we have gone down this path is the contracting period that government has taken a long time and is longer than we had anticipated. There have been some adverse events in our operations of the business, particularly in the litigation with Meta and Facebook. The current status is the Competition Commission is prosecuting WhatsApp for anticompetitive behavior in front of the tribunal. We are involved in that, but it has impacted our ability to operate. We are the only funder of Capital Appreciation of -- sorry, of GovChat and so we wanted to make sure that we were prudent in how we thought about it. We do believe that the settlement coming out of the Meta, Facebook matter will more than cover the claims that we have against the company, but acted as a matter of prudence, as I mentioned. The impact was ZAR 0.046 per share on earnings, and it was also a ZAR 0.046 per share impact on NAV. Other than that, GovChat has no impact on Capital Appreciation whatsoever. And for us, it's otherwise business as usual. So if I move over to the Payments division, you can see revenue of ZAR 318 million with EBITDA of EUR 120 million. The margin that we generated here is still a very healthy 38%. There are some really good accomplishments. The terminal estate that we now are responsible for exceeds 315,000 terminals, which is a 22% increase on a year-on-year basis. The Android terminal demand is high, and we have two offerings, both in Ingenico and in Newland offering. They are leaders in the provision of these terminals, and we are pretty well positioned. We have had an increase of 23% in our annuity revenue, which is very pleasing and Alan will give you more detail. Halo Dot is live in 5 instances. We have had really great responses from people around the world, and we are hoping that two instances will go live in the U.K. in the not-too-distant future. We also launched Dashpay Glass, which is an implementation of the Halo Dot capabilities in the South African market. On the software side, revenue was spectacular. You can we've identified this as superb results, 75% growth period on period with very strong EBITDA growth of 46%. Part of this is attributable -- the difference is attributable to the increase in staffing. We have a really good pipeline of new business overall. We have been able to diversify the verticals, as I indicated and expand into other geographies, both Europe and Australasia, and we are proud of the foundation that we have for the continued growth and the internationalization of the business. On the international front, albeit of a small base, we have posted some really great revenue increase. The team is very focused on what they are doing. I actually participated myself in the Money 20/20 conference in Las Vegas and was delighted to see the international response to what the team had to offer. We are going to continue to pursue this aggressively and continue to invest money in developing these capabilities. So if I move over to the opportunity and we talk about the post COVID landscape. This is a piece that was taken out of a recent McKinsey report, which was focused on the services sector. And they were trying to identify what had changed since COVID, and they identified 4 areas where there are 4 trends. One is this rapid and extreme digitalization, which we've spoken about. The second is contactless operations and people working remotely, which is another way of talking about virtualization of the workspace and needing to do that from an operational perspective. And ultimately, the 4th is the ability to get talent anywhere in the world. That has affected us and to our benefit. And you can see the demands that are expected to result in growth going forward. So these issues have also affected payments, which I will get to in a minute, but the demand for cloud continues to grow. You can see on a year-on-year basis, it grew at 24%, ZAR -- $217 billion worth of revenue associated with cloud over the course of the last 12 months, anticipated to be $1.6 trillion by 2030, an area where we are particularly active. The reasons for this are varied, but in each instance, they have become indispensable to businesses going forward. It's table stakes. If you want to be involved in business today and you have a competitive environment, your competitors are becoming much more adept and flexible, you need to do it to remain competitive. From a payments perspective, we often get asked about the demand for terminals, and there are a number of factors, which are driving that. There's, obviously, a growing market as more retailers join the digital footprint. There is enhanced technology, which is being delivered both in terms of functionality. And as we all want to upgrade our phones, merchants want to upgrade the terminals and have the latest and greatest kit. There are regulatory compliance requirements that demand -- that have security mandates that demand terminal refresh. They have sunset dates. And in South Africa, as I mentioned at the beginning, the 2 and 3G networks are going to be deprecated. Many of the devices in the market today are only 2 and 3G enabled and that is going to require a refresh of the estate. To give people a quick view of what's happening globally so that we have some perspective, last year, and this was taken from the Nilson report, there were 136 million terminals delivered worldwide. The largest growth area was Africa. You can see a 35.7%, 2021 versus 2020. From our perspective, this is good information and speaks well to the opportunity ahead for us. I've shown these slides in the past, but I think it bears repeating to give a sense as to what the opportunity is in South Africa as we see it, which is our backyard. We are also starting to expand into Africa and we think the opportunity is really good. From a footprint perspective, I've shown this chart before, but it bears repeating for the following reason: One, is the target for the opportunity of digitalization is cash and still 70% of transactions in South Africa are cash. You can see the number, 60 billion. And we now have a product offering for each level of that pyramid, whether it's traditional terminals for the large corporates or a Dashpay Glass offering for the informal sector, we have been offering across the board. There is another McKinsey report, which I thought was interesting, which talks about the opportunity across Africa. And by their estimates, if the level of penetration in Africa reaches other emerging markets, there can be an eightfold increase in the revenue opportunity out of fintech and this is the area where we are spending our time. So I'm going to quickly go through the execution part of the presentation. We have had a set of principles that have guided us since the very beginning. We partner, we innovate and we execute. The introductory video spoke about our people and the innovation. For us, that is