Q3 2022 Net 1 UEPS Technologies Inc Earnings Call
Well couldn't see the saka fiscal third quarter 2022 earnings webcast. At this time all participants are in listen only mode.
As a reminder, this webcast is being recorded with me for the webcast today are kristian there Chris Shea.
Lincoln money South African see.
Even Hal Brian hit of merchant business and she Oh, the connect groups and of course now you can kind of see if I'm a.
A reminder to everyone that we are streaming both a webcast as well as the teleconference dialing into the webcast will allow you to see if management team and the presentation. They will be presenting this is dialing in to the teleconference, which will only stream the audience both links as well as our press release are available on <unk>.
Investor Relations website as a reminder, during this call we will be making forward looking statements and I ask you to look at the cautionary language contained in our Form 10-Q regarding the risks and uncertainties associated with forward. Looking statements are results are discussed in South African Rand, which is noncash.
We analyze our results of operations in our press release in Rand to assist investors in understanding the underlying trends in our business as you know the company results can be significantly affected by the currency fluctuations between the U S dollar and the South African Rand will address any questions.
You may have at the end of the presentation for those joining us via the webcast link you can submit your questions via the webcast page for those joining via teleconference, you'll be given the opportunity to raise your questions at the end of the presentation with that it's my pleasure to hand over to your group C. R. Chris math Chris.
Thank you Brendan and good day and welcome to our third quarter earnings webcast, taking a quick look at today's agenda I will introduce a new brand and corporate identity provides some highlights and an overview on our FY 2022 strategic focus areas Steve Wilson.
To use the connect grip Lincoln will focus on the progress we've made on our strategic focus areas and I aim will discuss our financial performance for the period.
I would also like to take this opportunity to thank our shareholders for voting in favor of the soccer is a new name.
I'll come off at the beginning of a new era for the Greek shaped by the strategy, we committed to almost a year ago.
Yes.
For our business looking to the future change means opportunity sometimes isn't the most of it.
Others, it's giant leaps that move us into new and exciting spaces, a potential and possibilities.
For us our changes in body by truck my community and Vine unwavering passion to provide superior financial condition to undertake has been as I mentioned.
Its roots reach deeply into the fabric of Africa, and tap into a vivid symbol of community security unwell.
Come to life.
Lisa.
So to answer so I know where somehow.
Thousands of he is a child is how's the community's livestock they collected security and wealth because of this important Elisa is both at the center of the community and it's a neat tended by the most trusted and capable people.
That does not just on you name. It is an active community that holds us accountable to our purpose and to our people each and every day.
A symbol that unites us all behind one mission because infusion for every one of them.
It means we create bigger possibilities for all of us.
We are.
Yeah.
Our opening video unveiled a new name the soccer and explains our identity as a soccer authentically represents our commitment to the local communities we serve.
This is a key milestone in the evolution of our business and is timed to coincide with the transformational acquisition of the connect groups, which is an important building block in achieving our stated objective of establishing a leading fintech focused on providing innovative digital solutions to merchants and consumers and southern Africa.
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The combination with the connect grip creates an exciting opportunity to integrate the two complementary businesses and to provide financial inclusion for consumers and merchants in Southern Africa.
We are focused on taking advantage of the significant growth opportunities that our increased scale in our key markets opens up for us.
As the soccer, we have a very clear focus on micro small and medium enterprises in the formal and informal sectors.
Together with our underserved consumers in our country.
The connect group will be the cornerstone of our merchant business and we aim to leverage connect groups excellent track record in delivering growth and profitability through its innovative solutions for Emmis Amy's we've.
We believe we can make a real difference in this space as we have the ability to not only facilitate the digitization of cash for our merchants, but we can also provide them with an end to end solution, incorporating cash management and payment solutions card acquiring provision of growth capital that is distribution and supplier payment integration.
We estimate that together with the connect groups. We currently have less than 1% market share in the formal space and less than 4% in the informal space.
Turning to our consumer business there were approximately 26 million people in South Africa, who fall into our target market.
As consumers still predominantly rely on cash for common transactions.
Well its financial inclusion has increased.
Utilization of insurance credits and savings remains low.
As a group we currently service just over $1 1 million customers or around 4% of this market presenting us with a significant opportunity to scale the provision of our affordable banking lending and insurance products in this market.
Together with the connect with the Saka has over 58, and a half thousand touch points with our consumers.
And merchant customers positioning us with a significant opportunity to gain market share in this estimated $11 billion market.
So this is embarking on the transformation of net one in early 2021.
We have been steadily building our leadership team.
Both excited and humbled by the caliber of those who have chosen to join our team.
