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Condensed audited results for the year ended 31 March 2017
Capital Appreciation Limited
Incorporated in the Republic of South Africa
(Registration number 2014/253277/06)
JSE Share Code: CTA
ISIN: ZAE000208245
(the "Company")
CONDENSED AUDITED RESULTS FOR THE YEAR ENDED 31 MARCH 2017
REVIEW OF ACTIVITIES
The Directors have pleasure in presenting the captioned results and Review of Activities for the year ended 31 March 2017.
Shareholders will be aware that the Company was constituted as a Special Purpose Acquisition Company (SPAC) and was
listed on the Main Board of the Johannesburg Stock Exchange (JSE) on 16 October 2015. Since that date, the Company
managed its affairs strictly in terms of the JSE Listings Requirements governing SPACs, pursuant to which the principal
assets of the company remained investment grade, interest-bearing cash deposits and the company's expenditure reflected
the annual overhead costs referenced in the company's Pre-Listing Statement.
The Company's Executive considered numerous investment propositions during the year under review and after diligent
research, analysis and assessment proposed three Fintech sector businesses for acquisition. The acquisitions were
endorsed by the Independent Non-Executive Directors and the transactions were announced on SENS on 16 February
2017. A circular detailing the acquisitions was distributed to shareholders on 31 March 2017. At the Special General
meeting held on 5 May 2017 (post year-end), shareholders approved the "viable asset" acquisitions of African Resonance,
Dashpay and Synthesis.
For clarification therefore, the results formally detailed herein relate solely to the Company in its capacity as a SPAC and its
growth in profits and earnings per share are merely the result of the Company's disciplined investment activities and well
managed expenditure.
Of greater interest to shareholders will be the required Regulatory disclosures under Note 7 herein, titled "Events after the
reporting period", where detailed information is provided on each of the acquisitions. In addition, to enable shareholders to
gain an appreciation of the financial performance of the acquired businesses, the following historical performance
information is provided.
EBITDA Total Comprehensive Income
FY 2017 FY 2016 Increase FY 2017 FY 2016 Increase
African Resonance 83,216,358 47,956,654 74% 50,801,398 20,284,813 150%
Synthesis 29,908,218 19,817,195 51% 21,379,793 14,562,239 47%
The financial year-end for each of African Resonance and Synthesis is 28 February and the information provided above has
been extracted from the companies' audited annual financial statements for financial year ended 28 February 2017. The
financial year-end of Dashpay and its holding company, Rinwell, is 30 June. Consequently, audited results for Dashpay
have not yet been prepared but management accounts indicate that the EBITDA loss for fiscal year 2017 will be comparable
to last year (approximately R6 million) and is consistent with our expectations. Going forward all companies will have the
same year-end, 31 March.
The Company is officially classified under the FTSE Industry Classification Benchmark (“ICB”) sector: Software and
Computer Services with effect from the open of trade today, 19 June 2017. Historically, the Company was classified under
the ICB sector: Nonequity Investment Instruments, while still operating as a SPAC.
Prospects
Fintech is a classification used to describe innovative and transformative technologies disrupting traditional banking and
financial services. These changes are evident in the payment sector, affecting, inter alia, relationships between financial
institutions and their consumer clients, financial institutions and their corporate retailer clients, retailers and their
consumer customers and among consumers themselves. There are also requirements for financial institutions to enhance regulatory
compliance while simultaneously reducing their costs of delivery. These are huge market forces, the consequences of
which are visible in the economy as a whole. These forces are expected to intensify and the changes they precipitate are
expected to accelerate. Traditional financial and banking institutions are rapidly embracing the idea of Fintech recognising
that Fintech presents an opportunity to reduce cost, enhance customer experience and drive revenue and that their
businesses are otherwise vulnerable as the digital economy changes customer behaviour.
African Resonance and Synthesis are established players in their respective fields and well positioned to continue
supporting and expanding their innovative service offerings to their banking and institutional clients. The increasing
demands for African Resonance and Synthesis solutions are already evident in the growth of each enterprise over the past
year.
