Araxi Limited · JSE:AXX
Araxi — Capital Appreciation — H1 FY2021 Earnings Presentation
55 slides from Araxi's earnings presentation, December 2020
Slide 1: Interim Results Presentation
INTERIM RESULTS PRESENTATION For the 6 months ended 30 September 2020
Slide 2: Outline
1 Introduction OUTLINE 2 Highlights for the period 3 The opportunity 4 About our investments 5 Financial performance 6 Prospects 2
Slide 3: Capital Appreciation
PAYMENTS DIVISION CAPITAL APPRECIATION We are a financial technology company that seeks to serve or partner with established and emerging financial institutions and other large corporates SERVICES DIVISION We endeavour to deliver innovation and value to our clients and their customers CTA ENTERPRISE
Slide 4: COVID-19 organisational and operational response
ORGANISATIONAL RESPONSE OPERATIONAL RESPONSE Our team’s health was our first priority Client service was our priority COVID-19 Remote work of all non-essential staff Prior disaster preparedness and Group companies were classified as infrastructure investment paid essential services and were fully di
Slide 5: Impact of COVID-19
MACRO ENVIRONMENT SILVER LINING & OPPORTUNITY FOR CAPITAL APPRECIATTION IMPACT OF All sectors of economy impacted New technology solutions needed to address many key issues that have COVID-19 arisen Consumer confidence shattered - Social distancing Long-tail effects of COVID-19 amplify - Remote work
Slide 6: COVID impact on payment services activity
Total Telecoms Retail shops Wholesale stores 100% 47% 73% 82% 89% 100% 57% 111% 122% 141% 100% 18% 86% 119% 106% 100% 47% 103% 103% 111% COVID IMPACT ON PAYMENT Mar Apr May Jun Jul Mar Apr May Jun Jul Mar Apr May Jun Jul SERVICES Mar Apr May Jun Jul ACTIVITY 100% 30% Auto 66% 82% 95% Healthcare 100%
Slide 7: COVID impact on payment infrastructure activity
Terminal Handling 160% 140% 120% COVID IMPACT 100% 80% ON PAYMENT 60% 40% INFRASTRUCTURE 20% ACTIVITY 0% H2'20 Avg April May June July Aug Sept Oct Capacity Utilisation – reflects Repairs reduced activity and delayed 200% business 180% 160% 140% Indicators 120% 100% Prior to lockdown 80% 60% Exceeds
Slide 8: Capital Appreciation's positioning
CAPITAL Healthy balance sheet, enables management to focus on execution APPRECIATION’S POSITIONING Experienced management team While challenges exist and operating Deep domain expertise and proprietary technologies in high demand areas conditions are tough, CAPPREC’s business is resilient Accelerati
Slide 9: Group financial highlights
Revenue Earnings & Dividends Revenue R 323.7 m 15.0% EPS 4.45 cents 12.9% Payments Division R 215.3 m 15.6% HEPS 4.45 cents 29.7% GROUP Services Division R 108.4 m 13.8% Dividends 2.50 cents 11.1% FINANCIAL HIGHLIGHTS Profit Capitalisation & Cash resources EBITDA R 81.6m 20.2% Equity R 1 332.0 m 23.
