Q4 2022 Lesaka Technologies Inc Earnings Call

as well as our press release and supplementary investor presentation are available on our investor relations website at ir.lasakatech.com. Additionally, the company filed its Form 10K after the US market closed on Friday, September 9, 2022, which is also available on our IR site.

As a reminder, during the call, we will be making forward-looking statements, and I ask you to look at the cautionary language contained in our Form 10-K regarding the risks and uncertainties associated with forward-looking statements. Also, we will discuss our results in South African RAND, which is non-GAAP . We analyze our results of operations and our press release in RAND to assist investors' understanding of the underlying trends in our business.

As you know, the company's results can be significantly affected by the currency fluctuations between the US dollar and the South African brand. I would now like to turn it over to Chris Meyer, Group CEO .

Thank you, Dara. Good morning, good afternoon, and welcome to our fourth quarter and fiscal year in 2022 earnings webcast and conference call.

Taking a quick look at today's agenda, I will start with a brief business overview and will also share a few performance highlights for our Fiscal Year 2022. Steve will provide an update on our merchant business and the integration of the Connect Group. Lincoln will focus on the ongoing progress we've made in transforming our consumer business and Naeem will present the audited consolidated performance of the group for the 12 months ended June 30 2022.

and the three months for the quarter ended June 30, 2022.

I will then conclude the results presentation with a few thoughts on the outlook for the SICA before we open up for Q&A where we would obviously welcome any questions you may have.

So as I reflect on our overall performance over the past four quarters,

I want to recognize and thank each and every person in the Lusaka family who has remained laser focused on executing the key strategic priorities that we are committed to as a collective.

We have moved a long way over the past 12 months.

And the changes have been profound. They've been bold, sometimes difficult.

but undoubtedly transformational as we've laid the foundation for establishing a leading fintech focused on providing innovative digital solutions to merchants and consumers in Southern Africa.

So as a SICA, our core purpose is to improve people's lives by bringing financial inclusion to South Africa's underserved consumers by helping small businesses access the financial services that need to prosper.

And we achieve this through our ability to efficiently digitise the last mile of financial inclusion and by providing a full-service fintech platform across cash and digital, serving the needs of both, while also facilitating the secular shift to digital that is currently taking place.

So there are real challenges to delivering financial inclusion and digitization in South Africa. And some of this is a product of our history and is manifested in a deep distrust in and a lack of understanding of cash alternatives.

And this is driven by low levels of financial literacy in our country.

and adding to this challenge are the relatively high connectivity costs in South Africa around airtime and data which are expensive and prized commodities.

as well as smartphone penetration which remains relatively low where many South Africans still use older style feature phones.

So taken together, this all means that although over 80% of South Africans may have a bank account, many treat them as postboxes, withdrawing their money in one transaction.

This is a real implication for both merchants and consumers.

On the merchant side, less than 8% of merchants have access to formal credits, and less than 4% of informal merchants can accept digital payments.

And for consumers, approximately 20% of South African consumers in LSM 1 to 6, which are our lower income groups, have access to credit and savings. And around 90% of the approximately 12 million permanent grant recipients require immediate cash withdrawal of their grant.

So these sources of friction and challenges present a significant market opportunity for Lusaka to provide innovative solutions to both merchants and consumers and more importantly to facilitate wider financial inclusion and digitisation.

So our Jill-sided financial ecosystem has two overlapping segments, merchants and consumers. In our merchant business, we serve over 50,000 micro and small businesses with an offering that covers cash digitization, card acquiring, working capital, value-added services or VAS, capital payments and supply payments.

And in our merchant enterprise business, we operate one of the largest non-bank financial switches in the country and we provide bill payment solutions via most of the large retailers across the country.

And we also distribute and service POS devices and we manufacture and distribute SIM cards.

And in our consumer business, where the focus is on the low-income groups in South Africa, many of whom as I said rely on social grants, we serve just over a million customers, just over 1.1 million customers.

and with an offering that covers banking, credits and insurance.

And it is important to recognise that many of our merchants and consumers operate in the same space.

which gives us the opportunity to create a mutually reinforcing business model that incentivizes and rewards both the merchants and the consumers for interacting in our dual-sided financial ecosystem.

So the LASAKA platform serves micro and small merchants, together with the consumers who typically shop in their stores. And it is within this context that we think about our target addressable markets, our TAM.

