Q2 2023 Lesaka Technologies Inc Earnings Call
Speaker 1: that's formed 10Q after the U.S. market closed yesterday, Tuesday, February 7, 2023, which is also available on the investor relations website.
Speaker 2: As a reminder, during this call, management will meet making forward-looking statements, and I ask you to look at the cautionary language contained in LaSaca's form 10Q regarding the risks and uncertainties associated with forward-looking statements. Also as a domestic filer in the United States, LaSaca reports results in US dollars under US gap. However, it is important to note that the company's operational currency is South African Rand and its such management analyzes their performance.
Speaker 3: in South African RANTS. In this presentation, we will discuss results in South African RAN, which is non-GAAP . Doing so assists investors understanding the underlying trends in the business. As you know, the company's results can significantly be affected by currency fluctuations between the US dollar and the South African RANTS.
Speaker 4: T.A.N. Quick look at today's agenda. Chris Meyer, Group CEO of Lasaka, will begin today's call with performance highlights for the second quarter of fiscal year 2023 and review Lasaka's progress against its key strategic objectives.
Speaker 5: Steve Halburn, CEO of Connect and head of the merchant division will provide an update on the merchant division, which has produced just stellar set of results this quarter. Lincoln Molly, CEO of Lusaka, South Africa will then provide an update on consumer division, which has passed a key milestone this quarter. And then they name Cola.
Speaker 6: Group CFO will present an overview of La Saca's financial performance for the three months ended December 31st, 2022.
Speaker 7: Chris will then conclude the results presentation with a discussion on the soccer's outlook before opening the call for Q&A where we welcome any questions you may have.
Speaker 8: Thank you Rob. Good morning, good afternoon and welcome to our second quarter, 2023 earnings webcast and conference call.
Speaker 9: RFWI Q2 3Q2 results represent a significant milestone for the soccer in a number of ways.
Speaker 10: Our performance of the court provides clear evidence of the successful turnaround in our consumer division which has delivered its first adjusted EBITDA profitable court in years.
Speaker 11: At the same time, the strong art performance in our Merchant Division is testament to the robust growth fundamentals, underpinning the connect acquisition and the overall momentum we are seeing in our Merchant Division. The Merchant Division has delivered an excellent set of results to scooter, topping our gardens and showing growth of 19%.
Speaker 12: compared to a quarter ago being FY23Q1.
Speaker 13: This has been driven by the Kinect Group, which has become the cornerstone of our merchant division as we rapidly expand our merchant customer base in Southern Africa.
Speaker 14: The Merchant Division is at the forefront of our mission of providing financial inclusion through our full service offering across cash and digital, serving the use of both, while also facilitating the shift towards digital that is taking place.
Speaker 15: We are seeing this play out in a number of areas. For example, in our card acceptance business where we've seen card payments through our merchants in the informal sector more than double compared to a year ago. And also in terms of the growth in our credit offering to MSMEs including Capital Connect.
Speaker 16: and KazanPay Advance, where we've advanced 262 million rand this quarter, an increase of 16% compared to a quarter ago, being FY23Q1.
Speaker 17: The merchant division has performed ahead of our expectations. The growth drivers and secular trends underpinning financial inclusion, cash management and digitization for MSMEs are clear.
Speaker 18: We therefore believe the conditions for continued growth remain firmly intact.
Speaker 19: So turning to the performance of the consumer division.
Speaker 20: We are very pleased to be able to deliver the first adjusted EBITDA positive quarter for the Consumer Division in years.
Speaker 21: the consumer division delivered segment adjusted EBITDA of 10.1 million rand for Q2 FY 2023 compared to a segment adjusted EBITDA loss of 23.9 million rand for Q1 FY 2023.
Speaker 22: This is a watershed moment for the business and in reflecting on the work of the last 18 months where we have been very clear on how we plan to return the consumer division to profitability, we view the set of results as testament to the successful implementation of a rigorous plan that was based on the
Speaker 23: on the complete transformation and optimization of our branch and distribution footprint and driven by a mission of delivering financial inclusion to our customers across South Africa.
Speaker 24: Consumer division has been fundamentally transformed.
Speaker 25: and we have built a strong and stable foundation to grow our customer base and deepen our product offering.
Speaker 26: We will achieve our growth objectives through a combination of firstly shifting our points of presence to where our customers want to be, which is in retailers, secondly by improving the customer journey to digitisation and streamlining our processes.