Most walked away from big jobs successful careers or even their own startup businesses to join this mission of financial inclusion.
And the potential that it offers.
We now have an excellent mix of operational and Fintech experience entrepreneurial flair leadership and corporate governance.
To really develop this business into the leading Fintech company in South Africa.
Turning to our financial and operational highlights for the third quarter.
We reported total revenue of $35 $2 million, which is an increase of 27% year over year on a constant currency basis and 22% on a dollar basis also the African operating segments returned to a normalized segment adjusted EBITDA profit of 344000.
Dollars this quarter.
And whilst this excludes a non south African overhead in United States listing related costs of $2 $6 million. It is a significant milestone.
Segment adjusted EBITDA in the merchant business improved to $1 $3 million underpinned by recovery in our merchant revenue.
Segment, adjusted consumer EBITDA improved to a normalized loss of $1 million positively impacted by the cost optimization and restructuring operations via project spring.
Which has been a major focus for us over the past nine months.
The work completed to date should result in annual cost savings in excess of $300 million rent per annum or $19 $2 million from our consumers segment cost base going forward.
Our total customer base grew by around 38300 active customers ending the quarter with just over $1 1 million active accounts.
Lending book expanded 6% year over year to $24 $7 million.
Transforming the soccer into a leading southern African full service Fintech platform requires focused efforts and consistent delivery on our four key pillars, but Jacques.
During the merchant business.
Returning the consumer financial service business to breakeven being.
Being a world class Fintech organization, and developing stronger and deeper relationships with our key stakeholders.
Growing our merchant business with the transformational connect group acquisition competitively positions us to capitalize on an exceptional growth opportunity, especially in the informal market our strategy in returning the consumer business to breakeven is focused on three levers.
Active <unk> customers grow our food and optimize costs.
Optimizing cost as the liver, which moves the needle the most in the near term and resulted in a strong improvement in our Q3 EBITDA loss demonstrating the operating leverage in our business.
This is real evidence of the turnaround and shows our efforts are yielding results.
However, there are challenges such as the complete transformation of our business and culture from one which was focused on the logistics of efficiencies distributing to over 10 million grant recipients each month to a sales focused organization.
These challenges have resulted in the activation of new accounts being slower than we anticipated.
We continue to work towards achieving a monthly EBITDA break even position for our consumer business by the end of the fourth quarter, but it may take longer than we originally anticipated.
Regardless, we will continue to show considerable improvement from where we started a few quarters ago.
Turning to our third strategic focus area of building a world class Fintech platform on the last earnings call I highlighted the importance of being able to retain and attract talented people to the organization.
This is not any evidence in the caliber of our new senior leadership team, but extends to our regional and local management level, where we have seen the same enthusiasm and inspiration from our vision with high caliber people, leaving successful careers at organizations across the world to join us on our mission.
Our fourth and last strategic focus area has been on improving stakeholder relationships, which Lincoln will touch one.
And notably the recent closing of the connect group acquisition.
A significant transformation of our merchant segment and Lusaka.
I would like to ask Steve held brown, the CEO of the connected to introduce their connect group business in more detail Steve.
Thank you Chris at the onset decide how excited we are to be joining the sockets at this stage as we joined forces to provide innovative solutions to both merchants and consumers in the last mile.
We've been engaged with the Socgen offer some 15 months and as our negotiations progressed it became very clear to us that our mission and that's what this office with so closely aligned in our quest to service the last mile and our businesses. So complementary that it made perfect sense for both parties to make this deal happen. We had connect group are extremely pleased that today, we have Paul.
The soccer.
I'm aware that the market would it be looking forward to receiving pro forma numbers for the combined group, but given that the acquisition closed after the quarter and connect group Prepays the financials and I for US we are waiting for final U S golf converted numbers to be signed off by auditor's. Once this is done these will be filed and will be available for your review.
Notwithstanding I'm hopeful that I can share enough about our business, what we do the market opportunity that exists and how we disrupt innovation in financial technology. So as to get you as excited as we are.
I'd like to use this opportunity to run through our key product offerings and provide a bit more color on how our solutions aimed to assist merchants with many of the pain points that they experience in their day to day business lives.
When we started this journey, we believe that we could use financial technology and innovation to solve various challenges that formal and informal merchant space on a daily basis and in doing so help promote real financial inclusion at the lower end of the merchant market.
It's important to understand that we operate in two sectors of the SME market in South Africa, the formal and informal sector.
The formal sector includes traditional merchants that are generally doing in excess of 150000 per month.
Next at various forms of payment and have access to the formal banking market. However, the informal merchant sector, which targets the lower income levels and represents a significant part of the South African market is still very much a cash society.