absolutely core to who we are. We have gone through a rebranding exercise of our African residence business, but our commitment to excellence remains unchanged. The key differentiators for us are the proprietary platforms and technologies that we offer and the end-to-end solution that is a key differentiator and something which will continue to remain. The terminal estate has grown to 315,000 terminals. So we had really nice growth in the 6 months in the estate, where we have -- where we suffered a little bit was in the number of terminals that were activated in the market. And you can see that there were only 13,000 incremental terminals activated during the 6 months. That is a function of the state of the South African economy and the deployment of new terminals to new merchants. And so that is an area where we underperformed our expectation, but I think have -- otherwise have done very nicely in the Payment sector. The Halo Dot offering, as I mentioned, we showcased that at Money 20/20, both in Amsterdam and Las Vegas and Berlin at the MPE conference, getting very positive responses. There are a number of new developments. The PCI standard has just come out. We had spoken about this in prior presentations. It is MPOC, M for the money, POC, and that now starts to provide some certainty as to what the protocols are going forward. This is something that many clients have been waiting for. We are MPOC compliant, and so we are hopeful that the number of new deployments start to increase as a result of that. Dashpay Glass, I mentioned, is the implementation of the Halo Dot functionality in the South African market. I want to give you an example of just how rapid this is. So on a Sunday morning, in a remote market location, some merchant wanted to accept card payments, they downloaded the app at 12:43 p.m. Now this is a Sunday. At 12:46, they had their account registered. And by 1:07, they had already accepted their first credit card payment for ZAR 450. That was instantaneous almost compared to the long application process that was otherwise required, if you want to get a credit card acceptance capability. So we think in the markets in which this is focused, Dashpay Glass has tremendous applicability and is reflective of what we see the opportunity being for Halo Dot. LayUp is a business in which Capital Appreciation has invested. People have spoken a lot about the buy now pay later sector. This is not buy now pay later, it is save now buy later. It is a savings product as opposed to a credit product. And we think that in the South African market, this has great applicability. There are a number of material distinctions between to save now buy later capabilities and a buy now pay later, and I want to give you a few quick highlights. First, I want to congratulate Andrew and the team for being awarded the MTN Business App of the award for the best incubated solution. The levels of completion are exceptionally high, 88%. But most notably, you can see that the range of purchases that are available under this type of scheme are very large. The largest transaction that the team competed was ZAR 550,000. You can't do that on buy now pay later. The average order in that segment is ZAR 30,000. Those are very large numbers. And so from our perspective, we think that there's definitely a place for LayUp and are proud of the efforts of Andrew and the team and wish them luck as they continue to grow the business. The Synthesis business has a number of different segments in it, many of which you have been exposed to in the past. And as has been the case, I am going to walk through some case studies to give you a tangible feel for what they do. But ultimately, Synthesis is a business of intellectual property. It is not only in IP that we own as technology, but also in the heads of our phenomenal staff and we lead with ideas across many different vectors. So here is a case study, which I have found tremendously compelling and so I'm going to spend a little bit of time on this with you to show you the power of technology and the innovation that exists within our organization. There is a large South African institution that has a call center that does approximately 10 million calls per annum. Those calls were told last about 30 minutes on average. There is a regulatory requirement that requires 5% of those calls to be monitored. So if you think about that in numbers of days, you talked about, on average, 27,000 calls a day at 30 minutes a call and 5% needing to be listened and screened, you're talking about 41,000 minutes of screening that has to be done. And if you have to apply people to that, they're 683 hours, which is 85 people days required to monitor 1 day's worth of calls at this call center. The solution that Synthesis came up with allows all 100% of the calls to be monitored. They can do that with a 98% accuracy level, and it only requires 1 person to run the whole system. So you can see the power of technology and how these technologies are helping businesses drive efficiency and save costs. So for me, this is a phenomenal example showing the power of the technologies that we have within our table. A second use case is for Standard Bank, a long-time client of Synthesis. Here, the team spent some time putting together a platform for chat interaction with customers and effectively reduce the times associated with deployments from 4 months to 2 years in some instances, down to 2 hours for the new deployment of chatbots and making it uniform across the entire African continent. And in other areas, you went from 3 months down to a day. This is tremendous value being delivered to our clients. We included the Responsive team within our organization, as of the last results. I wanted to give you a sense of the work that they do. Here is an example of a case study, a use case where they did work for Capitec, building the front-end public-facing website and apps for the organization. I think we all understand the importance of digital as a channel for Capitec. They have spoken about that at length during their presentations. Responsive was the party who did that. And this is a result of the primary principle that we spoke about last time is putting design thinking, focus on the customer at the heart of the application and the success that Capitec has had in the market is not attributable directly to this, but this is certainly a tremendous help in their endeavors, and we are proud of what they have done. The second use case, which I'm not going to spend much time on, is work that the team did for MoneyGram, a very well-regarded international company that retain the services of Responsive. So well done to our team in those initiatives. Hopefully, that gives you a flavor of the types of things that are being done within the group. With that, I will turn it over to Alan to give you a sense of how the group has done financially.

