Q1 2023 Lesaka Technologies Inc Earnings Call

Small businesses access to financial services, they need to prosper.

We are constantly innovating to help merchants grow manage and digitize their business.

While enabling our large consumer customer base to easily access their money and the financial services they need in their daily lives.

And as we previously pointed out.

There are real challenges to delivering financial inclusion and digitization in the South African market.

The challenge of stem from a deep distrust in and a lack of understanding of cash alternatives, which is driven by low levels of financial literacy in our country and adding to the challenge of the relatively high connectivity cost in South Africa, It Tom and data are expensive and priced commodities.

As smartphone penetration remains relatively low with many south Africans still use oldest all feature funds.

And taken together this all means that although in the 80% to South Africans may have a bank account many treat them as post boxes with growing the money in one transaction.

Solving these issues for our customers is our mission.

And we have shown little soccer is very well placed to meet those challenges and deliver for our customers.

The soccer the addressable market is large and it offers multiple leave us for expansion.

Platform serves micro and small merchants together with the consumers who would typically shop in their stores.

We estimate it to be approximately $1 4 million informal merchants and approximately 700000 affordable merchants in our target market along with the approximately 26 million consumers in Elisa <unk>, 1% to six who format target addressable market in the consumer Division.

Our strategy is to build our ecosystem, where our consumers are and this often means in the townships and the rural areas of South Africa trades and points of presence that are convenient and accessible for our customers.

As such we have over 68000 points of presence in the form of branches retailer pay points Atms satellite kiosks and mentioned devices.

This compares to approximately 58000 discussed previously.

And the soccer platform offers growth and broader reach in an underpenetrated market.

And we believe there is tremendous scope for both our merchant and consumer businesses to grow in scale in their respective target markets in their own rights.

At the same time also benefiting from the synergies and opportunities created by the dual sided ecosystem and self reinforcing business model. We are building as part of the <unk> value proposition.

As post Covid travel has started to open up again, we have been fortunate in recent times to host a number of investor visits showcasing the soccer platform and allowing investors to gain first hand experience of our merchant and consumer offering.

One thing that has become evident through these visits is that all.

Offering and growth potential in the formal sector seems to be well understood. However, it is often seeing the size and scale of the informal sector.

Is that with our leading offering there in.

That is.

Invaluable to our Investor base and allows them to conceptualize the growth opportunity and the need for financial inclusion in our country.

And as such I thought it would be useful to spend a little more time looking at the informal sector as part of today's presentation.

So south Africa informal economy is highly kesteven.

And while information is imperfect estimates are that the GDP of the informal sector as well about $300 billion rent and it continues to grow.

We estimate 60% of total transactions in South Africa are cash based we all.

Also we estimate that approximately 90% of transactions in South Africa's informal economy are cash based.

Anecdotal evidence is that 70% of fresh fruits and vegetables, and South Africa, all sold in the informal economy.

So it is highly evident that the size and nature of South Africa's test driven informal economy.

Necessitates financial inclusion and Digitization in the informal market.

And it is through our ability to efficiently digitize the last mile of financial inclusion, providing a full service fintech platform across cash and digital services, serving the needs of both while also facilitating the secular shift to digital that is currently taking place that positions us so well to deliver on.

Our mission.

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.

Okay.

[music].

Thank you Chris at the outset, let me reiterate that the connect acquisition wasn't essential building block and expanding and transforming the saka as merchant offering.

What it is today.

It has served the purpose of introducing new products services and customers, while establishing the soccer is a leading player in south Africa's merchant sector.

Getting straight into the financial performance of the merchant Division for Q1 2023, the merchant business reported total revenue of $1 9 billion Rand driven by the inclusion of connect group for the full quarter from July one.

To September 32022.

This compares to $1 6 billion in the prior quarter Q4, 2022, a quarter in which connect was included for most of the quarter.

Similarly segment adjusted EBITDA for the merchant business increased to $154 5 billion compared to $124 4 million in Q4 2022.

In connect throughput is one of the fundamental measures of how the business is performing and it supports ongoing growth.

<unk> Q1, 2022, <unk> cumulative actual throughput grew 29% to $5 8 billion Rand.

This continued momentum demonstrates the value that we bring to our informal merchants through this operator I will go into more detail on this when I talk to operational metrics we.

We saw a robust growth in our cash connect business with cash settlements up 19% to 27 5 billion. Despite the challenging environment for retailers over this period.

In connected card acquiring business cumulative transactional throughput continued successful growth of a 115% to $2 3 billion Rand due to further traction in penetrating the informal market <unk>.

As indicated previously we believe it to be a strong growth potential in this product.

Finally, we saw great traction in capital connect which focuses on providing merchants quick access to working capital dispersing approximately $119 million ramp in Q1, 2023 up 77% compared to Q1 2022, we previously mentioned that we anticipate strong growth in the <unk>.

Rina, which certainly has been the case with two record lending months in the first quarter of 2023.

