Capital Appreciation Limited
Incorporated in the Republic of South Africa
Registration number 2014/253277/06
Share code: CTA
ISIN: ZAE000208245
(“Capital Appreciation” or “the Group”)

BUSINESS UPDATE FOR THE FIVE MONTHS TO 31 AUGUST 2022

Capital Appreciation’s 2022 Annual General Meeting will take place virtually at 14:00 on Wednesday 7
September 2022. We, therefore, take the opportunity to provide shareholders and other interested parties
with a brief update on the progress within our divisions in the five months since our March 2022 financial
year-end, as well as the state of the markets in which we operate.

The long-term trend towards digitalisation continues and is evident in every aspect of daily life. The resulting
demand for the adoption of electronic payments, cost-saving software solutions and cloud services have
served to maintain the positive momentum in the technology sectors in which we operate, despite the
acknowledged economic challenges being experienced both globally and in South Africa. While we are not
immune to the consequences of the economic challenges, the positive trajectory of demand for our products
and services continues to propel the Group forward and present opportunities for growth and expansion.

The demand from local and international customers for the products and services in the Software division
has continued in the past five months, leading to notable growth in service and consulting fees and sales of
state-of-the-art Hardware Security Modules (HSM). HSMs are used for enterprise encryption and to protect
Payment Card PINs and contactless payments. Demand for Cloud and Digital services continues to grow, and
the areas of Intelligent Data and Managed Services are showing strong progress. The Responsive acquisition
in March 2022 has further enhanced the division’s digital offering and provides complementary service
offerings to Synthesis’ growing customer base. Responsive’s financial results will be included in the Software
division results for the full period for the first time in the six months to 30 September 2022. In anticipation
of strong growth, the Software division has increased its headcount by 50% year-on-year, which includes a
substantial intake of recently qualified graduates. The division has also materially increased its marketing and
business development spend, particularly on its tap-on-phone Halo Dot initiative, which continues to make
good progress and is achieving notable interest both in South Africa and internationally.

Demand for point-of-sale (POS) terminals continues to be robust, particularly as the Group’s addressable
market increases. Economic challenges as well as the increasing preference for the additional functionality
of the Android devices at lower price points are gradually shifting the terminal sales mix in favour of these
terminals. Maintenance and support fees continued to grow modestly as customers elected to monitor the
operating costs of the new range of Android devices before entering into long-term maintenance and support
contracts.
While we continue to experience delays associated with global semiconductor shortages and supply chain
issues, again an issue in recent months, a positive consequence is the greater awareness by customers of the
benefits of balanced purchases on a more even basis across the year. We are hopeful that this trend will
persist in years to come and help reduce the lumpiness in terminal sales previously experienced. The
replacement lifecycle of terminals is also gradually becoming shorter as financial institutions and corporate
customers replace their ageing terminal estates sooner to take advantage of improvements in technology,
more functionally-rich solutions and to comply with international card specifications and certifications. These
trends all point to consistent demand for POS terminals over the medium term. Transaction-related income
from terminals continued to generate pleasing growth in this period. Shareholders are reminded that
terminal sales in the first half of the 2022 financial year increased by 68% due to substantial and lumpy
investment in terminals as companies emerged from the Covid pandemic. In view of the current revenue mix
trends and continued supply chain challenges, it is unlikely that the Payments Division will achieve the same
level of terminal sales in the 2023 interim period. We nevertheless expect satisfactory growth in the overall
value of terminal sales for the full 2023 fiscal year.

The Group continues to invest significant funds in growth-related initiatives, the revenue benefit of which
will only manifest in the medium term. This includes investment in new technology solutions and in the
Group’s International Division, which remains in an early formative stage. The expenditure of these funds has
been expensed through the income statement in the current period. The Group strives to remain relevant to
its clients by continuing to innovate and invest in new technologies, offerings and solutions and to be
responsive to the needs of clients. The healthy and increasing demand will continue to support positive
growth prospects for the Group.

Capital Appreciation’s divisions remain highly cash generative with continuing healthy cash conversion from
operations over the past five months. The Group’s balance sheet remains very strong, providing ample
support for further investment in our businesses, pursuing acquisitive investment opportunities and/or
undertaking share repurchases.

The information contained in this business update has not been reviewed or reported on by the external
auditors of the Group.

Capital Appreciation’s closed period will commence on 1 October 2022. The Group intends to release its
interim results for the six months ended 30 September 2022 on or about 29 November 2022.

Johannesburg
7 September 2022

Sponsor: Investec Bank Limited




                                                                                                            2