Araxi Limited (AXX) Earnings Call Transcript & Summary

In the old world, you devoted 30% of your time to building a great service and 70% of your time to shouting about it. In the new world that inverts. Good morning. I'm Howard Feldman, head of Marketing and Communication at Synthesis Software, and it's my privilege to be your host today. Jeff Bezos said that, and he could well have been thinking of Capital Appreciation when he wrote those words; quiet, focused, driven and innovative. It is a company that prefers to let its customers and fans do all of the cheering. On behalf of Michael Pimstein, Chairperson of the Board of Directors of Capital Appreciation at the Board of Capital Appreciation and the companies, I'm delighted to welcome you to the annual results presentation. That's for the year ending the period March 31. Before we begin, I would ask you to refer to the cautionary language in the presentation with regard to all forward-looking statements. The format for this morning, pretty straightforward. CEO, Brad Sacks, will take us through the presentation followed by CFO, Alan Salomon, who will take a closer look at the results. Brad will conclude before we'll move on to Q&A. There will be, obviously, that will depend on the time that we have available. But if we don't get to your question or if we don't answer it fully, just reach out to us, and we will make sure that we do. Without any ado, Brad Sacks, CEO of Capital Appreciation.

Thank you, Howard, and welcome, everybody. It's a pleasure to have you with us today. It is a very proud day for us, not only for the results that we have posted for the year, which we will talk through, but more importantly, for the position that the company is in, for the year and years ahead. So it has been a very exciting buildup to this period, and I look forward to sharing that with you. There we go. Guys, we're having a little bit of a problem here as I walk through the -- try and change the slides so bear with me one second. Hopefully, we are now in good position. Okay. So as Howard indicated, we have it outlined and it is similar to what we have done in the past. There is definitely a problem here. Okay. Great. So I have solved the problem. And it takes us to the page which talks about where Capital Appreciation is today. I think it's really important. This group started in 2017 in earnest. We started with 0 revenue. And in this financial year, we have been able to post revenue of in excess of ZAR 1 billion -- ZAR 1.1 billion, which is something that we are extremely proud of. And when we start Capital Appreciation, we had this notion of developing a group that had a thesis and some industrial expertise in the vertical of choice that we elected to pursue. And the area that we elected to pursue is the fintech sector delivering services primarily to institutions and organizations that play in the financial services sector. And we have created a portfolio that I think we can all be exceptionally proud of, where we have 2 verticals. We have a vertical focused on payments, and we have a vertical focused on software. People have suggested that we are akin to a private equity enterprise, and we are absolutely not. We have an industrial logic to the companies that form part of the enterprise. We have in excess of 550 software engineers that are part of the group. You can see the division of those people across the enterprise. And it is this group that we believe is exceptionally well positioned for the year ahead. Our investment case from our perspective is a pretty simple one. We are in an area where we have strong secular growth trends that are supporting our trajectory. The markets that we are serving are large, both domestically and internationally. We have had a desire to deliberately expand into the international market. We have been able to demonstrate to our clients that we are a trusted partner and some other things, I will tell you about the years going forward, will demonstrate that. The skills that we have been able to aggregate within the group are for longer. We have a group of highly talented individuals. The team is dedicated, with everybody committed to a single objective, and that is the creation of shareholder value and client service. We have a track record, which goes to the trusted partner and nature of our relationships with clients. We have built this business not only for the short term and for today. We are building the business for tomorrow as well. So we have deliberately sought to make investments into the future. Those investments do run through our income statement at times. And so it does impact our earnings, but we are very confident about what we have done. And most importantly, we have a business with units that are highly cash generative. In difficult markets, we have been resilient, as you will see, and we have increased the composition of our revenue, which you could characterize as annuity revenue. And for us, that gives us a sense of predictability. It gives us a sense of understanding of our business and we are debt-free, have a very healthy balance sheet with ZAR 467 million of cash on the balance sheet at year-end. So from our perspective, we have a tremendous opportunity for organic growth and for growth by acquisition. As I said, this year has been -- has seen a number of very important events. The execution of our strategy, which I have walked through in the past, I will demonstrate how well they're doing against that. We have been able to secure material contracts for our payments business, which will help catapult the business even further forward. We have been recognized for the excellence in delivery and our execution by our customers, clients and the popular press. We have continued to focus on our BEE credentials and now both Synthesis and Dashpay are considered Level 1 participants. We have integrated our Dariel acquisition, which we announced last year. And we have just recently exited the Business Rescue process with GovChat, and I will give you an update on that shortly. The economic environment in which we operated this year, just like all of our competitors and other industries, was a very tough one in a very difficult environment. Notwithstanding that, our revenue was up 19%. We have been able to create demand for our payments product, and that is accelerating after a period of delay. The software demand that we have seen continues to be strong, although we are seeing the sales cycles being slightly protracted. We have diversified our revenue streams to take advantage of our core competencies and look to expand the business. We have invested substantially into the future, and that amounts to ZAR 123 million. Our terminal state is up 9% in this