We are also seeing good momentum in Kazan pay advance, which was launched a year ago off the back of <unk> PE in the owned formal market.

Now in our easy pay business as expected we saw a decrease in vas value process for prepaid electricity as a result of load shedding.

It's important to clarify that this decrease is not due to a loss of customers.

Value process for prepaid airtime increased by 8% and our bill payment volumes declined by 2%. We remain focused on the repositioning of our easy pay business and I'm proud of our prioritizing commercial revenue streams in relation to existing and new clients.

In <unk>, our point of sale terminal business revenue generated from the sale of point of sale devices can be lumpy given the seasonality of bulk sales. We are therefore reflected a 12 month rolling average and we will do so going forward for Q1 2023 compared to Q1 2022.

This being a more meaningful metric in fact in the performance of this business.

The 12 month Rolling average for FY 'twenty Q1, with 7761 terminals sold compared to 3365 terminals in the first quarter of 2022.

We are excited about many of the opportunities in our merchant business a socket today has a comprehensive offering to SME merchants in Southern Africa, and now has a distinct dual sided ecosystem driving financial inclusion in serving both merchants and consumers.

As Chris mentioned, the integration work between the pre existing merchant business and connect has been extremely encouraging and synergies to date have exceeded the expectations that we had going into the acquisition.

Our bulk business effectively puts the bank and approximately 4200 merchants stores.

Historically, we've been placing our bolt into formal SME merchant stores, but on are also penetrating the informal sector under the <unk> connect to both brand. This has provided significant operational and risk benefits.

Informal merchant base.

We are also pleased with the progress made in integrating the sockets ATM business into cash connect and the beginning the rollout of our new Atms and recyclers as part of a holistic cash management solution. This is in pilot phase what we envisaged as an ATM product that is a cash flow with cash cash to spare.

<unk> capability.

This integration will also increase traffic across the sockets ATM infrastructure.

In our card acquiring business, we saw excellent growth during the quarter with more than 5000, new merchants being added.

We extended our offering into the informal space last year.

And the pace of growth continues to exceed expectations.

This is a profitable revenue stream as we leverage our existing infrastructure to grow this offering a clear competitive advantage in this space.

Growth was supported by broadening our product set for merchants enhancing functionality and corporate partnerships.

It enabled point of sale devices is up more than 100% from a year ago with approximately 27700 car devices deployed at the end of Q1 2023.

The card acquiring opportunity in the informal market is nascent and a large portion of this market is still to be captured.

And our bass in Bill payments business, we added approximately 6300 merchants in the quarter. It did in Q1 2023 with approximately 57000 devices in the field. This was driven by organic customer acquisition and also supported by corporate partial partnership initiatives.

The easy pay money market pilot is proceeding according to plan and we are very pleased at the Swift pace in which this initiative has been implemented.

<unk> basic vending functionality, including ticketing has been completed and has been installed at numerous pilot sites. The orca in these pilot sites are materially larger than in the informal sector rolling off more easy pay money market offers an exciting growth opportunity and is a significant synergy of the connect acquisition.

This slide is an example of a partnership initiatives that continue to support growth by positively impacting customer acquisition and operational efficiencies as well as improving value for our merchants.

This image is twofold, highlighting that emergent can take card payments from these customers at this <unk> via <unk> pay and the merchant can also sell a bouquet of various products to consumers of the same device for cash or car tender.

The same platform the merchant is able to settle a south African breweries AB inbev for stock purchases directly from the huge E wallet as opposed to making cash payments for stock.

In conclusion data we are incredibly pleased with what has been delivered in the merchant business. The connect business has continued to grow in line with expectations and in sync with historical achievements and the team has executed a new growth initiatives in a short timeframe.

Certainly the early stage of what is potentially a large growth opportunity.

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

Yeah.

Yes.

[music].

Thank you, Steve and good day everyone.

Moving on to our consumer segment.

The first quarter of predicting the fee, we continued to make great progress on right sizing the business towards implementing our revised consumer strategy focus on product and efficient distribution channels.

First let me remind everyone that's on the consumer side.

Currently provide transactional banking short term loans, a digital wallet as well as insurance and <unk> been adding services to underserved consumers in South Africa.

These are aligned with our purpose of improving people's lives and increasing financial inclusion.

At the end of September Cts 2022 we grew our customer base by 15% to one $1 7 million active ETE transact on a com.

Traction in our <unk> banking offering as evidenced with the number of issuer transactions being gaming transaction, resulting in revenue and is up 75% to $2 3 million transactions in this quarter.

We ended the quarter with 257000 active policyholders up 10% compared to a year ago in our easy pay insurance product offering, which we previously called smart life.

Our insurance business had a very high cash collection rate of 98% and this has remained consistent over many years.

Our loan book size in our easy pay loans previously branded mine line.

$151 million.

End of September <unk> 2022.

This portfolio comprises.