Good afternoon, ladies and gentlemen. We appreciate your continued interest in Capital Appreciation. We are very pleased to present a resilient performance in an environment of low economic growth, both locally and globally as well as notably increased competitor activity. We believe our interim results reflect the robust demand in the market for Capital Appreciation, growing and evolving innovative technology products and services and solutions. We are proud of the way our businesses have continued to serve their customers with distinction. They continue to innovate, old proprietary owned intellectual capital for future digitalization applications and attract new high-profile customers, which we believe is in no small part attributable to the well-established reputations and track record of each of our businesses, divisions and management. Our presentation today has detailed disclosures, which will assist you to more easily compare our results with last year. These include, for the first time inclusion a full set of results for the Responsive Group, which was acquired in March 2022. It also includes the impairment of the loan for GovChat and also includes an analysis of key expenses. I will highlight the impact of these issues, as we move through the presentation. It is significant to note the amount of investment and effort in growth initiatives, which you will see across the businesses. There are no undisclosed post-period end events or any normalized type transactions to consider in analyzing these results. Capital Appreciation generated group gross revenues for the period of ZAR 538 million, up 22.5% and also delivered a stable group EBITDA of ZAR 138 million. In turning to the divisional results, I'm going to refer to our Slide 39. Payments performance. Revenue in the Payments division was steady, increasing by 1.4% to ZAR 318 million. Terminal sales decreased by 8.5%. This decrease should be carefully measured against a 68% growth last year, where we achieved an all-time record sales performance. Terminal sales continue to remain substantially above historical levels, which translated in growth in the terminal estate of 22% to 315,000 terminals. Android terminals, in particular, were in great demand given their attractive price points and additional functionality. We have, however, recently seen a slowdown in demand, which we believe is attributable to the current economic conditions, triggering some merchant cancellations and align banks to redeploy old devices rather than ordering new ones. Annuity-based income grew pleasingly with maintenance and support fees and transaction-related income both increasing in line with the growth in the terminal estate. Dashpay has continued to refine and upgrade its platforms, systems and infrastructure. Dashpay Glass is currently in production after extensive testing. As mentioned previously, Capital Appreciation has continued to invest extensively in growth projects, all of which has been expensed through the income statement. And [indiscernible] apps for Android phones are prime examples of the products we have and are developing. Payments continue to manage expenses prudently and in line with growth in business activity. Increased expenses stemmed primarily from advertising, marketing and business development of the new products launched as well as international shipping costs, insurance and additional staff costs. Payments continued to be a strong cash generator in line with their asset-light businesses. Having a look at the payments revenue composition, the payments business has diversified its revenue streams. The sale of terminals still contributes the bulk of income and generated ZAR 193 million for this period. Annuity income from maintenance and support fees is the second largest revenue contributor in the Payments division and increased steadily as customers deploy their acquired terminals to their merchant base. A payment division provides the option of end-to-end terminal estate management, services for its clients with the alternative of as and when required maintenance fees for ad hoc service support. As the android estate has started to grow and maintenance and support of these terminals has increased measurably, it is now providing our customers with a clearer picture of the sustainability and measurement of their maintenance costs going forward. Transaction-related income continued to grow in excess of 20%. Terminal income has encouragingly started to improve after a long period of the attrition of our legacy lease terminal estate that has reached the end of life and were subsequently replaced with bank-owned terminals. The growth in both these revenue elements is attributable to Dashpay's specialized product offering and new capabilities coming online. It is interesting to note that some customers are starting to move towards a hybrid model of partially owned and partially leased assets, which has not been the case in the past few years. We remain positive about the medium-term outlook for the Payments division, particularly as a result of technological advances and regulatory changes, which will increase the demand for the replacement of terminals in addition to organic growth. Over the shorter