Araxi Limited (AXX) Earnings Call Transcript & Summary

Good afternoon. My name is Aimee McNamara from the Capital Appreciation team. On behalf of our Executive Chairman, Michael Pimstein; our CEO, Brad Sacks; CFO, Alan Salomon; and the CTA Board, we extend a very warm welcome and thank you for joining us for the CTA interim results presentation for the 6 months to September 30, 2024. This afternoon's proceedings will commence with a group overview presented by Brad Sacks followed by Alan Salomon's presentation of the group's financial performance. Once concluded, we will open for questions and ask that Michael Shapiro, Donn Engelbrecht, managing executives for the Software and Payments divisions, respectively, join and participate in the panel Q&A. We wish to draw everyone's attention to safe harbor statement, which will be included at the end of the presentation. As we begin today's proceedings, it is my pleasure to hand you over to Capital Appreciation's Chief Executive Officer, Brad Sacks. Thank you, Brad. Over to you.

Thank you, Aimee. And good afternoon, everybody, and thank you for joining us today. As Aimee indicated, we will follow the outline that we have done in the past, and I will take you through that until I hand over to Alan. So the Capital Appreciation Group is something which has grown over the course of the last 7 years since we started the business. And we have 3 -- 2 primary divisions with the third division focused on our international expansion. We view ourselves as a premier financial technology company focused on the African continent with expansion plans for elsewhere in the globe. Our investment case continues to be very strong and relatively simple, straightforward and hasn't changed much since initial listing. We have interest and focus on an industry which has very strong secular growth trends. The opportunity in the markets that we operate, both domestically and internationally, continues to be large and growing. The opportunity is driven by changes in advancements in technology and software areas where we are particularly strong and have really great expertise. We have a trusted partner profile where we are a partner of choice to many of the large blue chip companies across South Africa and in other jurisdictions in which we operate. The team that we have is highly skilled. It is tremendously dedicated and really what makes us tick as an organization. We have had a deliberate focus on the future. We are not building this business on a quarterly basis, focused just on the next set of results. We have a long-term vision. When we started Capital Appreciation, our objective was to create some type of legacy that we could all be proud of. And that requires us to look a little bit forward in our thinking and our investment disciplines, thinking about what not only the next half year brings, but what may be the next 2, 3, 4, 5 years bring. And so that is how we have made our capital allocation decisions. Our businesses are cash generative, and we have a model that gives rise to sustainable annuity income so much so that even in a circumstance where we have had a slight reduction in our earnings per share, we have been able to increase our dividend which we have done this half year. We have an ability to deploy the capital that we have. We have made 3 acquisitions and investments since the first 3 that we made at the outset, and we will continue to be judicious in how we invest the capital and how we allocate it across the different opportunities that we have identified. During this period, I would say, our performance was satisfactory. We performed exceptionally well in our Payments division, and we are very proud of what they have done. Our Software division, unfortunately, underperformed. We miscalibrated the demand for the services in the period, primarily as a result of misjudging the pace at which companies would start reinvesting in their platforms, given the importance of the solutions that we provide and we underperformed our expectations by a large margin. Overall, our revenue as a group increased by 10.5% and our EBITDA went down slightly by 3%. We have ZAR 420 million of cash available for reinvestment and I think that leads us into or puts us in a very good position. The Payments division had revenue which was up 19% and in a tough economy, I think that is pretty good as our stake went up by 13%, terminal sales went up by 26%, and our rental income as we had signposted and signaled previously, continues to grow up by 70%. There is a good strong pipeline on the back of activities that we identified in our last set of results. In Software, the South African revenue was up nicely at 10%, and we have an encouraging pipeline, which has turned around quite dramatically since the elections in South Africa, where we saw a very weak first quarter, but we started to see a much stronger and more punchy second quarter. The big issue for us in Software was a delay in contract stocks and a slowdown in the cadence at which activity was activated. This led to an underutilization in our resources and our capacity, which caused us to experience a decline in profitability in the Software division. In Payments, we have seen a very nice improvement across all the metrics and the diversification that we set about in executing our strategy as solid to pay off. Our terminal estate has grown nicely. It took us probably 3 years to get to 200,000, it took us another 2 half years, so another year to get to 300,000 and we are well on our way to 400,000 terminals and beyond in the coming periods. So very pleased with what we have done. As you can see, sales are up by 26%; rental income up nicely, and our annuity income today comprises 56% of our total revenue. So this is a position of strength and the performance of this business was really good. In our Software division, total revenue across the world was up 2%, which includes international, South African up 10%. Our international revenue was where we saw some weakness. The profitability in this business was a result of the delay in starting new projects and the rate at which new projects came on board, we ended up with more capacity than we needed to execute on those projects. And we made an affirmative decision within the group to invest in the future, the skills that we have within our group are critical to our success, and we want to make sure that we are ready when the market turns around. So when I think about our super power, our super power is our team, and we spend an enormous amount of time and effort in investing in our team, not only from a training perspective and skill development, but in creating a level of cohesion and diversification across the team. Our retention rate is a little bit higher this half year than we've seen in previous periods. And we continue to overperform the industry benchmark, which is roughly 15% to 18% staff turnover. So we are very vested in our team. They are dedicated to us and we are dedicated to them. Moving to our Payments division. I have shown this slide before and I think what's important about this slide is to demonstrate that over a period of time, Payments business has evolved to position itself