Lesaka Technologies, Inc. Price & Performance (LSAK)

This helps investors understand the underlying trends in our business. As you know, the company's results can be significantly affected by the currency fluctuation in fluctuations between the U. S. Dollar and the South African rand. I will now turn the call over to Ali.

Good morning, good afternoon, and welcome. It's been a year since I assumed the role of Executive Chairman at Lesaka. And so I thought it appropriate this quarter to slightly amend the way we presented our quarterly Accordingly, I will start representing the opportunity as we see it. And highlight key events of the quarter. Dan will then present on the group's financial performance, Steve represent the Merchant division, Link in the Consumer division and Naim, the Enterprise division. Which we are separating out for the first time as a third pillar to our business. I will then conclude with the outlook for FY 2025 and also guidance for FY 2026. We have framed the opportunity for Lysaka Lesaka our strategic positioning before. But I'm conscious that we haven't presented the size of serviceable addressable market in dollar terms or given an indication of our perception of market share and the competitive environment. We will start by doing so for South Africa. Today, we believe our existing products and our three divisions operating in South Africa We represent an addressable market net revenue pool of more than $4,000,000,000 We believe the underlying market that we are addressing is growing by 10% to 15% per annum and that through organic and inorganic product and geographical expansion, the addressable market will grow to more than $12,000,000,000 in five years' time.

Comparable business models to ours at maturity routinely achieve EBITDA margins of north of 30% and high free cash flow generation from that. We expect our experience will be no different. We believe we will grow revenue faster than the market, we increase market share and we believe our EBITDA growth will be faster than the revenue growth, as we experience operational leverage. It's worth double clicking on the Merchant and Consumer division's addressable markets to give more color. Today, we estimate we represent 7% of the serviceable addressable net revenue pool in the Merchant division in South Africa. A key component of our strategy is to differentiate ourselves by being a customer led rather than product led company by evolving our product offering to meet the various needs of our customers. No single competitor offers the range of solutions we do in the market and addresses as many sub segments. In this respect, we face a different competitive environment depending on the specific product. For example, while banks may still dominate the core merchant acquiring market, we face a different universe of competitors offering software products. And a different one offering alternative digital payment solutions. Which we have previously referred to as VAS.

Today, we address the merchant market with three brands: depending on the type of merchant. For micro merchants, we use the Kazang brand. For QSR and Hospitality, use the GARP brand, and for other types of merchants, [indiscernible] It's worth noting each brand historically had a different hero product for their customer subsegment. But now sell other products. For example, the case of Gazang, that product was alternative digital payments. In the case of GARP, was point of sale software. However, both brands now offer a fast growing merchant acquiring product. The continued integration of these respective units within Lesaka will allow us to not only offer more products to more segments, but also improve the product offering and the efficiency of the route to market. Materially improving our value proposition and unit economics over time. We expect to grow substantially faster than the market and is the leading fintech in the country, we should be targeting more than 10% market share in the medium term, as market share continues to move from traditional banks to fintechs. In the last quarter presentation, I showed how this has happened in the rest of the world. The regulatory environment in South Africa has been one of the core impediments to the speed of this evolution and the rate of digitization here. [indiscernible] Lusaka has been at the forefront of spearheading the case for the regulatory environment to evolve in line with other markets and for the benefit of the country as a whole.

We are delighted that regulators and stakeholders are taking note and that substantial movements are afoot in the industry. Last week, the Association of South African Payment Providers or ASAP was launched in Johannesburg. With LASSAQA as a founding member and with our own Lincoln Mali taking the role of President, The presence of the South African Reserve Bank there and the public pronouncements they made to the media were encouraging for the industry and the country. The consumer market we address is focused today on South African grant beneficiaries and other payout customers. We believe we have 6.5% market share of the revenue of the market, Again, we face a different subset of competitors depending on the product offering. While banks are the principal competitors for transactional accounts, the lending market is dominated by microfinance companies, and the insurance market by insurance companies. We are confident that we can grow our market share well above 10%. And indeed, our share of transactional accounts is already above that. The immediate opportunity we have is to continue to expand our base of customers especially as they switch from competitors who have experienced well publicized challenges and to grow our ARPU by cross selling into the base as we have been doing.

The longer an opportunity in the consumer market, is to increase our addressable market by expanding our product offering and moving out of the grant and payout market, into other underserved niches of scale that the traditional banks have ignored, There are scale ones, and I'm excited about our ability to compete and win there as we have been doing in the grant market. While we organize the business around the customer, and are prioritizing the customer unit economics, We ultimately make our money by those customers buying our products. Different products we sell have different margins associated with them. And indeed, there are different economics when sold at a bundle with other products or individually. However, it is worth noting that by EBITDA contribution, the top three products at LASSACA today are merchant acquiring, alternative digital payments, and transactional accounts, Together, these represent more than 50% of our EBITDA, And within each, there was no material customer concentration. It is also worth noting our key products have revenue drivers that benefit from the digitization of the economy, as they make money as a percentage of the digital transaction value, or volumes they process. For the same reason, they also have the benefit of some hedge against inflation.

There is a lot that we can unpack here, but given that the predominant focus of this presentation on the quarterlies, I will leave you with that teaser. And move on for the moment. I will revert on when we will unpack this further the end of this presentation. But I would now like to hand over to Dan, to talk to the group's last quarter's financial performance.

Thank you, Ali. Good day, everyone. Before I start, as a reminder, Lesaka is a domestic file in The United States. We report results in U. S. Dollars and The U. S. GAAP. However, our operational currency, South African rand, as such, we analyze our performance in South African rand. Q2 has been a quarter of continued strong and consistent performance, representing robust growth compared to the prior year and delivering on what we committed in terms of group adjusted EBITDA revenue and net revenue guidance. As well as a focus on balance sheet optimization and continued M and A activity. We exceeded the upper end of our guidance at an EBITDA level, delivering 10 successive quarters of achieving our EBITDA guidance. We have also grown our fundamental earnings and fundamental earnings per share. Which we believe is the most appropriate measure of our performance and we have reduced our net debt to group adjusted EBITDA ratio. We achieved a number of key milestones in the quarter. As we go and shape our business. These have, however, impacted the comparability of our results our balance sheet makeup and net debt position when compared to the prior year. Firstly, we welcomed Dudumo into the Lusaka Group with the completion of the acquisition on 01/2024.