financial year, and we expect it to grow materially going forward. The payments annuity revenue, which for us is an important measure, is up 28%. It constitutes about 61% of our payments revenue. Software revenue was up 31%. Our cash from operations was spectacular. We were up 75%. We integrated Dariel well, and we have some very compelling business pipelines. All that said, that led to a headline earnings per share increase of 83%. We obviously include the GovChat ECL that we had last year. If we exclude that, the headline earnings are up 11%, and we declared a dividend for this half year, which would take our dividends for the full year to [ $0.10, ] which is up 21% year-on-year. We think that, that is an indication of our view of the strength of the business and the cash generation capabilities of our business overall. So that gives a perspective on what we achieved in the last year. So in terms of the top line growth, the revenue we saw increased by 19% as a result of strong terminal orders in the second half of the year, much better than the first half. We had some very strong demand in our cloud and digital areas within the software division and the inclusion of the Dariel acquisition. We have had some delays in software-related projects that resulted in us having some excess capacity. Those resources are very difficult to come by, and we have elected to keep all of those people on board. We had the costs on our income statement without the commensurate revenue, and we did have a less -- a more challenging time on the financial performance of software. However, those contracts haven't been canceled, and we are very comfortable that we are trying to remediate that for this fiscal year. A lot will depend on the state of the economy and whether or not operated enterprises are willing to invest in new projects of innovation. The cash flow you can see from our business was up tremendously, and that is a harder number not impacted at all by any IFRS measures. And so we're very proud of that performance. In payments, the terminal estate was up by 9% the rental income, which we have indicated in the past was something that we expect to increase, was up 95%. Our transaction-related revenue which is a measure of the activity through the estate was up 39%, and we are seeing really good momentum into this year. The annuity revenue, as I mentioned, has increased to 61% of our payments revenue, which results in a more predictable revenue flow for us. The scale of our operations has resulted in us being able to drive penetration of customers, pass on some of that operating efficiency to our clients and also improve our own operating margins. And so EBITDA increased by 500 basis points. As you can see in the top right-hand graph, the team has done a tremendous job in this regard. On the software side, you can see that we enjoyed some good revenue growth. A large portion of that is attributable to the inclusion of Dariel in our financials -- in our risk financial results. We had good demand for the consultancy fees related to our services, license subscription was up 20%. Security and hardware fees were constant with an exceptional performance in the prior year, but it is the delay in certain projects, which has resulted in us having to incur costs against which we couldn't recognize revenue. And so that has had an impact on the EBITDA performance of the software group, which is down 600 basis points. From our perspective, we have incremented a series of measures to try and remediate that, one of which is not being as aggressive in our new hires. We had been very aggressive in prior years in advance of the projects commencement dates. We have been far more deliberate in moderating the hiring, and you can see that within the software employee base, it only increased by 5 people if we exclude the additions of the people within Dariel. We have a really tentative group of people, and we are confident we will be able to put them to good use over the course of this financial year and going forward. As it relates to GovChat, we have now exited business rescue. We have terminated operations. We have agreed with one of our other shareholders that we will split costs going forward as it relates to the litigation that we have outstanding with Meta and their prosecution in front of the competition tribunal by the Competition Commission, and we look forward to being successful in that endeavor. Investing for tomorrow, I indicated that we are quite deliberate around this. You can see what comprises ZAR 123 million of investment that we have made. We think that these are investments that are well grounded and the purchase of rental assets constitutes ZAR 31 million, and you would have seen, as I mentioned previously, rental income has doubled in this financial year. Our BEE ratings, I have spoken about, it is something we are very focused on. It is ode to who we are as a group, and we will continue to invest and pursue improved performance. From an ESG perspective, this is something which is also ode to our DNA. We have spent a fair amount of money on enterprise development and supply development initiatives. We will continue to do this. It is also important from an environmental perspective. We are a member of the e-Waste Association. And when we deprecate terminals, we have to make sure we do that in a responsible manner. So this is something we continue to do. There is no doubt that when you look at the capital appreciation group and you consider what our most important asset is and that is our team, it is something we pay an enormous amount of attention to. We have a really dedicated group of people who are focused on team health and wellness. The composition of our team, I think, is relatively well balanced. I am extremely pleased about 2 metrics, which are reflected on this page, 7% turnover, which I believe is a very low level of turnover relative to our clear universe. And I think it's a testament to the belief that our team has in the company and our mission. And we have had a 0% lost time incident rate related to health-related issues on the drop. And so I think that is -- those are important. Our strategy has been consistent from the time of our formation and it is this strategy, I think, which has been able to garner the support of our customers. We view ourselves as a partner. We really focus on innovation. And ultimately, we are measured by execution, and I think we continue to do a great job in that regard. And then we move on to payments and as I think about payments, it was important to try and give our shareholders a sense as to how this business has evolved over time. The payments business started with a single client when we acquired the business and