as a diversified participant in the payment space with a wide range of clients, primarily focused on the enterprise sector. The primary clients of ours are large financial institutions, and we will continue to invest in those efforts. Our growth strategy, which you can see in the results is paying off has been a pretty deliberate one which we have executed consistently over time. We have expanded the market for the devices. We continue to take market share from some of the other competitors in the sector. We have grown our client base with the award of the 2 tenders we spoke about last time around, and the addition of the African Bank. There is a tailwind that we will be the beneficiary of, and that is the migration away from 2 and 3G-based network devices and the replacement of those devices with 4 and 5G-compliant devices. We have spoken about an interest in expanding into Israel -- into Africa. This is a result of following our clients into Africa and new initiatives to establish new relationships with financial service providers across the African continent and we have made some good strides in that arena. For us, one of the areas of intense focus is on software solutions as the devices can become somewhat replaceable over time with other devices, but it's a software that really makes them work well and it's an area where we have tremendous expertise. So we have become hardware agnostic. We provide payment Software-as-a-Service and it's an area where we can generate really good margins, which is what you continue to see in our Payments division. We are focused on enterprise-based solutions and that takes us into the large big box retailers with multilane solutions that we spoke about previously. And we will continue to innovate. It is the lifeblood of our business and an area where we continue to invest and spend a tremendous amount of time, effort and capital. So in executing our strategy, I wanted to demonstrate the areas where we have continued to execute well. We've added new bank clients. We have been successful in 2 tenders recently, which we spoke about last time around. There has been an expansion into the African market, which is materializing beyond just our South African clients and we are turning some of our cost centers into revenue-generating opportunities. So all of these things are combining to provide us with a marked improvement and impact in the financial performance of the Payments division and is a testament to the execution and focus of our Payments team. We have spoken about a change in the approach to terminals with some of our clients, who have elected to rent terminals from us. I have mentioned the nature and terms of those rental contracts in the past, they are 3 to 5-plus years in duration, and we recognize the revenue over a period. The assets remain ours, and it gives rise to a predictable revenue stream over time because it is not only the rental income that we get, every terminal that is rented from us comes with additional services that we provide and so it gives rise to increased annuity services. So the rental income is up 70%, and our rental assets are up ZAR 25 million, 41% over the period, and it's expected to continue to grow. I wanted to demonstrate why we have chosen the payment sector and global payments revenue as determined by McKinsey is expected to reach ZAR 3.1 trillion globally by 2028. Now that is a huge amount of money. What's important about that is the orange line at the bottom that this represents a material element of a financial institution's revenue. So what that says to me and to us as a group, payments generally is an area where financial institutions will continue to invest where there is a lot of opportunity, not only for large financial institutions, but also fintech providers and is an area that can be particularly fertile for our investment. And we will continue to invest and look at the payments marketplace not only from our Payments division's perspective, but also from our Software division's perspective where there are a number of software solutions that can be focused at the payments arena. Digital payments in South Africa is an area, where I think there is some interest. And you can see from the very left-hand chart that digital payments is expected to represent about 70% of all payments in South Africa by 2027. What that means is that 30% of the market still continues to be cash, and that is an opportunity for further digitalization. However, what this also suggests is that if people are transacting digitally for us, there needs to be infrastructure in place to be able to support that and a set of solutions focused on that end of the market. So we have many times asked -- been asked questions, what is the future of payment devices. We've spoken about our software solution that we have Halo Dot. And there are questions as to whether or not one is a substitute for another and so we've continued to look for research to be able to validate our hypothesis. And this is by a research firm called Flagship Advisory, which focuses on the Payments division. And you can see that full service terminals are expected to represent more than 80% of devices in the market for payment acceptance all the way through 2030, and it's not going to decline much rapidly thereafter. The drivers of internal demand are consistent with what we've said in the past. There's regulatory change, there is technology change, and there is a growing footprint where terminal devices become fit for purpose. And with the change in pricing, we think that the market continues to be a very vibrant opportunity for us and our clients. Our offering, as we mentioned before, is focused on software. It's an area where we have distinct competence. It's an area where we can differentiate and also earn good returns. It is just one of many services that we provide and we view ourselves as an end-to-end service provider in that arena. Tap-to-pay on iPhone. It isn't -- it is a really big deal. It's a big deal, not because it is available now. It was launched in February of 2022. It's that Apple is promoting tap-to-pay on iPhone. And that takes away the question as to whether or not participants should invest in the tap-to-pay environment. So this opens up huge markets for us. We think it's very important from our software solutions perspective, and Halo, our solution is positioned to enable companies and customers across both Android and iOS. So it's not available in South Africa yet. It will be coming is our expectation as they roll out in other markets. And we think that this is a good tailwind for our Halo Dot software solution. There is a notion now that you can -- that contactless can migrate into a whole host of different use cases. So there is this notion of tap-on-own that we tap on our own phone, and it is used for a number of different things. We can use it to add a solution, we can use it to validate that we have our card. And importantly, it converts under a pilot scheme today, a card-not-present transaction, which is an e-commerce transaction, which has higher risk, higher costs into a card-present transaction, lower in cost, lower in risk. And so we are very pleased that