Araxi Limited (AXX) Earnings Call Transcript & Summary

Good morning, and a warm welcome to all. I'm Aimee McNamara. On behalf of our Executive Chairman, Michael Pimstein, our CEO, Brad Sacks; CFO, Sjoerd Douwenga and the Capital Appreciation Board, we thank you for joining us for the Capital Appreciation annual results presentation for the year ended 31 March 2025. This morning's proceedings will commence with the group overview and strategy discussion presented by Brad Sacks, followed by Sjoerd Douwenga's presentation of the group's financial performance with closing statements again by Brad. Once concluded, we will open for questions and ask that Michael Shapiro, Managing Executive of the Software division, join and participate in the panel Q&A. Regrettably, Donn Engelbrecht, Managing Executive of our Payments division is unable to join us today, but Brad will address any questions you may have. We will only address questions at the end of the presentation, but please feel free to add your questions to the chat by clicking on the Questions tab on the top left of the screen. We wish to draw your attention to the safe harbor statement, which will be included at the end of the presentation. And with that, I hand you over to our Capital Appreciation Chief Executive Officer, Brad Sacks.

Thank you, Aimee, and welcome, everybody. It truly is a pleasure to be in a position to present the results for fiscal year 2025 ending March 31. We are very pleased with the performance over the year in the aggregate, and I will present those to you now. What you can see in front of you is a little schematic of the group, which you have come to know over time. I want to just point out that Halo Dot as a business has moved from our software division into our Payments division for a whole host of reasons, most notably the alignment of that solution offering with the payments business and the clients that our payments business serves. From a -- from an industrial perspective, we are very pleased with the secular growth opportunities that present themselves for both our payments and our software business. The trends are strong. They are powerful, and we have been the beneficiary of that over the course of the last year. The market opportunity that we have is large, both domestically in South Africa and internationally, which gives us a great platform for organic growth. Our capabilities and the delivery of our solution set is recognized by the partner clients that we have. We have a really talented team of highly dedicated people who allow us to deliver the solutions that we do. Our track record demonstrates continued leadership that we have in the areas where we participate. And we have a very deliberate focus on our activities with an investment thesis that we are committed to, and we also are investing in our future. We're not only focused on this quarter or next quarter. We are thinking about our long-term trajectory. Our businesses are cash generative as is demonstrable from these results. It is a really resilient business even in particularly difficult times. Our model has a lot of sustainable annuity income, which gives us a level of predictability. We have a very healthy debt-free balance sheet. And we have a large cash balance available to further invest in our organic opportunities as well as acquisition opportunities that we think will deliver value. From a recent perspective, as I indicated, our payments business is executing exceptionally well, a number of new contracts that we spoke about at the half year, and we are executing on the strategy. In the Software division, our excellence continues to be recognized in the market with a number of different awards, both from industry publications and our clients as well as our partners. We achieved the AWS Premier status, which is the highest rank of partnership within the AWS environment. And we continue to be committed to our BEE credentials and ESG, which are included in the appendix if anybody wants to look at that. We did change auditors at the end of the last fiscal year, and we started a new audit firm, which gave rise to a number of reviews of our accounting policies that we undertook, which I will walk through with you shortly. Overall, our performance was something that we are quite proud of in a difficult environment. Our HEPS were up 25%. We have increased our dividend by 20%, which is a ZAR 0.12 per share dividend for the year. Our revenue at a group level was approximately ZAR 1.3 billion, which is up almost 8%. We have spoken about the strength of our payments business. We have increased the diversification of our revenue streams. Our terminal estate, which is a good indicator of the health of our Payments business was up 18% and annuity revenue in the Payments business now accounts for about 55% of the total. We did have a less than satisfactory performance in the software division with revenue down 6%, but the performance in the second half of the year was much better than the first half of the year, and we think we've got a plan in place to recapture the prior performance of the business. Cash from operations, again, was positive, generating ZAR 208 million, and we have a good pipeline of opportunity ahead of us with cash available for us to invest to pursue those opportunities. We did have some changes in accounting policies, which we evaluated over the course of the year. In aggregate, these changes in policies resulted in an increase in our 2024 EPS of 2.8%. These restatements fall into 6 buckets. The first relates to how we accounted for the earn-out of the contingent consideration for Dariel. The second relates to the appraisal rights that we had as a contingent liability. The third is our failure to recognize CGT on the use of treasury shares. We had a revenue recognition issue that we resolved in the software division. Our investments in associates, we have determined that it's now appropriate to mark them to market. And most notably, we have concluded that the Capital Appreciation Empowerment Trust, which we call CAET now needs to be consolidated. In aggregate, a 2.8% increase in EPS from last year was the impact, and we had minor impacts on our statement of cash flows and statement of financial position. As it relates to the earn-out, we had previously booked the earn-out to equity. Given that the consideration was contingent based on actual performance against a warranted level of performance, it was determined that this actually needs to be booked through our income statement. And so we have done so given that Dariel's performance only achieved 55% of the warranted EBITDA. We will be paying out the contingent consideration once the Dariel audit is completed, and it will be reduced according to the warranty payout. We have