Story audio is generated using AI
Fintech group Araxi is focused on ways to improve margins in the group’s software business, which trails behind its payments unit. The group’s business includes selling payment terminals such as point-of-sale devices, including debit and credit card machines.The group, previously trading as Capital Appreciation, also provides the back-end systems that enable these devices to accept payments and the technology that banks and other financial services companies use to add features to their digital platforms, including loyalty programmes and prepaid vouchers.In addition, the group builds technology and software solutions for banks. “We look at the margins in our two businesses separately because they have different profiles,” Bradley Sacks, CEO of Araxi, told Business Day.“In our payments business, even though we had a decline in revenue, our margins were up.”For the 12 months to end-February, Araxi generated R1.167bn in revenue, down 6.8% from the previous year, while earnings before interest, tax, depreciation and amortisation (ebitda) fell 16.4% to R279.3m. Reported ebitda margin came in at 24% overall, down from 26.7% previously, while the payments ebitda margin stood at 44.5%.“That’s a pretty healthy margin, and it derives from our scale and ability to operate the business efficiently. And also, our maniacal focus on cost management. The team that runs our payments business is very deliberate around that and excels. We’re very pleased with the margins in payments,” said Sacks. “We can sort of creep up from there a little bit. It will really depend on the mix of revenue. As we move to lower-cost devices, the margin gets squeezed. But we are also simultaneously moving to a much more software-heavy revenue stream, and that’s what is up by 31%.” On the whole, Araxi — valued at R2.44bn on the JSE — sees room for margin growth in software, but it faces “two countervailing forces” that challenge the ambition, as margin is also a function of revenue mix. “Software is very human capital intensive,” he said, explaining that the unit had a 77% increase in margin in the second half of the financial year as a result of “improved productivity and revenue”. “But we are also moving to a more licence fee-heavy revenue stream where we are developing products that we licence.” In this way, the group can participate more in models such as software-as-a-service, which carry much higher margins. “The software business will not tend towards the ebitda margins that we’re generating in payments, but we are starting to recover and hope [for] margin in the high teens to low 20s,” Sacks said. The group reported that overall revenue and profitability were negatively affected by “national and global economic headwinds, including a worldwide shortage of microchips that delayed the timely delivery of terminals”.Headline earnings per share, which strip out the impact of one-off financial events, came in 18.2% lower in reported terms to 14.37c. The group declared a final dividend of 7.5c per share, bringing the total dividend for the year to 12c per share. Over the years, the group’s acquisition pipeline has been busy, most recently concluding its R1bn takeover of fintech operator Pay@. The group has also acquired 100% of African Resonance, Dashpay and Synthesis Software Technologies, as well as a 17.45% interest in Resonance Australia. It has a 35% stake in the government messaging platform GovChat.