our Halo solution is able to deal with all of these different use cases. And so here is a summary of some of the Halo activity. We have a number of new customers and clients who have deployed the Halo solution, including a large retailer, a telco operator, and there are a number of non-EMV compliant hardware providers who have approached us to enable Halo on their devices. You will see a term of a news called [indiscernible], which is commercial off-the-shelf devices, and that is an area where we think there is good opportunity. LayUp is an investment that we've made. This continues to post very good results and shows progress. It is in start-up mode. So we're not reflecting any financials, but they continue to make good momentum. And you can see some of the customers who have recently signed up with a Lay-by solution by LayUp. So we now turn to Software. And we have 3 companies in our division -- in our Software division that we have acquired over the time, Synthesis being the first, Responsive and Dariel being the second and third, respectively. We continue to think that the Software division, notwithstanding its most recent performance is an area that warrants investment and commitment. The demand for technology was recently reflected in a number of articles. The one that I point to is something that was on News24. It quotes one of the South African investment analysts from [Mergent], which talks about the increasing importance of technology, AI and machine learning within the AI -- within the technology spend of financial institutions. And those are areas where, as you've seen in the past from our presentations, Synthesis, Dariel and Responsive are particularly strong. In the banking sector, there is an estimate that ZAR 72 billion is spent on technology, at least in 2023. And although that comprise a lot of hardware and other HR costs, the opportunity for us is one that continues to be compelling. There is -- there was an article recently that I saw in Forbes, which spoke about the top 10 technology trends in the financial services sector. And I was very pleased to note that within those top 10 trends, and this was globally, Synthesis and our team already have projects underway in 7 of those themes. And so we continue to be abreast of what is happening on a worldwide basis and demonstrate our thought leadership capabilities. Our growth strategy for Synthesis continues to be the same. We think we have a strategy that is well thought at, it has been articulated internally, and we continue to believe that it is a path that we should travel. It is to leverage the partnerships that we have with leading technology providers, including the likes of AWS and Google for the Google Cloud platform. And want to continue to grow our license revenue which will remove some of the variability in project starts. We want to continue our international expansion, although it was somewhat disappointing in this half year. We think that there is a real opportunity to continue to invest in new emerging technologies like generative AI and real-time AI. We've given you some examples of those in the past, and we will lead with the innovation. We have continued to employ AI technologies internally, and we are going to continue to be advocates for that with our clients and in other market opportunities that we can identify. In terms of demonstrating our continued progress, Synthesis was awarded the AWS Premier Partner status for its expertise within cloud. And this is a quick snapshot of its journey demonstrating all its different levels of competency awards that it has won and ultimately, culminating in being amongst the highest rated service providers, well, for AWS services globally. Very well done Synthesis team, we are tremendously proud of what you have been able to achieve. In terms of more nuts and bolts tactical view of what we are doing, particularly given the recent performance, we have started to recalibrate some of our efforts around how we generate revenue, how we solidify revenue, how we categorize the opportunity and then how we manage our resources and costs. This is an area that we have looked at quite diligently since the beginning of the year. It's an area that we continue to focus on. We have reduced the rate of new hires where we have had some terminations in the past. Not only have we replaced them, w have also increased our presence. We have been far more judicious in that. We are implementing some cost management initiatives all with a focus on making sure that the team returns to profitability with an understanding of the importance that we place on the expertise that we have within the group. As I said, it's an area that we made an affirmative decision to invest in for our future. What I have done in the past is I have given you a sense of our activities by way of case study. I have done that again this time. Old Mutual is one of our clients that has recently subscribed for our RegTech solution. It is a solution, which we call, Tech Stream. It helped reduce the amount of time required for compliance from days and weeks to minutes and was a tremendous implementation both for us and for Old Mutual. The JSE work together with us and AWS to build, what they call, their control tower, which is a governance environment for ensuring security and multiple accounts on a single system. And they turn to us as the expert to help with that implementation. Kools Clothing is a U.S.-based retailer. They retain Synthesis to provide them with a managed software -- managed services solution for their e-commerce sites. The reason I include that here is it demonstrates that even in the U.S. market, the Synthesis team's capabilities are world-class and are comparable to what is purchasable here in the United States, but at a reduced cost relative to U.S. pricing. So a good use case for us to demonstrate. City Lodge is a client of Dariel's where Dariel went in both the entire reservation and hotel measurement system for them. And so I wanted to demonstrate something slightly different. And that takes us on to the last topic before I turn on to Alan, and that's the investment that we made in a company called AssetPool which is an inspection platform, which is -- which demonstrates the power of cloud. It is a start-up company, but it is available globally already. It's available in 39 countries across the world, including -- sorry, 45 countries across the world, including 39 across Africa, where it is operational. It is available in each country. We have over 600,000 assets tracked and there have been more than 4.5 million inspections completed on the platform. A really great performance by a focused and dedicated management team. So we are pleased by what they have done and have good expectations for them going forward. The areas and industries in which they have already been adopted on numerous and they are unlimited, the nature of their clients, as you can see in some really well-known brand names, and we will continue to expand AssetPool and we will support them as they continue to grow. So with that, I will turn you over to Alan, who will give you a sense of the financial performance of the group during the half year.