So first on the merchant side, we divide the TAM into the informal and the formal sector.

The informal sector is a large and highly cash-driven economy. We estimate there to be over 1.4 million informal merchants in our target market, which is largely unpenetrated by the traditional banks.

And although we have a leading proposition, our 45,000 informal merchants represent less than 4% market share, which presents a significant and ongoing growth opportunity for Lusaka.

In the formal merchant space, we estimate around 700,000 merchants to be in our target market.

And we currently serve over six and a half thousand merchants, mainly by having one of our smart vaults in their store or a card acceptance device in their business.

The formal market is more competitive, but our leading cash digitization offering, which essentially places the bank in the merchant store, means we are highly embedded in their business and as a result are very well placed to grow our offering through innovating and solving pain points, such as with our merchant offering, Capital Connect.

On the consumer side, the TAM is 26 million people in the lower LSMs 1 to 6.

which really represents the lower income groups in our country.

And within that, we estimate, as I said, there to be approximately 12 million people reliant on permanent grants.

And so our strategy is to build our ecosystem wherever our customers are located. And this often means in the townships and the rural areas of South Africa, creating points of presence that are convenient and accessible.

our ecosystem wherever our customers are located. And this often means in the townships and the rural areas of South Africa, creating points of presence that are convenient and accessible. And as such, mykeeping Natasha Sturdevant.

The Saka has over 58,500 touchpoints with our consumer and merchant customers in the form of branches

retailer pay points, ATMs, satellite kiosks and merchant devices.

So in setting our vision for La Sarca, we looked across the globe at companies such as Block, PAG Seguro and Fari.

And we observe that despite South Africa displaying many of the same characteristics as countries such as Brazil and Egypt, there is no dual-sided financial ecosystem for merchants and consumers akin to the likes of a PAGS, a Gira or a Fari. And so today, with the combination of two complementary fintech platforms, we have created a unique dual-sided ecosystem in Southern Africa powered by proprietary technology and coupled with proprietary data and insights.

A platform focused on cash and digitization, as I said, serving the needs of both, but at the same time facilitating the secular shift to digital that is taking place.

And in essence...

The Sarca is a self-reinforcing business model whereby the ecosystem creates the conditions for us to continuously spot our customers' pain points.

and to address their challenges by designing innovative products and solutions, which in turn allows us to deepen our customer relationships, incentivise and reward loyalty, and ultimately create a flywheel effect in terms of growing our ecosystem and generating improved returns for our business and for our customers' business.

So a recent example of innovation and strategic distribution is the pilot we are running to enable our Kazan merchants to take deposits and process withdrawals for our consumer customers.

And this should mean that our consumer can walk into a Kazanx store and withdraw their grant at the merchants till their pay point.

which is highly convenient for the consumer and has obvious benefits for the merchant in terms of increased spend in store.

So turning to the synergies we expect to capture from creating our unique dual sided ecosystem.

As I've explained, both the merchant and the consumer businesses have large, addressable markets.

significant growth opportunities in their own right. However, taken together we also have the opportunity to develop the self-reinforcing ecosystem I've spoken about and this creates synergies and further opportunities to accelerate growth and to expand the cycle value proposition.

It's important to remind everyone that the Connect acquisition is about bringing together two complementary and mutually reinforcing businesses. This is a growth story, more so than a cost-optimisation opportunity.

Connect fills the gaps in our MSME offering and completes the end-to-end financial ecosystem I have been describing.

And as such, our merchant and consumer businesses should both scale and grow in their target markets.

while at the same time benefit from the synergies and opportunities created by this dual-sided ecosystem.

And we have taken a number of important synergistic steps already. For example, by merging EZPay and Kazan under a single leadership team, which has already started to deliver positive results, one of which is the launch of our EZPay money market.

which is in pilot stage to become our VAZ offering in the formal market, similar to Kazan in the informal market.

And separately, we are also piloting cash deposit and withdrawal functionality with our Kazan merchants as I previously mentioned.

And in addition, we are combining our cashfault and ATM businesses, creating a complete cash solution proposition for key merchants. And we believe this will create exciting synergies as we look to develop our merchant partnership model on the consumer side of the business.

So, turning to the consumer business.

We have reinvented our distribution model with a focus on building in-store partnerships with merchants, both the national and independent players, which brings our consumer proposition to where our customers want to be. And it also drives footfall into the merchant stores.