term, however, we may see some inconsistency in forecasting of terminal sales. I now refer to the software performance. The Software division produced excellent results even if we exclude the contribution from its Responsive acquisition. Investments in business development, new innovations, building its client base and additional skills infrastructure have resulted in a significant acceleration in revenue and profitability, with revenue up 75% to ZAR 220 million and EBITDA up 57% to ZAR 46 million. Excluding the new Responsive acquisition, Synthesis, on its own, revenue and EBITDA by 58% and 30%, respectively. Software's core cloud, RegTech, intelligent data and digital have all experienced excellent growth and have maintained consistent steady margins for a long period. The introduction of third-party sourced products and services in recent years has diversified the software division's revenue streams and proven to be a lucrative source of other incremental revenue. The growth in this product set, which attracts an expected lower resale gross margin, does, however, dilute the division's total margins. The third-party products have the added advantage that those are dollar denominated. Synthesis made substantial further investment in new and exciting infrastructure in the form of additional skills and intellectual property, which will continue to support revenue growth and profitability in the future. Economy of scale efficiencies have started to become evident, which is exciting. We believe that the opportunities for this division is exceptional, and we are seeing some encouraging prospects for international expansion. The software revenue composition reads as follows: Services and consultancy fees grew by 51% due to strong demand for cloud and digital projects. This includes the contribution from the Responsive group, whose strong design and user interface, UI, and user experience, UX, capabilities further advanced Synthesis' digital offering, adding substantial value to customers. There is excellent opportunity for collaboration between the two businesses. Responsive accounts for about 10% of the division's revenue and 17% of profits. Annuity-based revenue in the form of license and subscription fees remained stable. Security, hardware and third-party license fees sort to the upgrading of major customers' hardware and refresh. State-of-the-art hardware security modules, known as HSMs, are used for enterprise encryption and to protect payment card pins and contactless payments. These HSMs typically have a life cycle of approximately 5 years. So every 5 years, a financial institution would need to refresh the estate of HSMs. We achieved exceptional traction in markets outside of South Africa, with international revenues growing by nearly 200% and now comprising 28% of the whole software division's revenue. Currently, the majority of the revenue is managed, transacted and executed directly from South Africa in foreign currencies. The International division remains in the early stages of its development. Our office in Amsterdam will provide an excellent platform, from which to expand our international offering. One of its key initiatives is to communicate and sell the Halo Dot product globally. Halo's tap-on-phone initiative continues to make good progress and is achieving notable interest both locally and internationally. This is a very long-term strategic initiative with significant upside potential and the group is committing funds to business development and marketing costs, both in South Africa and internationally to realize these benefits. I now refer to our balance sheet. Capital Appreciation, which consists of asset-light businesses, maintains an uncomplicated easy-to-understand balance sheet with no contingent liabilities, no post-retirement obligations and no undisclosed post interim period events. In May 2022, the group subscribed for 20% of the equity in Regal Digital BV in the Netherlands and also granted them a long-term loan of EUR 494,000, ZAR 8.8 million, which is noninterest-bearing and has no fixed terms of repayment. Further, working capital funding was also granted to GovChat and LayUp. Same for repetition, we have reported in full the circumstances and reasons for the impairment of the ZAR 56.3 million loan to GovChat. Our 26.52% investment in LayUp Technologies, which is in its early stages of development, still has an interesting opportunity set. Capital Appreciation's underlying businesses are very cash generative, adding ZAR 103 million to cash balances during the period, notwithstanding continued investments, higher dividends and taxes paid and loans to our associates. The group at 30 September, 2022, had ZAR 536 million at disposal to utilize and pursuing growth opportunities. In terms of its capital allocation, the group remains strongly focused on first and foremost, supporting the organic growth of our divisions and thereafter, acquiring companies that can expand and generate scale within a reasonable time frame, that can provide satisfactory organic growth and returns to shareholders where Capital Appreciation's capital and strategic capability can be successfully leveraged. CapEx cash is invested in South Africa's top banks with