Wrap Text
Condensed Unaudited Interim Results for the 6 months ended 30 September 2017
Capital Appreciation Limited
Incorporated in the Republic of South Africa
(Registration number 2014/253277/06)
Share code: CTA
ISIN: ZAE000208245
("CAPPREC")
CONDENSED UNAUDITED INTERIM RESULTS FOR THE 6 MONTHS ENDED 30 SEPTEMBER 2017
SALIENT FEATURES
## 124% Increase in Profits after Tax
## 87% Increase in EPS and HEPS
## Maiden Dividend 2,0 cents per share
## Cash Resources R463.1 million
ABOUT CAPPREC
CAPPREC is an investment holding company focused on investing in and developing financial technology ("Fintech") enterprises, their
platforms, solutions, products and applications. CAPPREC presently has two divisions - "Payments and Payment Infrastructure" and
"Software and Solutions". The Payments businesses presently innovate, develop, manage and promote payment product and payment
infrastructure solutions for established and emerging institutional clients and other organisations that need to receive or make
payments. The Software and Solutions business addresses the complex technology needs of Financial Institutions.
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Figures in Rand Unaudited Unaudited Audited
6 months 6 months year
ended ended ended
30 September 30 September 31 March
2017 Change 2016 2017
REVENUE 223 408 986 39 745 134 80 172 952
Sales and services income (Note 1) 201 775 680
Cost of sales (120 289 977)
Gross profit 81 485 703
Investment income 19 596 811 39 745 134 80 172 952
Marketing and distribution costs (6 429 863)
Administration costs (9 040 185) (2 351 661) (5 083 751)
Trading profit 85 612 466 129% 37 393 473 75 089 201
Share-based payment expense (25 985)
Depreciation (3 260 565) (32 962)
Operating profit 82 325 916 120% 37 360 511 75 089 201
Costs associated with acquisition of Viable Assets (14 774 993)
Finance income 2 036 496
Finance costs (180 421)
Equity-accounted loss (452 526)
Profit before taxation 83 729 465 124% 37 360 511 60 314 208
Taxation (23 595 263) (10 466 306) (21 109 406)
Profit after taxation 60 134 202 124% 26 894 205 39 204 802
Other comprehensive income - - -
Total comprehensive income for the period 60 134 202 124% 26 894 205 39 204 802
Profit for the year attributable to ordinary shareholders 60 134 202 26 894 205 39 204 802
Ordinary shares in issue (Note 4) 1 555 000 000 1 250 000 000 1 250 000 000
Weighted average number of shares 1 495 935 842 1 250 000 000 1 250 000 000
Diluted weighted average number of shares 1 520 198 137 1 250 000 000 1 250 000 000
Basic earnings per share (cents) 4,02 87% 2,15 3,14
Headline earnings per share (cents) 4,02 87% 2,15 3,14
Diluted earnings per share (cents) 3,96 84% 2,15 3,14
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION AT 30 SEPTEMBER 2017
Figures in Rand Unaudited Unaudited Audited
30 September 30 September 31 March
2017 2016 2017
ASSETS
Property, plant and equipment 15 864 752 175 046 211 725
Intangible assets 345 978
Goodwill (Note 2) 753 158 608
Deferred tax 3 020 684
Other financial assets 16 952 674
Interest in associates (Note 3) 36 333 335
Non-current assets 825 676 031 175 046 211 725
Trade and other receivables 98 703 029 591 145 589 232
Taxation receivable 247 229 247 229
Cash and cash equivalents 463 481 526 1 037 033 673 1 047 788 681
Current assets 562 431 784 1 037 624 818 1 048 625 142
Total assets 1 388 107 815 1 037 799 864 1 048 836 867
EQUITY AND LIABILITIES
Capital and reserves
Share Capital 1 234 340 906 1 000 002 500 1 000 002 500
Constituent ordinary share capital 4 000 000 4 000 000
Constituent costs (22 543 311)
Share based payment reserve 25 985
Retained income 102 954 272 49 052 784 38 820 070
Total equity 1 337 321 163 1 030 511 973 1 042 822 570
Deferred income 8 391 667
Non-current liabilities 8 391 667
Trade and other payables 26 755 169 1 132 680 6 014 297
Bank overdraft 349 869
Short-term borrowings 7 370 229
Deferred income 662 500
Taxation payable 7 257 218 6 155 211
Current liabilities 42 394 985 7 287 891 6 014 297
Total equity and liabilities 1 388 107 815 1 037 799 864 1 048 836 867
Note 1. Consolidated segment analysis
Payments* Software and services* Corporate Group
Figures in Rand 30 September 30 September 30 September 30 September 30 September 30 September 30 September 30 September
2017 2016 2017 2016 2017 2016 2017 2016
Sales and services income 164 169 444 37 606 236 201 775 680 -
Trading profit 54 765 156 10 792 629 20 054 681 37 393 473 85 612 466 37 393 473
Depreciation 3 028 900 191 141 40 524 32 962 3 260 565 32 962
Profit before tax 52 925 936 10 806 240 19 997 289 37 360 511 83 729 465 37 360 511
Total assets 163 844 145 35 563 336 1 188 700 334 1 037 799 864 1 388 107 815 1 037 799 864
Total liabilities 32 837 841 15 465 803 2 483 008 7 287 891 50 786 652 7 287 891
Net assets 131 006 304 20 097 533 1 186 217 326 1 030 511 973 1 337 321 163 1 030 511 973
Goodwill 753 158 608 753 158 608 -
* The financial information for the Payments and Software and Services division represents trading for 5 months, as the acquisitions became unconditional on 5 May 2017.