Speaker 27: And thirdly, by further enhancing our value proposition, as we shift our product and pricing proposition to recognize and reward our most loyal customer base.
Speaker 28: Lincoln will provide more detail on these focus areas later in our presentation.
Speaker 29: And so the third area I would like to highlight is how our improved operating performance has also meant we are generating positive cash flow in the business and have been able to further optimise the soccer's capital structure.
Speaker 30: Our banking partners have agreed to further extend the group's lending facilities on more favourable terms, increasing flexibility, adding further liquidity and providing greater capacity to fund growth.
Speaker 31: For FY23Q2, we saw 60 million Rand of cash generated from operations and we ended the quarter with 722 million Rand in unrestricted cash compared to 543 million Rand a quarter a quarter
Speaker 32: We continue to focus on reducing our net debt to EBITDA ratio in step with the growth of the business.
And without that debt to EBITDA ratio reducing to 3.3 times from 5.9 times in F523Q1.
and Naeem will address this in greater detail later in the presentation.
So given the momentum in our merchant division and the strong foundation for growth in the consumer division, we are reaffirming our gardens which we provide for FY23.
We believe that growth drivers remain intact and we are confident the momentum will continue.
In September 2022, we provided further earnings guidance for the first time since the transformation and repositioning of the soccer bagan.
Our guidance was for group revenue to be in the range of 2 billion rand to 2.3 billion rand for FY23 Q2.
We are pleased to be able to report revenue of 2.4 billion rand which exceeds the upper end of our guidance.
Revenue growth was driven predominantly by the stellar performance in the merchant division, primarily the Connect Group.
We also guided for Group-adjusted EBITDA to be in the range of 116 million rand to 123 million rand for Q2 FY 2023.
We have delivered a hundred and thirty million ran in group adjusted EBITDAFL quota, which surpassed the upper end of the gardens provided by 6%.
This represents a significant turnaround on the loss of 84 million rand recorded in Q2 Wow tell me too
Our performance, specifically in the consumer division and also across the group, was supported by well-controlled costs including our group cost line.
Misaka is a full-service fintech platform serving the needs of consumers and merchants.
And we are also facilitating the secular shift to digital that is currently taking place.
We are increasing our points of presence across our ecosystem in the form of branches, retailer paypoints, ATMs, satellite kiosks and merchant devices.
and these increase to more than 72,000 by quarter end.
Building momentum in our footprint raises our standing as a pair of scale in the market and creates growth opportunities across our ecosystem.
Our Q2 FY 2023 results demonstrate that we have set a solid foundation for growth in this market and we are very excited about this.
And with that, I will hand over to Steve to discuss the performance and opportunities in And as a leadership team, we are very pleased that Steve has extended his contract with the Salker for the next three years, continuing in his current role as Head of the Merchant Division, and also taking on additional responsibilities at a group level.
The soccer certainly stands to benefit from his continued involvement.
And Steve, over to you to take us through the merchant division's performance. Thank you.
Thanks Chris. At the outset, let me say that I'm very happy to have extended and broadened the scope of my activities within the group and I'm excited to work with you and the leadership team as we continue to optimize both revenue opportunities and cost synergies across our dual-sided ecosystem.
focusing on our Q2 FY23 performance in the Merchant Division. As Chris has mentioned, the Merchant Division are performed expectations and guidance list quarter, driven largely by a very strong performance of the Connect Group of businesses.
The merchant segment compared to Q1 has grown Q2 revenues by 12% to 2.1 billion rand and adjusted EBITDA by 19% to 160 million rand. The transformative impact of the collect acquisition is evident when compared to revenues and adjusted EBITDA of 223 million rand.
capital connect and cousin pay advance.
Focusing on the key activity drivers of revenue and EBITDA, the following lead indicators are highlighted.
Kazan Vaz throughput for the quarter of 6.8 billion rand is up 40% year on year and up 17% for Q2 on Q1 for FY23.
This is supported by solid growth in the onboarding of new merchants with circa 7500 merchants being added in Q2, up 13% on Q1.
The Kazan Merchant Estate closed Q2 at 64,500 merchants. This is up 47% year on year.
Our business development team continues to focus on adding to the decay of products vended by our merchants from the e-wallets, as well as broadening the added value solutions targeted at solving for our merchants' pain points.
In our card acquiring businesses, Card Connect and Kazang Pay, throughput for the quarter of 3.1 billion Rand is up 106% year on year and up 35% for Q2 on Q1 for FY23. This performance is almost entirely attributable to the incredible growth achieved by our Kazang Pay solution.