To remind you, we paid an effective purchase consideration of ZAR1.67 billion comprising a combination of cash and the issuance of 17,200,000.0 shares. Aduma has also given rise to a large increase in the goodwill and intangible assets we carry on our balance sheet. Intangible assets are amortized being a charge to our income statement, and you will see a large increase in this charge in our results going forward. I note that this is a non cash item. Aduma has now been integrated into the group With its payments and technologies businesses incorporated, into our merchant division and Nudumo Payouts into our consumer division. Edumo is material to our merchant operations and has led to a large uplift in net revenue and group adjusted EBITDA. Stephen Lincoln will provide more detail on these businesses in their respective divisional overviews. As a reminder, we have already incorporated the impact of Aduma into our guidance when we set out our FY 2025 guidance last quarter. Following the completion of the Douma acquisition, anticipate closing Recharger in Q3 twenty twenty five. Our acquisition activity complements our organic growth and we continue to optimize operating structures. Extract revenue synergies and eliminate cost duplications.

As we move forward, for comparative purposes, we will not be tracking each individual acquisition's contribution to net revenue and group adjusted EBITDA separately. As these lines quickly become blurred as the businesses are combined, and it is fundamentally not how our management reporting structures are set up for the group. Lusaka is not a fintech holding company, it is not our strategy to hold a basket of separate investments. Acquisitions are disciplined and aligned to the vision communicated in 2020. Growing and augmenting Lasaka's integrated multi product fintech platform organized around our customers. Secondly, we had a significant increase in short term gearing in the period as we funded the acquisition and related costs a short term bridge of ZAR665 million. Also raised further facilities to fund the growth in our consumer loan book, with the enhanced loan offering to our EPE customers. As mentioned in our Q1 FY twenty twenty five investor call, we are undertaking a comprehensive refinance of all our debt facilities in order to optimize our debt across the group, and reduce our considerable interest charge. We expect to complete this in the current quarter. Thirdly, during the quarter, Mobicwik, our non core investment in an Indian fintech, listed in the National Stock Exchange of India.

Prior to this listing, Moby Quick did not have a readily determinable fair value and we valued the investment on the basis of cost plus or minus changes in observable price equity securities. This gave rise to a carrying value of ZAR1.31 billion. Post Mobyquik's listing, we now measure this investment applying the closing price reported on the NSE at quarter end. Representing a carrying value of ZAR802 million. This has resulted in a pretax write down of ZAR615 million on the investment and an associated tax benefit of ZAR117 million. This was the primary contributor to our overall net loss of ZAR584 million for the period. MobuQuik has now become a liquid investment and our intention is to monetize it in a disciplined manner once the lockup expires in mid May this year. We are now reflecting it as listed securities held for sale in our net debt position we have a clear path to reduce gearing in the group. Finally, during the quarter, we have moved to [indiscernible] with our enterprise business now being reported as a standalone division, whereas in previous quarters, we reported its results within the Merchant division. This division has been restructured and a platform for growth established.

Naim will provide more perspective on the Enterprise division in his overview. At a group level, revenue slightly exceeded the end of our guidance provided decreasing 2% to ZAR2.6 billion. The decrease was driven by merchant revenue decreasing 5%, However, this was as expected as a result of the changes in airtime sales mix between agency and principal sales. We measure top line performance on a net revenue basis. Which eliminates the volatility caused by the agency and principal sales mix and it has no impact on overall profitability. Group net revenue increased by 42% year on year. At a divisional level, merchant net revenue was up 68%. Mainly attributable to the inclusion of Edumo from January. Consumer continued its strong growth with revenue increasing 31% to ZAR411 million. Attributable to a larger EPE account base and a higher ARPU on the back of continued cross selling success. In the Enterprise division, net revenue retracted 29% as we build this platform. Focusing on profitable business in conjunction with rightsizing the cost base. We have eliminated a number of unprofitable contracts over the last twelve months. Group adjusted EBITDA grew by 6% to two twelve million exceeding the upper end of our guidance of ZAR210 million.

Merchant adjusted EBITDA grew by 32% to ZAR185 million. Primarily driven by the inclusion of Adumo for the quarter, offset by significant cost investment in our platform a change in sales mix towards lower margin products. Consumer delivered strong EBITDA growth increasing by ZAR29 million, or 61% on last year including Aduma payouts. The underlying performance of the Consumer division compared to the prior year is skewed by the inclusion of €13,000,000 of interest charges directly related to the consumer loan book this period. Whereas we did not allocate such interest costs in FY 2024 and prior years. Had this not been included, consumer adjusted EBITDA would have been ZAR90 million. Increase of 88%. As mentioned, enterprises going through a year of building and repositioning with cost overhangs and investment in our technology leading to a reduction in enterprise adjusted EBITDA for the quarter, to a loss of ZAR0.5 million. Group costs increased to ZAR50 million for the quarter due to higher employee costs with more team members now being allocated to the group function, including an additional executive position, Base salary adjustments and higher consulting and legal fees. Group costs have, however, reduced 6% from last quarter. On our GAAP income statement, I would like to highlight a few items before moving on to fundamental earnings commentary.