Dashpay has an exciting and compelling technology platform and a suite of products and solutions that have broad
applicability to financial institutions in South Africa, across the continent and beyond. The Dashpay solutions are still under
development but are expected to enable financial institutions to innovate and enjoy a step change in the merchant acquiring
services they provide. The solutions make the concept of "universal acquiring", now globally recognised as critical to having
a successful merchant acquiring offering, seamless and cost effective. Universal acquiring (i.e. allowing a single device to
be used by multiple parties to offer multiple and differentiated products and services) will drive penetration among retailers,
allow financial and banking institutions to offer tailored solutions to their clients and should materially reduce bank customer
churn. It is expected that the Dashpay solutions and service offerings will be formally unveiled during the current financial
year.
Whilst it may seem longer, it has been only seven weeks since the acquisitions of African Resonance, Dashpay and Synthesis
were completed and the management teams have been actively involved in integration and transition matters. We are
pleased to note that the underlying trading of each of the businesses is performing well and in line with our expectations.
While the general economy and political climate in South Africa is somewhat erratic and uncertain, the Fintech space
nevertheless presents numerous market opportunities for greater penetration and expansion. The CAPPREC Board is
cautiously confident about the growth prospects of the Group for the year ahead.
The Condensed Audited Financial Statements for the year ended 31 March 2017 follow hereunder.
CONDENSED STATEMENT OF FINANCIAL POSITION
AT 31 MARCH 2017
2017 2016
R R
Assets
Non-Current Assets
Property, plant and equipment 211,725 172,685
211,725 172,685
Current Assets
Accounts receivable, interest receivable and prepayments 589,232 479,640
Taxation receivable 247,229 -
Cash and cash equivalents 1,047,788,681 1,008,020,404
1,048,625,142 1,008,500,044
Total Assets 1,048,836,867 1,008,672,729
Equity and Liabilities
Equity
Redeemable ordinary share capital 1,000,002,500 1,000,002,500
Constituent ordinary share capital 4,000,000 4,000,000
Constituent costs - (22,543,311)
Accumulated profit 38,820,070 22,158,579
1,042,822,570 1,003,617,768
Liabilities
Current Liabilities
Accounts payable 6,014,297 4,969,177
Taxation liability - 85,784
6,014,297 5,054,961
Total Equity and Liabilities 1,048,836,867 1,008,672,729
CONDENSED STATEMENT OF COMPREHENSIVE INCOME
2017 2016
R R
Revenue 80,172,952 32,995,626
Operating expenses (5,083,751) (2,214,856)
Costs associated with acquisition of a viable asset (14,774,993) -
Profit before taxation 60,314,208 30,780,770
Taxation (21,109,406) (8,622,191)
Profit for the year 39,204,802 22,158,579
Other comprehensive income - -
Total comprehensive profit for the year 39,204,802 22,158,579
Earnings per share (cents)
Basic earnings per share (cents) 3,14 1,77
Diluted earnings per share (cents) 3,14 1,77
Headline earnings per share (cents) 3,14 1,77
Redeemable ordinary shares in issue 1,250,000,000 1,250,000,000
CONDENSED STATEMENT OF CHANGES IN EQUITY
Redeemable Constituent Constituent Accumulated Total equity
ordinary ordinary share costs profit
share capital capital
R R R R R
Issue of ordinary share capital * *
Balance at 1 March 2015 * *
Conversion of ordinary share
capital to constituent ordinary
share capital (*) *
Issue of redeemable ordinary
share capital 1,000,000,000 1,000,000,000
Issue of founders' initial ordinary
share capital 7,500 7,500
Issue of constituent ordinary
share capital 4,000,000 4,000,000
Redemption of founders' initial
ordinary share capital (5,000) (5,000)
Redemption of constituent
ordinary share capital * *
Constituent costs (22,543,311) (22,543,311)
Total comprehensive profit for
the period 22,158,579 22,158,579
Balance at 31 March 2016 1,000,002,500 4,000,000 (22,543,311) 22,158,579 1,003,617,768
Total comprehensive profit for
the year 39,204,802 39,204,802
Transfer of constituent costs to
accumulated profit 22,543,311 (22,543,311) -
Balance at 31 March 2017 1,000,002,500 4,000,000 - 38,820,070 1,042,822,570
*Less than R1
CONDENSED STATEMENT OF CASH FLOWS
2017 2016
R R
Cash flow from operating activities