interest rate risks are managed very conservatively and with a view to maximizing yield through appropriate interest rate cover. The underlying businesses generate robust operating cash flows, necessary to take advantage of organic growth opportunities available to each of our businesses. As a group participating in a high-growth sector of the economy, we continue to invest judiciously with a full understanding that for -- some of the costs incurred will only see the financial and earnings benefits in future timing periods. Our net asset value, net of treasury shares increased by 3% -- 3.3% since September, 2021, to ZAR [indiscernible] per share. I now go to the key elements of the state of comprehensive income and our income statement. In looking at the statement of comprehensive income, there are a couple of items to note. We have already mentioned the robust growth in revenue. A strong demand is continuing. Operating expenses have increased notably on the back of a variety of growth-related initiatives for Halo Dot, Dashpay Glass, the new international office and related expenses. So for repetition, we have provided detailed information about the large expense components in the narrative, supported by detailed reconciliation summary in [ note 2 ] of this announcement. In particular, there has been a significant increase in employees, mainly in the software division. We have been allocated to the new projects and contracts that we were awarded in the past year; increased spending on the launching and marketing of our new products and business development. Increases in the rest of the expenses are mainly related to inflation. The increased scale of the business and also to the revenue of normal on-site in-office strictly activity, which compared to the pandemic off-site remote restrictions last year. Our share-based expense line increased due to the allocation of new long-term share awards during the year. The fintech sector is a highly skilled intensive industry, and our share incentive schemes provide the group with the ability to offer an attractive employee proposition and a competitive advantage to attract the right skills. Amortization of intangible assets increased due to the increase of our in-house developed software technology, which went live in this period. Finance income earned on the group's significant cash balances increased on the back of higher cash balances as well as increase in interest rates. Headline earnings increased by 4.3% to ZAR 95.1 million, translating into headline earnings per share, up 4.4% to ZAR 0.0776 per share. Basic EPS was impacted by the ZAR 0.046 per share impairment of the GovChat loan, reducing, therefore, by 58% to ZAR 0.0313 per share. The group undertook minor share repurchases of 200,000 and sold 2.6 million treasury shares to settle vested share options during the period. As of 30 September, 2022, the group has a total of 78.5 million treasury shares at an average cost price of ZAR 0.59 per share. Given the appropriate circumstances, the group will continue to future to repurchase shares in the market. I refer to the note that the treasury shares are reflected on our balance sheet at cost. Cash flow. Our asset-light businesses remain highly cash generative, as can be seen from the ZAR 103 million cash generated from operations in this period. We have generated nearly ZAR 1.1 billion in operating cash flow in the past 5.5 years. This is a notable achievement, and the group's cash flow have resulted in approximately 5-year payback for all those businesses we acquired in 2017. A key feature slide on the cash flow reflecting September '22 and 2021 interim period highlights the main cash flow items. I have already discussed the higher finance income received and the growth in dividends paid. Working capital remains a strong focus and the group excelled in this regard. Cash and cash equivalents at the end of September have increased to ZAR 535.7 million and continue to grow post this reporting period. Dividend history. We are fortunate to own businesses that can generate meaningful profits and cash flows despite the challenging economic environment, and that is after paying full tax. We have consistently paid increased dividends for the past 5.5 years, generally well covered by current period cash flows from operations. For the interim period, the Board has declared an interim dividend of ZAR 0.0425 per share, an increase of 13.3% relative to last year's ZAR 0.0375 per share. We are in a strong position to benefit from the exciting opportunities in the growing markets we serve. While our outlook remains dependent on a number of micro and macroeconomic factors, we are optimistic over the medium term given the strong opportunity set for our underlying businesses. We look forward the rest of the '23 financial year. Our software business has a strong pipeline of projects, while the outlook for payments is to some degree uncertainty with terminal sales difficult to forecast. We are well entrenched with our existing customers, international principles and supplies and have several exciting products to capitalize on in growing markets. We remain very excited about our future. I would now refer you back to Brad. Thank you.