This is evidenced by the onboarding of circa 6,700 merchants in Q2 up 24% on Q1. The combined card connect and consent pay merchants estate closed Q2 at 34,400 merchants This is up 129% year on year.
The cash connect business throughput for the quarter of 29.5 billion rand is up 9% year-on-year and up 7% for Q2 on Q1 for FY23. The merchants estate closed Q2 at circa 4300 volts. This is up 11% year-on-year.
As mentioned that our last results presentation, we have integrated the ATM business into CashConnect. This is served to enhance our focus on the ATM business as a standalone ATM acquiring unit with a heightened focus on achieving scale and efficiencies.
We continue innovating in the cash recycling space with the imminent rollout of our new ATM recyclers. This is still in pilot phase with proof of concept testing in a selection of our merchant clients. Lincoln will touch on this a little more later. In our merchant credit businesses, capital connect and Kazan pay advance.
Credit dispersed for the quarter of 262 million is up 71% year on year. We have become a key provider of capital to the vital MSME merchant segment and have grown the receivable book from 178 million Rand to 318 million Rand representing a 79% growth year on year.
We are experiencing great momentum in Kazan Pay Advance and Capital Connect evidenced by strong uptake from our merchants.
We are excited about the opportunities in the Merchant Division and are encouraged by our ability to scale our product sets within the respective target market.
The integration of Connect Group into the soccer serves in broadening the merchant divisions reach into the informal market which stands to benefit from enhanced inclusion from an underserved customer base.
This broadens consumer access to a range of services, as well as supporting the journey to an increasingly digitized world.
As evidenced by the numbers presented, we continue to see strong demand and have achieved excellent growth in the onboarding of many new merchants, as well as increased usage of our solutions by our existing merchants for the quarter and year-to-date.
Both consumer and merchant clients benefit from a more secure, convenient and efficient ecosystem enabled by our proprietary technology.
Supplier payments in our Kazan VAS business continue to grow and are becoming a larger composition of the Kazan VAS throughput. This slide shows an example of our strategic partnership initiatives which continue to drive growth.
This proposition supports customer acquisition by providing more value for our merchants.
To illustrate the point, this image represents multiple points of value for our merchant customers and thus our business as a merchant can accept card payments from his customers at this tavern using KazangPay. The merchant can also sell a range of VAZ products to their customers using the same device for cash or card tender.
And using the same platform, the merchant can settle stock purchases like BAT, Clover, Coca-Cola, SAD, and others directly from their E-wallet, reducing reliance on and the risk of holding onto cash for payments.
It has scanning a unique supplier QR code when stock is delivered.
This offering is quick and efficient for merchants and allows them to pay suppliers at their own convenience, reducing the need to hold cash, lowering transfers costs, as well as the time taken to execute supplier payments.
Now to our easy pay business, where as expected we continue to see a decrease in various throughput for prepaid electricity. This is due to the impact of load shedding and important to emphasise that it's not due to a loss of customers.
VAS throughput for prepaid airtime grew 4% year on year.
In our easy paid bull payments business, we are connecting approximately 650 billion through payment infrastructure.
Revenue earned is on a transaction fee basis.
Bill payment transaction volumes declined by 5%. We continue to reposition our EZPay business by prioritizing commercial revenue streams in relation to existing and new clients.
In New It's, a point of sale payment device, does NIST revenue generated from the sale of point of sale devices can be lumpy given the seasonality of bulk sales?
As disclosed in our Q1 results, we have reflected a 12-month rolling average as a more meaningful metric in tracking the performance of this business.
The rolling average for Q2 FY23 was 9763 devices sold and increase of over 100% on a year on your comparison.
RANSA devices have continued a steady growth trajectory at 9% year on year.
In conclusion, this has been a stellar period for the Merchant Division. We are excited about the growth prospects and opportunities to derive more value from Synergy's across the soccer, especially as we expand our footprint and deepen into the informal market.
We continue to focus on opportunities to deliver services that are of tangible value to our merchant base.
We have an excellent virtual team in place with a proven track record who continue executing against strategy and innovating in an underserved market. Lastly, but not least, thank you to all the people in the business for an incredible quarter. I would like now to hand over to Lincoln, CEO Southern Africa to discuss the performance of the consumer division.
Thank you, Stephen. You're so pleased to see the growth and profitability coming out of the machine division and the progress we've made on the integration.