Good afternoon, ladies and gentlemen. We appreciate your continued interest in Capital Appreciation. We are pleased to present a satisfactory performance in an environment of low economic growth. After careful analysis of our interim and prior period results, we believe the key component detail reported in our results demonstrates the resilience of the group in tough times. It also shows the strong underlying demand in the market for Capital Appreciation's innovative technology products and solutions and how quickly that demand can translate into robust growth in revenue, profitability and cash once business confidence and to some degree of normality returns. We believe this is in no small part attributable to the well-established, reputations and track record of each of our divisions and management teams. We are indeed proud that our businesses have continued to serve their customers with distinction and that we have successfully grown our company brands, market shares and reputation in a highly competitive environment. Today's presentation has detailed disclosures, which will help you compare our results with last year more easily. There are no undisclosed post-period end events or normalized-type transactions to consider when analyzing these results. Capital Appreciation generated group gross revenues of ZAR 611.5 million, up 10.4% and a group EBITDA of ZAR 113.8 million, down 3.1% for the period. When turning to the divisional results, our comment is as follows. Our Payments division reduced sparking results with revenue increasing by 18.5% to ZAR 314.3 million, and EBITDA was increased by 17.9% to ZAR 138.5 million. The EBITDA margin was stable at a healthy 44%. The division saw significant growth in terminal sales and terminal rental income, which boosted revenue growth. The most important aspect of these terminal orders is that several have only been partially fulfilled as the shipments only arrived at the end of the period. The full benefit of these sales and orders, rentals and associated fee and transaction income would flow in H2. In addition, the 2 major long-term contracts that payments were awarded at the beginning of the period were only finalized towards the end of the period. The benefit of these orders will flow in H2 and for the next several years. The growing rental estate supports enhanced annual annuity income from maintenance, support services and value-added transactions. Annuity income in the Payments division grew by 12.9% in the period. Payments continues to manage their expenses prudently and in line with inflation and with growth in business activity. The division remains a strong cash generator from its asset-light businesses. The Payments business has made good progress in diversifying its revenue streams. The sale of terminals still contributes the bulk of income and generated ZAR 139 million for the period. Annuity income now comprises a healthy 50% -- 56% of total payments revenue and is made up of terminal rental income which rose by 69.6% to ZAR 38.5 million, transaction-related income which grew by 11.3% to ZAR 44.5 million and benefited from increased software license revenue. Maintenance and support fees earned from the terminal estate were stable relative to the high base in the comparable period. Customers are delaying their decision to enter to long-term maintenance and support contracts on new terminals deployed until they have a clearer picture of the sustainability and measurement of their maintenance costs going forward. We remain very positive about the medium-term outlook for the Payments division, particularly due to technological advances and the pending 4G and 5G regulatory changes, which will increase the demand for terminal replacement in addition to organic growth. I'll now move to the Software performance. The Software division produced disappointing results, which we clearly understand the reasons for and believe is temporary. The reason is mainly twofold. Customers were cautious in committing to large projects has created resource overcapacity in the short term. Fortunately, the group had the financial and infrastructure resources to make a tough strategic decision to retain highly skilled special staff members at a high cost and impact on profitability in anticipation of improved trading conditions. This was further exacerbated with a 3-year large international contract in Singapore ended during this period, reducing revenue and causing further bench over capacity. Against this background, the Software division still managed to grow its South African revenue by 9.7%. However, the 19% decline in international revenue, which has transacted in South Africa and foreign currency caused a low increase of 2.4% in the overall revenue to ZAR 292.2 million and resulted in an operating loss for the first time in the software operating company's history. Software has an exemplary reputation and it is clear that customers continue to turn to quality suppliers with a proven track record when they are ready to reinvest. This is evidenced by the recent improvements in the pipeline and activity levels as soon as business sentiment started to improve. We are encouraged that bench resource utilization has demonstrated monthly improvements since period end with optimism of a marked improvement in the 2026 financial year. Service and consultancy fees grew by 6% due to good growth in software's multi-cloud strategy, partnering with AWS on large-scale cloud migration programs and a premier insurance company moving to Google Cloud. License and subscription fees increased by a healthy 27%. Multiyear security hardware and third-party license fees decreased due to the high base of renewals in the 2 prior years. Hardware security modules are used for enterprise encryption and to protect payment card pins and contactless payments. These HSMs typically have a life cycle of approximately 3 to 5 years. The international contribution declined due to the completion of the large Singapore contract, which will take time to replace. Pleasingly, Synthesis Europe B.V. secured 2 strategic projects in the period, with both projects suggesting strong future potential. Currently, most