the appraisal remedy related to the directed share buyback that we executed in 2019. We had disclosed this as a contingent liability. We have now reflected it on our balance sheet as an actual liability at the price that the appraiser determined as the fair market value at the date of the transaction at ZAR 1.06, although this amount is still under judicial review. Capital gains tax was something that we felt to recognize on the use of our treasury shares. We issued the treasury shares at values that were in excess of our purchase price, and that gave rise to a capital gains that we did not recognize. We have now done so in the 2024 and 2025 financial results. These treasury shares were used to satisfy obligations under our share option plan and our conditional share plan and related to the use of those shares for acquisitions. Within our software division, there were 3 contracts that we reviewed and concluded that the relationship was one -- one as agent, another one as principal, and that resulted in a reduction of both revenue and costs, but no change in EBITDA or operating profit as a result of that. With respect to LayUp and AssetPool, we had previously accounted for these investments at amortized cost with no recognition of the conversion rights that we had under the convertible loan notes. That has now been addressed both in revaluing the loan at market value and also taking into account the value of the conversion option, and that will be done every reporting period going forward. The Capital Appreciation Empowerment Trust has been in place since our initial listing. This is 75 million shares that were subscribed for by the trust at listing. It was funded by bank debt guaranteed by our founders. It has been determined that under IFRS 10, that now gives capital appreciation exposure to variable returns. As a result, we have to consolidate the trust, which means that we bring the trust debt on balance sheet, and we have to account for the 75 million shares that they own as treasury shares. Under no circumstances is Capital Appreciation, the company at all responsible for the debt and the company has no right to own these shares. So the accounting and factual circumstance have a disconnect here, but we do have to account for it on a consolidated basis. So you will see the debt on our balance sheet. In terms of our performance over the year on a like-for-like basis, all the 2024 results here are restated for the items that I've just spoken about. Revenue was up 7.6%, EBITDA up 23%. Our EBITDA margins increased by 340 basis points and cash flow from operations was in excess of ZAR 200 million. We benefited from our larger terminal estate, the benefits of scale. The software revenue was lower due to services income that was lower than previously experienced, but our profits were fueled ultimately by the mix of product that we had and the benefits of the scale and a maniacal focus on operating costs, which is something that we've implemented throughout the group. GovChat, just a quick update. There has been a delay in the date on which this matter will be heard by the competition tribunal. Instead of being in September of this year, it's now moved to early 2026. And so we will update you as that evolves. Our Payments business continues to benefit from a growth in digitalization. A recent study which we found looks to the level of card payment volume in South Africa over the forecast period through 2029. It is expected that card payment value in rand terms will be a little shy of ZAR 4 trillion in 2029, which is continued growth of high single digits. That is going to continue to drive the demand for payment terminals, which is what we are very focused on. On the right-hand side, you can see a metric, which is the number of credit transactions or card transactions executed in a country by a holder in a year. So in South Africa, an average cardholder executes 118 transactions a year. In the Rest of Africa, you can see they are much lower levels, which for us is an indication of opportunities that exist across the continent. From a strategy perspective, we are continuing to execute on the path that we laid out a number of years ago. You can see those -- the results of that execution focus in these financials. And we continue to believe that this is a prudent path. We are going to continue to focus on our established traditional segments. We are looking to grow the market for devices, and we have a number of solutions which we are delivering to the market focused on including more and more potential merchants. We are growing our South African client base. We are going to continue to evolve the estate to be 4G and 5G compliant as the 2G and 3G networks are deprecated. We are focusing on following our clients into Africa, not only with hardware, but with software solutions. We are introducing new products and solutions, and we are focused on expanding our solution set into enterprises. Most importantly, we think that a lot of the solutions that we are developing and have developed have application beyond Africa, and we are starting to expose those into the European and Asian continents, and we are going to continue to innovate. We have spoken about innovation as being important, but Halo Dot is an area where we have taken a leadership role. The opportunity for SoftPOS was recently exposed in a Juniper Research result. The report which speaks about growth in SoftPOS through 2030 had been 2,150% with the value of transactions being executed on SoftPOS exceeding USD 500 billion. What is really important, I think, is the last statement on the left-hand side where Apple's decision to introduce SoftPOS will transform the market. Apple is really a trendsetter, and we think that the acceptance of SoftPOS on the Apple platform is a catalyst event in this arena. The Halo Dot solution is something that you have seen before. What I want to point out, we are one of the first companies to be MPoC compliant. We have increased the number of customers that we have across industries with a 5x growth in customer count on a year-on-year basis. We are operating with telcos, logistics companies in the retail sector, transfer hardware and in the gaming sector. Lots, lots of opportunity for us in this area. Around innovation, one of the new use cases we have is Tap on Own device. And I'm going to focus on the area that's in the blue block. We have partnered with a gaming company to allow customers to tap their card on their own device, which results in a number of things. Most notably, it results in a material reduction in fraud because it validates the card being present and increases the likelihood that it's not a stolen card. With a card present transaction, the interchange rates are lower, and it reduces