Moving on to consumer division. The last 18 months have been a very busy time for everyone as we set out to transform it and return it to profitability and position for growth.
I'm extremely proud of the Desaka team and specifically all the staff in our consumer division in achieving our first Ibita profitable quota in years.
It was a critical milestone in our journey as it removes a drain on financial and human resources and allows us to focus on growth.
We are pleased to report a 10 million-round segment EBITDA profit for the consumer division in CO2, which was slightly under our guidance, but a vast improvement from a year ago when we reported a consumer segment EBITDA loss of 67 million rounds.
We marginally missed the guidance for consumer segment EBITDA due to a lower growth in our easy pay loan business that we had forecast. And we were encouraged by strong December growth which has continued into January 2023.
We do not need to change our guidance for the full year and are confident we are on track to deliver.
Over the past four quarters, I've been speaking about the three levers we have used to return the consumer division to profitability, which are cost optimization, increasing our output through cross-selling and growing active EPA account numbers.
This result achieved was primarily through the first two levers.
Under Project Spring, we committed to annual cost savings of approximately $350 million in the consumer division.
Through the right sizing and rationalizing of our infrastructure and staff complementing the consumer business, we have achieved 222 million RANDS already in the first half of 2023.
Our output for a permanent line base has increased to 74 ends from 71 ends in quarter one and 69 ends in quarter two of last year.
We implemented our strategic focus on product and efficient distribution channels, upgrading technology platforms, training staff and we are still pulling hard on this lever.
As we enhance our cross-selling initiatives and spend more time in front of our customers, we expect the upward upward trend to continue. The combined effect of the first two levels have got us to a point where we now have a strong and stable base from which we can grow our consumer division.
Le Sacre is all about financial inclusion and offering affordable financial services to undersaved consumers.
Our products are specifically designed with permanent social-grant recipients in night, where we have an opportunity to build deeper relationships through lending and insurance. We do have products for people who receive temporary grants, but we don't offer the same breath of service as permanent grant recipients.
In the consumer market, approximately 19 million social grants are paid to 12 million grant recipients every month.
of which approximately 7 million grants are paid by post bank of South Africa.
These numbers exclude the temporary SRD grounds which were instituted during COVID, which have recently been extended to the end of 2024.
Social grants for many integral part of South Africa's lives, and for many it is the only source of income to support their families. Approximately 90% of grants are 50% in South Africa, currently received their grant and withdraw it all in one transaction and choose to transact and cash.
Server, only 20% of ground recipients have access to regulated insurance and landing products.
10-13th Lever, which is growing our active EP account numbers, we ended up with 2.2 million active EP bank account customers, or food just over 1 million at our target permanent grant recipients.
For the first time, we are separately reporting on our core permanent grand customer base from the more temporary SRD customer base.
As of the end of December 2022, we increased our overall customer base by 18%. Within this result, the Permanent Grant Account Base grew by 4% on a net basis, which maintained the total market share context.
Whilst this was slightly below what we had hoped for, it must be seen in the light of us going through a complete restructuring and cultural reset in the consumer division, particularly in the sales team and an entirely new national and provincial leadership.
and the focus on cost optimization and cross-sell initiatives. As a reminder, we continue to apply a rigorous approach in our measurement criteria for an active account. We only classify an account as active if we have charged a monthly account fee during that specific month.
We have identified actions and strategies to now leverage off our firm base and improve our EPE growth. These include firstly, enhanced distribution model where we are moving away from branches and now we have stopped kiosk and ATMs in retailer where our customer base has more convenient access and longer trading hours.
I mentioned in Quora 1 of our 2023 financial year that EasyPay loans, our lending product, had grown at a slower rate than expected.
I'm pleased that we have seen a recovery in this quarter with 18% growth in the number of loans originated.
In terms of our book size, we have grown setting percent year or year.
We are encouraged by the positive results coming through already and continued momentum on loan growth in January 2023. Again, it is pleasing to see our loss ratio at less than 4% per year.
Our customers place a high value on these loans to get them through difficult months and having the facility available to them leads to a good repayment experience. Our EasyPay insurance products continue to outperform our expectations in Qara 2, growing 15% to approximately 294,000 active insurance policies.
It is encouraging that this new business is of good quality, with a high premium collection rate of approximately 98% being maintained. Our move to more retail focused distribution strategy is paying off.
Our presence in the retail stores where our customer based shops have provided easy pay, much more visibility and convenience for our customers with longer trading hours and easy access to our ATMs.