Approximately 90% of these merchants transactions are still conducted in cash, which not only presents a security risk, but also restricts the merchants from access to traditional financial services.
Our products and solutions have been tailored paint.
Pain points that both formal and informal merchant space and provide them with the opportunity to grow their businesses. Our cash connect offering provides merchants with a safe and secure trading environment, combining robust hardware with greater software producing a fintech enabled both solution, which is placed in the merchant store. It allows for the immediate transfer of cash.
Risk away from the merchants from the moment it cashes deposited into the boat and as importantly, digitizes cash providing merchants with instant access to the cash flow to buy inventory buy stock or meet other working capital requirements, it's effectively putting the bank in the store cash connect is currently predominantly a formal merchant solution.
Although we are seeing encouraging growth in extending this into the informal sector.
Through this technology and innovation, we have created a much needed safer and more efficient trading environment for merchants in South Africa, we have approximately 4000 cash both installed at retail merchants around the country, taking in 99 billion for the 12 months ended May 2022.
And natural evolution of our business was to extend our reach into the card payment space. A cod connect solution is predominantly targeted at the formal SME market in South Africa. This is a very competitive market space and difficult to differentiate we do however have some exciting developments in the pipeline, which could prove to be very attractive proposition for certain merchants in the.
Sector.
In the informal market. This nascent card payments opportunity is very exciting for us and we do have a distinct competitive advantage because they can pay us all court solution in this market traditionally cod and Pos terminals have historically been too expensive for these stores, but we've been able to position this offering at affordable prices further.
Technology allows us to provide merchants with instant settlement on car transactions rather than waiting for the normal 24 to 48 hours for funds to be made available which is very important to these patients.
As well as facilitating card acceptance for purchases made because that also includes a cashback capability, allowing customers to draw cash it tool.
Zhang pays a significant growth opportunity for us in November 2000, 2014 months ago, we were doing 5 million per month through these devices as of February 22, we exceeded 300 million for the months supported by our strong historic and forward growth trajectory.
This brings me to another major pain point, which our merchant space being the need for quick access to capital to grow their businesses without the red tape and time consuming processes that comes with the traditional bank offering pro forma merchants all the risks involved with borrowing from informal lenders or loan shark operations that are informal merchants may turn to.
In response to these challenges we launched capital connect in the formal sector, which allows us to provide merchants with quick access to growth capital.
We are very proud to have won the retail fund of the year at the 2021 Fintech Awards for this innovation. We are excited about this product it's challenges convention and that's proved to be disruptive.
Capital is approved and under 60 minutes and is in the merchants account within 24 hours. This capital is provided through our assessing the merchants existing transactional data and ancillary data points throughout digital ecosystem.
From inception to pay 2022, we have extended $1 2 billion worth of capital to formal SME merchants for our informal market versions, we have extended our capital connect offering draw Zheng advanced solution, which is available exclusively to all Kazan type clients.
We have detailed data on these merchants operations and as with capital connect we are able to quickly assess and approve capital, allowing our merchants to grow their businesses and manage working capital more efficiently.
This is a recently launched solution and amongst the first of its kind in South Africa in the informal segment. We are encouraged that we have sold to a real need and that we have already experienced significant uptake to date. Another major offering in the informal market is the Kazan connect solution, which has experienced excellent uptake this multifunctional devices.
<unk> broad utility, including the ability for the informal merchant to sell value added services to the customers such as air time by both data Wi Fi and prepaid electricity. It allows customers to pay the bills for water D. S. T V and other bills in the shops by sports and gaming and lottery tickets, including facilitation of payouts and allows.
The customers and themselves to make local and international money transfers as well as send international airtime to friends and family. This bouquet of products is ever expanding with a dedicated business development team focusing on launching new offerings. In addition to providing the abob drawcard, which attract potential customers into their stores because then connect.
Allows merchants to streamline their operations by facilitating the merchants' own bull and supplier payments through device ecosystem. We now have approximately 46000 informal merchants using our Kazan connect devices, representing a significant footprint in this market.
Further advantage is that because and connect devices can also be configured desk gazang pay Pos devices. So this is an opportunity, which really provides an advantage in the informal space and a valuable solution to our merchants, bringing customers into the stores and facilitating card payments, while providing immediate cash flow.
It allows the soccer to establish a deeper relationship with our informal merchants and a better understanding of their businesses.
When you look at the size and scale of the existing banking infrastructure in South Africa, you will understand that if we are able to capture a very small percentage of the traditional banking market and our growth into the merchant space could be exponential.
