File image: IOL
File image: IOL

Continuing costs dent Capital Appreciation earnings

By Banele Ginindza Time of article published Jun 11, 2019

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JOHANNESBURG – The earnings of Capital Appreciation (Capprec) in the year to March were dented by continuing costs the JSE-listed financial technology and services group incurred as it developed innovative product offerings and built capacity.

The group yesterday reported revenue growth of 19.6 percent to R607 million, but saw its earnings before interest, tax, depreciation and amortisation decline 9.8 percent to R159.5m, trading profit down 7.5 percent to R173.2m and a headline earnings decline of 13 percent to R124m.

Bradley Sacks, the joint chief executive of the group, said: “The marginal decrease in earnings, however, is attributable to two items: firstly, product development costs as well as capacity related expenditures incurred in anticipation of growth in commercial activity and, secondly, the renegotiation of certain service and maintenance fees with a major client in the interests of market consistency and in anticipation of future terminal growth.”

He said technology’s role as a key disruptor and differentiator in the banking and financial services sector continued to accelerate, creating further opportunity for Capprec as evident from the momentum built up in the underlying businesses, the solid trading performances and in the strong pipeline.

Capprec said that it had invested significantly to take advantage of the escalating demand for digital and cloud services, which saw it attract further blue-chip clients during the year and growing its payment terminals estate – sold and leased to clients – by 52 percent to 140 000.

It said headline earnings were impacted by the cost of this investment, as well as by a negative earnings adjustment arising from renegotiated terms with a major client, African Resonance.

Earnings per share and headlines earnings per share were down 12.2 and 12.6 percent, respectively. Normalised earnings were 9.01 cents, which were down 11 percent as capital geared for future growth.

The group ploughed R611.2m cash back into reinvestment, while declaring a final dividend per share of 2c, bringing total dividend for the year to 4.25c, an increase of 6.25 percent.

It said it now had a more diversified client base that included all major banking institutions in South Africa, as well as many niche banks, large financial services institutions and other financial services companies.

Capprec said the operating performance of business units in the group had been consistent with expectations, despite the challenging economic environment, “particularly in the retail sector and more particularly in the second half of fiscal 2019”.

Capprec increased its cash generation 27.4 percent to R212m, with cash earnings per share up 49.8 percent to 10.9c a share.

Capprec said it had also concluded an agreement with Hanoch Neishlos, the principal vendor of African Resonance, to acquire the intellectual property, technology and development platforms that were previously licensed by African Resonance from Uplink. On completion, Capprec would employ members of the Uplink team focused on group and customer technology and development needs.

“This is an important milestone as the group will have absolute ownership over the vast majority of the intellectual property used in the business,” it said.

In terms of the deal, it would acquire 245 million Capprec shares owned by Neishlos and related associates for R196m, while it would dispose of its 17.45 percent interest in Resonance Australia and its claim on a loan account for R40m. Shareholders and the JSE need to approve the deal.

Capprec shares fell 6.33 percent to close at R0.74 on the JSE on Monday.


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