Approximately 190000 loans and the loan ratio of less than 4%, but yeah.

Our loan loss rate and a high cash collection in Reagan and forums emphasizes our compelling value proposition.

In offering fit for purpose solutions to millions of consumers desperately needing financial services.

We also see continued improvements in the ATM business with over 3 million transactions through our Atms in the first quarter of 2023.

The productivity the ATM has increased significantly after implementing our ATM optimization actions.

The number of Atms in the field has decreased by 40% compared to a year ago and the average number of transactions to ATM is up 60%.

Ill discuss ATM optimization in more detail when I get to my next slide.

While we have achieved a great deal in our 'twenty to 'twenty two financial year.

From a refining our value proposition.

Positioning our offering to be more customer centric to building a 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.

Grow our active consumers and now with the right team in place the right products and having the right side of the business, we will focus our efforts on reaching breakeven in the consumer business by quarter two of this financial year 'twenty three.

But again, we have focused our efforts into understanding what our customers are looking for the best channel to engage them with what our customer our competitors are offering and where we can disrupt the space by designing the right innovative products that truly meet our customers' needs.

This slide shows how we have reinvented our distribution model.

Following the execution of our four performance review across our branch network. We have closed over 100 branches and commenced the shift into the retail our partnership strategy.

Our mindset is to shift from traditional bricks and mortar towards an installed kiosks wherever possible.

We've continued to build in store partnerships with merchants who are.

National and independent players and this brings our consumer proposition to where our customers want to be and drive footfall into the merchant stores.

This includes identifying the right retailer to partner with being the retailer that service our market grant recipient market.

We have streamlined.

Our onboarding processes, including Tech enabled mobile sign ups.

Efforts are beginning to yield expected results.

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

Our ATM optimism.

<unk> program is also benefiting from the retailer partnership strategy as we've shifted more Atms out of branches into retailers. We've also deployed almost 40 through the wall Atms.

These atms are available for more hours given optimal positioning within the stores are more accepting more customer footfall.

This means increased volumes, especially the number of the them on us transactions.

Steven Christopher already touched on the encouraging results from the launch of our PE money market offering the EMA.

On the bottom left brings to life, the easy pay money market concept, which have been lodged in merchant stores.

This is a great example of how in practice, we've executed on an opportunity to develop the self reinforcing ecosystem, which create synergy and opportunity for growth and expanding.

Overall, the saka value proposition.

<unk> 'twenty 'twenty three we have achieved approximately 78000.

Account activations and our churn rates are well below 5% every dancing traction in our focused consumer strategy.

<unk> churn for us predominantly relates to the impact of the Activations and Activations in the S. R DRAM space.

I think it's important to highlight that we apply a very rigorous approach in our measurement criteria for what we regard as an active accounts.

<unk> only classified an account has been active if there was activity on that account during <unk>.

Perfect model.

Our profitability improved in quarter, one <unk> as we reported reduced segment adjusted EBITDA loss of $31 million Rins compared to 167 million Rins in the first quarter of <unk>.

The consumer segment adjusted EBITDA loss narrowed further and we're very close to breakeven level.

As part of our renewed consumer strategy, we will continue to focus our efforts on attracting permanent grant recipients growing active accounts and increasing penetration across our loan book and insurance product.

We have seen mixed results with these two product offerings in southern sales continued to strongly outperform while growing the loan book has been slower than expected and we're very focused on actions to drive awareness of this product.

The challenges in growing the loan book, we remain on track to achieve breakeven by quarter end December 31 2022.

As you can see on this slide the monthly run rate of the consumer business segment. Adjusted EBITDA loss continues to move in the right direction as we progress on our turnaround strategy for the consumer business.

I will now hand over to name a good CFO to discuss our financial performance.

Okay.

[music].

Thank you okay.

The first quarter of fiscal 2020, the continued to build on the strong momentum from Q4 2022 for both the merchant and the consumer business.

We continue to be very pleased with the performance of the merchant business successfully integrating connect group into a much in business and the continued turnaround and improved consumer performance.

Good performance in revenue cost reductions and improve EBITDA being reported we achieved a consolidated group revenue of $125 million for the quarter compared to $35 million in Q1, 2022 mainly related to the revenue for the connect group consolidated for the full quarter.

Positive turnaround normalized EBITDA profit of $2 8 million.

For the quarter. It is essential to note that the Q1 2020 includes preexisting Stockholm and collect group for the fourth quarter compared to Q1 'twenty to ensure that only includes existing masako business Q1, 2023 delivered a positive performance across all of the financial performance categories.

We are very enthusiastic about as we transform the business to the level of growth and strong performance results.

The merchant business, including clinical consolidated continues a strong solid strong performance trajectory, while the consumer business that are on continuous in the right direction growing on account and transaction numbers.

Reducing and right sizing our consumer cost base.

Total combined revenue for the quarter was $2 1 billion, 13% growth compared to Q4 2022.