The high adoption rate of our cash connect capital connect and Cod connect solutions is evidence that merchants have a real need quick easy access to affordable can take enabled capital card and cash solutions Likewise with the adoption rates of all because I can pay because they can connect and Katanga advanced solutions in the info.
I'm a market we are extremely encouraged by our experienced and anticipate significant growth in this arena.
If we turn our attention to some of the key revenue drivers of the connect group. It is clear that we've been able to achieve significant growth in our business. Despite the last two years being severely disrupted by the Covid pandemic.
Looking at all because AG business, providing bathroom bill payment solutions, we've seen a three year compounded annual growth rate of 26% in Dubai squirts, resulting in around 46000 active deployed devices as a type 2022, and a three year compound annual growth rate of 33% in transactional throughput values to 19 billion.
For the 12 months ended February 2022. This has been a real success story and demonstrates the value that we bring to our informal merchants through the suffering.
As discussed our cod connecting <unk> business provides payment solutions to our targeted formal and informal merchants respectively.
The launch of Gazang pay solution provided a significant boost activity in this area recording a combined increase in deployed terminals of 249% in the posture with an 81% increase in transactional throughput value to approximately 5 billion Rand for the 12 months ended May 2022.
Our cash connect business, which targets predominantly the formal SME sector has been very resilient during the disruption over the past years and returned a three year compound annual growth rate of 18% in transactional throughput 299 billion for the 12 months to pay a 2022 with.
With the recent expansion into the informal sector as well as expanding our market share in the formal sector. We anticipate this good growth to continue.
Finally, our capital connect solution has also witnessed significant demand since inception, we've seen a three year compound annual growth rate of 38% in the number of loans extended and a 69% compound annual growth rate in loan capital at box as mentioned, we have advanced one 2 billion to <unk> since inception.
<unk> and closed <unk> 2022 with a loan book of 211 million Rand being 64% up for the 12 months ended February 2022.
These are very exciting numbers for us and with the Gazang advanced solution recently being launched we are looking forward to continuing these trends in our capital and loan business.
And these are the lifeblood of the South African economy, and we are absolutely passionate about providing this group of entrepreneurs with capital to grow their businesses.
The connect group is positioned to continue its excellent growth trend that is achieved over the previous years. What is most encouraging is that this was during a period of significant uncertainty and turmoil in our markets with the economy recovering from the Covid pandemic and the innovative solutions that we have to offer to our targeted merchants we are very <unk>.
Cited by the prospects for the business, especially as part of the greater the soccer business.
With respect to the informal merchant pocket and low income consumer market the soccer and connect group have both made significant inroads in bringing financial inclusion to the underserved in the process of servicing these market segments. We have developed an infrastructure, which allows us a distinct advantage in last mile delivery few businesses have taken that risk in the interim.
Markets, but we have done so very effectively and have developed solutions, which can profitably deliver to this very large market sector in South Africa with the technology platforms software solutions and data that we have in this market. We are well placed to be a dominant player and have targeted merchant segment over the next few years.
Thank you.
I'd like to hand over to Lincoln, who will take you through the performance of the merge of the existing merchant business and consumer segments. Thank you.
And his team.
It's great to have you on board I'm really looking forward to working with you and your team good day everyone.
While we're dealing with the merchant segment I'd like to briefly run through the operating performance of the existing merchant business, which grew segment revenues by 58% year on year on a rate basis.
In the previous two quarters the performance of our point of sale business was negatively impacted by the global chip shortage.
Though this shortage continues in the market, we've been able to catch up on client orders during this quarter.
In our easy pay business, we saw a pleasing increases invest value process in prepaid electricity and prepaid airtime of 12% and 142% respectively. Our bill payment volumes increased by 6%.
Moving onto our consumer segment, the last quarter and indeed, the last nine months have been a very busy time for everyone.
And we have made very good progress on a number of fronts.
We realized that in order to design products and services that meet the needs of our customers. It is important to gain a deep understanding of our customers. They are spending and saving trends why they choose us and why they leave US were inspired by what we have learned and continue to learn.
Although a large portion of our targeted customer base is banked.
Is a large cohort who are currently under banked with limited access to formal services, such as lending and insurance.
We have focused our efforts into understanding what these customers are looking for the best channels to engage them.
What cabela's is the offering and where we can disrupt the space by designing the right innovative products that fully meet their needs.
Utilizing the knowledge we gained in these customers and the investment we've made and continue to make into improved data analytics capabilities, we developed effective marketing campaigns and incentives to drive customer growth.
We're encouraged by the results of our recent promotional champions League and switch campaigns launched during the latter half of March 2022 and we anticipate these initiatives to reflect improved growth in the fourth quarter.