the cost for the gaming company. And this is a tremendous benefit in this particular industry segment. And what is really exciting is that Halo Dot is now platform agnostic. Previously, we used to say that Halo Dot is available on Android devices. We are now available on Apple and Huawei devices, and it should be a material reduction in the barriers to entry for Halo Dot being accepted globally. Very exciting development for us. Here is an example of Halo Dot in action. It has been deployed through Pick n Pay that had a number of their own devices that they were using for stock picking, inventory management and a whole host of other things. Those devices were Android devices. They did have an NFC reader, and we have deployed Halo Dot onto those devices to allow our clerks to facilitate checkout of people within the store. LayUp is making great progress with really positive results, a nice footprint. We've got high completion rates. We've got good customer loyalty with 1 in 3 customers returning again. And the most important or impressive for me is the right hand, the most right-hand area. With one particular merchant who we have been doing this work, with the 88% of the customers who are using LayUp are net new customers to that merchant, and they are driving big ticket purchases in the tens of thousands of rands, a really positive result and very pleasing for the merchant customer. As we turn to the software division, you will remember the companies that now comprise software. We are starting to have a much more unified view on how we think about approaching the market and those -- that approach is starting to have positive effects. In the software area, the performance in H1, as you know, was not satisfactory. We have undertaken a number of initiatives to drive value, one of which is externally focused on how we develop pipeline, how we approach clients with a cohesive approach as to who we as Capital Appreciation are. And then from a cost perspective, we've undertaken a number of different activities. We have been very judicious in our hiring. We have restructured the leadership team of the Synthesis business. We undertook a review process of our personnel and have had a voluntary separation of 34 people. We are going to continue to balance and optimize across the division, and we are looking to ensure that we continue to maintain cost efficiency and operational efficiency across the business. So still more work to do, but it is something we are focused on and will continue to drive. How that translates into our growth strategy, we are going to continue to develop the relationships that we have with the partner suppliers that we have like AWS and Azure and others. We are looking to continue to grow the license and annuity revenue from our proprietary software. That does require investment in the product, which we are committed to do. It's part of our organic growth strategy. AI for us is very important, not only in amplifying our own capabilities, but in delivering solutions to customers who are looking to drive innovation with their own AI applications. We have increased the solution set that we offer in terms of our product offering, and we are continuing to look at our international expansion. As I indicated, AI is important for us. It's a force multiplier, not only for our customers in the productivity gains that it delivers and the ability to take decisions and data and help drive that into information that provides decision-making, customer experience and risk mitigation. It allows us to enhance our capabilities as a solution provider to them, both in terms of the speed of development as well as the nature of the solutions that we can provide. What we have seen as an experience ourselves is an observation made by the CEO of IBM. AI has moved from experimentation to a focus on unlocking business value. And that really is the kernel of everything that lies at the heart of our software business is how do we develop business value to our customers. I mentioned the recognition that the division has already received. And I now turn to some case studies, which we have used in the past to try and explain or give some tangible evidence of the work that we do. There is a -- one of the largest South African banks, we have partnered with the AWS professional services team to help migrate all of the software solutions that the bank has from their own on-premise services into the cloud. And the next phase will be making those solutions or refactoring those solutions for a more cloud-sensitive environment. Ultimately, what this does is it increases the reliability of the solutions to both the bank and the customers. It improves the customer experience. It helps modernize the legacy services that it has and make new innovative services available to the bank to offer to their customers, and it ultimately is going to reduce the overall cost of IT ownership. Another prominent bank in South Africa approached us. They had some -- they had a number of issues with their payment systems and their payment platforms. We have developed a unified payment platform for them to deliver solutions to their customers irrespective of where those customers are, what the nature of the payment instrument is and will allow them to grow and expand as the environment and nature of payments evolve. So a very flexible solution. I've included an example of something that Dariel does. We speak a lot about AWS. We don't speak enough about some of the work that we do with Microsoft Azure. And here is an example of a South African industrial company that approached Dariel to develop their ERP system for them. It uses the Microsoft Azure platform and has made their ERP system now a contemporary solution that will help grow with -- that will grow with the business as their business grows and a really successful implementation by our Dariel team. AssetPool is the company that we invested in, a really nice performance over the course of the year. What you can see on the right-hand side is the number of inspections that are done on the platform so far year-to-date, there's almost 0.5 million or just over 0.5 million inspections that have been done compared to 350,000 last year. And what is most interesting to me is the last line on the left-hand side, year-on-year revenue per customer has grown 23%, which means that the customers who are using the system are becoming more and more reliant on the AssetPool platform, a really great result. And you can see we have clients now in the Americas, the United Kingdom, South Africa and elsewhere across Africa. So good developments at AssetPool. With that, I am going to turn it over to Sjoerd, who, as you know, joined us as CFO starting in January. Welcome, Sjoerd, and I leave it to you.