Cash flows (utilised) / generated in operating activities (18,770,820) 2,283,658
Interest income 80,166,500 32,995,626
Tax paid (21,442,419) (8,536,407)
Net cash from operating activities 39,953,261 26,742,877
Cash flows from investing activities
Property, plant and equipment (184,984) (181,662)
Net cash used in investing activities (184,984) (181,662)
Cash flows from financing activities
Issue of redeemable ordinary share capital 1 000,000,000
Issue of founders' initial ordinary share capital 2,500
Issue of constituent ordinary share capital 4,000,000
Payment of constituent costs (22,543,311)
Net cash from financing activities 981,459,189
Total cash movement for the year 39,768,277 1,008,020,404
Total cash and cash equivalents at beginning of the year 1,008,020,404 -
Total cash and cash equivalents at end of the year 1,047,788,681 1,008,020,404
1. Basis of preparation
The condensed audited financial statements have been prepared in accordance with International Financial Reporting
Standards ("IFRS"), IAS 34 Interim Financial Reporting Standards, the SAICA Financial Reporting Guides as issued by the
Accounting Practices Committee, the Financial Reporting Pronouncements as issued by the Financial Reporting Standards
Council, the South African Companies Act, 71 of 2008, as amended and the Listings Requirements of the JSE Limited. The
accounting policies and methods of computation used in the preparation of this report are consistent with those of the previous
year and with those applied in the annual financial statements for the year ended 31 March 2017.
2. Share capital
2017 2016
Authorised shares
Number Number
Redeemable ordinary shares of no par value 10,000,000,000 10,000,000,000
Constituent ordinary shares of no par value 4,000 4,000
Issued shares Number Number
Redeemable ordinary shares of no par value 1,250,000,000 1,250,000,000
Constituent ordinary shares of no par value 4 4
R R
Redeemable ordinary shares of no par value 1,000,002,500 1,000,002,500
Constituent ordinary shares of no par value 4,000,000 4,000,000
1,004,002,500 1,004,002,500
Reconciliation of issued redeemable ordinary shares
Number of issued redeemable ordinary shares at the beginning of the year 1,250,000,000 -
Founders initial ordinary shares issued at date of listing 750,000,000
Subscription for redeemable ordinary shares at date of listing 1,000,000,000
Redemption of founders' initial ordinary shares (500,000,000)
Number of issued redeemable ordinary shares at the end of the year 1,250,000,000 1,250,000,000
The unissued shares are under the control of the directors.
3. Revenue
Bank - interest income 80,172,952 32,995,626
Total interest income is calculated and received at the negotiated interest rates with level A1 financial institutions on cash held
on call and notice deposits.
4. Related parties
4.1 In terms of International Accounting Standards (IAS 24) the Company is obliged to disclose parties that directly
or indirectly fall within the scope and definition of a Related.
4.2 The Company has established the Capital Appreciation Empowerment Trust ("the Trust") with the object of
facilitating economic empowerment of and advancing the interests of Black Persons, by conferring vested interests in
redeemable ordinary shares held by the Trust. The Trust initially subscribed for 50,000,000 redeemable ordinary
shares and 25,000,000 founders initial ordinary shares. These shares are currently held by CAET Holdings (Pty) Ltd
of which the Trust is a 100% shareholder. The funding for the initial subscription was facilitated through facilities
granted by CAET Holdings (Pty) Ltd. As part of the funding structure, Albanta Trading 101 (RF) (Pty) Ltd was
incorporated and is a 100% shareholder of CAET Holdings (Pty) Ltd. The Trust is included as a Related Party as the
Chairman of the Company serves as a Trustee of the Trust. The Trust, CAET Holdings (Pty) Ltd and Albanta Trading
101 (Pty) Ltd are indebted to the Company to the sum of R157,154 related to certain administrative expenses.
4.3 Given the 26.66% shareholding by the Government Employees Pension Fund in the Company and their representation on
the Board, their interest is deemed to enable them to exercise significant influence. Significant influence is the power to
participate in the financial and operating policy decisions of the Company. Accordingly, the Government Employees Pension
Fund fall within the definition of a Related Party.