of the international revenue is managed, transacted and executed directly from South Africa in foreign currencies. The international operation in Amsterdam remains in the early stages of development. This is a long-term strategic initiative with 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 look at our income statement. In looking at the statement of comprehensive income, there are a couple of items to note. We have already discussed the reasons for underlying revenue growth in the 2 divisions. We are encouraged by the increase in activity in South Africa in the second quarter after the May elections. Margins were affected by the underutilized capacity in software. Operating expenses continue to be well managed and below budget within both divisions. In recent months, they have become more aligned with inflation and new business trends and levels of activity. Finance income contracted due to the lower cash balances and the start of the drop in the interest rate cycle. An unrealized mark-to-market loss on foreign currency exchange contracts which reversed on payments on these contracts in quarter 3 gave rise to a ZAR 3.7 million charge in the reporting period against a profit of ZAR 2.1 million last year, causing a net negative swing of ZAR 5.8 million. GovChat's high outflows have ended. Going forward, only litigation costs will be incurred which will be expensed in the income statement and will be shared equally with other GovChat shareholders. Headline earnings decreased by 7.2% to ZAR 74.8 million translating into headline earnings per share down 8.3% to ZAR 5.96 per share. During the period, the group repurchased 13.3 million shares at an average cost of ZAR 1.18 per share and sold 2.2 million treasury shares to settle vested share options. As at 30 September 2024, the group had 63.1 million treasury shares at an average cost of ZAR 1.24 per share. Given the appropriate circumstances, the group will continue to consider future repurchase of shares through the market. I now look at the 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 end events. Our terminal rental estate increased by 74% during the period. The rental estate is an excellent source of annuity revenue for the Payment division. Cash balances were temporarily reduced due to the atypical buildup of working capital assets for terminal orders and sales at the end of the reporting period. The group also paid higher dividends and repurchase shares. The increased trade receivables were collected after the period ended, and net cash inflows grew by ZAR 93 million from converting working capital assets into cash in October and November. Cash at hand was ZAR 419.7 million at 30 November 2024 to be used at pursuing growth opportunities. There has been a substantial increase in deferred revenue amounting to ZAR 50.7 million compared to ZAR 21.9 million in 2023. Most of this is in the software division, which enhances the revenue pipeline in H2 and years thereafter. The underlying group businesses generate substantial robust operating cash flows, necessary to take advantage of organic growth opportunities available to each of the -- of our business units. As a group participating in a high-growth sector of the economy, we continue to invest judiciously with the understanding that for some of the costs incurred, we will only see the financial and earnings benefits in future timing periods. Net asset value net of treasury shares increased to ZAR 126.08 per share at 30 September 2024. Our asset-light businesses remain highly cash generative. In the current period, cash generated from operations has been materially impacted by the atypical growth in working capital at the end of September 2024. A key feature while on cash flow reflecting the September 2024 and 2023 interim periods highlights the primary cash flow items. Cash and cash equivalents at 30 November have increased to ZAR 420 million. Dividends. We are fortunate to own the businesses that can generate meaningful profits and cash flows despite the challenging economic environment and that is after paying full tax. We have increased our dividends to shareholders each and every year for the past 8 years, well covered by current period cash flow from operations. For the interim period, the Board has declared an interim dividend of ZAR 4.5 per share, an increase of 5.9% relative to last year's ZAR 4.25 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, looking towards H2 2025, both our Payment and Software businesses have a growing pipeline of projects, and we are cautiously optimistic that the recent momentum will be continuing. Since this is the last set of results that I will present for Capital Appreciation, let me take this opportunity to share some personal comments. I wish to reflect on the past 10 years, likely the worst decade in South Africa's history, if measured by economic failure and devastation of infrastructure. During this time, we have experienced low economic growth, unemployment, load shedding, water crises, riots and social unrest, crime, loss of skills through immigration, a drop in foreign investment, [indiscernible], investment downgrades and believe it or not, a 75% depreciation of the rand. The devastating effects of COVID have compounded these issues. Things can only get better from here. And yet, against this backdrop, Capital Appreciation has performed amazingly well over the past 10 years and has invested in and built a very impressive market-leading group backed by a powerful debt-fee balance sheet. Most importantly, we have built an infrastructure consisting of a professional team, world-class operating facilities, proprietary built intellectual property and an enviable reputation, which will allow the group to maximize its opportunities in the improving economy in South Africa in the years ahead. I wish to salute and thank my co-founders, Motty, Brad and Michael for their friendship, support and contribution to the group as well as the other directors and the Capital Appreciation team for their valuable contributions during this 10-year period. I wish you good luck and best wishes going forward. I will now hand you back to Brad. Thank you.