Thank you, Brad. Much appreciated. Good to be here. So we start with the financial performance of the Payments division. If you can just flip to the next slide, Brad, please, I think you in control. Very pleasing results from the Payments business once again. Terminal sales up 41% year-on-year through a combination of outright sales as well as a finance lease that commenced in 2025. So the estate currently is around 424,000, 425,000 units. I think tracking that historically at any point to where we are today, that's a compound annual growth rate of about 30% year-on-year. So a very good continued sustained performance by the business. Secondly, the rental income line has also started to increase as rollouts of one of our major contracts start to increase in terms of unit numbers. Our transaction-related income was up 18%, very much in line with the overall estate growth of 18.8%. And our annuity income base is around 55%. Now that's a combination of rental income, maintenance and support fees as well as transaction-related income. And that gives us a really good balance within the revenue composition of the payments business. From an EBITDA margin perspective continues to improve. Obviously, from a scale perspective, we benefit from additional scale, but also from the annuity base growing now in excess of 50%, 55% is contributing quite well to an increased and sustained increased performance in EBITDA percentage. If you go to the next slide, Brad, please. So the performance, overall revenue for the Payments business was up 21.5% and EBITDA commensurate with 25.4%. And as I mentioned, the sales of terminals improved as multiyear bank contracts start to take effect. We did have some of our clients which shifted to long-term rentals and lease agreements during the year, which also give rise to increased recurring revenue and build some runway for recurring income. Although it's not the norm, as I mentioned, the lease and the rental offerings were positive differentiator during the year and did provide some clients with flexibility around the acquisition of terminals. And what was more important for us is to support them on that, but also ensuring that our commercials are maintained, which we successfully did. As such, we remain and remain committed to invest in the estate growth, which had 2 components in inventory as well as property, plant and equipment as well as regional expansion and some innovation costs. So good progress made on diversifying revenue streams, as I mentioned. And as Brad highlighted in detail, Halo business unit has now moved to the Payments division as of '25, but restated in '24 as well. So there is a like-for-like comparison. If we move on to the Software division, a slightly more challenged performance from software, especially given the economic circumstances prevailing in the country. So overall, the revenue was down 7.6%, largely as a result of a drop in services and consultancy fees, which were down 13.8%. That's the primary source of income for the software business. We've seen a good improvement and a good increase in license and subscription fees, which links into our product strategy in terms of building product and selling product as opposed to just receiving license fees on a month-to-month basis. So a fairly significant uptick in that in 2025, which supported the group's performance. Our security hardware fees decreased slightly off of a fairly high base in 2024. And as Brad mentioned, remediation activities are including -- on the go, including enhancing our sales activities, and headcount reduction, tremendous focus on cost and then pipeline development as well. And that is obviously to rectify the trend in the EBITDA margin, which you've seen from 19% down to 11.2% in 2025. So the outlook for the rest of 2026 is obviously to improve the cost base and competitive base within the business. Next slide, please. So the performance overall, the revenue was down 7.6% and EBITDA down 31.8% year-on-year. We did have overcapacity and bench resources within the business that continued to put profitability on the business, and that comes in 2 forms. Obviously, there's a lack of revenue generation in terms of utilization, but then also a higher cost base that the business was carrying at the point in time. Remedial plans to address that, we have covered extensively. So I'm not going to speak about that other to say that the main aim is obviously to align the cost base and the capacity requirements with where we see the market going and then where we specifically want to play within the market. The international performance was quite severely impacted by the completion of a significant multiyear contract. I think that is the nature of significant contracts. They do come to an end at some point in time. It doesn't mean it wasn't a good business. This was a very substantial, very profitable contract over a number of years. And therefore, a lot of effort will be going into replacing contracts like this in the future and obviously building that pipeline and seeking further opportunities. And those initiatives, we can certainly see underway with our partners and our customers. The next slide to have a quick look at the income statement. Revenue increased 7.5%, 7.6%, largely driven by the Payments business offset by lower software performance, our gross margins despite that increased to 49%, largely due to the product mix and additional rental fleet deployments within the payments business. Other fair value gains, which is item #3 on this page, that is a new item as a result of the change in accounting policy that Brad covered. So we did have a write-back of an earn-out provision of about ZAR 19 million. And then secondly, there were fair value adjustments or uplift in fair value or carrying value of convertible loan assets that were granted to LayUp and AssetPool during the year. So that resulted in about ZAR 37 million uplift in other fair value gains compared to 2024 of about ZAR 18.9 million. Other operating expenses overall, Brad did mention the focus on cost controls. So overall, only up just short of 4%. So a really good cost management throughout the group. And then our EBITDA margin improved to 26.7%, largely cost control, some cost efficiency, but also the other fair value gains once you look at the segmental results, there are other fair value gains that contribute to some of that positive EBITDA margin movement. The reduction in finance income is really a function of slightly lower cash balances throughout the year. We continue to invest in share repurchases, paying significant dividends to shareholders. And as I