4.4 In terms of the undertakings by the constituent shareholders set out in the Pre-Listing Statement, the constituent
shareholders subscribed for 4 constituent ordinary shares in the Company in the amount of R4 million. The proceeds thereof
were used as a contribution towards the constituent costs. The constituent shareholders, B Sacks, M Sacks, M Pimstein and A
Salomon consequently and collectively fall within the definition of a Related Party.
5. Fair Values
The fair values of the recognised financial instruments are not materially different from the carrying amounts reflected in the
statement of financial position.
6. Going Concern
The financial statements have been prepared on the basis of accounting policies applicable to a going concern.
7. Events after the reporting period
7.1 Acquisition of African Resonance
The Company acquired 100% of the shares in African Resonance for a purchase price of R485,9 million, with R295 million
settled in cash and the issue of 230 million shares which have been valued at 83 cents per share being the share price on the
closing date 5 May 2017. African Resonance is based in Johannesburg South Africa and provides a variety of technology
solutions, services and related technical support services to financial institutions and others in the financial services sector. The
acquisition will be accounted for in terms of IFRS 3 - Business Combinations.
Assets acquired and liabilities assumed
The preliminary fair values of the identifiable assets and liabilities of African Resonance as at 5 May 2017, the date of
acquisition, were:
Fair value
recognised
on acquisition
Assets R
Property, plant and equipment 8,932,671
Deferred taxation 264,819
Inventory 15,398,881
Loan to shareholder 16,396,613
Trade, other receivables and prepayments 26,404,520
Other financial assets 10,484,372
Cash and cash equivalents 40,128,839
118,010,715
Liabilities
Non-current other financial liabilities 3,454 974
Trade and other payables 9,967,219
Current other financial liabilities 8,473,713
Taxation 4,102,053
25,997,959
Total identifiable net assets at fair value 92,012,756
Goodwill and intangible assets arising on acquisition 393,887,244
Purchase consideration transferred 485,900,000
Purchase consideration
Cash 295,000,000
Shares: 230 million at 83 cents per share 190,900,000
Total 485,900,000
In terms of IFRS 3 - Business Combinations, management will perform a final purchase price allocation ('PPA')
to determine the fair value of the assets and liabilities acquired. The final PPA exercise will be completed during
the course of the 2018 financial year.
7.2 Acquisition of Rinwell
The Company acquired 100% of the shares in Rinwell which is 100% shareholder of Dashpay ("Rinwell Group") for a
purchase price of R225 million settled in cash. Rinwell Group is based in Johannesburg South Africa and provides a variety
of technology solutions, services and related technical support services to financial institutions and others in the financial
services sector. The acquisition will be accounted for in terms of IFRS 3 - Business Combinations.
Assets acquired and liabilities assumed
The preliminary fair values of the identifiable assets and liabilities of Rinwell Group as at 5 May 2017, the date of acquisition, were:
Fair value
recognised
on acquisition
Assets R
Property, plant and equipment 3,434,388
Intangible assets 353,676
Trade, other receivables and prepayments 9,208,868
Cash resources 4,339,088
17,336,020
Liabilities
Trade and other payables 5,802,432
Current other financial liabilities 10,484,372
Bank overdraft 17,052
16,303,856
Total identifiable net assets at fair value 1,032,164
Goodwill and intangible assets arising on acquisition 223,967,836
Purchase consideration transferred
Purchase consideration 225,000,000
Cash
In terms of IFRS 3 - Business Combinations, management will perform a final purchase price allocation ('PPA') to determine
the fair value of the assets and liabilities acquired. The final PPA exercise will be completed during the course of the 2018
financial year.
The Company granted 15 million shares in respect of a restraint of trade agreement entered into with the owner of Rinwell.
For the purposes of this information, these 15 million shares are valued at the market price of 83 cents per share at the
closing date of 5 May 2017 amounting to R12.45 million which will be accounted for in terms of IAS19 and expensed on the day
of the award.
7.3 Acquisition of Synthesis
The Company acquired 100% of the shares in Synthesis for a purchase price of R132,1 million, with R82.3 million settled in
cash and the issue of 60 million shares which have been valued at 83 cents per share being the share price on the closing
date of 5 May 2017. Synthesis is based in Johannesburg South Africa and provides a variety of technology solutions,
services and related technical support services to financial institutions and others in the financial services sector. The
acquisition will be accounted for in terms of IFRS 3 - Business Combinations.