30 September 30 September
Figures in Rand 2017 2016
Note 2. Goodwill
Carrying amount 753 158 608
Movement in goodwill
Carrying value at the beginning of the period -
Acquisition of businesses 753 158 608
Carrying value at the end of the period 753 158 608 -
In terms of IFRS 3 - Business Combinations, management is currently considering the purchase price allocation ('PPA') to determine any
fair value adjustments to the assets and liabilities acquired. A final PPA allocation will be determined during the course of the
2018 financial year. The cost of aquisitions as the basis to determine any Business Combination allocations are set out and described
in the consolidated interim financial statements available for inspection at our offices.
Note 3. Interest in associates
Investment in associates at cost 31 476 520
Long term loan to associate 5 309 341
Attributable share of loss of associate for the period (452 526)
36 333 335 -
Note 4. Share capital
Number Number
Reconciliation of issued ordinary shares
Number of issued ordinary shares at the beginning of the year 1 250 000 000 1 250 000 000
Number of ordinary shares issued during the period 305 000 000
1 555 000 000 1 250 000 000
Number of ordinary shares repurchased during the period (treasury shares) (25 000 000) -
Number of issued ordinary shares, net of treasury shares at the end of the period 1 530 000 000 1 250 000 000
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Constituent
Ordinary share ordinary share Constituent costs Share-based Retained income Total equity
Figures in Rand capital capital payment reserve
Balance at 1 April 2016 1 000 002 500 4 000 000 (22 543 311) 22 158 579 1 003 617 768
Total comprehensive income for the year ended 31 March 2017 39 204 802 39 204 802
Transfer of constituent costs to retained income 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
Issue of ordinary share capital 253 150 000 253 150 000
Repurchase of constituent ordinary share capital (4 000 000) 4 000 000 -
Share-based payment reserve 25 985 25 985
Purchase of 25 million ordinary shares (treasury shares) (18 811 594) (18 811 594)
Total comprehensive income for the six months ended
30 September 2017 60 134 202 60 134 202
Balance at 30 September 2017 1 234 340 906 - - 25 985 102 954 272 1 337 321 163
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Figures in Rand Unaudited Unaudited Audited
30 September 30 September 31 March
2017 2016 2017
Cash generated/(utilised) from operations 40 645 255 (6 223 058) (18 770 820)
Finance income received 2 036 496
Investment income received 19 596 811 39 745 134 80 166 500
Taxation paid (22 409 002) (4 396 879) (21 442 419)
Net cash inflow from operating activities 39 869 560 29 125 197 39 953 261
Cash flows from investing activities
Purchase of property, plant and equipment (5 126 371) (111 928) (184 984)
Purchase of intangible assets 34 345
Proceeds on disposal of property, plant and equipment (115 319)
Purchase of investments, net of cash acquired (569 889 865)
Purchase of associate (29 746 520)
Loan advanced to associate (5 024 791)
Decrease in loan receivables 4 153 531
Net cash outflow from investing activities (605 714 990) (111 928) (184 984)
Cash flows from financing activities
Repurchase of 25 million ordinary shares (treasury shares) (18 811 594)
Net cash inflow from financing activities (18 811 594) - -
Net (decrease)/increase in cash and cash equivalents (584 657 024) 29 013 269 39 768 277
Cash and cash equivalents at beginning of period 1 047 788 681 1 008 020 404 1 008 020 404
Cash and cash equivalents at end of period 463 131 657 1 037 033 673 1 047 788 681
Split as follows:
Cash and cash equivalents 463 481 526 1 037 033 673 1 047 788 681
Bank overdraft (349 869)
Cash and cash equivalents at end of period 463 131 657 1 037 033 673 1 047 788 681
INTRODUCTION AND REVIEW
Shareholders will be aware that CAPPREC's viable asset "Fintech" acquisitions became unconditional on 5 May 2017 and, with
effect from that date, the company was no longer classified as a SPAC under the JSE list of "Non-Equity Investment
Instruments", but was appropriately transferred to the JSE list under the sector "Software and Computer Services".