Thanks, Alan. So I want to make sure we leave some time for questions. So I'm going to go through these last few slides pretty quickly. From a business prospects perspective, we are pretty bullish about what the opportunity is. There's a broad range of both organic and acquisitive opportunities for us. On the acquisition side -- excuse me, valuations have normalized, and we are seeing a number of opportunities that make a lot of financial sense to us. So we are continuing to be diligent on those. We are mindful of the economic climate that our clients are operating in and that we're operating in. The supply chain issues that we had confronted, which really did impact negatively on our ability to deliver have started to lift, but it doesn't mean that they will continue to be like that. We are going to monitor that very carefully. So from an overall perspective, we are well positioned to drive growth of our existing businesses and will continue to allow them to look for acquisitions and opportunities to grow inorganically as well. From an overall perspective, I think that there are still challenges in the market overall, particularly as it relates to South Africa Inc., which is one of the reasons we continue to explore international opportunities and other initiatives across Africa. But within Capital Appreciation -- as Capital Appreciation, we have a very large and growing addressable market. We are an experienced team, and I think the overall team across the board, even down to our most junior people, have a really great skill set. We have domain expertise and proprietary technologies, which are in high demand. We continue to develop those technologies, and we're investing in them, as Alan has indicated and is reflected in today's results. We have an ability to appeal to clients across the globe. So we are looking at those, and we have a client base that is very well capitalized and continues to understand the importance of technology investing, and so are not affected as badly by little speed bumps that they encounter. They have a long-term perspective. So from a perspective -- from an overall investment case, I think the Capital Appreciation investment case has never been stronger. We are an asset-light business with very efficient working capital, as Alan indicated. Our financial strength and the balance sheet is helpful as we look for new business opportunities and can focus on execution as opposed to worrying about meeting payroll. And we have the ability to put our money where our mouth is when we see an opportunity, we can execute on it. So we are very comfortable with where we are. We are proud of these results. The team has executed very well. And with that, I just want to thank all of you for joining us today. There is a large turnout. We are delighted to have the opportunity to share these with you and we'll now turn it back to Howard who will moderate the Q&A that has come in.