over the period of our stewardship between 2017 and 2023, we have expanded the number of customers that we engage with. We have added a whole range of services and capabilities. And today, as we position ourselves going forward, you can see the extent of the growth that we have and the initiatives that we have undertaken and where we are spending our time in growing this business. And this, I think, is a true testament to the leadership of the payments team in positioning ourselves for an evolving market. In recent months, the head of payments, Donn Engelbrecht and I, participated in a conference in Madrid. It was hosted by Ingenico, who is one of our suppliers, and [indiscernible] their slide. And what it was intended to show us is where things are going in the sector and not only for that information, but to demonstrate that the areas that are established and the areas that are emerging trends means the group are exceptionally well positioned in those areas. And so whether it's proven in use or its next wave innovation or cutting-edge, the payments group is exceptionally well positioned to be a meaningful participant in this and this is not only from a South African perspective, but on a measure of global competition. So our growth strategy, which we laid out last time or in prior presentations was, we will continue to grow the market for devices, which contemplates taking device form factors into areas that previously were precluded from using devices for reasons related to economics or technology. We were going to continue to take market share. We were going to grow our client base in South Africa. There is an initiative to refresh terminal estates given the deprecation that is underway and the 2G and 3G cellular networks. We were going to work with clients and help them across Africa, both in hardware and software. We were intending to introduce new payment services and products, Payment Software as a Service is something that you may have heard about and develop solutions which are hardware agnostic, we are focused on the enterprise. We are not focused directly on individual merchants or on consumers. And this is ode to our DNA and we are intending to expand into other international markets. And ultimately, innovation is where -- is what drives us. I am pleased to say that we have addressed nearly all of those key tenants and pillars of our strategy. We have added 2 new South African banks as clients over the course of this last financial year. We were successful in 2 material tenders. I am pleased to be able to announce and we have permission from 2 clients. We were a successful participant in the Absa tender that they held to refresh their estate. We were also successful in the Nedbank tender to refresh their estate, and we are the lead participant in that. So truly a great result for our payments business. We were also successful in an important fuel tender. We have deployed our first multi-layer installation. We had spoken about where we were strong in the past and those were stand-alone terminals. We had spoken about and have been developed a multilane solution, which increases our addressable market by at least 100,000 devices. We've deployed there. We are doubling down in the software initiative, which takes us into Africa, takes us into international markets. We are introducing new products and very interestingly, we have determined that we have a competence which allows us to convert one of our cost centers into a revenue-generating independent business initiative, and we are well down the path to do that. So all of this leads to a very -- the prospect of a really marked positive impact on our Payments division's financial performance for the full fiscal year of fiscal year '25. One of the tenders that we spoke about is focused on rental of devices from us as opposed to purchase of devices, which we had given some indication of in the past, and I wanted to make sure people understand what the consequence of that is. These contracts range from 3 to 5 years with the banks. The revenue is recognized over the life of the contract. The terminal lease is accompanied by monthly fees that we charge for software estate management and a host of other things that gives us large incremental monthly annuity revenue. The cost of sales is going to be replaced by depreciation. The terminals remain property of the Payments division. The revenue becomes more predictable and the terminals will be financed from the Payments division's own cash flow. So we think overall that this is a good deal for our customer and a good deal for Capital Appreciation. A multilane deployment that I spoke about, we deployed within Clicks. This was in partnership with FNB, a really great event for us, and this opens up opportunities for us way beyond just Clicks. Global partnership, which I mentioned before, doubling down on software, this is with ACI worldwide the final testing of the software is currently underway, and we look forward to its deployment, not only across South Africa, but also in international markets. In leading with innovation, we developed a business in a box solution, which we call MicroPOS. It is very well suited to small merchants. This is again going to be deployed through our banking customers, not by us directly with merchants, and we earn annuity license fee on the software associated with this. We have entered into an initiative of Coca-Cola for vending solutions in many of their vending terminals, and we are working down the path of other vending-related activities in parking and elsewhere. We continue to be very active on the Halo Dot, which is the software solution. We are soon going to be announcing a white label of Dashpay glass, and this is an important initiative, not only domestically but internationally, too. 2 and 3G network deprecation I've spoken about before, there has been an update. There was a delay in the termination of those network services. The current expectation based on government releases is that they are going to demand for both networks to be decommissioned by December 2027 with the commencement on a network-by-network basis entering 2025. And this is going to result in the need to start to replace a number of terminals which are not 4 or 5G compliant. LayUp is a company that we have invested in. It is really performing very nicely. It is against all early days, but we have expanded the merchant base by over 100%. There is very high completion rates. The level of plan initiations is tremendous. Merchant order value is great. And there is a great range of average order values across different merchants. So merchants that saw lower value products will have an average order basket of circa ZAR 500 to ZAR 700 but