So our mindset is to shift from traditional bricks and mortar towards in-store kiosks wherever possible.

So turning to our Group Financial and Operational Highlights for Fiscal Year 2022 and the fourth quarter.

We have successfully executed on our objectives for the year, which is demonstrated by the closing of the Connect acquisition and the progress made on the consumer turnaround.

We reported total revenue of $223 million for the year, which increased from $131 million in the prior year.

This is driven by the inclusion of the Connect Group for part of the fourth quarter, which was from April 14, 2022 to June 30, 2022.

and the Connect Group added $86 million to the group's revenue, while at the same time, our existing merchant business grew revenues by 13%.

Group segment adjusted EBITDA improved significantly, reducing from a $32 million loss in 2021 to a $5 million loss this year.

And on a quarterly basis we reported a segment adjusted EBITDA profit of $6 million for Q4, compared to a $7 million loss in Q4 of FY21. This evidences the substantial progress in our turnaround strategy.

So segment adjusted merchant EBITDA for FY22 was significantly improved to an $11 million profit which is underpinned by the growth in our existing merchant business and the contribution made by Connect.

and segment adjusted consumer EBITDA improved to a reduced loss of $16 million for the year, positively impacted by cost optimization through a right sizing of the operations via Project Spring, which we've spoken about previously.

and Project Spring has delivered cost savings in excess of our original gardens.

with 13.7 million dollars or 208 million rand realized in the financial year to June 30, 2022.

This translates to approximately 19.7 million dollars or over 300 million rand in savings on an annualized basis.

Our active EasyPay Everywhere account numbers grew 11% during the year, ending with just over 1.1 million active accounts.

and we have invested in our sales and distribution network in terms of people, systems and overall proposition and as such we anticipate seeing continued growth in new account activations and cross selling benefits in the new financial year.

It is important to note that FY22 includes the Connect Group from 14 April 2022 and thus does not reflect a full quota of performance.

And with that, I'd like to turn over to Steve to provide an update on the merchant business as well as progress made on the integration of the Connect Group. Thank you.

Thank you, Chris. As highlighted in our Q3 and Connect Group presentations recently, where we described our products in detail, the SAARC today has a comprehensive offering to SME merchants in South Africa, and now has a distinct dual-sided ecosystem driving financial inclusion and serving both merchants and consumers.

We also have assets and technology in the enterprise space, which we are leveraging for growth across the merchant segment.

Now the Connect group was an obvious, attractive and transformative acquisition for Lusaka due to the alignment of vision and the complementary product and customer sets.

It also is a business unit that has managed to achieve significant growth and penetration in a fast growing and underservice sector.

We are incredibly pleased that the business has continued to grow in line with expectations and in sync with historical achievements.

The initial integration work between the pre-existing merchant business and Connect has been extremely encouraging and we expect synergies to exceed the expectations that we had going into the acquisition.

There are some exciting developments that we are working on which will positively impact custom acquisition and operational efficiencies as well as improve value for our merchants.

In our BAS and Bill payments business, we have managed to grow our devices in the field to over 51,000 at year end, representing a 36% year on year increase.

Our vault business, which effectively puts the bank in the merchant store, has grown by 13% this year to approximately 4,100 sites.

Historically, we've been placing our vaults into formal SME merchant stores, but we are now also penetrating the informal sector under the Kazan Connect Vault brand. This has provided significant operational and risk benefits for our Kazan informal merchant customer base.

In our card acquiring business, we saw excellent growth rates during the year as we extended our offering into the informal market. The majority of our KazanG VAS and Bull Payment Devices are card acquiring enabled.

These devices need to be activated through an onboarding process with the merchants. So the 51,000 devices that we have in the field has presented us with a significant growth opportunity.

Actual card-enabled POS devices increased by over 100% this year to 22,600 at your end.

Our innovative offering, providing merchants quick access to working capital, continued to grow and showed good growth where we dispersed over $40 million during the year, which is an increase of 49% year-on-year.

We continue to anticipate strong growth in this arena.

As evident from the above figures, the merchant business has delivered strong growth over the past year, and with all the fundamentals remaining intact, we expect this performance to continue through FY23.

Emphasizing the point already made, the Connect acquisition was an essential building block in expanding and transforming Lusaka's merchant offering to what it is today. It has served the purpose of introducing new products, services and customers, establishing Lusaka as a leading player in South Africa's merchant sector.