Active E B account numbers at the end of third quarter with just over 1.1 billion. We added approximately 28600 net active ETE accounts and 9700 net active E. B lite accounts over the period.
Transitioning the business into a sales driven customer centric financial services provider eases, you challenge with active account growth being slower than what we had anticipated.
We did register hundreds into 86000 gross account openings during the quarter and we initiated a workstream focusing on improving account activation and utilization. This includes the introduction of a dedicated call center focused on assisting customers.
With activating the outcomes.
Additionally, our sales force is now incentivize or an account activation and not merely account.
Turning to our loan book.
Approximately 198000, new loans were issued in the third quarter.
With a capital value of around $280 million.
Ending the quarter with an outstanding balance of $359 million range.
It's 88% penetration into our customer base was achieved with approximately 415000 loads outstanding of which 45% were initiated by our repeat borrowers.
The average loan size increased by 10 10 year on year in constant currency.
The performance of the loan book remains very good with the loss ratio of around 1%.
The last lever in retaining the consumer business to profitability is the cost optimization.
As Chris has highlighted in the last quarters earnings call pursuant to a review and optimization of the overall cost base, We launched project spring, which involved a significant staff reorganization and the rationalization of our distribution network.
The combined cost savings that project spring is estimated to deliver is in excess of 300 million range.
All $19.2 million on an annualized basis.
The reorganization process, which resulted in a large number of employees being retrenched was a painful and disruptive process that we went through and completed this quarter.
However, as we have begun to re energize the team through leadership visibility and engagement I'm pleased to see the improved morale in the teams throughout the country.
In order to better service our customers in their communities. We've continued to assess our points of presence to ensure that we have optimized representation to enable us to continue to have a significant advantage in the last month.
Towards this end good progress was made in optimizing our distribution network.
Our large fleet of mobile Atms and associated distribution and security costs have been eliminated.
Over 50% of our ATM network was repositioned into more productive locations within retail at these locations provide a significantly greater footfall and longer operating hours in our branches, which will have a positive impact as this is the channel the majority.
Of our customized utilized.
Although cost savings during this quarter were largely offset by the associated project spring reorganization costs of 91 million rins or $5 9 million U S dollars on a normalized basis, we saw an encouraging 86% improvement in EBITDA loss.
Year on year.
And the Golar to result, Crisp book about what it takes to build a world class Fintech organization and earlier spoke about the senior leadership team that we have put together in a range of skills that they bring to the soccer.
This is the group that will build a culture and create an environment where everyone in the Fokker can drive an outperform day in and day out in order to achieve this everyone must believe in the mission. We're on here at the soccer to deliver financial services to the underserved.
Tumors and merchants of Southern Africa.
The entire leadership team and I are committed to creating fat and environment in organization that people are proud to work at.
It is not just our jobs it is our mission.
Building a lasting relationship in the communities in which we operate is of Paramount importance in building Trust.
We identified key stakeholders in each of these communities and have focused our efforts on building deeper relationships with community leaders.
As part of our CSI is a juice, we continue to work in their communities to offer financial education sponsor Luna ship sponsor a number of branded blankets wheelchairs and large freshwater tanks.
With the recent floods experienced in gains of Dane, we cannot funding to assist those communities in need and our staff drove an initiative, where they made personal donations to assist some of those families who were displaced.
We continue to build our relationship with SASSA for regular constructive engagement at both in National.
In shell and local level taken together. These partnerships are an important part of our strategy to include increase the suckers visibility and broaden our growth opportunities.
I will now handover to name to discuss the financials.
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Thank you Lincoln now, let's turn to the details of our financial results for Q3 as well as provide some visibility on the outlook overall I'm very pleased with what has happened and has been achieved in this quarter was.
With the positive trends in revenue cost and EBITDA being reported.
As has been discussed in our third quarter performance has been characterized by strong performance in our merchant business and the continued execution of the turnaround on our consumer segment.
Consistently showing improvements over the past three quarters.
On a reported basis total revenue for the quarter was $35 2 million, which was 22% increase year over year in U S dollar terms and 27% year on year on a rate basis.
We have seen a 34% improvement in our operating loss from $14 3 million and 22, new one to $9 4 million this quarter, which is after accounting for $5 9 million in one off restructuring charges as part of project spring.
We have also taken out hedging contracts as part of our currency risk management in order to protect the cash we were holding for the connect group acquisition. These matured in February 23, and two and we recognized a gain on these contracts of $6.1 billion during this quarter.
Overall, we reported a net loss position of $3 3 million for the quarter on a quarterly and a year to date comparison. This is an improvement which we are very very pleased to report.