Under GAAP, we incurred a net loss attributable to shareholders of ZAR584 million for the period. Included in this is the ZAR615 million charge related to the change in fair value of equity securities relating to the downward adjustment to the fair market valuation of our non core MobiKwik investment. This adjustment is non cash. Linked to this is a deferred tax benefit of R117 million dollars raised with a net impact of ZAR184 million on our overall net loss attributable to shareholders. Our net interest expense has increased year on year to ZAR98 million, due to higher borrowing levels than last year, primarily due to the debt taken on in respect of the Idume acquisition. Our selling, general and administration expenses increased by ZAR250 million compared to Q2 FY twenty twenty four due to a combination of the inclusion of Aduma in our cost base Higher employee related expenses and stock based compensation charges, increased transaction costs, costs related to the investment in the growth of our business and year on year inflationary increases on certain expenses. Depreciation and amortization increased by ZAR38 million, largely due to the acquisition of Edumo. [indiscernible] We believe that fundamental earnings is a most appropriate measure of our performance.

It adjusts for once off items such as change in fair value of equity securities net of tax, intangible asset amortization, net of tax, stock based compensation charges, transaction costs, Indirect's taxes provisions released net loss on disposal of equity account and investments, income recognized related to the closure of legacy businesses, and other such items. Fundamental earnings for the quarter increased 35% ZAR23 million, leading to an increase in fundamental earnings per share of 12% to $0.29 South African cents.

As a reminder, we issued 17,200,000.0 shares to Dumo shareholders as part of the acquisition increasing the weighted average number of shares in issue. Cash generated from business operations increased to $2,269 million. Supported by the inclusion of Aduma for the quarter. Net cash generated from operations after accounting for interest payments increased to ZAR 193,000,000. Up from the ZAR 138,000,000 last quarter and ZAR 89,000,000 last year. Cash utilized in working capital reduced from ZAR195 million in Q1 to ZAR81 million this quarter. Due to the unwind of higher than usual accounts payables, in respect to the micro merchant settlements arising in Q1, offset by increased investment in working capital, a take on of Oduma this quarter. The growth in the consumer loan book in the period was funded through short term banking facilities. With an outflow of ZAR149 million. And Kazan took the opportunity to do a bulk waste purchase with a net investment in inventory of ZAR69 million in the period. We also made provisional tax payments in the quarter of ZAR56 million resulting in net cash utilized by operating activities of ZAR164 million. We spent ZAR113 million on CapEx leaving net cash utilized before financing activities of ZAR277 million for the quarter.

Our gross debt increased by just over ZAR1 billion in the quarter to ZAR3.8 billion. Adding ZAR665 million of debt Funding utilized from short term facilities for the growth of the consumer loan book and net funding of ZAR69 million utilized to purchase prepaid daytime. Cash on hand increased from ZAR554 million to ZAR1.1 billion in the quarter as a result of the cash brought on from the acquisition of Edumo. With its listing on the NSE, Mobiquick has now become a liquid investment and our intention is to monetize it in a disciplined manner once the lockup expires. We are now reflecting it as listed securities held for sale. This differs to prior periods when our stake was not readily monetizable at or near fair value. [indiscernible] and we anticipate being able to convert our position into cash and pay down debt once our lockup expires. In principle, this could effectively reduce our net debt to ZAR1.8 billion, at the end of Q2 FY twenty twenty five. And our net debt to group adjusted EBITDA ratio 2.4x using the reported last twelve months group adjusted EBITDA of ZAR354 million, which only includes Zaduma for three months. This is lower than the 2.6x at the end of Q1 FY twenty twenty five.

If one were to include Adumo, for a full twelve months in the EBITDA run rate, our effective net debt to EBITDA ratio on this basis would be closer to 2.1x. We have communicated to the market that we are looking to continue bringing our net debt to group adjusted EBITDA ratio down with a medium term objective of two times.

Which we believe is comfortably serviceable and is the appropriate capital structure for the business. Capital expenditure for the quarter amounted to ZAR113 million.

Of which ZAR56 million related to investment in growth. We invested ZAR25 million in merchant acquiring positive items including Kazang and Adumo, and ZAR26 million in cash vaults as we continue to invest in this business in line with our growth initiatives. Maintenance CapEx increased to ZAR57 million including Adumao and GARP. The balance of our maintenance CapEx was primarily driven by software and server upgrades. In close, I'm encouraged by our overall performance and the progress we have made this quarter. I will hand over to Steve to take you through the Merchant division's performance.

Thank you, Dan. Good afternoon, everyone. Today, I will be taking you through the strategy, operational KPIs and performance of our Merchant division, which comprises the solutions we have for micro merchants operating in informal markets small and medium merchants in the formal markets. Now Iim will talk you through the Enterprise division in more detail than we have previously done, which has a different solution set targeting enterprise level businesses. Ali has taken you through the sizable opportunity that is presented by the secular trends of cash to digital migration, growth of informal markets through financial inclusion and the changing regulatory landscape supporting fintech disruption and market share growth. We are building a platform to take advantage of this opportunity and have made material progress over the past twelve months with three acquisitions bringing scale and new technologies to Lusaka Lesaka. In the Merchant division, we believe we are well positioned with a comprehensive offering to micro, small and medium merchants. Our solution set has expanded and now covers merchant acquiring and micro merchants software and data solutions, alternative digital payments including prepaid solutions, and supplier enabled payments cash management solutions, including vaults and ATMs, and lending. This solution set an added scale puts us in a favorable position offer value to our merchants by solving for their pain points.

These pain points include limited access to digital payments and growth capital, poor cash management solutions and having to use multiple and disparate service providers. We estimate the share of addressable market will increase for fintechs, in line with trends witnessed in international and other African markets.