We are excited about the opportunities this acquisition presents as it paves the way to scale and effectively deliver on LaSocca's vision of being a key consolidator and driver of financial inclusion through a dual sided fintech platform.

It's important to note that going forward, merchants will be presented as one integrated business.

It's just for this quarter that we are showing separately the revenue drivers of the pre-existing merchant business and then updating you on how Connect performed since we last reported to you on it based on the audited results to Feb 2022.

If we now turn to slide 15, you can see that the pre-existing merchant business delivered strong revenue growth in the fourth quarter of 2022.

This slide consolidates the performance of the Sarcos merchant business post the acquisition of Connect. I would like to point out that these financials for Q422 only reflect two and a half months from the 14th of April 22 to 30 June 22 of revenue, costs and profits relating to Connect consolidated with a full quarter of revenue, costs and profits from the pre-existing merchant business.

For Q4 2022, the pre-existing merchant business reported total revenue of 19.5 million, growing 35% on a constant currency basis to 304 million rand compared to Q4 21. I will explain the revenue drivers for the pre-existing business in more detail on the slide that follows.

Connect contributed 86.2 million in revenue in the fourth quarter, bringing the total revenue for Q4 to 105.7 million, significantly higher than the fourth quarter of 2021.

Similarly, segment adjusted EBITDA for the merchant business was 114 million rand, with EBITDA from the pre-existing merchant business for Q4 increasing from 4 million rand in Q4-21 to 24 million in Q4-22, and Connect contributing 90 million rand for the two and a half months that Connect was consolidated into the group results for Q4.

As mentioned, the pre-existing merchant business grew revenue by 35% on a constant currency basis in Q4-22 compared to Q4-21. This growth was primarily driven by key product areas, particularly the increase in our point of sale devices sold and terminals rented.

In our Easy Pay business, we saw an increase in VAS value processed with prepaid electricity growth of 9% and prepaid airtime significantly growing at greater than 100%.

Our board payment business volumes increased by 13%.

The Connect Group presented to the market on 1 November 2021 and again on 7 July 2022 and you can refer to the Lusaka Investor Relations website for these presentations.

Prior to the acquisition, Connect had a 28th of February year end and its performance was presented up to the 28th of February 2022. In this Connect presentation, we demonstrated the strong revenue performance based on a 5-year compounded annual growth rate of 39% and a 5-year compounded EBITDA growth of 41%.

This slide provides an update on Connect's performance since we last reported on its audit results to the market.

This business continues to present a strong growth trajectory supported by a stellar historical performance.

The cash conversion rate is strong and the business remains well positioned for growth.

Throughput is one of the fundamental measures of how this business is performing and supports ongoing growth.

measures of how this business is performing and supports ongoing growth. We have set out

the year-on-year comparative cumulative throughput of Connect's offerings for the four-month period from March 22 to the end of June 22.

Over this period, Kazan's cumulative transactional throughput grew 29% to 7.5 billion rand. This continued momentum demonstrates the value that we bring to our informal merchants through our offering.

We saw a bust growth in our cash settlements which grew 14% to 35.5 billion.

A card cumulative transactional throughput had exceptional growth of 116% to 2.6 billion. This is due to further traction in penetrating the informal markets with KazanPay.

and we believe there's still to be very strong growth potential in this product. Finally, our Capital Connect solution continues to see demand, with the loan capital that we advanced growing by 41% to 223 million in the four months ended June 22. Similarly, the loan book size grew 54% to 229 million rand.

In conclusion then, the results reported for the merchant business for the fourth quarter of 2022 are indicative of a great growth trajectory. We are excited about the growth prospects of our merchant business, of which Connect is the foundation and has a proven and profitable business model and track record.

The integration process of Connect and the pre-existing merchant business has been very encouraging with tangible results already being achieved.

We now have a differentiated merchant offering that is well positioned for growth, unlocking the value for all stakeholders.

This, coupled with synergistic opportunities via Lassaca's dual-sided ecosystem, already outlined by Chris earlier in his presentation, further accelerates Lassaca's growth potential.

I'd like now to hand over to Lincoln, CEO of Southern Africa, to discuss the consumer business.

Thank you Steve, and good day everyone!

Moving on to our consumer segment, the fourth quarter and indeed the last 12 months have been a very busy time for everyone.

and we continue to make great progress on several fronts.