The Board takes pleasure in presenting CAPPREC's group results for the six-month period ended 30 September 2017 ("the
interim period"), this being the first reporting period to include earnings contributions from trading operations of the viable
asset acquisitions (for the 5 months from May).
Since concluding the acquisitions, CAPPREC, through a focused and cooperative effort between the company and the respective
management teams, has been able to successfully on-board the three acquisitions into the group. These maiden results are
therefore particularly pleasing, revealing the character, commitment and dedication of senior management to ensure
consistent and optimal outcomes.
To provide additional context to these interim results, it should be noted that the comparative 2016 interim results
substantially relate to CAPPREC's managed investment activities as prescribed in the JSE rules applicable to SPACs.
BASIS OF PREPARATION
The condensed unaudited interim results for the six months ended 30 September 2017 have been prepared in compliance with
the Listings Requirements of the JSE Limited, the requirements of the International Financial Reporting Standards, IAS 34:
Interim financial reporting, SAICA Financial Reporting Guidelines as issued by the Accounting Practices Committee and Financial
Pronouncements as issued by the Financial Reporting Standards Council and the Companies Act, No. 71 of 2008. The Board of
directors take full responsibility for the set of financial results which have been prepared by A.C. Salomon CA(SA), Chief
Financial Officer who supervised the preparation thereof in conjunction with the Financial Manager, C. Sacharowitz CA(SA).
The fair value disclosures required by IAS34:16A(j) and (i) are not disclosed in this announcement but are included in the consolidated
interim financial statements which are available for inspection at our offices.
ACCOUNTING POLICIES
The accounting policies adopted are consistent with those adopted in the preparation of the Annual Financial Statements for
the year ended 31 March 2017. The accounting policies of the newly acquired viable asset acquisitions are consistent with that
of the Company.
GROUP FINANCIAL INFORMATION
Gross revenues for the period under review amounted to R 223.4 million (2016 - R 39.7 million). Net profit before taxation
amounted to R 83.7 million (2016 - R 37.4 million), with net profit after taxation, being R 60.1 million (2016 - R 26.9 million).
These financial statistics translate into EPS and HEPS for the interim period of 4.02 cents per share, an increase of 87% over the
comparable EPS and HEPS in 2016 of 2.15 cents per share.
The company closely monitors its earnings before interest, tax and depreciation (EBITDA) and is pleased to report that EBITDA
for the period was R 85.6 million (2016 - R 37.4 million), including CAPPREC's investment income of R19.6 million. Cash generation
for the interim period amounted to R 60.2 million, which, when aggregated with the Group's cash resources after the viable asset
acquisitions, a buy-back of 25 million shares at an average cost of 75 cents per share and other cash applications, is R 463.1 million.
This capital will be employed by CAPPREC to support its existing businesses, fund organic growth and pursue new acquisition opportunities
in businesses complementary to the existing portfolio.
The performance statistics set out above are consistent with the results assessed through CAPPREC's due diligence review when
the viable asset acquisitions were considered. The market has speculated on the valuation parameters relating to the aggregate
cost of our acquisitions and these results now confirm our expected forward EBITDA multiple range of less than 6 times (excluding
CAPPREC's investment income).