We have invested significantly over the past two point five years and will continue to invest innovate and build our fintech platform to deliver on the opportunity in front of us. Inclusive of Edubo, we now have leading positions in both the informal and formal sectors of the economy, servicing approximately 90,000 micro merchants and 30,000 small and medium sized merchants. Our merchant acquiring offering encompasses CardConnect, Edumo, and Kazanpay. CardConnect and Edumo are being integrated and will operate under the Edumo brand in the formal merchant sector. Kazanpay is focused on micro merchants in the informal sector. We now have over 80,000 card enabled POS devices demonstrating the additional scale Eduma has brought to our merchant customer base. This acquisition enhanced our product set both in terms of hardware and software integrations further strengthening our ability to compete. Throughput on these devices jumped by ZAR7.2 billion, to ZAR11.3 billion for the quarter, up from ZAR4.1 billion in Q2 twenty twenty four. The inclusion of Edumo for the full quarter accounted for the majority of this growth. However, it was well supported by Kazanpay, which saw a 19% year on year growth in throughput. [indiscernible] GARP is our primary software solution, and is the leading hospitality software offering in Southern Africa with on the ground operations in five countries and servicing clients in 26 countries across Africa.

GAP offers restaurants advanced technologies that improve efficiency and enhance customer experience, allowing restauranteers to streamline their operations improve service quality, and ultimately increase profitability. Customers include global brands such as KFC, McDonald's, Pizza Hut, Nando's and Krispy Kreme.

GARP has 9,705 sites operating its hardware and software solutions, with a monthly ARPU of 3,300 GARP operates a subscription model with over 60% annual recurring revenues. Turning to our cash KPIs. Which include cash vaults and ATMs. We effectively put the bank in our merchants and micro merchant stores. Merchants can digitize their cash takings immediately, making it available for working capital as well as transferring the cash holding risk to us from the moment the cash enters our vault or ATM. Cash will continue to play a large role in the South African economy for the [indiscernible] with our vaults playing an important and differentiating part of our offering. [indiscernible] of the transformation to digitalization for the micro merchant and a critical component enabling us to approach customers with digital and cash solutions. Relationships with our Vault clients are deeply entrenched and sticky, and position us well to sell additional solutions to these clients. Devices grew 4% to almost 4,700 with throughput growing 2% to ZAR30.4 billion. We anticipate single digit growth from this business and it remains an important aspect in our offering. In informal markets. Efficiency gains to micro merchants include immediate availability to [indiscernible] and cashless payments on supplier routes.

Kazanvault cash settlements increased over 100% year on year and now contribute over 10% of our cash settlement throughput. Compared to 5% a year ago. Our Capital Connect lending business has been through a challenging period as our formal sector merchants suffered under challenging macroeconomic conditions over the past two years. This resulted in fewer customers meeting our credit criteria leading to lower disbursements and book size. Whilst the cessation of load shedding has been welcomed, we need to see further interest rate reductions and consumer financial health improvement before some buoyancy returns to this sector and improves our merchant credit scores. We have noted a small uptick in activity of late, we think it may take a while longer for merchant scores to recover. Lending is one of the real cross sell opportunities which we have with the Aduma and Garpek acquisition, and we expect to see growth in this respect as we continue to benefit from integration. Included in our lending business from this quarter is a fifty-fifty joint venture between Edumo and Retail Capital. Credit disbursements for Q2 were ZAR178 million, including ZAR39 million from Adumo Capital our net loan book at quarter end was ZAR343 million, which includes ZAR91 million from Edumo Capital.

Our alternative digital payments offering covers supplier enabled payments including international money transfers, with prepaid solutions, including electricity, airtime, data [indiscernible] Our supplier payments platform has grown rapidly since its introduction at the end of twenty twenty one. And now has over 1,200 registered suppliers. It forms an essential value add to micro merchants as they journey to digital, derisk their operations through cashless routes and reduce the burden of administration. On boarding additional suppliers into the ECO This front loaded investment into the supplier payment and wallet ecosystem [indiscernible] and drive growth in throughput in quarters to come. We disclose supplier payments separately as it is now a material contributor to device throughput and similar to international money transfers, it has a lower commission rate than traditional prepaid solutions. Our Kazan devices in field grew 13% year on year, to over 89,000 at the end of Q2. This includes devices in the tavern vertical, not yet been enabled for alternative digital payments which presents a revenue opportunity as these are converted. Prepaid solution throughput increased 7% year on year to ZAR4.9 billion. Throughput on our supplier enabled payments platform increased 63% year on year. In Kazan, we are focused on high turnover sites with greater revenue potential.

ARPU increased 12% year on year to approximately ZAR970 per month. Turning to the financial performance of the Merchant division. Net revenue was up 68% to ZAR $854,000,000, with segment adjusted EBITDA up 32% to ZAR185 million for Q2 twenty twenty five. This performance is a function of both organic and inorganic activity. The inclusion of the Aduma acquisition on this quarter's performance. From an organic perspective, over the past twelve months, we have made a significant investment in our Kazan business. This has resulted in a material increase in operating expenditure which is front loaded and enhances the platform and targets future revenue opportunities. These investments will need to deliver on their respective business cases. As is evident in this quarter, throughput is materially up but a change in the product mix has had a negative impact on margins attributable to this throughput. We do expect a pull through of higher margin throughput in future quarters as a function of the investment that has been made. As communicated, we will target our guided returns and continue to build and enhance our platform through organic and inorganic disciplined investments crafted to position our platform for the opportunity presented. Thank you.

Thank you, Stevie.

Quarter two is traditionally our busiest quarter. With festive season and holiday spend spiking which benefits our transactional volumes as well as loan originations, as our consumers plan for holidays, travel home, attend cultural events and plan to spend for the New Year's back to school. This has translated to another successful set of results for the consumer business. The Adumor payouts team joined on the 10/01/2024, and the results are included for the full quarter. We have started exploring potential opportunities and synergies which we will develop over time. These will include delivering a digital offering where these customers can have access to their accounts, can also buy other products like prepaid solutions, loans and insurance. There are approximately 12,000,000 permanent grant recipients in South Africa. Which is our core target market for our EasyPay everywhere platform. Based on our active account numbers, our share is 12%, But at a revenue level, we estimate that our share to be approximately 6.5%, leaving significant room for growth in the grant beneficiary market. Our EasyPay offering is especially focused on the needs of South Africa's grant beneficiaries, and we believe we can add significant value to their lives through our tailored products, distribution and service capabilities where legacy providers are not ideally equipped Some examples of the pain points for grant beneficiaries include lower smartphone penetration, and expensive data preventing easy use of digital channels.