On the consumer side, we currently provide transactional banking, short-term loans and a digital wallet as well as insurance and value-added services to underserved consumers in South Africa, aligning with our purpose of improving people's lives and increasing financial inclusion. For more information, visit www.fema.gov

We currently have a customer base of 1.14 million active EPR accounts and approximately 200,000 policyholders of our Smart Life insurance product, which has a significantly high cash collection rate of 98%. This has remained consistent quarter after quarter.

Our loan book size is at the end of June 30, 2022, was US$21 million, with a loss ratio of less than 4%.

Our low loss rate and our high cash collection rate in insurance emphasizes our compelling value proposition in offering fit-for-purpose solutions to millions of consumers desperately needing financial services.

Given our passion for financial inclusion, we realize that in order to design products and services that meet the needs of our customers, it is very important to gain a deeper understanding of our customers.

They are spending and saving trends. Why they choose us and why they leave us.

It's been a year of learning, positioning and testing to really understand our customers.

Our refined value proposition is affordable and compelling as indicated before.

We are inspired by what we have learnt and we are encouraged that market research that we conducted in this regard has solidified our understanding of this market.

Practically, we have focused our efforts into understanding what our consumers are looking for. What's the best channel to engage them? And what are the competitors offering? And where we can disrupt this space by designing the right innovative products that truly meet their needs?

utilizing the knowledge we gained on these customers.

and the investments we've made and continue to make and to improve data analytics capabilities, we've developed effective marketing campaigns and incentives to drive customer growth.

We've also streamlined our onboarding processes including tech-enabled mobile fan apps.

These efforts are beginning to yield expected results.

We make great progress towards implementing our revised consumer strategy focused on product and efficient distribution channels.

I continue to be encouraged by the continued progress being made in the turnaround of our consumer business.

We achieve significant cost savings while growing our active account base and maintaining transaction volumes and revenues.

We saw good momentum in the rate of new account openings, resulting in 11.4% increase in total EPE consumer accounts for fiscal year 2022 driven by performance-driven sales initiatives and our refined customer-centered focus mentioned earlier.

We achieved approximately 59,000 EP account activations in quarter 4 of 2022.

And our churn rate for the fourth quarter of 2022 was well below 5%.

evidence in action in our forecast consumer strategy mentioned above.

CHAN predominantly relates to the impact of reactivation and deactivation in the SRD grant space

I think it's also important to highlight that we apply a rigorous approach in our measurement criteria for an active account.

We only classify an account as active if there was activity on that account during that specific month.

We maintained our APU within our target range, reporting a US$4.74 for FY22 mostly driven by our stable lending book. However, this result was slightly lower than expected given the impact of onboarding SRD grant recipients as they do not qualify for our lending product.

We remain committed to being a prominent provider in the grant recipient space by developing a value proposition that delivers competitive products and drives higher APU.

The last lever in retaining the consumer business to profitability is cost optimization and restructuring the operations of the consumer business in 2022.

A definite financial highlight for us in the consumer segment was the progress made in our cost-cutting efforts under Project Spring.

These initiatives delivered cost savings in excess of original expectations set out at the start of the year with approximately $19.7 million in cost removed from the consumer business cost base on an annualized basis of which $13.7 was realized in this year ended June 30, 2022.

To provide some color on the cost optimization outcomes achieved in FY22, this included right-sizing of our staff complement and encouragingly, this performance optimization is yielding better results and higher productivity.

In optimizing our distribution model, as we transform to a more sales-focused organization, we sold more than 200 vehicles, decommissioned more than 350 ATMs, relocated 56% of our ATMs to retailers, being more productive locations, and we closed approximately 30 branches.

This graph on the right

Show the impact on the cost saving initiatives over the past 12 months resulting in a significant contraction in the operating expense line which includes tough costs in the consumer segment and a very encouraging trend in our cost to income ratio at 58% in 2.4.22 compared to a greater than 100% in 2.4 2021.

While we have achieved a great deal in fiscal year 2022 from refining our value proposition

repositioning our offering to a customer-centric sales culture, I want to remind everyone that we're still early in our transformation journey and there's still a lot of work to be done.

We have taken more stringent measures to grow our active EPE consumers and now with the right team in place, the right products and having right sized business, we will focus our efforts on reaching break even in the consumer business by the second quarter of this financial year 23.

I will now hand over to Naeem, our Group CFO , to discuss our financial performance.