Slide 10: Divisional contribution
REVENUE EBITDA Group Up 15.0% Group Up 20.2% DIVISIONAL + 3.1% + 13.8% 33.5% 29.7% 33.8% 35.5% CONTRIBUTION Services Services Group headcount grew to 324 (September 2019: 298) + 15.6% + 33.0% Payments 66.2% 66.5% Payments 64.5% 70.3% FY19 FY20 FY19 FY20 10
Slide 11: Payments highlights
✓ The number of terminals sold period on period grew by 17.6% ✓ More than 202 000 terminals in the hands of clients (September PAYMENTS 2019: 154 000), up 31% YoY and up 9% since March HIGHLIGHTS ✓ Continued to gain market share Payments Division well positioned to capitalise on anticipated ✓ Strong
Slide 12: Services highlights
✓ Strengthened relationship with existing clients, new contract wins ✓ New blue-chip client relationships established SERVICES ✓ Secured additional AWS accreditation HIGHLIGHTS ✓ Continued to advance AWS leadership Secular trends in Cloud, AI, RegTech and digitalisation are ✓ Further diversified rev
Slide 13: The Opportunity
THE OPPORTUNITY 13
Slide 14: 2020 Future of Fintech Conference
“The Covid-19 pandemic accelerated the adoption of digital tools in financial services by 3 to 5 years — and the shift to digital will continue long after a vaccine becomes available.” 2020 FUTURE OF FINTECH CONFERENCE Anand Selva, CEO of US Held week of 16 November 2020 consumer banking at Citigrou
Slide 15: Regulation and technology enablement
INVISIBLE CONNECTED COMPETITIVE Collaborator POSITIONING OF Bank FINANCIAL REGULATION SERVICES Consumer PARTICIPANTS IS TIED TO TECHNOLOGY ENABLEMENT INSIGHTS-DRIVEN PURPOSEFUL Source: Forrester Research 15
Slide 16: Digitalisation is a top 3 priority
Which of the following initiatives are likely to be your organization’s top business priorities over the next 12 months? % indicating critical/high priority DIGITALISATION TOP FIVE BANKING BUSINESS PRIORITIES IS A TOP 3 Rank Pre COVID % Post COVID % PRIORITY 1 Grow revenue 42% Grow revenue 38% Was n
Slide 17: Market for cloud is huge
MARKET FOR $11.6bn AWS Revenue, grew 29% YoY (CY’20 Q3) CLOUD IS HUGE . . . . . . SA MARKET EXPECTS 30% 4 YEAR CAGR $6.3bn Estimate Microsoft Azure Revenue, up 48% YoY (CY’20 Q3) R22bn SA cloud market in 2023, expected to grow at c.30% over next 4 years Source: BMIT SA Cloud Computing Overview & Mar
Slide 18: COVID's longer-term impact on payments
Cash is increasingly unwelcome, limit spread of COVID-19 Increasing interest by merchants in digital payment solutions COVID’S LONGER-TERM Merchants increasingly interested in Value Added functionality IMPACT ON PAYMENTS Contactless payment – per Mastercard survey 46% of consumers change “Top of Wal
Slide 19: COVID crisis likely leads to further decline in cash usage
Mature markets 2010 2020 79 66 59 54 55 56 51 53 52 COVID CRISIS 39 34 LIKELY LEADS TO 28 24 23 FURTHER 14 9 DECLINE IN CASH Japan Singapore Korea US Finland UK Netherlands Sweden USAGE Emerging markets 2010 2020 Cash usage by region, % of cash used in total transactions 100 100 97 99 96 95 93 by vo
Slide 20: Payments in South Africa
Mix of consumer payments instruments (value and number of transactions) PAYMENTS IN >70% of transactions done are 100% Other Other Cash SOUTH AFRICA Direct Debit Direct Debit 90% Cash is big and continues to be a 60 billion+ cash transactions primary source of opportunity for p.a. Debit Card digital
Slide 21: Digital acceptance
Breakdown of acceptance frontier by Standalone POS devices number of stores per business segment (No of terminals, thousands) (2017) DIGITAL 403 418 ACCEPTANCE Merchants in these sectors will be well within the current acceptance The conventional 394 frontier, and should all have Large & acceptance
Slide 22: POS device penetration
AUSTRALIA TURKEY POS DEVICE SPAIN PENETRATION FRANCE UK ITALY POS installed devices U.S. per 1 000 people CANADA BRAZIL SOUTH AMERICA GERMANY SOUTH AFRICA’S PENETRATION IS ONLY 4.5 MEXICO Significant opportunity to increase penetration as costs CHINA decline and value increases RUSSIA INDIA 5 10 15
Slide 23: About Our Investments
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Slide 24: Consistent strategy
CONSISTENT STRATEGY PARTNER INNOVATE EXECUTE Strategy of delivering innovative solutions excellently has delivered substantial growth Work with financial institutions State of the art proprietary Service excellence technology Create ecosystems for Alleviate pain points collaboration Entrepreneurial