Including Conagra for three months versus two and a half months for Q4, 2022 as well as the continued underlying growth in the revenue drivers.

<unk> delivered in the quarter exceeded the upper limit of our guidance range.

We achieved a segment adjusted EBITDA profit of $111 million as compared to an EBITDA loss of $106 million in Q1 2022.

And in normalized EBITDA profit of 58 million ran as compared to an EBITDA loss of 140 <unk> memory in Q1 2022.

This performance is evidence of the significant performance spend around the globe.

Achieved through the acquisition of curriculum and the cost right sizing and our consumer business. The segment adjusted EBITDA profit of $111 million gain for the quarter came in close to the upper end of our guidance for the quarter in range.

The merchant business achieved revenue of $1 9 billion Rand and a segment adjusted EBITDA profit of $134 million or in a solid performance with continued strong growth across the connect group business.

Schumer business delivered a segment adjusted EBITDA loss of 24 million as compared to an EBITDA loss of $137 million in Q1, 'twenty, two new 113 million turnaround driven mainly by cost savings.

I will now take you through the performance on the U S dollar converted basis for the quarter, noting that we use an average rate of 17, one three.

<unk> to the dollar for the quarter compared to $15 five six used in Q4 2022.

This is a 10% devaluation in the rain.

The total combined revenue for the quarter was $125 million.

With a segment adjusted EBITDA profit of $6 $5 million, and then normalize EBITDA profit of $3 4 million.

I will now focus on the components underlying revenue revenue increased from $34 5 million to $124 8 million compared to Q1 'twenty commit too much.

<unk> revenue was $109 4 million contributing 88% of the group's revenue.

Revenue increased primarily due to combining connect group revenue under the merchant business segment.

Telecom products and services includes all events in both payment collection, we do across the group. This has increased to $76 million.

Mainly from contribution focusing.

Processing fees increased to $27 million.

Mainly from the inclusion of the processing fees.

And through the cash connect business.

Interest from customers represents the revenue earned from merchant advances.

Turning to the consumer business segment.

The revenue line, we achieved $15 million of revenue compared to $17 million of revenue in Q1 'twenty two to.

This was mainly due to the depreciation in the Rand to the dollar on a random basis revenue grew by 2%.

We continued to achieve consistent growth of our coffee revenue ATM revenue, while insurance Commission revenue delivered strong growth in this quarter.

At an EBITDA level the impact of the turnaround continues to be evident with a consistent improvement in EBITDA since the fourth quarter of fiscal 2021, we achieved.

58 million Rand, Oklahoma lives EBITDA for the quarter, an increase of 43% as compared to the fourth quarter of 'twenty two.

The improvement in the EBITDA is attributable to both the merchant and consumer business segments.

U S. Dollar terms this equates to a normalized EBITDA profit of $3 $4 million in this quarter.

An improvement of 800000 compared to Q4 2022.

Earnings per share both basic and fundamental show similar trend of positive turn around turn velocity since last year. This time in prior quarter.

This is indicative of the positive EBITDA contribution from the inclusion of connect group, which has exceeded the increased interest costs and amortization of intangibles as a result of the acquisition.

Our operational cash flow utilization has decreased from $10 million in Q1, 2022.

Half a million dollars for Q1 2023.

Cash flow perspective, we continue to make improvements with our reduced reliance on cash reserves to fund. The operations. This has been achieved through cost reductions and an improved revenue as well as positive cash flow contribution from the collector.

Capital expenditure for the quarter was $4 $5 million compared to $2 8 million in Q4 'twenty to ensure the increased capex predominantly related to growth Capex spent on cash recyclers for Atms and the point of sale devices to support the growth.

Pay business.

We have a net debt position at the end of the quarter of $104 million.

This includes unrestricted cash of $93 million and total debt of $197 million.

We continue to focus on creating a stable and long term capital structure.

We have worked closely with our bankers and have agreed a restructure of the $1 1 billion Rand rich facility that is subject to final approval by our bankers.

The renegotiated position will introduce greater flexibility and further increase liquidity as we invest for growth.

And at the last quarter, we continue to hold our mobi quick investment at $76 million in line with the last capital raise our cell C investment we continue to hold at zero and fund one investment at $5 million. These investments remain as local.

Overall, the first quarter of fiscal 2023 is evidence of the efforts we have implemented in fiscal 2022 and is now delivering the positive results.

Our continued focus on our strategic initiatives is progressing well and we are optimistic of delivering a positive performance.

I would now like to hand over back to close call address the group's outlook.

Okay.

Okay.

[music].

So in closing we wanted to provide you with guidance on the near term performance of the group.

We reported results in U S dollars under U S. GAAP operational currency is in South African Rand, we analyze our performance in South African Rand and as such we believe it makes sense to provide our guidance in red.

For Q2 2023.

Socket expects group revenue between $2 billion brand and $2 3 billion Rand for the three months ended December 31 2022.