Turning to our business segments I want to remind everyone that this segmental disclosure was initiated in our fiscal second quarter, we manage our business from a customer centric perspective and split it into a b to C consumer segment and a beat to be merchant segment I will start with the merchant segment, which is the main dry.
Over of the higher revenue number for the quarter.
Merchant revenue to external customers was $18 4 million. This contributes 52% of our group revenue revenue increased primarily due to the higher device sales.
The global chip shortages have resulted in delays in fulfilling client demands for point of sale devices in the first two quarters, resulting in a buildup of orders, which who are satisfied during this quarter.
We have two models for selling ESI. The first one is a wholesale model, where we acquire and hold the inventory on our balance sheet.
For this model are classified as telecom products and services in our revenue disclosures.
On a year on year comparison, we did see a drop in this revenue largely due to one of our key clients scaling down their operations.
The second model for selling airtime is the agency model, where our income is classified as processing fees, notably this is the largest driver of revenue processing fees were up a healthy 19% indulgence and 25% on their own basis compared to last year benefiting from increase in both payment volume.
The sale of electricity and are trying to our easy pay point retailers and with new customers such as catheter coming on board.
Turning to our consumer segment as Lincoln elaborated earlier, we have been very focused at returning the segment to profitability and the revenue line. We saw a slight increase of 1% in dollar terms compared to 'twenty Q1, and 6% on a rand basis account.
Account fees processing fees and lending revenues were all in line with last year, our insurance sales was up by 27% in dollar terms and 32% on a rate basis, primarily due to inclusion of a new credit life book growth. Excluding this book was 7%.
The financial highlights for us in the consumer segment was the progress that we have made in our cost cutting efforts and the project screen the.
<unk> process was completed during this quarter, which resulted in a restructuring of the employee base taking into account our transformation from a business focused on distributing millions of grants each month does that all the sales focus customer orientated business in total we expect project spring to deliver in excess of.
300 million, which is $19 $2 million of cost savings on an annualized basis. This represents approximately 20%.
Of our consumer cost base it positively contributes all consumer turnaround strategy.
The impact of the cost saving initiatives over the past nine months has resulted in a significant contraction in our operating.
Expenses line.
And a very encouraging trend in our cost to income ratio.
At an EBITDA level.
The turnaround strategy is becoming very evident with a consistent improvement in our EBITDA in the fourth quarter of fiscal 2021.
Consumer segment achieved a normalized segment adjusted EBITDA loss of 1 million this quarter.
Bear to last year's quarterly loss of $7 6 million when combined with our merchant segment EBITDA of $1 3 million, we recorded a normalized adjusted EBITDAR of 0.3 million, excluding corporate costs related to our United States listing and non South African Airways.
This.
Is an encouraging result, after all the effort put in by the team over the last nine months and demonstrate the commitment we have to turn that business around and to deliver on the strategic pillars of Chris and Lincoln spoke about earlier.
Looking at our lending book, our lending book saw a 6% year on year growth in constant currency basis.
After a seasonal peak in December we ended the quarter with a gross loan book of $24 7 million.
Our $359 million on our portfolio loss ratio remains low at approximately 1% for the quarter.
Our improving client data and implementation of conservative criteria on all new and repeat borrowings we expect to see good contributions of outperformance from our lending activities in the coming quarters.
From a cash flow perspective, we continue to make improvements with a reduced reliance on cash reserves to fund operations.
Our cash burn rate was reduced significantly this quarter and on a normalized basis was down.
742000.
Which is a very encouraging number for me.
Our pro forma net debt position as you're aware, we had unrestricted cash reserves at the end of quarter of 184 million. However, our cash position has changed significantly post the quarter end with the closing of the connect group acquisition on the 14th of April 2022.
As disclosed in our press release, we have utilized 147 by the end of our cash reserves to fund the acquisition with an additional $93 million of debt rates. We also took on net debt position of connect group of $17 million on a pro forma basis as of 31st March This would place the company.
With a net debt on its balance sheet of 126 million.
We are busy reviewing our capital structure and working with our bankers and advisers to ensure we achieve an efficient long term sustainable capital structure for our business.
As with last quarter, we continue to hold our mobi quick investment at 76 million in line with the last capital raise and our cell C. Investment is held at zero, we see both of these investments as well as fund born in carbon is noncore and would look to divest of these assets in a responsible manner should the.
Yeah right.
Overall, I'm really pleased with our results. This quarter, we are on a journey to transform this company into a world class Fintech business and the actions taken over the past nine months are starting to demonstrate that this team can do level on the strategic pillars that we have put forward.
I look forward to our next presentation, when I'll be able to provide more detail on the financial impact of the connect Lopez on our business.