Slide 25: Payments
PROPRIETARY PLATFORM Unique, proprietary technology platform enabling rapid development and implementation of customised corporate solutions across a diverse range of sectors PAYMENTS BLUE CHIP CLIENTS Provide and operate payment and processing solutions for leading brands and Enables banks and corp
Slide 26: Expanded device portfolio
EXPANDED DEVICE PORTFOLIO Diverse range, multiple platforms, varied price points and expansive use cases Proprietary – Tetra/Telium World leaders in payment devices and technology 26
Slide 27: Halo Tap on Phone
is a software application that enables contactless payment acceptance on any NFC-enabled Android device. Supports contactless cards and mobile wallets such as Samsung Pay. Available as an SDK for App integration. TAP ON PHONE BENEFITS Contactless payments on any Affordable – No additional hardware n
Slide 28: Powered by Nedbank
NEDBANK Powered by
Slide 29: Payment revenue model
POS DEVICES MAINTENANCE & SERVICES • Terminal sales generate gross profit • Generates monthly recurring PAYMENT • Rentals generate monthly recurring revenue depending on level and revenue scope of services contracted REVENUE • Relationship with major clients subject to long-term master supply agreem
Slide 30: Substantial growth in terminal estate
202 185 154 TOTAL TERMINAL ESTATE 140 118 92 • Number of terminals in clients’ hands grew 31% YoY, 49 60 50% 3yr CAGR • Includes terminals subject to rental agreements April Sep Mar Sep Mar Sep Mar Sep '17 '17 '18 '18 '19 '19 '20 '20 SUBSTANTIAL OWNED BY CLIENTS 178 192 GROWTH IN 128 146 • Number of
Slide 31: Evolution in payment services offering
✓ Merchant terminal count continues to increase EVOLUTION IN ✓ Transaction related GROSS Tx VALUE PAYMENT revenue continues to increase ~ 11x in 14% R5.6bn SERVICES 3.5 years 69% ✓ Focus on solving complex R4.9bn OFFERING enterprise problems 31% 57% Dashpay’s progress continues, even in ✓ Enhanced s
Slide 32: MSD (Bravecto)
USE CASE The solution involves a mobi app with digital stamp card, product reminders, store locator and product subscriptions, as well as MSD (BRAVECTO) a Web portal which allows customers to register, collect and redeem digital stamps in-store Key features: • Product reminders, notifying pet owners
Slide 33: Consumer lending marketplace use case
USE CASE Allows consumers to apply for consumer finance directly on the terminal in-store, allowing them to compare quotes for Consumer lending marketplace short-and long-term personal loans from R1 000 More than 50 lending sources are canvassed 33
Slide 34: Insurance and benefit administration
USE CASE Insurance and benefit administration 34
Slide 35: Payments' growth strategy
✓ Grow market for devices PAYMENTS’ ✓ Continue to take market share in established segments GROWTH ✓ Support existing clients STRATEGY ✓ Grow SA client base Organic growth opportunities are plentiful for a business with ✓ Follow clients across Africa an established base, immense industrial knowledge
Slide 36: Software & Services segment
SOFTWARE & SERVICES SEGMENT BLUE-CHIP CLIENTS CLIENT CENTRIC THOUGHT LEADERS Leading provider of technology Absa, AFGRI, Capitec, Discovery Delivering the highest business Acquiring and retaining the best Vitality, Investec, Nedbank, value with a strong service ethic software development skills prod
Slide 37: Operating units within Synthesis
PLATFORM DIGITAL INTEGRATION CHANNELS CLOUD PRODUCTS (REG TECH) OPERATING Delivering exceptional end-user client experience, web and mobile touchpoints Cloud transformation to assist the Enterprise in becoming cloud-ready, execute mass Integration to enable regulatory reporting solutions for SARS (t
Slide 38: Cloud is a catalyst for the adoption of AI
Global Machine Learning $20.8 bn 44.% CAGR AWS for AI CLOUD IS A AWS named a Magic $1.5 bn CATALYST FOR 2017 2024 Quadrant leader in Gartner's Cloud AI Developer services THE ADOPTION Roundup Of Machine Learning Forecasts And Market Estimates, • 89% of deep learning OF AI 2020, Forbes projects in th
Slide 39: Synthesis MSP capabilities
Global demand for Cloud MSP By 2024 expected to exceed $80 billion, CAGR 17.5% International markets materially more mature than SA but demand is accelerating SYNTHESIS MSP Build end-to-end engagement approach CAPABILITIES Existing Synthesis delivery capability in consultation and migration position
Slide 40: AWS APN Social Impact Partner of the Year