Thank you Lincoln

As we close out the fiscal 2022 year, I continue to be very pleased with our overall performance and the progress made over the past three quarters and what has been achieved in the first quarter were the ongoing positive trends in revenue, costs and EVDA being reported.

With the close of the Connect Group acquisition on the 14th of April , I am delighted to be able to provide fully audited consolidated financials for the Lisaka Group that includes Connect performance in the first quarter.

We achieved a consolidated group revenue of $222.6 million for the year. $86.2 million related to the revenue from Collect Group wrote in for the fourth quarter.

Positive turnaround of adjusted EBITDA loss of $20.7 million compared to an EBITDA loss for the financial year 2021 of $49.5 million, resulting in a $29 million turnaround.

We released the Proforma Connect Group numbers in June for the period ending 28 February 2022.

The consolidated LASAKA group performance includes 12 months of performance for LASAKA, excluding Connect Group, and we have included Connect Group for the full month of May and June and 17 days of April from the 14th of April .

I will now walk you through the details of the combined entity financial performance and provide more detail on the financial contribution of the Connect Group on our business.

The fourth quarter is clearly characterized by a strong performance again in our merchant business, both on the revenue and profitability, and a continued focus on the turnaround of our consumer segment, consistently showing improvements over the past four quarters.

Total combined revenue for the quarter was $121.8 million. This includes a $86.2 million contribution from Connect. We achieved a segment-adjusted fourth quarter EBITDA profit of $6.1 million as compared to an EBITDA loss of $6.7 million in the fourth quarter of 2021.

and a normalized EBITDA profit of $1.3 million.

This performance is evident of the significant performance turnaround the group has achieved through the cost reductions in the consumer business and the inclusion of the Connect Group.

Turning to our business segment, I want to again remind everyone that this segmental disclosure was initiated in our fiscal second quarter. We manage our business from a customer-centric perspective and have split it into a B2C consumer segment and a B2B emerging segment.

I will start with the merchant segment, which was the main driver of higher revenue and EBITDA numbers for the quarter. Merchant business revenue and segment-adjusted EBITDA performance change was transformational with the inclusion of Connect Group results. We achieved a revenue of $105.7 million and a segment-adjusted EBITDA profit of $7.4 million. This included $86.2 million of revenue.

and adjusted EBITDA profit of $5.8 million related to the Connect Group. Consumer Business delivered a segment-adjusted EBITDA loss of $1.4 million as compared to the EBITDA loss of $6.9 million in the first quarter of 2021, mainly coming from a reduction and right-sizing of the consumer cost base. We expect to deliver more than $19 million of cost savings on a full year basis.

We have included the performance of the SACHA PreConnect consolidation for reference purposes.

The consistent turnaround team was delivered in the fourth quarter again, achieving a normalized EBITDA loss of $4.5 million compared to an EBITDA loss of $12.1 million in fourth quarter 2021. This is a positive contribution of $7.6 million. I will now unpack the underlying revenue components and explain the significant revenue contribution of Connect Group on the business. I will provide this.

For both the merchant and consumer business segments, Azure Connect Group contribution only impacts the merchant business. Revenue increased from $34.5 million to $121.8 million when compared to Q4 2021. On a like-for-like basis, revenue increased by 4% to $35.6 million for the quarter.

Merchant revenue from external customers was $105.6 million, contributing 87% of the group's revenue. Revenue increased primarily due to the combining of the correct group revenue under the merchant business segment. Telecom products and services includes all the VES products and bulk collection we do across the group. This increased to $63.4 million, mainly from contribution from the Kizhang products.

processing fees increased by $22 million, mainly from the inclusion of the processing fees earned through the Cash Connect business.

Interest from customers represents revenue earned from merchant advances.

Turning to the consumer business.

At the revenue line, we saw a 14% decrease in revenue. This was due to the right sizing of our branch and ATM network by closing unprofitable branches and significantly underutilized ATMs. Although revenue decreased, the right sizing exercise resulted in a better performance from a profitability perspective.

The initiative launched under Project Spring has resulted in a significant right sizing of our cost base, mainly in the consumer business segment. In addition, we continue to look at cost saving initiatives using the Vast Connect Group merchant base for our consumer business.

As is very evident on the slide, our OPEX ratio has consistently decreased quarter on quarter from 75% to 45%, resulting in a real cost savings for fiscal 2022. We achieved R208 million of cost savings. We indicated expected savings of R150 million in Q3 presentation.