Sector of Interest
CAPPREC's group focus is technologies specifically related to the financial services sector, a sector experiencing unprecedented
change due to increasing market regulation, evolving consumer expectations and accelerating disruption to historic value
chains. Much of this change is attributable to inventive technologies and the innovative application of such technologies, not
only in the financial services sector, but in all areas of the economy. These factors, and their material influence in the financial
services sector, formed the principal rationale for CAPPREC's decision to invest in the Fintech sector.
African Resonance Solutions and Dashpay ("AR" and "DP" respectively)
AR and DP now comprise the "Payments and Payment Infrastructure" division within CAPPREC and the companies are well
integrated within the Group.
AR's performance over the course of the last 5 months has been extremely pleasing. AR continued to expand its market reach
through several new client contracts, resulting in an increase in its market share and growing penetration within its traditional
banking and financial institutional client base. AR's state of the art proprietary technologies, its innovative operating protocols
and disruptive creativity continues to be recognised by its institutional clients. We are pleased with the growing customer
order pipeline (for the rest of this fiscal year and next year) and the positive indications that emerge through this support going
forward.
DP has similarly made very good progress over the last 5 months and its specialized payment platform, driven by the most
advanced technology concepts, is almost complete and ready for national roll out.
The platform integrates seamlessly into point-of-sale terminals, as well as those supplied and managed by AR, and, more
importantly, the extant legacy banking and related systems of large financial and other institutions. The official launch and roll-
out of DP's new platform is an important development and is expected to receive substantial support from the group's
institutional client base. The Board is cautiously confident that DP's initiatives will make a meaningful contribution to the
Group going forward.
Several engagements are also presently taking place with potential clients in Africa, to similarly provide payment solutions,
systems and functional payment infrastructure. This aspect is an exciting work in progress, as the continent of Africa presents
an extremely fertile opportunity for both AR and DP's growth and expansion.
In addition to the "developed market" opportunity set, the CAPPREC payment and payment infrastructure assets are well
suited to address the challenge of financial inclusion and delivering financial services to unserved markets. "Financial Inclusion"
is a term used to describe a deliberate endeavour to make financial services available to people that have no access to formal
financial services. The World Bank estimates more than 2 billion people globally fall into this category. The IFC estimates that
this represents a market opportunity of more than US$2 trillion.
These opportunities start with providing simple and easy access to an account for savings and affordable transacting. Over
time, this also means having access to affordable credit, being able to engage in commerce (accept payments), save and invest,
run a business or transfer money to third parties and family. Technology is key to unlocking this opportunity and, given the
growing demand for such service platforms and secure operating models in South Africa and elsewhere, it has become an
increasingly interesting area for commercial assessment by CAPPREC
Synthesis Software Technologies ("SST")
SST comprises the "Software and Solutions" division within CAPPREC. SST has continued to post solid growth and enjoys an
extraordinary reputation with its client base. Recent contract wins, recognition by and accolades from engaged clients, many of
whom are also clients of AR, is very pleasing and is a testament to the team's focus on execution excellence. SST offers highly
specialized software development, consulting and integration services and technology solutions to banking and other financial
institutions in South Africa as well as in other emerging markets. SST is an Amazon Web Services "advanced partner" (the first
one accredited in Africa), whereby SST combines specialized technical knowledge of "the cloud", simplifying the complexities
and customizing applications with expertise, agility and innovation. The vendors of SST provided CAPPREC with a structured
three year profit warranty and there exists a cautious expectation, that the profit warranty threshold will not only be attained,
but exceeded.
Resonance Australia ("RA")
CAPPREC has a 17.45% minority interest in RA, an entity presently in development in that region. Over the past months RA has
made impressive progress in its marketing and capacity planning in order to provide services in Australia similar to those
services presently provided by AR and soon to be provided by DP in South Africa. RA incurred a trading loss during the period
under review and an attributable loss of R 452,526 has been accounted for in the Consolidated Statement of Comprehensive Income.
PROSPECTS
Technology is evolving rapidly and its myriad applications are impacting almost all features of commerce, life and human
behaviour. It is disrupting conventional patterns of conduct and processes, and progressively accelerating its reach into almost
all professional, manufacturing, commercial, trading businesses, including lifestyle sectors everywhere. The same is true for its
impact on the financial services sector.