AWS APN SOCIAL IMPACT PARTNER OF THE YEAR AWARD Sub Saharan Africa 40
Slide 41: Prior case studies
Use of AI and 24/7/365 cloud managed PRIOR CASE machine learning in brand management infrastructure services globally STUDIES RegTech & Financial services in Customer agricultural sector SYNTHESIS ACADEMY Engagement Outcomes-driven e-Learning LMS-based training to client organisations RegTech AI Cus
Slide 42: Al Baraka Bank streamlines SARB reporting
USE CASE RESULTS AL BARAKA BANK • Accurate reporting to the SARB STREAMLINES • Efficient storage, reporting and audit SARB REPORTING • Reporting that updates every “I would recommend Synthesis and txtream. The time SARB requirements team and solution are Synthesis integrated Al Baraka’s definitely f
Slide 43: AFGRI eAccounts banking platform migrated to AWS
USE CASE RESULTS AFGRI eACCOUNTS • Scalability BANKING • Cost insights and control • Advanced monitoring and PLATFORM alerting “We now have utilisation transparency, and MIGRATED TO AWS • Exceptional stability exceptional stability. This • Improved customer has proved to be a worthwhile investment”
Slide 44: Financial Performance
FINANCIAL PERFORMANCE 44
Slide 45: Divisional performance: Payments Division
R million 600 506.2 FY Revenue FY EBITDA 469.9 H1 Revenue H1 EBITDA 500 DIVISIONAL 415.1 PERFORMANCE 400 Payments Division 300 215.3 202.9 196.1 186.3 161.8 151.7 140.7 135.5 200 77.5 66.5 50.0 44.2 100 42.1 24.9 9.4 0 FY '14 FY '15 FY '16 FY '17 FY '18 FY '19 FY '20 30 Sep 30 Sep '19 '20 Revenue gr
Slide 46: Divisional performance: Services Division
R million 250 FY Revenue FY EBITDA 195.0 H1 Revenue H1 EBITDA DIVISIONAL 200 PERFORMANCE 137.8 150 108.4 Services Division 95.3 93.1 77.6 100 53.8 51.9 46.1 44.0 41.6 33.9 29.9 28.0 27.2 50 19.8 15.9 12.6 0 FY '14 FY '15 FY '16 FY '17 FY '18 FY '19 FY '20 30 Sep '19 30 Sep '20 Continuing investment
Slide 47: Group summarised statement of comprehensive income
GROUP SUMMARISED STATEMENT OF COMPREHENSIVE INCOME % increase / (R million) 30 September 2020 30 September 2019 (decrease) Strong growth from all divisions Revenue 323.7 281.6 15.0% Operating expenses 59.2 53.6 10.4% Includes continued development of new innovative products and EBITDA 81.6 67.9 20.2
Slide 48: Divisional revenue composition
DIVISIONAL REVENUE COMPOSITION (R million) 30 September 2020 30 September 2019 Growth AR rental contracts reaching maturity replaced by terminal sales Payments Terminal rental income 10.0 15.8 (36.6%) Aligned to growth of Maintenance and support service fees from terminals 64.1 57.0 12.4% deployed e
Slide 49: Condensed group statement of financial position
CONDENSED GROUP STATEMENT OF FINANCIAL POSITION (R million) 30 September 2020 30 September 2019 31 March 2020 ASSETS Uncomplicated Balance Sheet Non-current assets 847.4 854.3 851.1 Goodwill 728.6 728.6 728.6 Intangible assets 62.0 65.6 61.8 Amortisation of R8.9m (2019: R7.9m) Other non-current asse
Slide 50: Cash flow (key features)
CASH FLOW (KEY FEATURES) (R million) 30 September 2020 30 September 2019 31 March 2020 Cashflow from operations 65.7 20.1 206.1 Strong cash generation Changes in working capital (18.6) (45.5) 23.6 Lower cash balances post Finance income 11.1 21.1 38.1 the share repurchase and 3% reduction in SA prim
Slide 51: Prospects
PROSPECTS 51
Slide 52: General prospects
• A broad range of organic as well as acquisitive growth opportunities available to CAPPREC • Acquisition activity will depend on strategic fit as well as valuations GENERAL • Economic climate is impacting our clients and remains present in our PROSPECTS planning Capital Appreciation is well capital
Slide 53: Our investment case
✓ Leadership position in industry with strong secular OUR INVESTMENT growth trajectory CASE ✓ Strong culture of innovation resulting in relevant An extremely strong foundation on which to grow – organically and by client solutions acquisition ✓ Established track record of delivery ✓ A trusted partne
Slide 54: Thank you
CAPITAL APPRECIATION THAN K Y Oo U 54
Slide 55: Glossary
AEDO Authenticated early debit order ISO Independent sale organisation AI Artificial intelligence IT Information technology ATM Automated teller machine M Million AWS Amazon Web Services NA Not available B2B Business to business NAEDO Non-authenticated early debit order GLOSSARY B2B2C B-BBEE Busines
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