Total segment adjusted EBITDA is expected between $157 million rent and 164 million Rand.

Comprising merchant segment, adjusted EBITDA between $145 million rent and $150 million rent and consumer segment, adjusted EBITDA between $12 million rent and $14 million rent.

We expect costs of approximately $41 million ran for Q2, FY 2023, which means that this results in an adjusted group EBITDA of between $116 million rent and $123 million rent for Q2, FY 'twenty three.

And for the full financial year FY 2023.

We are reaffirming the total group guidance provided on September 1922 on a rent basis.

Our outlook for group revenue is between $8 7 billion Rand and $9 6 billion Rand for the 12 months ended 30 June 2023.

Total segment adjusted EBITDA is expected to between $645 million rent and $675 million rent.

On pricing merchant segments, adjusted EBITDA between $550 million rent and $565 million rent and consumer segment, adjusted EBITDA between $95 million rent and $110 million rent.

Adjusting for group costs, which we expect to be between $155 million rent to $165 million rents on a normalized basis for FY 2023 and.

Implies an adjusted group EBITDA of between 480 million Rand and 525 million Rins for financial year 2023.

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

Thank you.

[music].

Thank you we will now start our Q&A session for those joining us via the webcast you can ask your question my by raising your hand in June .

As I was joining the gym teleconference line again, you cannot ask your question lies we will just pause here to assemble the queue.

We will take our first question from Raj Sharma from B Riley.

Hi.

Okay.

Yeah.

I wanted to understand.

<unk>.

The consumer.

Yeah.

Q to Q2.

Guidance in fiscal 'twenty three guidance, there's a step change in performance can you talk about what's driving this growth.

I'm sorry can you hear me okay.

We can hear you can you hear me, it's Chris speaking.

Yes, yes.

Origin and thank you. Thank you for joining the corruption.

We heard the question I just want to make sure I got it you spoke about a step change in the second half in the consumer business in terms of the turnaround and just looking for a little bit more color I'm going to ask.

Just to address that.

Hi, Raj how are you doing in Hopewell.

So right. If you look at the Q1 result, and what I've highlighted in my presentation and in September .

We close the consumer business.

And a $2 million ran loss now.

Large part of that turnaround has come through from the cost savings as well as the increased revenue. If you look at the to Q2.

Forecast that we've provided a $14 million around 60% of that turnaround will come through from some of the cost savings that we've already executed on.

It's merely a timing of those cost savings coming through and about 40% of that will come through from our revenue uplift. So as we've noted in a link.

And as highlighted as we deploy our Atms, we're looking at a higher revenues coming through from our Atms as well as our loan businesses, we don't behalf quite a bump a month in the month of December where it would have a higher performance on the loan book as well. So you know those two other tier two critical areas that will really drive the Q2 turnaround.

And if you take that on a full year basis around 56% of the uplift will come through from the cost savings. The additional cost savings. In addition to the projects pink and around 44, 45% will come through from episode revenue. So that's again building on the revenue run rate mainly from the ATM Rollouts in AR.

The market in the retail segment and from the money lined book growing.

Raj any additional questions yes.

Thank you and then can we talk of the consumer business a little your ETE account Activations have gone up on a monthly basis it.

It seemed like there the 78000 run rate.

Do you anticipate.

This rate to sort of continue over the next year is it.

Is it too early to talk about some long term trends here.

And are you still targeting the $45, 50% sort of monthly activation rates could you comment on that please.

Sure. Okay. Thanks, Raj I think.

So.

The momentum we're seeing the growth rates, we're seeing on a on a on a net basis.

In terms of active accounts net of churn.

When we look forward we essentially.

Assuming that that sort of momentum that kind of growth rate will continue.

So that's how we plan and forecast it in the business.

So that we were looking at current quarter and using that as the basis.

That said you know we've said this before it's still is early days for US we still have.

A number of.

Initiatives out there with us with our team.

In terms of improving.

A lot of that.

The tools of try it for free for ourselves stuff.

Income spoke about the rollout of the <unk>.

The digital iPad, but on boarding the bus.

Makes life, a lot easier and a lot of time and if it is spent on on training of our staff.

The shifting of our branches into into the retailer all of these things are additive in terms of helping.

Helping us.

The account base and and I should should you should see benefits in the future, but ultimately the way. We we've tried to plan and forecast looking forward just based on what we're seeing at the moment.

If I could just add one more thing is is we've also got the staff.

To focus much more on permanent grant recipients.

Because the other brands.

Are quite volatile, which are the <unk>. So people can get a grant is today and then they don't qualify the next month. So the permanent grants are the ones that give us much more certainty and we focus much more on activating those accounts and making sure that our stock was actually viewing.

In on activating permanent grants because that gives us much more certainty and that gives us much more of a better runway and it allows us to cross sell our product as well.

And Ross any other questions.

One more one more question and then maybe get back in line.

The consumer is staying on the consumer.