mentioned, there were some investments in inventory and finance lease assets during the year, so slightly lower finance income as a result. If we move to the next slide, I think Brad covered all of the accounting aspects of the restatements already. So no need for me to actually go through that. But maybe just to illustrate for 2024, the impact of the 6 items. The first one is the Dariel earn-out for 2024, accounting for that as a liability and fair valuing that in '24 had a slight increase in earnings per share. The appraisal right litigation ongoing now that we have accounted for it as a liability, there was some interest costs that were accrued as a result -- resulting in a slight decrease in earnings per share. We have recognized the capital gains tax on the use of our treasury shares. So obviously, that's dropped, that's increased or decreased the earnings per share slightly. The consolidation of the Capital Appreciation Empowerment Trust is an interesting one, as Brad mentioned. So the net impact of that as shown on the balance sheet is there is some debt that we get -- that we're bringing on to the balance sheet. But there are also some shares, 75 million shares, which are now deemed to be treasury shares. So the net overall impact of consolidating the trust into the numbers actually is a slight positive in earnings per share. Investments mark-to-market, as I've showed on the previous page, slightly positive. And then there was a restatement related to revenue as agent or principal, which had no impact on the bottom line. So overall, in terms of performance, a net positive 2.8% in earnings per share. If we move on to the statement of financial position or balance sheet, we've seen an increase. I'm just focusing on the major items, increase in other noncurrent assets really due to an investment in finance lease. It's not typically part of our business, but given the strength of the balance sheet allowed us to have that flexibility to support a client or customer on a finance lease. And then we had an increase in other fair value assets, which is really the convertible loans during the year. Our increase in working capital is mainly due to inventory holding to support the operating rental agreements and rollout thereof. So it's slightly elevated at this point in time, but we do see that trending down as the rollouts progressed. The net investment in finance lease, I've already spoken about. And from a receivables perspective, we were fairly stable year-on-year. Item #3, the noncurrent liabilities, that's predominantly the trust debt that we have consolidated. So during 2024, about ZAR 68 million of debt was consolidated. That's currently around ZAR 70 million, ZAR 71 million in 2025. And then just from a noncurrent perspective, there was a reduction in the earn-out, which was previously noncurrent, which has moved to current liabilities during the year because we expect to close out or settle the earn-out within the next few weeks. If we move to the cash flow, just to highlight other fair value gains included in the cash generated from operations that is -- that's been removed. That's a noncash item, firstly, on the reversal of the gains of Dariel, secondly, on the convertible loan of ZAR 17 million. And then there was a fairly large investment in working capital, which I've covered in terms of inventory to support the operating rental contracts as well as a ZAR 52 million investment in a finance sale -- or finance lease related to the sale of terminals. And I think what's really good is the balance sheet and the strength of the balance sheet allowed us to accommodate that. On dividends paid, remain as a group to pay strong dividends, low dividend cover given the cash-generative nature of the business. So in line with our growth in earnings, we've also increased the dividend paid. And then lower finance income, as I mentioned previously, just as a result of lower cash balances. On the final slide of the cash flow, we continue to invest in property, plant and equipment and capitalize our internal software or intangible assets. And then in #7, convertible loans granted, that relates to the fair value movements as well. There were some increases in loans granted to both AssetPool as well as LayUp during the year. And then on the other items, we do continue to allocate quite a substantial amount of capital to share repurchases, firstly, to offset any dilution that may result from the allocation of share awards to executives. But secondly, certainly, where as a group, we feel the share price is quite attractive and does yield opportunity for good investment. We certainly have the approval from shareholders and have executed on that accordingly. So we did acquire a substantial amount of shares at an average price of about ZAR 1.31 per share during the year. So given where the share price is trading at the moment, that's certainly a good outcome from our perspective. And then lastly, cash and cash equivalents of just over ZAR 400 million at the end of 2025 is still giving us significant capacity to fund organic growth as well as acquisitive growth for the future. On the next slide, just the track record of dividends, which we're really proud of. So a significant, again, improvement in dividend of 20% declared for 2025. That along with track record of a good cash cover on dividends, et cetera, means that over the last 8 years, we've paid about ZAR 765 million in dividends back to shareholders or about ZAR 0.566 per share. And then on my last slide before I hand back to Brad, we did, as I mentioned, invest substantially in treasury shares and continued to do so after year-end. So as of the 31st of March 2025, we owned about 63.8 million treasury shares. As a result of the IFRS 10 accounting for the trust, we now also own in [ inverted commerce ] 75 million shares, which are now deemed as treasury shares, although we don't necessarily have the freedom of the control you would typically have about 75 million shares. We mentioned the dissenting shareholder court case that's ongoing. So there's a potential 18.1 million shares that may be bought back and canceled. And then a majority of this was announced in the SENS announcement in mid-May, but we have concluded a next round of share repurchases in the amount of about 34.5 million shares up to the date of -- or up to date. And therefore, the current shares that are directly under the control of management, the 98.3 million shares. And given that level, I think it's fair to say that it's likely that some of these shares will be canceled in the future. And with that, I'll hand back to Brad to cover the prospects.