Assets acquired and liabilities assumed
The preliminary fair values of the identifiable assets and liabilities of Synthesis as at 5 May 2017, the date of acquisition,
were:
Fair value
recognised
on acquisition
Assets R
Property, plant and equipment 969,502
Investment in associate 980,000
Goodwill 1,294,696
Deferred taxation 525,583
Loan to shareholder 4,153,532
Trade, other receivables and prepayments 22,140,957
Cash and cash equivalents 6,613,473
36,677,743
Liabilities
Non-current deferred income 8,281,250
Trade and other payables 4,363,601
Taxation 1,483,387
Current portion of deferred income 1,325,000
Current portion of long term loan 10,132,526
25,585,764
Total identifiable net assets at fair value 11,091,979
Goodwill and intangible assets arising on acquisition 154,071,021
Purchase consideration transferred 165,163,000
Purchase consideration
Cash 82,300,000
Shares: 60 million at 83 cents per share 49,800,000
Contingent consideration (see below) 33,063,000
Total 165,163,000
Should Synthesis achieve its profit warranty, as included in the Acquisition Agreements, the Synthesis shareholders will
receive R10 million cash and an issue of 30 million shares. The period of the warranty is 37 months. For the purposes of
the annual financial statements, it has been assumed that the profit warranty targets will be met and these 30 million shares
are valued at the price of 83 cents per share on the closing date and the cash portion is present valued. The Synthesis
profit warranty consideration has been included as part of purchase consideration.
Cash: R10,000,000 at present value 8 163,000
Shares: 30 million at 83 cents per share 24 900,000
Total 33 063,000
In terms of IFRS 3 - Business Combinations, management will perform a final purchase price allocation ('PPA') to determine the
fair value of the assets and liabilities acquired. The final PPA exercise will be completed during the course of the 2018 financial
year.
8. Dividends
No dividend was declared during the year under review.
9. Preparation
Mr. A Salomon (CA(SA)), Chief Financial Officer, is responsible for this set of financial statements and has supervised the
preparation thereof in conjunction with the Financial Manager, Ms. C Sacharowitz (CA(SA)). These condensed financial statements
for the year ended 31 March 2017 have not been audited or reveiewed by Ernst & Young Inc. and was extracted from the audited annual
financial statements on which Ernst & Young Inc. expressed an unmodified opinion thereon. The auditors also expressed an unmodified
opinion on the annual financial statements from which these summary financial statements were derived. A copy of the auditors' report
on the annual financial statements are available for inspection at the Company's registered office.
The auditors' report does not necessarily report on all of the information contained in this announcement. Any reference to pro
forma or future financial information included in this announcement has not been reviewed or reported on by the auditors.
Shareholders are advised that in order to obtain a full understanding of the nature of the auditors' engagement they should obtain a
copy of that report together with the accompanying financial information from the Company's registered office.
By order of the Board
Chairman Chief Financial Officer
Michael Sacks Alan Salomon
Directors
M Sacks (Chairman), M Pimstein*(Chief Executive), B Sacks*(Chief Executive), A Salomon*, Dr. D Matjila, R Morar, B Bulo,
J M Kahn, V Sekese, C Valkin *Executive
Registered Office
4th Floor, 1 Vdara, 41 Rivonia Road, Sandhurst, 2196
Company Secretary
Horwath Leveton Boner
Auditors
Ernst & Young Inc.
Sponsor
Investec Bank Limited
Email
investor@capitalappreciation.co.za
Website
www.capitalappreciation.co.za
Sandton
19 June 2017
Date: 19/06/2017 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
The JSE does not, whether expressly, tacitly or implicitly, represent, warrant or in any way guarantee the truth, accuracy or completeness of
the information published on SENS. The JSE, their officers, employees and agents accept no liability for (or in respect of) any direct,
indirect, incidental or consequential loss or damage of any kind or nature, howsoever arising, from the use of SENS or the use of, or reliance on,
information disseminated through SENS.
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