Thank you, Alan. Before we get to the Q&A, I want to just address what we believe to be the prospects of the group going forward. In the Payments division, there have been a number of positive events over the course of the last 6 months, which stand the company in really great stead going forward. What Alan indicated was the recent receipt of orders that were received towards the half year-end that couldn't be executed within the half year period that we reported on, those lead into H2 and we expect to have a strong H2. But more importantly, it is the long-term prospects given the nature of the clients that we service, the opportunities that we have been able to secure, the expertise that we have as a group that lead to a very positive trajectory for our payments-related activities. And so that allows us to build on the brand, the opportunities that we have, both organic and by acquisition and ultimately, be able to continue to drive value in the Payments division. In the Software division, although we had a weaker half year, it is a set of circumstances, which not only were specific to us but was applicable across the board of software development companies across South Africa and in international markets. And so we continue to believe that the challenges that we had are transitory, we are addressing them, and we continue to believe that there are a whole host of opportunities for our division that is well staffed, well resourced and investing in areas that are of continued demand and of business necessity by our clients and customers. So we think that the skills that we have as a management team, the expertise that we have within the group, our experience and importantly, the motivation and energy that we have within our team lead us to be exceptionally well positioned for the remainder of fiscal '25. But more importantly for the years beyond that. So we are committed to continuing to create material shareholder value over the continued time that we are with you. Alan made some comments on reflecting on the last 10 years and I as the leader of the management team, want to extend some thank yous. Alan has been a partner and trusted adviser, a companion, a co-founder over this period. And so looking back, we want to thank him for his contribution and wish him well in his retirement. We also believe in paying forward. And in this instance, I am going to thank Stuart who will be joining us as the incoming CFO upon Alan's retirement and thank him in advance for all of the efforts he is going to have to extend. Alan has big shoes to fill, but we are confident that Stuart will be able to do that. So Alan, on a personal basis, thank you and we will miss your continued involvement in the daily activities of Capital Appreciation. With that, I am going to bring the presentation to an end and hand it over to Aimee, who will lead us through Q&A. Aimee, do we have any questions that we should address?