I would now like to turn over the call back over to Chris Chris.
Thank you name.
During the fourth quarter, we will continue to focus on our strategic pillars for FY 'twenty to 'twenty two.
With the connect group acquisition now formally closed we can turn our attention to the successful combination of the two businesses and capitalizing on the growth opportunity, which the sector presents.
On the consumer segment growing the active account base is our biggest challenge, but we continue to make progress focusing on our sales force product marketing initiatives and more effective distribution channels.
With that we'd like to turn the call over to Brian win for the Q&A session. Thank you.
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Yes.
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Welcome to the shock a Q&A in this deck here in and you've done a good job in presenting the results. The rebrand you back now for the questions from the Investor community. We of course have a conference call.
And we have a webcast if you're on the conference call to ask questions you need to push Star then one and if you are on the webcast simply type in your questions and we'll see those coming up on the iPad. So I'm going to open to anybody on the conference call. At this stage are there any questions. She comes to you from that such.
Thank you, yes, we do have some questions on the line. The first question is from and Gauzy does he from Kazan Finches go ahead.
Yeah.
Hi, good afternoon, congrats on the.
A presentation on the acquisitions.
Two nine cooler.
Fond of carbon just wanted to clarify.
Your comments were very keen to.
I was negotiated exits and we've been trying to do this for some time and what would it take for us to.
And then wanted to exit from carbon.
Submit to you or the <unk>.
On vessels that have been written off thank you.
Yeah of course, you can not to hear from you. Thank you for taking the time to listen to us today.
As we spoke in the past we've been a supporter of yours.
Our strategy here in South Africa has changed.
Fundamentally in terms of our focus.
And in a new direction as the soccer and I'm happy to continue to gauge will take it outside of this in and pick up your question directly but thank you for taking the time.
Any other questions coming through on conference call.
Yes. Our next question is from Raj Sharma.
Please go ahead, yes.
Thank you guys and thank you for a solid presentation of your.
The new business and the combination.
Is there anything you can kind of talk about <unk>.
In terms.
How.
Connect group did individually.
In Hollywood.
What kind of revenue growth we can.
We can foresee going forward.
If you could kind of give some more color on that that'd be very helpful and I've got a few more questions.
Hi, Thank you for joining us and thank you for listening in.
As we've said so far the as much as we want to share today, and Steve said earlier.
Some of the numbers around the clinic group, we are waiting for a fee.
Few things, we in particular, just to get audited and sandals.
Financials, and then consolidated pro forma is.
And we've got 75 days from date of close of the transaction to release those performance. So we are very eager to share some information with you you've seen what we've.
Being able to disclose thus far I think.
The one number I would point to again is the EBITA awful if what to February 22022 was warranted at $3 75 million.
1 billion Rand.
So that's an important point and then I'll, maybe ask Steve Steve might comment a little bit around some of the historical performance that might give you a sense of way.
Sure Rich I think historically the business has returned a 40% five year compound growth rate in EBITDA. So that's from 2017 to 2022 I did we did share with you some of the fundamental throughput switch our historic numbers, which underpin the cash card capital and bathroom bill payment offerings and essentially.
These fundamentals continue to underpin the business as Chris said I think when we get to the fourth quarter. You'll then see our combined numbers and as soon as our conversion from Mira forests.
<unk> two U S golf will those will be filed and we will share them directly with you, but I think the fundamentals as we said historic do underpin where we sit today.
Whereas you've got additional questions.
Yes.
Yes, yes, thank you for that Steve and Chris can we talk a little maybe this is maybe this is.
Limbaugh flaking.
One of the strategies and can you give more color around that.
SASSA.
Traction with separate accounts any marketing any developments there.
On the consumer side.
Yes.
Yes. Thank you for your call I think that the.
The fundamental principle that SASSA has adopted is to give customers choice or grant beneficiaries choice. So that they can go to any financial institution and because we are primarily focused on these customers, we see ourselves as having an advantage in that.
And so we spent a lot of time building our relationship with SASSA going through with them at provincial and national and local level to see how we can turn many of the open accounts into active accounts and to reduce the friction. That's there. So we are making good progress on that.
And we want to see in the coming few months more of that progress coming through.
Whereas you still have the floor.
Yes.
Ill get offline. Thank you.
Thanks, very much to Raj Sharma, there right. So we've got a question from Dane pillar from single signal asset managements, and he's asking on cell C. The cell C investment has been written down to zero Simi 11 billion Rand in pit. However, the proposed REIT structure cut substation half significantly benefiting earnings.