Revenue saw a benefit from higher insurance is this and you said that the loan book was tougher to sort of grow.

Can you talk about what's driving this and how are you driving the higher insurance.

Yes, if you go back yeah. Thanks Raj if you go back to our earlier conversations.

You would remember that we indicated that many of our staff could only sell one product and there was not enough product knowledge of all of our products now.

Now getting all of our staff to be trained and to be accredited to sell all of our products has now really hub and also enhancing our product has also the hub the smartwatch product that we launched so the combination of those two things.

Is how big the growth in the insurance space, So, giving our staff training, making sure that they've got the right product and we're starting to see more clients.

Sitting us as were getting our Atms in the right spaces all of those things are contributing to what you're starting to see.

Great.

Thank you Raj.

Next we'll take Chad cap Hagen from Plough Penny.

Jeremy ask your question.

Chad.

You may need to mute your.

Like to ask your question.

Hi, sorry about that can you hear me.

Yes, Ken Thank you sorry.

Sorry about that thank you for taking my call.

Do you still have an active stockpile.

I am back.

Ban in place and if so how large is that how much has been used.

Just to.

<unk>.

Super.

We do have a.

Some capacity for buyback would have to get back to you.

On an exact capacity I don't have the numbers to hand, but it is there is some capacity.

For buyback.

Think if your question is what is our view on buyback.

I think at the moment.

For us our focus has been on <unk>.

Listings are funding into the business, reducing the Lee with.

Cash burn in the losses.

Getting this business into a cash positive.

So we would we would.

We're always looking at the market. We believe the buyback is obviously a positive sign for the market, but in a fruitful way we at the moment.

We are somewhat constrained or not.

Our cash resources and focused on investing in the business.

That's not to say that we are watching it and you know.

Under the right circumstances, we would consider it.

Okay, great. Thank you another quick question.

A few months ago, you had filed a shelf with the SEC.

Are you inferring, you're contemplating an equity financing.

Any update on that do you foresee that being required.

So.

The filing of that shelf, which was in September .

Early September for US was very much a business as usual renewal of an existing shelf.

So we have a shelf that's there.

That facilitates equity issue and every three years, where we are required to renew it and it sort of happened at the renewal.

And in early September , but just to be very clear, we at the time and at the top.

At that time and right now we certainly didn't have any plans and don't have any plans to raise equity to fund the existing business or like the deep within our business as it currently stands now.

Name was making some very important points earlier around.

The restructuring of our existing debt facilities, which we're very pleased about.

In the final term sheets with agreed terms is that the final approval.

Our pending.

So the countries that there could be some status, but it gives us a lot of flexibility.

Gives us plenty of runway and it will be sufficient for us to deliver on the guidance.

But we've given you and the growth plans that we have for our business. So we think from a from a funding and liquidity perspective.

The resources and spend the capital structures, we have right now or what we need to do in order to deliver for our shareholders.

Okay, great. Thanks, one last quick question.

How should we think about.

Capital expenditures on an ongoing basis, which I think are a good run rate should be for our modeling.

Yeah sure. So as you see that you know.

Yes.

Scott.

About four and a half million dollars.

I think the way to look at where capital is that we are very focused that our capital is being utilized more for growth capital.

This.

And that we had this quarter has been predominantly on two items, which is mainly the.

The Atms so we've invested in new Atms, which are the recycling Atms, which is part of our retail strategy of aligning with our cash business and giving our merchants the ability to have recycling Atms.

So there was quite a bit of investment in recycling.

And then you'll also see as Steve.

Steve highlighted is that we had significant growth in our because they pay the merchant acquiring side of the business. So you know the our investment in our P. O. S has also been quite significant this quarter and it's really been a underlying by the revenue growth that you've seen come through now the way I look at that you know our capex.

And would it would be in the range of about three to $3 $5 million per quarter going forward and anything above that will be really justified through higher revenue growth that we see in the motion business.

Okay.

Let me underline that.

A little bit for you Jud I think the key point is that.

Our capex.

Investments is growth driven so that's the point.

Sure.

We invest in new Pos devices, new vaults et cetera in order to to continue to grow.

Our customer base.

Name says.

He's given you a decent run rate that could probably be indicative of the expected growth that we see in our business.

If we see growth.

In excess of that obviously, we'd be looking to.

That would necessitate additional capex in terms of new new Passover, so new equipment etcetera.

Okay. Thanks, that's all I have.

Thank you Chad I will now read a Q&A from the panel.

So first from Jared.

Huston from all weather, please provide more detail on the working capital absorption in the corner.

Okay.

I'll touch on that so look I think.

In our working capital for the quarter and again this touches back onto what Steve has highlighted.

Part of his presentation, we have seen significant growth in our finance.

Mike can finance loans now that the merchant finance loans are typically between three to six month loans and are basically reported and now we're working capital line.