merchants that sell higher ticket items are seeing average order baskets in excess of ZAR 25,000. So a really large range and that business is doing nicely. I'm going to move on to software. And in the software area, our strategy remains the same. We believe we have a really excellent and well developed strategy where we are leveraging the partnerships that we have with international partners, Confluent, AWS and more recently, an improved relationship with Google Cloud platform and Azure. We have expanded our cloud initiatives to expand beyond AWS. We are growing our license revenue from proprietary software. Our international expansion is focused on using the South African cost base, and we are very competitive there. We are investing resources into new products and technologies because we do lead with cutting-edge capabilities and that is in Generative AI, real-time AI and with 3 -- and we think the application of AI is not only important for our clients, but it is important in the ways that we work as well. And so we are sort of eating and cooking and we think that that's really important. And we are using our bench resources that we have now strategically. And so with this strategy, we believe we are going to see the software division return to its prior levels of performance over the -- at least the medium term, if not the shorter term. The recognition that the division has received by independent parties is something that the team can be exceptionally proud of. They won a price from AWS for excellence related to Generative AI and the Synthesis business was voted the preferred software development company for large business projects by my broadband. And so this is, for us, a truly meaningful measure of what clients think about us and the work that we do. So in terms of our credentials, the important thing here is to recognize that not only do we have a level of competence and capabilities in AWS where we have traditionally played. But we have grown our capabilities and capacity to work beyond that and allow our customers to decide how they want to pursue cloud-related initiatives. I've spoken a little bit about AI, and I know we are running a little short on time, so I'm going to go through some of this a little bit more quickly. But AI, the importance of AI, I don't think can be overstated. [ Andy Jassy ], who obviously has a horse in this race, is quoted as saying that this is probably the biggest opportunity since the Internet was developed. And I think there is some truth to that. And the question is not AI for AI's sake but it is really how do you use AI to drive business value. And so there is a piece that was published by McKinsey, which helps talk about the impact that AI can have on business and then the technical feasibility of using AI to deliver that business opportunity. And you have to be very selective in the AI initiatives that you choose. So the question is not AI in an absolute sense, but how you put the pieces together to deliver that value. And that is something that I think the Synthesis team has excelled at and there are a number of projects that we have undertaken. Some of those case studies, I am going to walk through shortly. There are a proliferation of generative AI models, and there are going to be many, many more that come about. And from our perspective, it's not a matter of us developing one of these large language models. We will be expert in any one of them and say, it's a matter of understanding which one is fit for purpose and how best to apply that within the context of our clients' needs. I want to just demonstrate the power of AI and where it's come to. So this is an image generated using AI, we ran a lot bit of a competition within the software division. And with a single prompt, asked teams to generate a picture. And this is the image that was generated with a very simple prompt by one of our leads in the Google Cloud practice area. And so it is unbelievably detailed, very imaginative. And I think this demonstrates in ways that you and I as laid persons, can understand the power of what it's about. So all of this said, the software division has executed on a number of acquisitions. We've acquired the responsive group, the Dariel Group. It has now created a reimagined software inhibition for us. And the principles that we have laid out that guide us continue to be focused on innovation and client service. And we are very pleased with where the group sits and the positioning of the group and the services that we deliver to our clients, not only in South Africa, but globally as well. So here is an example of the use of AI. We have a global telematics company that was -- that received millions of signal input into the call center on a daily basis and they needed to try and discern the wheat from the chaff. And through the use of a generative AI self-learning model, we were able to effectively discern that it is only 1% of the signals coming into the call center that required urgent immediate attention. And so you can understand what that means from a cost perspective, from a responsiveness perspective, their ability to deal with solutions, with situations with the level of urgency and pragmatism that's required and their ability to rightsize their operations and save costs, a really fantastic piece of work. This capability is applicable across a number of different industries and verticals. And they'd be surprised if we start to demonstrate more case studies around this use. Here's a case study on the use of Halo with a company called Howler, which does event ticketing. They needed a device or they needed a capability to use their existing Android devices to accept payment. And so this was a deployment of Halo over the course of this last year. Here's a case study of Dariel working with like health care in helping architect a system that is highly critical to the operations of a health care service provider and shows the engineering talent, the architecture talent and the reliance that the business places on our companies. AssetPool is a company that you know we made a minority investment in. I'm going to focus just on the growth of this business. It is doing exceptionally well. You can see a number of companies that have recently subscribed to the service in the Americas, in the United Kingdom and South Africa, the power of being a cloud platform-based initiative is that you can go global immediately and the nature of the Software as a Service solution is getting great recognition and we're very proud of their progress. So continue to watch what happens here. With that, that brings me to the end of the business section, and I'm going to hand over to Alan, who can walk through the financial performance.