We are expecting for fiscal 2023 this to be more than 300 million REN coming from initiatives already achieved.

At an EBITDA level, the impact of the turnaround is becoming very evident, with a consistent improvement in our EBITDA since the fourth quarter of fiscal 2021. As Chris alluded earlier, we achieved a normalised EBITDA adjusted for one of items of $1.3 million in the fourth quarter. This is an improvement as compared to the normalised EBITDA loss of $3.1 million in the third quarter, evidencing the continued EBITDA positive evolution. For more information, visit EBITDA.com

This was achieved mainly through the cost initiatives delivered in the consumer business, higher revenue in the pre-existing merchant business, and contribution from consolidating the Connect Group in our fourth quarter. Our operational cash flow utilization has decreased from $63 million in FY21 to $26.7 million for FY22.

From a cash flow perspective, we continue to make improvements with a reduced reliance on our cash reserves to fund operations. This has been achieved through cost reductions and improved revenue. We have a net debt position at the end of the quarter of $103 million. This includes unrestricted cash reserves of $105 million and a total debt of $208 million. The acquisition debt of $64 million was provided to a short-term bridge facility.

that falls due in April 2024. We continue to review our capital structure and working with our bankers and advisors to ensure we achieve an efficient long-term sustainable capital structure for our business.

As is the last quarter, we continue to hold our Moby Quick investment at $76 million in line with the last capital raise. Our Selfie investment is held at zero and Fundbond investment at $5.8 million. These investments remain as non-core. Overall, I am very pleased with our Q4 achievement and excited at building onto this positive momentum as we continue to focus on right-sizing our consumer cost base and driving revenue across the organization.

Our strategic initiatives are progressing well and delivering on a positive performance.

I would now like to hand over back to Chris, who will address the group's outlook.

Thank you, Naeem.

So, looking ahead to FY23, our principal focus continues to be growing our merchant and consumer customer base.

We've set up the overall market opportunity emphasizing the degree of underpenetration in our market and the differentiators in our proposition that position us for growth.

Our focus is on execution.

And alongside client growth, we will focus on developing the merchant consumer ecosystem by developing incentives and rewards for our customers for transacting in the ecosystem and thereby developing the self-reinforcing business model and flywheel effect that I laid out earlier in this presentation.

And thirdly, we will continue to develop new offerings for our clients as we identify and continue to solve for their pain points and needs.

And this has been a key element of the Connect Growth Story and is focused on a culture of continuous innovation. And is focused on a culture of continuous innovation.

which is based on data insights.

And so in closing, we wanted to provide some guidance on the near-term performance of the group.

We have previously communicated to the market that we would start providing guidance once we had stabilized the consumer business and fully integrated the Connect acquisition. And we believe that now we are able to start providing you with high-level guidance of what we expect to see in the new financial year.

I mentioned earlier that the group delivered $6 million in segment adjusted EBITDA for the fourth quarter of FY22. And we believe that this is a reasonable indicator of the EBITDA run rate that should be achieved in the near term, excluding growth, but noting that the Connect group was included for two and a half months of Q4 FY22, and also noting that in Q4 we saw significant outperformance in our POS sales division.

As mentioned earlier, the consumer monthly EBITDA breakeven position is close, and we expect this to occur by the end of Q2 FY23.

And within that context, LASAKA expects revenue between $130 million and $133 million for the first quarter of fiscal 2023, which is to 30 September 2022.

and total segment adjusted EBITDA of between $6.1 million and $6.5 million for this period.

And so with that, we'd like to turn to the Q&A session to answer your questions. Thank you.

Thank you. We will now begin our Q&A session. Again, for those joining us via the webcast, you can ask your question live by raising your hand in Zoom.

First, we will take Raj Sharma from B.Reilly. Raj, please unmute yourself and ask your question. Thank you.

Hi, good morning.

I wanted to ask you about

you about just...

In terms of the guidance.

Could you clarify?

the segment EBITDA before corporate, is that before corporate allocations? I think it seems it is. Is it hard to predict corporate allocations a quarter ahead?

Thank you for your question. Thanks for being on the call. I'm going to ask Naeem maybe to respond to that. Have you got any other questions you want to put to us before Naeem responds? Or should we just take... Yeah, sure. And also, the merchant is doing pretty well. If you can talk a little bit about the contribution going forward to the EBITDA between consumer and merchant, that's my next question. And then I'd like to talk about the purpose behind the shelf that was just filed.