Expensive and opaque pricing structures, limited access to financial services and long waits at traditional branch networks. We have invested heavily in understanding these pain points of our clients and are continually designing and adjusting our products and distribution to align with their needs. We continue to see an encouraging increase in account activation and uptake of our loan and insurance products. Our core products include transactional accounts, [indiscernible] funeral insurance and the recently added Adumo payout offering. Which provides corporate card services, supporting payroll, incentive, rewards and expense management. Our relationship with grant recipients start with an Easy Pay Everywhere transactional account. And then we deepen this relationship through specially tailored lending and insurance products for this end of the market. We recently upgraded our loan product for qualifying consumers where the maximum loan and repayment term increases from two thousand and six months to four thousand and nine months. We increased the capital and term due to demand but remain committed to ensuring that our customers can afford the monthly installments. The research we commissioned showed that many of our customers were resorting to additional loans often on significantly worse terms and often from unregistered lenders. Our decision was also supported by the consistent and low loss ratio we have experienced in our book over the past two years.

We will be applying the same affordability criteria to the new product and expect our average loan size increase from R1,580 to R2,600 over time. Our research also led to an enhanced insurance product to allow policyholders to cover up to six additional dependents to the funeral policies. Since launch, this has been very well accepted, boosting gross premiums and cross sell initiatives. Our active EB customer base increased to €1,600,000 on year, 11% increase. Within this, our permanent ground base increased 16% to 1,400,000.0 These are the customers we have an opportunity to cross sell to and this is our target market. To continue to deliver value to our consumers, we have kept our monthly account fees stable for three years now at R70,050 per month.

Our lending product continues to be successful for us and in importantly is a compelling part of our value proposition to consumers. With our gross advances increasing 38% year on year, to ZAR617 million and our book increasing by 41% to ZAR309 million at Coraline. We've managed to maintain our loss ratio at approximately 6% through the challenging economic environment for consumers and the increased lending activity highlighting the value these loans have in our consumers' lives. Our EasyPay Insurance product continues to perform very well with active policies increasing 29% year on year and gross premiums increasing 38% year on year, to ZAR97 million. Again, the quality of our book demonstrates the value to our consumers with a collection rate of 96% and an annual lapse rate below 20% which is well below the market norm at this end of the market. Our average revenue per user, our ARPU continues to improve and is now ZAR94 per month on EPE permanent grant consumers up from R85 one year ago. Adumo payouts currently has approximately 80 corporate clients and 200,000 cardholders. The quarter two load value was R170 million, which is the RAN value loaded onto the cards. This can be in respect of incentive payments, or performance payment for meeting health and safety or compliance targets.

Our contractual relationship exists with the corporate client, and we receive revenue based on the number of cards loaded as well as based on the value of the load on the cards. The strong performance across all KPIs has led to an increase in revenue of 31% year on year, to ZAR411 million and segment adjusted EBITDA growing 61% to ZAR77 million for the quarter. It is worth noting that these results include an interest charge of ZAR14 million in respect of dedicated funding lines for our micro lending book. Previously, the book was funded using group facilities with the interest charge at group level and not reflected in consumer cost of sales, where it is now accounted for. This is another extremely pleasing set of results for the consumer business. We've had a very encouraging start to our third quarter registering record monthly activations of EP accounts record monthly loan originations and record insurance policy sales, placing us in a strong position to continue our growth trends. Our cross sell initiatives continue to show excellent results. Our cross sell potential starts with our EPE permanent ground base. Net activations for quarter two was approximately 65,000 which continues the step change in activations we've seen since revamping our brand and distribution network.

The higher net activation seen in quarter two of twenty twenty four was an anomaly. Anomaly created by the Postbank suffering from internal system and card renewal issues, which led to large number of its clients migrating to alternative service providers, which EasyPay benefited from. In terms of cross sell, we continue to see very positive results with increasing loan originations and policy sales into our EPE base. Supported by a new single view platform, effective digital channels improved branding and productivity in our sales force. Our loan penetration increased to 43% from 40% and insurance up from 31% to 35%. Consumers with a full suite of products is up more than 35% compared As our distribution evolves and improves and as we tailor our products, we anticipate our loan and insurance penetration to continue to improve. I'm very proud of the team as we continue to deliver against our strategic focus areas including enhancing product and service delivery and cross selling and upselling. Whilst the consumer division has delivered excellent results over the past eighteen months, we are not slowing down and still have many areas where we can continue to enhance our product and customer experience. We are focused on the launch of our new products in the loans and insurance business as well as improving our distribution through digital channels branches as well as pop up kiosks, which are proving very popular.

Our USSD transactions continue to show extremely encouraging growth as our customers realize the ease and convenience of using our digital channels. These channels complement our national network of six fifty sales and service consultants and over 100 Flexi consultants. We have a large opportunity to grow our consumer base which we plan to execute on by continuing our focus on our consumer needs delivering value, convenience and exceptional service. Thank you, And with that, I'd like to hand over to my brother Naim for an update on the Enterprise division. Thank you, Lincoln.

FY 2025 is a build and restructuring year for the enterprise business as we laid solid foundations on which to grow this division and realize its potential, in addition to exiting unprofitable business activities.