Good morning, ladies and gentlemen. We appreciate your participation in today's results presentation. We are very pleased to present a solid set of annual financial results as well as evidence of an even stronger operational performance which will translate into revenue and profits in the coming years. In a tough, high interest rate environment locally and globally and with low economic growth in South Africa. We are proud to have achieved and exceeded a landmark ZAR 1 billion in revenue, driven by strong demand for the group's products and services. We have continued to invest consistently and meaningfully in future revenue streams. We are encouraged by the progress we made in diversifying and broadening the group's revenue base and in the new products and services, our underlying businesses have developed over the past year. We are particularly excited about the very strong cash generation in the 2024 financial year, with cash from operations up 75%, again, underlining the highly cash-generative nature of our businesses. We trust by the end of the presentation today, we have given you a clearer understanding of continued progress and the strong momentum in our businesses so that you can see the exciting opportunities going forward. Our presentation today has detailed disclosures, which will assist you to more easily compare our operating results with last year's performance. The financial results benefited from improved operational performance, higher finance income, a substantially reduced expected credit loss raise for GovChat and the 9-month contribution of the Daniel -- Dariel Group acquired in July 2023. Of significance also is the acceleration of new business that has generated in payments and project delays in the software division that have had a severe impact on the division's profitability. I will highlight the impact of these issues as we move through the presentation. We have also taken the liberty to show you the headline earnings without the impact of a GovChat expected credit loss, as we believe that this more accurately presents the underlying operational performance of the group. Capital Appreciation generated excellent revenue growth for the period of 19% to ZAR 1.2 billion. In terms of IFRS, the EBITDA calculation, which now includes the GovChat ECL raised has increased by 53%, benefiting from a much lower ECL raised in 2024, a strong contribution from the payments division and the inclusion of Dariel. It is important to note the ongoing investment and effort in growth-related initiatives, which you'll see across the businesses. There are no undisclosed post-period events to consider in analyzing these results. I'll now turn you to our payments performance. Revenue in the payments division increased by 7% year-on-year to ZAR 563 million. EBITDA grew by 20% to ZAR 248 million, benefiting from excellent experience management and a strong improvement in EBITDA margin from 39% to 44%. The terminal estate increased by 9% to 357,000 terminals in the hands of customers. As mentioned before, certain customers are electing to rent terminals rather than outright purchase. And this is changing the payments revenue mix in favor of more annuity-based income. In addition to generating additional supplementary income over multiple years, it will also reduce the cyclical nature of terminal sales in future. Payments continues to be a very strong cash generator. Terminal sales had a tale of two halves with a slow start in the first half followed by a 52% increase in sales in H2. The size of the rental estate doubled while at the same time, increasing terminal rental income by 95%. And that's the future minimum terminal rental income from existing rental contracts as at 31st of March 2024, will yield ZAR 49.1 million in the [ 25-year ] for any new rental contracts concluded post year-end. Followers of Capital Appreciation will know by now, that we often have terminal orders that we receive just before after the cutoff for our financial reporting periods. This again occurred with several meaningful terminal orders being awarded post year-end from which we will benefit in the financial periods to come. Encouragingly, these multiyear mostly rental contracts will also increase annuity-based revenue streams in the payment division. The payment business had successfully diversified its revenue streams in recent times to the extent that annuity revenue now comprises 61% of total revenue in this division, up from 51% just a year ago. Maintenance and support fees increased to ZAR 187 million and tend to grow broadly in line with the growth of the terminal estate. Transaction-related activities grew by 63% to ZAR 102 million in line with the growing size of the Android estate as well as increased software-related sales. As discussed earlier, there is a strong customer demand for the group's payment-related software solutions. We remain very positive about the medium-term outlook for the payments division. Because of its recent sales and good pipeline as well as technological advances and the South African government's recent announcement of the 2027 2G and 3G network shutdown, which will require extensive bank merchant estate reinvestment. I now look at the software performance. The division had a challenging year. Despite the successful integration of Dariel and the introduction of new clients, sectors and products, it proved insufficient to compensate for the fixed cost bench resource overcapacity caused by delays in the commencement of several large projects. While software increased revenue by 32% to ZAR 619 million, EBITDA decreased by 11% to ZAR 79.4 million. The division has implemented remedial plans and we anticipate this will be reflected in the financial year 2025 financial performance. The strong bench capability built in the first half of FY 2024 has nevertheless positioned the division well to take advantage of anticipated improved market conditions. Going forward, the combination of Synthesis and Dariel's resources will also provide opportunities for more efficient resource allocation in the future. Software's reputation, accreditations and experience ensures that there is consistent demand for its skills in the market. This is evident in the growth in its diversified revenue streams and a successful completion of a range of projects in the reporting year. Services and consultancy fees accelerated by 44% due to the increased demand for cloud and digital projects. License and subscription fees increased by 20%, and security, hardware and third-party license fees were marginally up year-on-year from the elevated base of 2023. The international division remains in the early stages of its development. International revenue decreased slightly to ZAR 137 million year-on-year after going threefold in the year before. Global clients found themselves similarly confronted with tough economic conditions. A highlight this year was the extension of a large multiyear contract with a shipping and logistics leader in Singapore. The group's international strategy is to advance sales initiatives for software services and the Halo Dot product globally through a specialized in-country team while using South African resources to deliver those services to international clients. Currently, the majority of this hard currency revenue is managed, transacted and executed directly from South Africa in foreign currencies. I now look at the financial position of the group. Capital Appreciation consists of asset-light businesses and maintains an uncomplicated easy-to-understand debt-free balance sheet with no undisclosed contingent liabilities, no post-retirement obligations, and no undisclosed post year-end events. Of note this year is the growth in the property, plant and equipment from ZAR 42.5 million last year to ZAR 71.7 million this year, which mainly reflects the growth in the rental book during the year. Intangible assets also increased markedly due to additional proprietary software developed by the group internally as well as the intangible assets arising from the Dariel acquisition. Capital Appreciation's underlying businesses are very cash generative, delivering an outstanding ZAR 320 million of operating cash flow in the past financial year. Notwithstanding continuing cash-related investments, the cash consideration paid for the Dariel Group, higher dividends and taxes paid, growth in the terminal rental asset book, further loans to our associates and share repurchases, the group at the 31st of March 2024, had ZAR 467.4 million at its disposal to utilize and pursuing growth opportunities and strategies. Capital Appreciation's cash is invested in South Africa top-rated banks and interest rate risks are manage conservatively to maximize yields through appropriate interest rate cover. The net asset value, net of treasury shares increased by 4% in the year to 125.7 cents per share, of which 37 cents is represented in cash. I now look at our income statement. In looking at the statement of comprehensive income, there are a couple of items to note. I've already mentioned the strong revenue growth, which includes a 9-month contribution from Dariel amounting to ZAR 146 million. Gross margin contracted by 280 basis points, mainly due to fixed cost bench over capacity in the software division. Operating expenses were well managed, notwithstanding the software resource challenge and including Dariel costs of ZAR 29.6 million. Finance income earned on the group's significant cash balance increased on the back of higher average cash balances held during the year. The expected -- 2024 expected credit loss provision or ECL raised on the GovChat alone was considerably lower than the prior year, which benefited EBITDA, EPS and HEPS, but have no material impact on cash resources or net asset value. Basic and headline earnings increased by 84% to 13.59 cents per share and 83% to 13.61 cents, respectively. Excluding the ECL on the GovChat loan, the group grew EPS by 11%. I'll now take you through the cash flow. Our asset-light businesses remain highly cash generative, as can be seen from the ZAR 319.7 million cash generated from operations this year, some 75% more than last year. We have generated nearly ZAR 1.5 billion in operating cash flow in the past 7 years. A key feature slide on cash flow, reflecting the March 2024 and 2023 periods highlights the main cash flow items. I've already discussed the higher finance income receipt and the growth in dividends and taxation paid. Working capital remains a strong focus and reflects the purchase of ZAR 31 million worth of new rental assets. The Dariel acquisition, we are very happy with the seamless integration of the Dariel acquisition into the software division. Dariel signed long service -- long-term service agreements with several large enterprises and insurance providers in South Africa during the period. Dariel's performance was unfortunately also affected by the delay of customer contracts and reduced contract spend experienced in the software division. Financial performance is on track, however, for the recovery based on the Dariel executive teams interventions. The group granted LayUp Technologies a further ZAR 6.5 million convertible loan during the year, bringing total loans to this associate inclusive of interest to ZAR 20.6 million. The loans bear interest at prime and are repayable in November 2025. The group also invested in asset pool by an ZAR 11 million convertible loan, which is part of a ZAR 15 million drawdown facility. Capital Appreciation paid ZAR 40 million as the initial cash consideration for the Dariel acquisition and ZAR 6.4 million as the cash settlement of the warranty consideration for the 2022 responsive acquisition. During the year, the company repurchased 44.8 million shares, costing ZAR 58.1 million at an average cost of 130 cents per share. Since the year-end, the company has also repurchased an additional 9.4 million shares at an average cost of ZAR 1.17 per share. Cash and cash equivalents at the 31st of March 2024 were ZAR 467.4 million. 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 7 years, in aggregate, amounting to ZAR 603 million or 44.5 cents per share and which are well covered by cash flow from operations. For the current year, the Board has declared a total dividend of ZAR 0.10 per share, an increase of 21% relative to last year's 8.25 cents 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 several micro and macroeconomic factors, we are optimistic over the medium term given the strong opportunity set for our underlying businesses. Looking towards the 25 -- 2025 financial year, our businesses have a good pipeline of projects and are expecting positive growth in the year ahead. And now I will hand back to Brad.