Thanks, Sjoerd. So I think our prospects continue to be very good. We have a range of organic growth opportunities as well as acquisition opportunities that we continue to look at. We have the capacity to be able to execute on those should we deem the strategic fit and valuation to make sense. We are continuing monitoring the economic environment in which our clients find themselves and their appetite and propensity to spend money on capital-related items, which software often is. But where we stand, we have great belief in the secular growth trends and demands for both contemporary payments as well as the need for software and believe our opportunity to create value is substantial. And we think that artificial intelligence for us is going to be a force multiplier and is going to amplify the opportunity that we have. As I have encountered in the past, we've been asked about our name and whether or not we think our name is fit for purpose. It certainly was fit for purpose when we started Capital Appreciation, and we were raising money at the outset. We think we have matured from this and we'll be announcing a name change, which we will bring to shareholders at the AGM. We want to be future fit and ready to evolve into something which is contemporary and reflective of what we are doing as a company. We are going through the final stages, the administrative stages of doing that, and we will announce the new name for shareholder approval in the next few weeks. So as I have been preparing for this presentation, I came across a quote which put a smile on my face. So I thought I would present it to all of you. The Steve Polyak is a well-regarded -- he's a well-regarded psychologist as well as an engineer. And his observation was, before we work on artificial intelligence, why don't we do something about natural stupidity. I think it is often a good question. It applies in many instances, and so I thought I would leave you with that thought. With that, Aimee, I will turn it over to you to lead us through any Q&A that may exist. So everybody, thank you for your continued support. We appreciate you as shareholders. We continue to enjoy working for you. And Aimee, it's all yours.