We have a well established business, which we are investing in and upgrading our We have new products which we have recently launched. The acquisition of the Recharger business is expected to close in early March twenty twenty five and soon thereafter, we will commence integrating the business into the group. Within the enterprise vision, we expect Recharger to contribute approximately ZAR40 million for our FY twenty twenty five group adjusted EBITDA for four months of consolidation. We're developing our enterprise division as a material group adjusted EBITDA contributor the coming years, is why we are investing behind it and separating it as a standalone division. Recharger is a South African prepaid electricity submetering and payments business with a base of over 460,000 registered prepaid electricity meters, We're excited by this opportunity as it expands our enterprise offerings enables us to drive a significant strategy in electricity voucher vending through our platforms, As mentioned earlier, FY 2025 is very much a bold year for enterprise, with a significant amount of unkept life development expenditure impacting EBITDA this quarter as well as a cost overhang from the termination of unprofitable contracts we eliminate associated overheads. The result this quarter was a loss of ZAR0.5 million down from ZAR17 million profit last year.

Would like to give you a quick overview of our products and solutions. So EasyPay is a payment aggregator enabling B2B connections, The EasyPay platform is embedded in major retail businesses across South Africa as well as EasyPay was a pioneer in bill payment services and prepaid solutions. South Africa and is a well known brand processing well over ZAR3 billion per month, both payments and utility payments combined. The hardware security modules HSM business, operating under the Prism brand, sells very specialized high end data security devices that are used in data centers processing sensitive information. Example, payment switching and PIN encryption decryption on ATMs and POS terminals, and voucher numbers generated for prepaid electricity data and airtime. It uses hardware as opposed to software cryptography. Making it more secure for the most sensitive data elements This business generates revenue on sales of the units as well as annual maintenance contracts. In June 2024, we launched our revitalized Prism switch we have been developing over the past eighteen months. Our Prism Switch enhances our go to market strategy and is strategically important see this as a significant opportunity to continuing to release synergies across the group and internalize transaction flows.

We believe this unique expertise will enable the business to compete much more effectively. Turning to our KPIs. In Easy Pay Paypal, payments we processed R8.3 billion in throughput this quarter, which is up 13% on last year. On Utility Payments, we saw a 16% pullback in throughput, which was primarily attributable to termination of a large contract that was no longer strategic for us. Despite the loss of throughput, there is no impact on profitability. HSM units sold in the quarter increased 7% compared to FY 'twenty four Q2. Are looking forward to welcoming the team to LASSAQ Lesaka integrating it with our enterprise operation. Which will make a significant impact on the reported performance going forward. Ali will now take you through the Group's outlook. Thanks, Neim.

Moving to outlook. Are reaffirming our revenue guidance of ZAR10 billion to ZAR11 billion net revenue guidance of ZAR5.2 billion to ZAR5.6 billion and group adjusted EBITDA guidance of ZAR900 million to ZAR1 billion. For the quarter ending 03/31/2025, we expect revenue of between ZAR2.4 billion and ZAR2.6 billion net revenue of between ZAR1.3 billion and ZAR1.5 billion, and group adjusted EBITDA of ZAR230 million to ZAR260 million. We are also pleased to be able to provide for the first time group adjusted EBITDA guidance for the year ending 06/30/2026. The guidance range we are providing is ZAR1.25 billion to ZAR1.45 billion This includes Recharger, but excludes any unannounced acquisitions. We also expect to deliver not only positive fundamental earnings per share but also positive profit after tax in FY '26. Will give revenue guidance and further details in due course. Stepping back, it is pleasing to see the evolution of the group From midpoint to midpoint of the range, we are giving guidance of 42% year on year growth group adjusted EBITDA, from this year to next. The FY 2026 EBITDA guidance implies a ZAR1.7 billion swing in profitability over four years, and a 45% year on year CAGR over the last three years.

It's a decent start on our mission, but it really is just a start. We don't expect our growth trajectory to slow, and we expect our best years to be ahead of us. We've outlined at a high level the enormity of the opportunity before us. But I am conscious that given the evolution of the platform, the time is now right for Lusaka to host a Capital Markets Day and unpack our opportunity in more detail.

Accordingly, we will shortly schedule a Markets Day next month open to the investment community. Will provide us the opportunity to communicate our underlying drivers as touched on earlier, in more detail as well as our competitive positioning and provide greater clarity on what we are building. Over the coming years, expect to be the reference fintech success story on a continent of 1,500,000,000 people. We are looking forward to showing you why. Thank you.

Will now take your questions on our Q2 results.

Monet with the Lesaka management team. And we will address them at this forum. So Ali, first question coming through from Frank Geng at Briarwood Capital. And he says last quarter, FY 2025 guidance did not include any unannounced M and A. Now your reaffirmed FY 2025 guidance includes Recharger, Can you please talk us through this?

For the FY 2025 EBITDA. And so the guidance range is $900,000,000 there. We're having a slight technical issue. We are live with the Lesaka Management team at the Q and A. For the second quarter or FY 2025, We are just taking a short break on technicals as we understand what the situation is. Ladies and gentlemen, as we are in a live broadcast, always anticipate that technicals can get the better of us and there are always gremlins in the system. We'll just take a second before we can resume and we are live We are live with the executive management team at Lesaka Saka Technologies. As I said, some gremlins in the system as we go into that live broadcast. But I'm going to start with the first question to Lincoln, Maly, and Lincoln on the consumer side. We have a question from Ross Kriecker at Investec Securities. And he is saying, in the consumer, growth specifically, we've seen very buoyant performance. Is this sustainable, sir?

Thanks, Ross. I think it is sustainable. Our first immediate opportunity is to continue to grow our customer base. As we indicated earlier, we are only 12% market share in that base. So there's opportunity to take on more customers from our competitors And from all indications, we are taking more customers than our competitors from those competitors that are struggling. So we are going to grow our customer base. Secondly, we need to cross sell into that base. We are only penetrated 43% with our loans. We think we can do more in that base and we can also penetrate more from an insurance point of view where we're only penetrated 35%. So both growing our customers and cross sell will give us room to grow. But also we've mentioned something both Ali and I have touched base, on the fact that we can start to think about growing beyond just a grand base. And I think there are do more payouts, 200,000 accounts give us that opportunity to start to step away from the grand base and do more beyond the ground base. And thirdly, as Ali pointed out earlier, we will look at other pockets of underserved customers.