Thank you, [ Alan ]. So I am going to deal with our prospects and then I'll turn it over for some Q&A. I think you can take away from today's discussion that we are quite enthusiastic about the prospects that lie ahead. Not only in terms of the contracts that we have won, but in terms of the skills and capabilities that we have inherent within the group. We have an unbelievably capable group of software engineers in both payments and our software division, a team of people who are highly motivated with phenomenal technology knowledge. We also have a core set of technologies, which are proprietary to us, which allow us to be able to deliver solutions to our customers. So with that in mind, we believe that the organic and acquisitive growth opportunities available to us as a group are substantial. We have looked at a number of acquisition opportunities and we'll continue to do so. A lot of it will depend on our view of the strategic fit. The economic climate in which we are operating, obviously, cannot be ignored. Hopefully, there is some political stability in the country as well, not only in terms of how we think about our capital deployment but more importantly, how our customers consider they should prepare themselves for the future. And we currently have some really strong pipelines that exist on our current businesses. So we think that there is a good opportunity ahead of us as we stand here as a group. And so I will leave you with the investment case slide, which I have demonstrated to you in the past. And I think they are all themes that we have spoken about over the course of this presentation and in prior presentations. We do believe ourselves to be a leader within the areas in which we participate, whether it's in payments or in software, the culture that we have regarding innovation and delivering value and the appropriate use of technology, not only the deployment of technology for technology's sake, leads us to a demonstrated track record of our capabilities, our relationships with our existing partner clients and demonstrates the trust that they have with us. We continue to have very healthy businesses, which are cash generative, not only in good markets and good times, but also in bad or poor or challenging markets as in this year our performance from a cash generation perspective, I think, was spectacular. We have continued to return value to shareholders by way of dividend and also through share buybacks, as Alan has spoken about. Those are things we will continue to do and ultimately, it relies on expertise of our teams. And I think we do have exceptional people that make up the core element of our teams. So I want to thank them all for a really good year of hard work and look forward to being able to give you another set of good results in years to come. So with that, I will hand you over to Howard, and we will take some Q&A.