So from a business operations perspective, we felt that the segment adjusted IBDAR is most closely reflects the run rate and really reflects the position of the business from a forecast perspective.

Got it. Thank you. And then just a little bit of the breakdown between consumer and merchant going forward in terms of the EBITDA performance.

performance.

Yeah, look, I think in terms of the forecasted guidance that we've given, with regards to the consumer business, as Chris has highlighted, is that we're getting close to a very, we're getting very close to a break even position. I mean, our long term view on this would be to have a much more balanced contribution between the consumer and the EBITDA going forward. And I think that, you know, that would most probably be in the range of between 70%.

progress in cost cutting on the consumer group. So is it fair to assume that...

the Ibados guidance seems a little conservative.

Number.

If I could respond to that and Naeem will probably come in.

Rod, what we were trying to convey to you is that Q4, that's the $6.1 million, is a reasonable run rate if you adjust for a number of things. We spoke about, yes, the Connect Group is not in there for a full period, so that would be maybe a positive adjustment to that number. But we also spoke about Newitz, which is our POS sales and servicing business.

had a very strong quarter which we wouldn't expect to repeat. And there were a couple of other smaller things. So we don't believe that it's overly conservative. We think that's the right range to express. And I think if you adjusted on the whole for these exams that I've just given, we'd have come in slightly below the 6 million, probably closer to about 5.8.

Is that mid-five? Mid-five, yep.

Got it. Thank you. Then I wanted to understand. Yes.

the shelf registration, that's just a very, if I can call it standard renewal of an existing shelf. It's the shelf that's always in place for any potential capital issuance. So nothing untoward or new or different, it just, it comes up every, I think it's every three years or so that we have to just renew a pre-existing mechanism for capital issuance.

Thank you for answering my questions.

Got it. Thank you for answering my questions. Great clarity on the results.

Thank you. Thanks, Raj. Thank you, Raj. Next, we'll take Jared Houston from All Weather Capital. Jared, please unmute yourself and ask your question. Thank you.

And Jared, you just have to unmute yourself.

Hi guys, I'm sorry.

I just got a couple of questions with regard to your selling at administration expenses.

So I noticed that it was quite high. What percentage of your sales is commission based?

I noticed that it was quite high. What percentage of your sales is commission-based for new businesses?

And what do you expect the trend to be? And then on top of the commission base,

I'm kissing this outcome

Sure, that was included in one line item.

How do you recognize a commission expense? Is it recognized as a payment?

cash outflow to your sales staff and then you recognize it.

upload to guys oneself to your sales staff and then you recognize it on the books.

separately over the contract period.

or am I not understanding something yet?

I hope that sort of makes sense.

Hello.

Bye, guys.

I think, and I'll pass on to...

Steve, just to give a bit more understanding of how the remuneration of the Connect Group is, but largely for the consumer business, there isn't a significant amount of commission. There are incentive targets and performance targets that are in place for the sales staff in terms of delivery and performance management, but a very small percentage is paid as a commission. A small incentive per account, which is a fairly small amount, and these are generally...

And that's really reducing the costs on that side. Steve, in terms of the CONEC remuneration...

So again, I think commissions are expensed when a sale is actually made, so they're not deferred. So when a sale is made, the individuals are paid their commissions, and right across all the product sets, the commissions are nowhere near the fixed costs of individuals. Hopefully that answers the question.

The community commissions would not make up a very big portion of the reward mechanism.

So just from understanding and again it would cover.

Just one last point, it would obviously correlate. So we've had a very strong, if you remember, we showed you a March to June cumulative performance for the business, and clearly you can see if the sales have ramped quite significantly, and then the correlative commissions for those sales would obviously have gone up proportionate.

Okay, now that's fine. I just wanted to understand the...

Because I would expect new businesses, there might be a lot of sales staff and that might be quite high. But yeah, that helps a lot.

Not.

Think.

Okay, and I do not believe we have any more questions in the in the queue so I will turn it over to Chris to wrap up

Thank you Doris, thank you very much. And yes, I'd like to say thank you to everybody for joining us on the call today and thank you for the questions and thank you for the interest shown in our business. In many ways it's been a watershed year for us at the cycle. A lot of change but we're really proud of what we've achieved over the last 12 months and we remain entirely committed and focused to building the leading...

you

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