Whether it is the introduction of technology based solutions by new entrants in the financial services sector, the adoption of
technology by incumbents to defend against competitive start-ups, or the application of technology to achieve operational
efficiency through innovative financial products and solutions, the prospects for future sector growth, not only in South Africa
but globally, are strong. In this regard, CAPPREC'S subsidiary and associate businesses are well capitalized, well managed and
have highly skilled and competent technology specialists who are loyally committed to the success of the Group. The Group is,
accordingly, well positioned to participate in the FinTech revolution and, in many instances, could well play a leadership role in
this process.
CAPPREC is also fortunate to have significant resources for further acquisitions and expansion within the sector, such
propositions continually being brought to our attention for consideration.
South Africa at the present time however, is challenged with both economic and political uncertainties, these broad conditions
further exacerbated by high levels of unemployment, growing inflation, unstable foreign currency conversion rates and the
risks of being additionally burdened with a non-investment grade sovereign rating.
Notwithstanding these unpredictable and erratic circumstances, there is nevertheless a degree of positive expectation, that the
trend and performance posted during this interim period, will continue into the second half of the financial year, hopefully
enhanced through a repeat of past patterns of organic growth, the successful closure of contracts in the course of negotiation,
including certain technology transfer opportunities for easy implementation and management into other African destinations
and elsewhere.
BLACK ECONOMIC EMPOWERMENT
When CAPPREC was constituted in 2015, Broad Based Black Economic Empowerment (BBBEE) partnership ranked as a
deliberate priority and this modus for participation continues to be an important feature and consideration in all of the groups
commercial interactions. In addition to the ownership by several black owned, black represented and black controlled direct
shareholder entities, CAPPREC introduced two additional empowerment structures in the form of The Capital Appreciation
Empowerment Trust ("CAET") and the Capital Appreciation 67 Scheme. These two entities collectively own 81,7 million
CAPPREC shares. The BBBEE economic interest in CAPPREC is approximately 31.1% and the BB-BEE voting interest in CAPPREC
is approximately 39.1%. The Group's principal subsidiary acquisitions, AR and SST, enjoy Level 4 BB-BEE and level 6 BB-BEE
rating certificates respectively.
DIRECTORS AND OFFICERS
On 13 November 2017, Professor Hanoch Neishlos, the major vendor in AR, was appointed to the Board as a Non-Executive
Director. There were no other changes to the Board during the period under review.
DIVIDENDS
The Board has pleasure in announcing that an interim maiden dividend of 2,0 cents per ordinary share (gross) has been declared
for the six months ended 30 September 2017. Dividends are subject to dividends withholding tax. The payment date for the
dividend is Monday, 4 December 2017. This interim dividend will constitute part of the group's annual dividend to be
considered in due course, based on the results for the year ending 31 March 2018.
- Dividends have been declared out of profits available for distribution
- Local Dividends Withholding Tax rate is 20%
- Gross dividend amount is 2,0 cents per ordinary share
- Net cash dividend amount is therefore 1,6 cents per ordinary share
- CAPPREC has 1,555,000,000 ordinary shares in issue at the declaration date
- CAPPREC's Income Tax Reference Number is 9591281176.
The salient dates relating to the dividend are as follows:
Last day to trade cum dividend Tuesday 28 November 2017
Shares commence trading ex-dividend Wednesday 29 November 2017
Dividend record date Friday 1 December 2017
Dividend payment date Monday 4 December 2017
Share certificates for ordinary shares may not be dematerialised or rematerialized between Wednesday 29 November 2017 and
Friday 1 December 2017, both days inclusive.
UNAUDITED INTERIM FINANCIAL STATEMENTS
This announcement contains certain forward-looking statements with respect to the economy and the results of the operations
of CAPPREC, which by their nature, involve risk and uncertainty on economic circumstances that may or may not occur in the
future.
Neither the financial information contained in this Interim results presentation, nor any of the forward-looking statements
recorded herein, have been audited or reviewed by CAPPREC's external auditors.
By order of the Board
Chairman Joint Chief Executive Officers
Motty Sacks Brad Sacks Michael Pimstein
Directors
M Sacks # (Chairman), M Pimstein * (Joint Chief Executive), B Sacks * (Joint Chief Executive), A Salomon *,
Dr. D Matjila #, R Morar #, B Bulo @ #, J M Kahn @ #, Prof. H Neishlos #, V Sekese @ #, C Valkin @ #
*Executive # Non-Executive @ Independant
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
14 November 2017
Date: 14/11/2017 07:05:00 Produced by the JSE SENS Department. The SENS service is an information dissemination service administered by the JSE Limited ('JSE').
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