We have a number of questions. And I'm going to ask Michael Shapiro and Donn Engelbrecht to join us as well and they are the MDs of the software division and payments division, respectively. So there is a -- just taking a look at some of the questions. The one question, can you please elaborate in which way we are able to increase payments of sales. Donn, perhaps that one is yours.

I think, firstly, just for correctness, Brad's comment on we are quite enthusiastic about the future. I would like to rephrase it as extremely enthusiastic about the future. On Slide 44, I think it's quite explanatory around the breakdown of the payments division being the 4 pillars of revenue being terminal sales, maintenance and support fees from devices, transaction-related income, which includes license fees. And I think important to note also license fees and software fees for hardware that was not supplied by the group, which I think is very important to note. And then also the rental income, which Alan alluded to for some of our customers no longer want to do the outright purchase. So the dependency of the payments division in the past, which was largely dependent on hardware sales has pivoted in a well-balanced revenue composition for the payments team. And that's pretty much we're proud of the achievement in terms of that.

The next question, I think, Michael Shapiro. The question is how big -- how many and how big are the delayed contracts in the software division as a percentage of revenue, do you see a risk of cancellation of the contract? And if so, are there any consequences, break fees associated with these cancellations.

Let me first clarify that there aren't any cancellation of contracts. So to answer the second part of that question first. So it's not relevant around any break clauses. What we are seeing is as a result of the type of services that we offer very much in the emerging technology space. Some of the customers are feeling some of the challenges of macroeconomic climates and the uncertainty, specifically our South African customers and what we are seeing is delayed sales. . So we don't necessarily see it as a straight line as a percentage of our total revenue. But what we're experiencing is that certain turnarounds in the past for initiation of a project would be between 3 to 6 months. The typical turnaround that we're seeing now is 9 months or more for projects to be initiated. And an interesting factor is that we're not seeing these projects being lost to competitors. There might be a small percentage that are lost to competitors. What we are seeing is a delay or a deferment in the start of these projects as a result of the uncertainty to commit to the large spend. We are cautiously optimistic that we'll see the conditions turn around. We have a very clear strategy. We have competent and professional team, and we're well equipped to take advantage of that demand once it returns.