Brad, yes, we do. We've got several questions. And just a reminder that if we don't get through all of the questions that have come through because of the time that we have got, we will address those questions that are in the chat. Alternatively, we also invite you to please drop us an e-mail to the following e-mail address, which is [email protected]. I just want to get to questions now. Just bear with me. Sorry, I lost mine.

And Aimee, we have Mike Shapiro and Donn Engelbrecht who have joined us who can each handle questions in their respective areas.

Great. So the first question, I think, will be directed to Michael Shapiro. And this question is from [indiscernible] and the question, Michael, for you, is on recent renewal of several long-term contracts with existing clients, what is the proportion of these contracts in revenue to total revenue? Are you expecting any material expiries within the Software business into H2 '25? If so, how much of these expiries are a percentage of revenue?

Thanks, Aimee. Yes, we have had a challenge in H1. And as guided in the presentation, we've had the end of our 3-year Singapore contract. And into H2, that is approximately 15% of our revenue that expires compared to the prior period. However, we've replaced in part, a large part of that percentage of revenue. Our co-division that has boomed that particular project has signed up multiple new projects. One of those is a project with a large local bank, creating a digital initiative in the informal sector. The second is a South African and African energy company, where we're also performing a large digital transformation project. And the third is a consultancy and data practice that provides data for foreign investments to invest into the continent. And that is in addition to a very strong pipeline of code projects, both in our local market and to be transacted in international markets through our Netherlands office. So we remain cautiously optimistic for the H2 prospects of the Software division.

Thank you, Mark. I'm going to call upon Donn Engelbrecht, this question for you from [indiscernible]. Are there any specific strategies the group is deploying to penetrate and benefit from increasing digital payment adoption? For example, is the acquisition or internal development of a payment gateway under consideration?