Thank you, Brad. Thank you, Sjoerd. Just if you haven't managed to get your questions through to us, please remember that you are welcome to e-mail them directly to us at investor at [email protected]. If we don't have time in today's presentation, we'll certainly be addressing your questions via e-mail. First question that I have, Mike Shapiro, I think this one is for you. And the question is, what is the Board's target for sustainable EBITDA margin in the software division?

Thank you, Aimee. Yes, the sustainable EBITDA target that we'll be looking to achieve is in the mid-teens. That is above the typical industry norms for our peers that are in the same sector and is representative of the mix of revenues that we have in the business across our professional services line, across the proprietary software product that typically generates higher EBITDA margins and then also the third-party hardware and software resale that we conclude, which is typically at a lower EBITDA margin as we're representing third-party products. The software division remains determined to achieve these margins as we focus on converting our sales pipeline and also focus on international opportunities where we'll leverage our rand-based costs to achieve the margins. The forecast for the half year ahead still remains challenging as we conclude the cost-saving initiatives that we spoke about, where we will incur some costs to complete that initiative. But going forward, we remain cautiously optimistic to return to these sustainable margins.

Thanks, Mike. Sjoerd, I'm going to call on you for the next question. How are the associates valued on a mark-to-market? Is it DCF, recent cap round pricing or versus listed and unlisted peers?

Yes. So it's a good question. So it will typically be on a VC round price, round multiple. So although it's a combination of DCF, the discount rate would typically represent a second stage VC development phase with obviously the necessary risk, et cetera, captured within the discount or the expected return rate, which includes obviously the element of success or not. So it is quite punitive in a way and perhaps not representative of what we believe the underlying value of the businesses could be. But certainly, I think that's the methodology applied. So that's the one aspect. And I think in Brad's slide, he did unpack the 2 aspects because that only determines the underlying equity value of the business. The secondary -- second part, which this is an input to would be the market value of the debt. So there is a market value from a market participant view on the debt, which is the first component. And then secondly, because it is a convertible loan and a convertible instrument, there is an embedded derivative within the convertible, and that's where we have performed Monte Carlo option pricing simulations using the equity value and obviously, various other inputs to determine the option value. So the combination of the market value of the debt and the option value determines the market value or determines the value of the convertible loan asset. Essentially, cutting through it all, it is intended to capture the underlying improvement or increase in the equity value of the issuing entity.

But Sjoerd, I think the important point to note is that we have been conservative in how these have been valued. So when you talk about VC discount rates, you're talking about things that are in the 40-odd percent discount rate as opposed to 25% discount rate. So I want to just give some context because I know the valuation of these unlisted instruments is a sensitive area.

Mindful of time, we've probably got enough opportunity for 2 more questions. Brad, these ones are for you. First question is several LayUp loans to the group are due later this year, yet repayment seems highly unlikely. Will these repayment deadlines be extended? Or are the loans going to be converted into equity?

So the answer to that is we are currently exploring what to do with that. LayUp is in the process of looking for additional capital. We have the choice to convert it to equity. It's our choice to do so, and we will make that determination as the deadline approaches. But from a performance perspective, while the business has not hit our initial expectation, from the slide, you should be able to see that it is starting to have real market presence. It has also negotiated transactions with 2 prominent banks to be loaded on to their terminals and offered to that bank's clients by the bank themselves. And so those relationships should start to filter their way into the LayUp financial performance and should put it in very good standing going forward.

Okay, Brad. And I think final question is, could capital appreciation sell minority stakes in AssetPool, LayUp, Halo Dot in order to realize some of the internal value and to give the market a sense of the total value of these businesses?

The simple answer to that, Aimee, is yes. It is something that we continue to explore with the management teams. Our objective in investing in these companies was not to only own at 100%. If we can realize the value through a mark-to-market third-party investment, we are certainly open to doing that.

Thank you. I think that's all the time we've got for questions today. But a reminder to everybody, please our e-mail address, [email protected]. If there are any further follow-up questions, do send them along.

Aimee, thanks very much.

Thank you.

Thanks, everyone.