The third question is, can you -- and I think this is either for Brad or Alan, can -- I don't know who wants to take this one. Can you maintain a dividend current run rate or at least ahead of earnings. And in fact, that -- and then there's one more question about international, but let's talk about dividends first.

So I'll start and Alan can [ add ] a bit, if need be. So we don't have a deliberate fixed dividend policy. We have never done that, and we have made an assessment at the end of each financial period as to what we see our cash needs to be in the immediate future, where we see opportunities and how well we performed over the most recent financial period. And we have made judgments as it relates to that in determining the quantum of the dividend. The businesses themselves are all cash generative. We have a number of opportunities but we think that is appropriate that if we are generating excess cash given the cash balance that we have, that we find ways of returning some of that to our shareholders and we will continue to do it both by way of dividend and by way of share buyback. And as Alan indicated, we have purchased 9.4 million shares over the course of the most recent few weeks since the year-end. Until yesterday, we repurchased 44.7 million shares during the course of the financial year. And so we will look at a combination of ways to return value to shareholders.

That is great. Alan, any comments from you on the share price on dividends before we wrap up?

I think it was very well covered in depth. And I think just to add to Brad, is that we have a very experienced Board, consisting of executive directors on the one hand and more notably nonexecutive directors. And I think they look very cautiously and conservatively towards how we appropriate our cash in the form of dividends, share buybacks and investment in businesses internally and through acquisitive initiatives.

Just one question that's just come in. And Alan, I imagine this is for you. Have you any comments on the fact that the share price remains pedestrian, notwithstanding a very good performance -- very good performances and a clean debt-free balance sheet with a well-articulated view of the future. It's an interesting question.

Very interesting question. We are surprised at the value of the share price currently as it's trading even today, post our, we think, a stellar set of results. However, I think it's got to be looked in the context of the South African Stock Exchange as a whole. And then linked inter alia is the perceptions of small cap versus medium sized cap and joint listed companies. I think we should be getting some form of recognition for the fact of what we've managed to achieve in a very short period of 7 years in which we acquired our first viable assets. And fundamentally, that we are not a short-term play and that we are investing and spending and developing our businesses for the medium and the long term.

Brad, just to wrap up, we are quite a bit over time, but I just wanted -- I always ask you this, because to me, this talks to the business. It talks to the incredible opportunity, the people, the exciting space that Capital Appreciation is in. But what -- so I know what excites me about that just before we leave, what excites you, Brad, most about the future and about this business?

So Howard if I told you once I've told you thousand times.

Yes, why don't I listen to this, yes, exactly. Well, I want to see if it changes, you see.

It's about time you actually listened to me, Howard. Well, look, the industry in which we're operating is a very exciting and dynamic environment. And so I think there are a huge number of opportunities for us as a group. And I don't know what I said to you last time about what excites me. But what does truly excite me is about the new innovative products that we can bring to market. The stuff that we can do with AI and the applications against which they can be deployed. Just give us an endless array of growth opportunities. And I had dinner last night with some senior executives at one of our clients. And I made the proposition about how we can joint venture on developing products together, using some of the technologies that we have. And they were all ears, they were open to the idea. And that, to me, is really a, rewarding and b, exciting. And ultimately, I hope one day to be able to present a case study, which I can point to and say, you remember that dinner I told you about Howard, here's the case study of us actually deploying that. Because I think there are just a whole host of these opportunities. And so in payments, there is great opportunity. The software initiatives that the team have developed. The partnerships that we have with an organization like ACI, the international expansion prospects for us are great. There's just the endless array of opportunities. And that's sort of what excites me. And I do think that we're in a really phenomenal position as a group with the capabilities, the team, the history of innovation and the [indiscernible] leadership that we have within the group. Those are things that you can't buy those. They come through a culture that had been developed by the likes of Donn in payments and Mike in software and the work that you do with our people and on the marketing side. Those are things that are priceless. And I think we have done a great job in continuing to cultivate that. So it's the excitement around those types of things and the unknown question that you're going to ask me next time. So I am [indiscernible].

I'm going to surprise you. Let's see what happens. This is where we leave it. If we haven't gotten or managed to get to your question, we will get back to you, otherwise send us an e-mail, contact us, put the question in the Q&A slot, and we will get back to you. Thank you for attending. It's greatly appreciated. Thank you to everybody on this call who participated, and I wish you a great day further.