So that that is therefore that accounted for at least about 70% of the increase in our working capital and just to be clear on that you know that is actually funded through a financing facility that we have with Oh that is specifically for the capital loan book growth rather than from the operating cash flows. So that's one part of that and.

The other thing that we've seen which is also in our cause that merchant business was mainly related to the Muslim funding on the wallet. So what we did see in the month of.

September was because it was close to the end of the week and typically merchants fund their wallet for the weekend, we seem quite an uplift coming through in terms of the funding on the merchant wallet in terms of our advancing for the prepaid services that they offer. So there was a slight spike out there, 20% that had come through that would be above our.

Normal working capital and then the remainder of that really came through from financing the loan book, which is revenue driven and is a separate bucket of hanmi.

Thank you name next we have a handrail from Frank gang from prior Art Chase. Thank you May ask your question.

Hi, there thanks for taking my question.

Yes, just wanted to ask you maybe are on the full year guidance.

So sort of saw relative to the September statements. You know the consumer constantly can consumer segment contribution was decreased a bit whereas the merchant contribution.

It was increased.

Overall as you said the guidance is reaffirmed just curious if you could help walk us through the rationale between data that switch.

Thank you Frank I'm, an officer I'm against it to pick up on that.

Look Frank so.

In September we provided guidance, which is largely based on in all buckets and now obviously going through the first quarter, we've reassessed our guidance and what you clearly see that our merchant business has had a stronger performance and we've been slightly challenge on the consumer side of the business, mainly really coming from very clearly.

<unk> cost initiatives that could have been slightly delayed in the execution of those as I've mentioned in a lot of that has already been embedded down it's now the timing of those.

And I think also on the loan book on the consumer growth that is.

They are taking slightly longer to be able to achieve accuracy, so quite focused and glad base.

Strategy is to be able to grow that number so what you will see that.

About 80%.

<unk> of our guidance came from the of the EBITDA guidance came from the merchant side.

And about 20% of that came from the consumer side of the business that is now slightly being adjusted to about 85% coming from the license side really are underlying the growth that we're seeing coming through on a problem from.

The other the connect side of the business and the condensate and about 15% coming through from the consumer business.

Again, you know we've had to slightly drop some of the forecast that we had in terms of the loan book that is doesn't have all of that change.

Thank you if I could add one thing maybe to SASSA.

Two two.

Frame it a little bit.

I think in <unk> comments.

The delivery of that of that guidance for the consumer business.

Around 55% of it I think you did name is is to do with the cost initiatives.

We've executed and those have largely been executed upon in other words the actions have been taken and that is cost should therefore come through so that's what.

That's quite an important consideration that 45% the remainder of the.

The the.

EBITDA contribution in our consumer business is from that mix of.

Revenue growth between our loan book and our transactional activities Atms et cetera.

To give you a feel for how we see it coming through.

Hello, everyone.

Go ahead.

Got it that's super helpful. Maybe just very quickly back on the working capital is similar to Capex is there a way to think about whats.

A good normalized run rates.

The level of sort of working capital investment that we can think about.

Yeah look I think again, just touching on if I exclude the finance loan book commercial loan book growth I think you know our position on the working capital.

Is that we would we would be funding if I talk dollar terms I think it's between it could swing between anywhere between $3 million on a negative side to about $500 on the positive side and again it really depends on when the Mandan is because if we so if we on a Monday.

The low cash, whereas if it happens on the weekend, we will tend to fund our merchant side because of the fact that they go through the weekend and then there's some advances on the wallets. So you know that that could be the fluctuation between I would say a negative $2 million to basically a positive three $5 million and that excludes the finance.

On the merchant book I think we're seeing very good growth on the financing of merchant the merchant book, which is really driving some of the growth on the revenue side, but again, that's finance funded outside of our operating cash flow. So you know well that you know from a disclosure perspective, we've got to put it on the working capital, but I would look at that as a sector.

Bucket.

Got it very helpful. Thank you.

Great. Thank you, we'll pause here to see if there are any more questions.

And we have a follow up from from Raj.

Hi, Yeah, if I can if I can ask just a more a philosophical bigger.

Bigger picture question.

You know struggling with.

We saw some people struggle with your business model. You know this is not going to be eaten up by a bank or a large entity you know why.

People need to use your card versus just getting a bank card right.

Roger Thank you I think you know we do get that question.

And there are a few things here to consider.

So first and foremost our focus.

In our business is very much on that.

The low end assumes is.

Income groups in South Africa, and the merchants, who says those consumers as individuals and a large proportion of those.

People and the merchants that.

Or in the informal sector, which is which is largely underpenetrated.

As we've explained.

Although.

80% of the people not already have a bank card with one of the other banks that are treating that.

That bank card or their bank account as a postbox withdrawing one of their money.

One hits and removing that and operating in a cash environment.

Ill call it.

It is.

What we wanted to build around that card is that bouquet of offering.

We are creating a presence where our consumers are where our customers are.