So in a nutshell, we still see huge growth opportunities in this consumer business both with our existing customer base and other customer bases that we look at in the future.

Dan Theo O'Neill at Litchfield Hills Research.

Is asking, can you please elaborate further on the group's debt position The outlook and refinancing as you referred to earlier and additionally could you also provide some color on cash outflow outflows in the quarter.

Thanks, Brondren. So our gross debt was ZAR3.8 billion at the end of the quarter, Remind everyone the debt arose partially on the acquisition of the Connect Group partially on the acquisition of Duo There is quite detailed disclosure Okay. We are live and this is third time lucky. And I've been in many broadcast studios, and I can assure you that live television does have these gremlins that come to you before. So welcome again to the Lesaka Executive Management live Q and A. I'm Bronwyn Nielsen, and I'm hosting this session this morning. We've got a number of questions coming through from the audience. I'm going to remind you please, if you have any questions, put them into the chat function and we will address them in this session. Ali, I'm going to come to you with that question from Frank Geng at Brier Wood Capital. He says last quarter FY twenty twenty five guidance did not include any unannounced M and A. Now your reaffirmed FY 2025 guidance includes Recharger Can you please talk us through this?

So as Naim says, our expectation is that Recharger would be contributing about ZAR40 million to our EBITDA in FY 2025. Our guidance just to remind you is ZAR900 billion to ZAR1 billion. And the guidance we would be providing would be exactly the same and our reaffirming would be exactly the same irrespective of whether rechargeable was included or not included. So you can drive your inference from that. We're staying with outlook and I'm staying with you, Ali.

In terms of PonteMat capital coming through, congrats on the impressive results and even more impressive 26 EBITDA guidance. Can you discuss the drivers for the strong growth?

Thanks again for the question. So the midpoint of our range, we have an FY 25 EBITDA of ZAR950 million. In FY 2026, it's ZAR1.350 million. That's a 42% year on year increase. The contribution excluding Edumo and Recharger from that is roughly speaking a 25% year on year growth.

Obviously, we are expecting to include Recharger for about four months of of this financial year and we've expect to have included Didumo for nine months, and there's about ZAR150 million at [indiscernible] I would like to say that I think that this exclusion is and this distinction is going to become increasingly artificial because the business is as Dan said, are integrating into the collective. We're not running a collection of separate fintech companies. We're running an integrated whole. And there's obviously synergies also associated with that. However, for the sake of the for the sake of the question, it's a 25% year on year organic growth expectation implied by our guidance. In terms of what is actually driving that growth in our our guidance, as we articulated, we expect to be growing faster than the market, So there's a certain market growth there. And really the products that we're expecting to grow faster than the market in the Merchant division is the acquiring product. There we've got some cyclical drivers through the digitization of the society and also the software product where we have a strong leadership position But the growth is also expected to come meaningfully from the consumer division.

And a continuation as Lincoln has alluded to. There, it's really quite balanced from a product perspective. Between transactional accounts and lending and insurance.

Just to remind you that we are with the Leisaka executive team, which is a live Q and A. And Dan, I've got a question coming through here from Theo O'Neill, and he's from Litchfield's Hill's Research. Said, can you please elaborate further on the group's net debt position, the outlook and refinancing as you referred to earlier? And additionally, could you also provide some more color on the cash outflows in the quarter. Dan? Thanks, Brandon.

Thio, our gross debt at the end of the quarter was ZAR3.8 billion, Just unpack how that arose. Some of it was from the acquisition of the Connect Group three years ago. Some of it arose from the acquisition of the Dumo Group, Some of it relates to recent facilities we put in place. To enable growth in our consumer loan book then there's an element of day to day banking, general working capital facilities, and asset backed facilities. There's a lot of detail in the borrowings note in our 10 Q, which unpacks the different facilities. The tenor and the rates we pay. So I refer you to that. And it's accessible on our website. We are in the process of effecting a comprehensive refinance of our capital structure our debt facilities in particular. This will optimize the tenure the repayment profile and the cost of our facilities, and it will also help offset some of our interest costs against a significant cash pile we have in the group, so we achieve a netting effect. With credit approved from our funding banks, and we are deep into the legals. I expect us to complete this the current quarter. We've highlighted that our target debt to EBITDA ratio is roughly 2x in the long term, If I take into account the readily monetizable stake we have in non core investment, Moby Quick, we should be able to reduce our debt significantly to a leverage ratio of about 2.4x.

I note that this is based on last twelve months of earnings, which only includes three months of Edumo's earnings.

I were to annualize that and bring in Ajuma for full twelve months, it into our earnings our net debt to EBITDA ratio would be approximately 2.1x In other words, not very far from my target ratio. If I turn to our cash flows, I appreciate that this quarter in particular has been quite difficult compare this quarter's cash flows to prior quarters' cash flows, largely as a result of the inclusion of Odumo for the first time. Our key drivers of our cash flows [indiscernible] strong underlying cash generation of roughly ZAR270 million. We do pay a high interest charge, which comes off each quarter. [indiscernible] Addressed our desire to our ambition to reduce our overall gearing and interest cash interest cost in the business. I do note we are an investing and growing business. Which does require funding. Consumer loan book required €150,000,000 for the last quarter to enable the growth. Took advantage of a bulk airtime purchase which required additional funding of roughly €70,000,000 for the quarter. And then there is some seasonality in our working capital which largely plays through at the December which is a traditional holiday period, there's some elevated receivables and debt as balances.

At this quarter end, which unwind or did unwind over the coming days of the next quarter, Last point I wish to flag is in the Capital Markets Day that Ali outlined, we will look to unpack our working capital our free cash flow generation and other cash metrics of our business in more detail to the investor community. Thanks, Rhiannon. Thank you, Dan. And again, just reminding everybody that we are fielding questions live with the Osaka management team. It is the Q and A for the second quarter FY twenty twenty five. Lincoln Mali, I have you in my site, sir, and so does Ross Krieffer from Investec Securities. He says that consumer growth is incredibly buoyant. It has been incredibly buoyant Is this growth sustainable?