Equity REIT was this proposed reduction in debt not taking into account when valuing cell C. And two do you think there'll be any recovery in value. If the current restructuring plan is finalized and then I also want to include Phillip Schwartz, who also one cyclic updates on cell C recap and when you can expect it to be complete.
Good things from them.
I mean, I think the most important thing is the fact that.
To recap the restructure has not formally close to an approved at this point.
And so our valuation.
Is is based on the current situation, which as you know pre the <unk>.
The restructure.
And if and when that debt restructure comes through them, we will look at it again.
<unk> and take a view so I think that's the most important thing to make to Philips question around timing.
I think we know as much as you do in terms of.
The time friends, we know and we've seen and participated in the broad term shipping.
Released in the nonstrategic indicated the broad teams of the restructuring and we know that there are few final steps.
To take place.
Cell C. The exact details thereof.
Not fully aware of.
So we are reasonably confident that we are getting close to in India. I know, we said sooner in the past.
But we.
We watch the situation carefully and just to repeat we have written that down to two zero.
On our balance sheet.
And tried to be as prudent as possible with the physician and managing it from from here.
And the name because I have some additional calls on conference call.
Yes, we do our next question is from <unk> from standard Bank go ahead.
Thanks, so much.
Chris.
Lincoln.
The turnaround is going strong so congrats on that.
A question, maybe more for Steve where do you think the impact of RPT.
Im.
Because.
Group launched this year.
And do you have any plans on how you rolled a corridor of strategy. Thanks.
Yeah. So I think it suffices to say we've spent a fair amount of time focusing on that impact I think we would probably prefer to take the answer to this question with you offline.
Specifically I think we feel that there'll be a.
Faye impacting both the digital card space as well as cash, but I would rather want to focus on the fact that all P. P. Also plays into our hands in some regard and breaks open the private club and so I'm very excited about what.
What this presents from a fintech perspective, and we put some exciting ideas of how we can use that to leverage our position. So perhaps we can give you a little bit more info on that but but offline.
We are staying with conference call any additional questions.
No further questions at this moment.
Back to you shortly.
It is the timing for producing the pro forma numbers that include connect group and that's from Rob They finger is from Lauren Cassel.
So we've got 75 days from our types of closing the transaction, which closed that was the 14th of April . So I think that takes us to the end of June .
That's the time period that would be working with you.
Even though we still see new products in the consumer business over the past few quarters, how are they doing that's from Judson at Chicago at Sun Plough Penny partners.
We were looking at a very good progress we think we're getting good momentum and we think that all of those results will start to come through as the months come come through but we were quite satisfied with the momentum. The team is displaying underground so watch this space.
<unk> from Rosindell partners recently, a similar fintech deal with closed about ethos.
Craftsman at a substantial discount to what most one paid for connect all of the businesses. So meaningfully different that the connect multiple with two times higher than crusting and two is it reasonable to value may be quick at the last funding round with many tech businesses have fallen 50% to 70% over the last year.
Let me take the second one fishing come back to the discussion maybe quick.
We value that.
In line with.
I am curious in and get.
Yes, we have it on our balance sheet at the.
Valued at the at the at the last round.
Our funding.
Nothing material has happened since then.
Observable et cetera.
And so you know.
We continue to to tell.
Tell the position at that level.
And you know we stay close to the business, we stay close to the performance.
And continue to monitor the situation I think in terms of.
Craftsman and the connect group of two very different businesses.
Since it is.
There's some degree of overlap for sure, but we look at the connect groups as an.
And into IND.
Provider of solutions across cash and digital into the merchant space and buy into and we meet.
Small cash management card acquiring.
Capital and growth.
Through to the provision of their citizens and I don't think when you look at at Creston that you're seeing that entire.
Ecosystem.
And there are as we all know there are other drivers of evaluation.
Relative to trend and I think you'd start to compare apples with apples and apples with pears, but rather on these sorts of things. So Steve I don't if you want to come in.
And coming to it but that's kind of how we.
I think we look at two different things are very difficult to compare as we said I mean, the underlying growth rate that you bought into was a 40% five year compound growth rate and if I can say that it hasnt been in the easiest trading environment over the last 24 months period, So again excitement around that growth based on the pain points that we solve in a better market.
But as you said, Chris I think it's an apples and pears comparison.
So I've got no more questions coming through on the webcast are there any further questions on the conference call. Thank you no further questions on the lines at the moment.
You want to give it a little bit more time or should we wrap and say. Thank you very much you've had a long day a great presenting across the board, it's been fantastic Lincoln, Steve, Steve, Chris and naive thanks very much for your time.
<unk> been watching the soccer and they start a question and answer session. This is the third quarter results for the shack of great.
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Yeah.