Great. Thanks, Brad. Thank you, Alan, and Michael Shapiro, welcome to you as well. What we're going to do is -- what I've been trying to do is manage a lot of the questions. There are some repetitive ones. So I thought we could group them and see and try and get as many answers as possible. All right. So if we start to look at some of the questions, I want to start with Becky [indiscernible] Capital. Please, could you give a sense of level of investment cost and growth expected into the 2H relative to that incurred this half, as shown on Slide 10. Should we expect this to be higher? And if so, should we expect a similar level of margin contraction into 2H? So I'm not sure who wants to take. Brad, perhaps you want to take that?

So I'll take that. Becky, thanks for the question. We are going to continue to invest in these new initiatives and a number of other ones that are under development as well that aren't reflected as products yet in the public domain. And so we anticipate approximately the same level of expenditure, maybe a little bit less because there were some -- excuse me, some exceptional items that we incurred this year -- this half year, but you can anticipate it's roughly the same.

All right. And Erica asking -- and I think it also sums up, this is for Alan, What is the financial impact of the GovChat loan impairment.

Right at the opposite so we are conservative executives at Capital Appreciation. And we've looked at the trading performance and the operating performance of GovChat, and we prudently decided to impair the loan and not write off the loan. So the loan is by no means not written off. The impact was ZAR 0.046 negative on basic earnings per share, but no impact on headline earnings per share. And it had a ZAR 0.046 impact on the NAV. So it was not material in that regard. It has allowed management of the business and the Board of GovChat to now address the operational needs and the functionality of GovChat, which has got a proven platform, which was developed by Synthesis to find solutions to the ongoing operation of that business. And now accordingly, therefore, the financial effect on Capital Appreciation has now been fully accounted for in these interim results, and you will not have any further impact on Capital Appreciation's numbers going forward.

All right. Thank you for that. The other question that I wanted to ask, Adam, that is to Michael from Synthesis, can you provide, Michael, more details on the revenue, the ZAR 35 million revenue, jump for the Asia Pacific region?

Yes. Thank you, Howard. That revenue increase relates to a project in our digital area that we're delivering for a Singapore-based customer. We actually showcased it in the year-end results for financial year 2022. And the slide there spoke of the case study where a customer, which is in the shipping and logistics industry, has ailing software and it's aging and needs to be replaced. So through a partner of ours called [indiscernible], we were commissioned to develop a multiyear digital development to replace that system. So it's our foray into that region and into the logistics domain. The project is progressing successfully. The revenues that are shown there are part of the total project fees that are going to run into the balance of the 2023 calendar year. So we're very comfortable with our international expansion. That's a particular call out. There's also expansion into the U.K., into Netherlands, the U.S. with other partnerships and other direct sales activities that Synthesis together with our partner, Responsive is busy prosecuting.

All right. And good afternoon -- this one is for Brad from Sandile. Could you elaborate in ways in which 5G increases demand for terminal and international expansion. And Brad, if you want to take that one?

Yes. So Sandile, you will know that every terminal has a communication module embedded in it. And so that communication module is most often through the cellular network. Sometimes, if they are meant to be on a countertop only, they are through an ethernet cable. But the ones that you find in most restaurants and smaller stores are cellphone mobile network connected. And so historically, those modems have been 2G and 3G cellular modems. The majority of the devices in the market continue to be 2 and 3G. Some of the more recent ones that we have distributed have 4G ethernet and 5G capabilities. But the ones that are 2 and 3G enabled only will need to be replaced, as the 2 and 3G networks that MTN and Vodacom and Cell C run an operator are deprecated. So that is the source of that demand that's easily understood.

Absolutely. Thanks, Brad. And Alan, a number of people asking about share buybacks. Do you want to address that?

I think it's always been an intention of the Board to buyback shares where it makes commercial sense to us. We're very conscious of the liquidity of our share. We have noted with interest in the last sort of 8 to 10 weeks that the share has become more liquid, albeit off a low base because relative to the total number of shares and issue our shares not a highly traded share, but there has been encouraging growth in the number of new shareholders that have now shown interest and invested in our company. We will continue to buyback shares when we see it makes commercial sense and based on our scheme valuations. And we fortunately got the liquidity to buyback shares, but more importantly, we are conscious of liquidity.

All right. And Alastair from the Coronation saying group margins have come at a pressure in this period with revenue growing much faster than trading profits. Is this a temporary situation? And if so, when do you expect to restore margins? I'm not sure who would like to take that one.