Thanks, Ross. I think it is sustainable. We have three key levers to pull. All the investment we've made in our products, invested in our people, technology, distribution, are all paying off. In the sense that we've seen incredible growth in our account numbers We think that's the first lever that we'll pull. We have a sense that we will [indiscernible] other market participants. And we think that that's the first lever of growth. And we can see a runway on that. The second lever of growth that gives us confidence is our cross sell ability. We've seen ourselves growing in terms of our cross sell. You've seen our ARPU grow now to ZAR94. And it's because of the strength of that cross sell capability in our teams. We are only penetrated at 43% when it comes to loans. Which means that there is still room to grow. We are only penetrated at 35% when it comes to insurance, which means there's still room to grow. The third lever is in the medium term. I think Ali alluded to the fact that we'll start to think about other pockets of customers of underserved consumers beyond the social grant network. First, area of that is with Adumo payout, where we'll start to experiment about what is possible with that core customer base.

And then we'll start to think of other underserved pockets of customers. So generally, I would say that there's still room for us to grow in this business. So still room to grow in the consumer business. Raj Sharma, He asks Steve, has growth slowed in the Merchant division if you strip out Adumo? Thanks, Barmen.

Firstly, I think if you have a look at our FY 2026 guidance, it's indicative of considerable growth in the Merchant division. We are constructing a platform in the Merchant division to take advantage of a sizable opportunity that Ali communicated. An addressable revenue pool of north of $2,800,000,000 in which we have a very small market share. This bodes well for growth. We will meet our guided returns through both organic and inorganic levers. Now if you have a look at our performance over over Q2 twenty twenty four to Q2 twenty twenty five, we grew revenue by 68% to NOK $854,000,000 and we grew EBITDA by 32% to £185,000,000 Now this result was impacted positively by the Aduma acquisition but at the same time, we invested significantly in our platform, in our Kazan business, where we incur operating expenditure which was significantly up based on these investments. And these investments and initiatives will result in a pull through in increased earnings in quarters to come.

Right. And again, you are here with the Lesaka management team. This is the live Q and A for the second quarter FY twenty twenty five. Naim, another question coming through from Ross Krieger. And again, Ross from Investec Securities, he's saying, Enterprise has not moved forward. In the past eighteen months. You say there is a clearer path looking forward. Can you elaborate?

Thanks, Ron, and thanks Ross for the question. I think you look at our enterprise division, we've intentionally separated this into a separate division. Because we see the enterprise division as strategic as well as it will become a material contributor to our EBITDA from FY 2026 onwards.

If you just look at FY 'twenty five, it's a been a year of investing into our technology platform as well as our product suite to service our customers better. We have also taken the decision to exit unprofitable contracts and products The cost overhang of this exit obviously impacts the FY 2025 results negatively. But the investment in the platform is strategic and will help us grow revenues going forward. I think the key area to think about as well is that the Recharger acquisition we are super excited about this acquisition. It basically moves us along the up above the electricity value chain. In addition, it gives us around 460,000 customer touch points that we can leverage going forward. So overall, I think we're investing in a platform to really grow revenues in the future. We have not outlined in the investor presentation the market opportunity and the competitive landscape, But as Ali has indicated, we will be doing this in the capital markets as well.

Well, there we go, alluding to the Capital Markets Day, and I'm sure we will hear more of this from the Lesaka management team as the story gains traction and certainly an exciting one. Ali, coming back to you, in terms of Potomac or Potomac Capital, Can you discuss any regulatory changes you see on the horizon and how they may help the fintech sector and LESSAQA in particular?

Mean, we see the potential for quite a lot of regulatory changes especially as South Africa follows the path that Brazil and Europe and India have followed empowering non bank fintechs to help drive digitization in those respective economies and Saba has been pointing to that for some time. It's noteworthy that at the the ASAP launch, the Saab did commit to putting forward an exemption to the Banks Act. Which they are expecting to be to be gazetted in the coming months. And that's a very, very meaningful evolution of of the market. It would allow non banks to be regulated by activity. And remove the gatekeeping relationships that we currently have to endure with banks. This would substantially improve our ability to disrupt and also ability to accelerate revenue and reduce cost. I should say that we would expect to be then regulated by activity rather than just the blanket bank and TPP environment that exists today. How much would that impact? It's really very difficult to say. And I think it will depend on the detail of what's evolved in that context. But we're hopeful and our engagement is through ASAP with with the Saab gives us confidence that the right thinking and the right type of decision making is happening there.

Ali, you've been here for a year.

Where to for the business from here?

Thanks, Brennan. Well, I hope we managed to improve the technology capabilities of our video broadcasting on our court lease. I think that's going to be helpful, but more more seriously, like there are some things that I think we do well and we need to continue to do. We've done well at keeping our commitments. At saying, where we're going and then delivering on that And it's critically important that we maintain our commitments, that what we say we deliver on. I think there's other things that we have not done so well And one of them is telling our story in a simple way. And the truth is, it is actually quite a simple story. We are not reinventing the wheel. We are just taking it to the frontier. And the reality of our business is if we have the right people the right places gravity will take care of the rest. And that's what is both exciting and to be honest, should be relatively easy to explain. And I'm looking forward to the Capital Markets investing community so that they can really understand how we're positioning ourselves against the evolution of the market and the digitization of the economy.

Thank you very much to the Lesaka executive management team and thank you to all of you who have tuned in and have allowed us to navigate these technical challenges in this session. We do have a couple of additional questions in the chat box and Investor Relations will ensure that those are answered on an individual basis. Is stands just for me to say thank you to everyone joining us and thank you to the Exact Nesaka executive management team. Until next time. That's it for our Q2 Q and A.