That's partly through the partnering with the retailers that be explained and building our points of presence, where it's convenient and accessible to our customer base our focus.

Is there is so much more so on this.

Former market in the ground to recipients space.

That's front and center for who we are and.

So we believe we are providing a transparent simple product for that consumer and then bringing it together with the merchant proposition is starting to build that ecosystem editing.

I encourage all consumer to operate in and transact.

Transact within the merchant stove are providing.

<unk> rewards and incentives to do so we talked about that so that's self reinforcing ecosystem.

This is with this is that this would be the reason for for a consumer to one front of our colleges to operate within our within our.

Ecosystem. So we have a very clear proposition, we have a very clear focus on who our customer is.

You can see it.

The volumes coming through our print yourself.

With our merchants that more and more we are seeing take up of digital of card payments.

The growth in card acquiring in the Gazang PE underlines that.

And so yes, we have a very very clear.

Position I think.

The market has been historically and is very.

Cash oriented as we said.

And the banks have not been able to translate that historically, we are seeing progress in our business model and really driving that digitization that we speak of us.

I think the proof is in the putting at the end of the day.

Does this.

It doesn't.

It doesn't stop the bank from going after this space right.

As they run out of growth does that do.

Do the banks then start to focus on your market I get that the you know you have disrupted the market but.

How much of a.

Lead or a first mover.

Vantage do you have.

In the.

Economy.

Thanks, so much I'm going to invite Steve to answer the question is Vincent and clarity on my left.

So that's I think that's a good cigarette it did intend to bring Steve into the conversation.

Yeah.

Sure.

But let me just for clarity I think that question was was directed at people specifically to the consumer who is the question around merchant.

Well really I mean consumer and merchant rate.

You have disrupted the business or you know are making inroads what stops the banks from going after this space they run out of growth in there.

Their usual areas.

Why wouldn't they could come after this space.

Sure, but let me just make a few comments if I can so for stores is if you look at the consumer space. The reality is.

We're sitting at <unk> in the region of $1 1 million accounts.

The universe of growing customers is because correct me I don't want to quote a number but the total universe is southern.

<unk> has 12 billion growing customers.

12 million with what we would call permanent growing customers and of that there were about six and a half or so that are customers of the post office on the Postbank.

So the line size of that consumer base is sitting with the postbank.

So the reality is we are still a relatively minor in that space and I think there's there's been substantial room for us to grow and if the if the big four banks decide that this is an area that they want to focus on.

There is probably room for them to make.

Making an entree in that space as well, but let's let's let's just be quite clear. We certainly are not dominant in that space and we have a very compelling product offering and there's plenty of room for us to for us to increase our market share. We certainly are not the incumbent in that space as it stands right now from a merchant perspective.

Yes.

Again.

I see nothing but opportunity. The reality is we have a very very if you look at the total segment.

Have a a sliver of the formal market. So so the opportunity if we make a tiny bit in from a <unk> perspective, and the closed streams of cash acquiring product Bari credits and the likes them.

Is that that's all growth for us.

If you.

Sorry, excuse me one second.

Sorry can you give me one second.

Either.

Let's pick pick pick it up for you Steve that's okay. So I think the point, Steve was trying to make on the merchant side is.

We have already proven that we've got a.

Hey.

Strong distribution base, we have got.

60000 devices with us.

<unk> in the informal sector.

And we broke.

Broke that footprint out there and we're seeing growth.

On all fronts.

So, but the point being that.

Said earlier that we see around $1 4 million.

In former merchants in our space.

And so.

Our market share at this point is it's small it's less than 5% I think that's the point Steve is trying to.

Trying to make which is.

We see opportunity we see growth.

And we operate we feel we're coming from a position of great momentum because we have already started to build that distribution base and month on month.

Adding our customer base, our merchant customer base and rolling up those devices.

Great.

<unk> yeah.

I don't know if you guys can hear me can you hear me yeah, yeah yeah.

I think we answer the rest of the question for you Steve I don't know.

Roger Federer sufficient.

Yeah we're.

I'm good on that thank you.

Thank you for answering the question I'll take I'll take my questions offline.

Thank you Raj and that is all the time, we have for questions today, you're welcome to reach out to management, if any questions and answers I would now like to turn the call over to Chris for any closing remarks.

Great. Thank you Dara I think just all that remains is just to say thank you to everybody for joining our call. Thank you for listening to our presentation today.

And a big thank you for the questions.

I think.

That is really indicative of the interest in our business.

Good question subset substantive questions questions on the momentum that's in the business and the progress that we've made so far I think that the.

With the closing remark would be our focus is on delivering our focuses on delivery across the business.

We've got a lot going on and we're very excited about where our businesses at the moment.

You've seen the guidance that we've given for the next quarter.

And it's all about delivering to that and.

We look forward to speaking to you all again.

In three months time, so from the half of the team. Thank you very much and goodbye.

Thank you.

Okay.

Okay.

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