So I'll start with that. So Alastair, the -- we've sort of been at pains to try and indicate where we have spent money over the course of this half year because it's not margin pressure in the core operations, it's investment in the future and new revenue streams that we anticipate coming through as we continue to grow the business. And that has required some investment in capacity. It's required investment in technologies, most recently with the launch of both Halo and Dashpay Glass, it's some launch-related expenditure, and those will continue. And we will continue those investments, but we anticipate that the revenues that those investments generate will come through at good margins. I think Michael has indicated, and I think is even reflected in our results at the core Synthesis operations of the old products that we have had in service offering continue to deliver the margins that we had anticipated. There has been some reduction in the margin given the change in mix, particularly on the hardware that is sold within the software division now that comes through at lower margins, and that's had an overall effect. But the core businesses continue to deliver good margins, and we will continue to strive to do that. It's a function of the efficiency with which we operate those businesses. And Alan indicated that we have been pretty judicious on cost expenditures in core operations. So we will continue to do that.

Thank you. And Peter asking a number of questions, some of which we've answered. His third question, I think, Michael Shapiro for you. Synthesis results were outstanding congrats to the team. The growth in license and subscription fees are a bit slower than expected. Can management give any detail around the challenges and outlook of this revenue stream?

Yes. So thanks, Peter, the results were excellent. We are very proud of what has been achieved. I'm very proud of the team. And also note the Responsive contribution as we continue to look at collaboration opportunities with that group. So the -- there's definitely been a strong increase in our project services. Our license revenue has been flat, and it's something that we are focusing on. There is significant investment in our Halo product that's still in early developmental stages, and we're not splitting out that specific revenue. It's within that sector that we're showing that flat growth. But in future years, we're expecting to see a marked pickup in that area. We're very comfortable with the contribution that our software product contributes. And as we bring on revenue streams from Halo and other initiatives, as Brad alluded to earlier, which are not yet publicly disclosable, but our R&D development, we'll see an increase in that particular segment.

Thanks, Mike. Brad, final question for you is, we've spoken a lot about the opportunities in Africa and the ability for technology to change the lives and uplift the lives of people across the continent as well as around the world. Speak to me about that vision and that underlying rationale and motivation behind the Capital Appreciation group.

Nothing like an easy question to end things...

Well, that's what we do. You make it difficult to make it easy and then we give you something to think about.

Okay. So look at the thing which continues to amaze me is the ease with which people can embrace technologies if the technology is going to deliver a useful solution and it is easy to use. Technology can be as complicated as you like on the back end. But as long as the user interface and the user experience is easy and simple, people will gravitate to it. And if you -- and if we follow brand and fair withers comments of focus on the customer and focus on the need that you're solving with the ability of design thinking you put that at the center of what you're doing. The technology solution itself becomes organic and it grows and it expands by word of math. I think that in the lives of people who are the most vulnerable, technology has tremendous ability to make a marked impact and whether it's related to payments or related to the work that we did in GovChat allowing people to apply for their SRD grant from remote areas without having to go to a Home Affairs or Department of Social Development office and apply for their ZAR 350 grant, those are the most indigent and the most vulnerable in South Africa. And the response that we got to the platform that was created resulted in millions, literally 13 million applications being submitted. That, to me, is an indication of the market impact technology can have on those that are most vulnerable. So while many of our clients focus on higher LSMs, we are not averse to understanding the impact that well-designed, well-executed technology can have on people who are otherwise vulnerable. So we think there's great opportunity to do that, and we'll continue to strive to make solutions available to as many as possible.

Thank you, Brad. And that's unfortunate [indiscernible] We do see a lot more questions. We will endeavor to try and answer them as much as we can privately. If you do have further questions, send them to [email protected], and we will, of course, try and answer everything that we are able to do. I really appreciate -- we really appreciate you spending time with us this afternoon. I really do hope that it was informative and that more than anything, it was inspirational as well. Thank you, gentlemen. Thank you for giving us your time. I'm Howard Feldman. This is the Capital Appreciation interim results presentation.