Thank you, Aimee. The answer on equality is yes. Payment gateways and digital payment adoption strategies forms part of our payment center of excellence within our Software business. So whether Payments division plays specifically in the 4 party, we are entering other payment streams and these initiatives are customer specific. And I think last but not least, as a group, we are also participants in these sharp modernization project which is a very strategic project for the SA payments landscape as a whole over the next couple of years.

Thank you, Donn. Alan, I'm going to call upon you for the next question, which is from [indiscernible]. And the question is for 2024 and 2025, can we expect more reporting on Capital Appreciation's energy consumption and carbon emissions? Over to you.

Thanks, Aimee. Thanks for that question. ESG has found a very key component of our executive committees' deliberation. It's a very important component and we've devoted not only time and effort but resources to expand and enhance our ESG reporting and the implementations thereon. And as far as energy and the question entail, we're really not in that high-risk area. But all the components of the global end and in the [indiscernible] context, ESG elements have been enhanced over the years. I think our reporting in the 2023 integrated report and 2024 integrated report have been greatly improved and we will continue to inform not only at reporting events, but during the year, our progress we've been making in terms of ESG generally.

Thanks, Alan. Brad, I'm going to direct this question at you as it relates to Halo Dot and this is from Matthew [indiscernible]. It appears that Halo Dot is gaining traction, given your commentary on partner rollouts, et cetera. To what extent are revenues from Halo Dot already reflected in your results for this period?

So Matthew, thank you for the question. I think it is true that Halo Dot is starting to gain real traction in a number of markets, both in South Africa and globally. The level of revenue at the moment is relatively small and is reflected within the software division's financial performance, although we are probably going to reposition Halo under the Payments division going forward. And when we do that, we'll obviously give the necessary disclosure. But I think it is important for us to keep payments activities together. At the moment, the amount of revenue is marginal and is reflected within the software division.

Thanks, Brad. I think we've got time for one more question, and this is a 2-part question. I'm going to call upon Michael Shapiro and yourself again, Brad. And this question is from Simon [indiscernible]. The first part of the question, with regards to the SA revenue, are or were you looking to replace the international revenue with SA-based revenue? Can South African growth take up all the excess capacity for the team over the next year or so?

Thanks, Aimee. Yes. We're looking at a multipronged strategy, which is delivering results. So in part, the revenue will be replaced with South African-based projects. And we see a significant runway. As Brad mentioned in the presentation, just looking at the top financial, the top banking customers in South Africa, there's a ZAR 72 billion annual spend that they incur on technology services. So we are looking at both replacing that income with local and financial services and other aligned sector projects, and we've made good progress in that regard. And then certainly, we still have a very strong business development strategy for our international growth. To get a project of the similar size that we have just completed does take some time to land within an international market, but we're seeing some excellent prospects with our International division delivering similar services to global customers. But in summary, yes, we have the confidence that the local pipeline of activity can replace that project.

Great. Thanks, Mike. Second part of the question over to you, Brad. With regards to the Payments business, why was there no operational gearing given the strong revenue growth, verbal comments seem to suggest a lag and it will come through H2 and further. Is this correct intuition or will margins largely remain flat given already strong levels?

Simon, thank you for that question. The Payments division did have a strong performance, but I will admit that it was below our expectation. And so we've continued to invest in additional software and solutions that we are going to continue to bring to market. The margins that we have been able to generate in payments continue to be really healthy. We are likely to see some margin expansion. And it's important to recognize that a large portion of the orders that were received in H1 will only be fulfilled in H2. The other point which I didn't make which I think is important, although we were awarded 2 large contracts at the beginning of H1, it took some time to get those contracts finally concluded and solidified and took even longer to actually start to implement against those contracts. So the level of activity in H1 only had a modest amount of activity related to the new contracts that we undertook. So we continue to believe that there will be margin expansion in payments going forward and we will see how quickly the rollout and execution of the new contracts unfolds.

Thanks, Brad. It seems that our time has come to an end, spot on 3:00. I just want to remind everybody on the call that if you have got questions that have not been addressed, please drop us a line at [email protected]. and thank you for participating today and for the participation of our presenters. We also wish to extend a closing thank you to the Capital Appreciation teams for their contributions to the group and to wish you all a wonderful festive season, and we look forward to engaging with you in the new year. Bye-bye.

Thank you, Aimee.