We've seen an 18% increase in transactions per ATM compared to three months ago, with a strong increase in other bank customers also using our ATM network now. We are continuing to implement our retail focus distribution strategy and our initiative we're exploring with Kazan, we'll further accelerate and expand our retail presence.
We see great potential in the mutual benefits for retail and our consumers in terms of the consumer's and paying power for our own ecosystem. Thank you.
We continue to develop our strong relationship with SASA through proactive engagement at a local, provincial and national level.
We've also made good progress on building relationships with our various key stakeholders including Green Rod Bank and representatives from its new owner, African Bank, who acquired 100% of Green Rod in May 2022. As highlighted by Chris Elia, the consumer division has been fundamentally transformed.
and we've built a strong and stable base to grow consumer base and deepen our product offering.
We are well positioned for growth and in doing so continue to focus on establishing points of presence for our customers that are convenient and cost effective to access. We also strive to further improve the customer journey through digitization and further enhancing our value proposition including plans that will reward and grow our lower customer base.
Thank you. Naeem will now take you through our financial performance in more detail.
Thank you, Lincoln. I am very excited to take you through the financial performance for Quarter 2, 2023. Before I do that, as a reminder, the SACA is a domestic fighter in the United States who report results in US dollars and the US car.
However, our operational currency is South African REN and as such we analyze our performance in South African REN. In this presentation we will discuss our results in South African REN which is non-GA.
This assists investors in understanding the underlying trends of our business. As you know, our results can be significantly affected by the currency fluctuations between the US dollar and the South African rain.
Additionally, Q222.23 similarly to Q122.23 includes pre-existing the soccer and connect group for the full quarter. Compared to Q222 that only includes pre-existing the soccer business. And plus, FY23Q2 versus FY22.
Q2 is not a meaningful comparison as connect was not included in FY22 Q2. However, FY23 Q1 has connect included for the full quarter and thus is a useful sequential quarter comparison to focus on, demonstrating performance and growth rate for the quarter.
I will now turn to the financial performance overview. As you have just heard, the Sakai is making significant progress in the transformation journey. And this is coming through in our improved financial performance and a strengthened financial position across the group. We are building on these.
momentum that started four quarters ago. For both in merchant and consumer division and we have also made great strides to improve our capital structure, positioning us to support our growth plans. We achieved a consolidated group revenue of 2.4 billion rent for the quarter compared to 479 million rent in Q2 2022.
This exceeded the upper end of our guidance in range. The significant uplift in revenue was mainly related to the revenue for Connect Group being consolidated for the full quarter Q22023. Revenue increased by 11% from 2.1 billion in fiscal Q12023.
We delivered a Group Adjusted Iberda of $130 million compared to the Group Adjusted Iberda loss of $84 million in Q2 2022 and an Iberda profit of $72 million in Q1 2023. This is an 81% improvement in Iberda from Q1 2023 to Q2 2023.
validating the transformation of the consumer division to a segment adjusted Ibera profit and continued strong growth and robustness in our merchant division.
Operating income before amortization of acquired assets is R29 million as compared to operating loss of R13 million Q1 2023. This is directly related to the positive performance of the consumer division and the significant performance of the merchant division.
In addition, the operating loss after acquired asset amortization improved by R42 million to a loss of R38 million for the quarter.
Fundamental earnings per share showed similar trend of positive turn around compared to the prior quarter. This is indicative of the positive Ividar contribution from the acquisition of the connect group, which has continued to exceed expectations as well as the turn around of consumer division. We generated.
60 million ran operating cash flow in the quarter. Another significant landmark in the Lissaka Group being cash flow generating.
I will now turn to the group income statement. Looking at the group income statement, we achieved a consolidated group revenue of 2.4 billion for the quarter compared to 2.1 billion in Q1 2020 P, representing a growth of 11%. In USD, consolidated group revenue was $136 million for the quarter.
compared to a $125 million in Q1 2023 representing a growth of 9%. Operating loss for the quota is 38 million range, an improvement of 42 million range as compared to the previous quota, and fundamental loss per share is 32-rain cents compared to 1-rain 36 in Q1 2023, a significant movement quota on quota.
Looking at our segments, Q2 2023 reflected a positive performance across all business divisions, validating our efforts to transform the business to deliver growth and strong profitability.
Operating income before a metasition of acquired intangible assets close at 29 million as compared to a loss in Q123.3 of 13 million range. It should be an effective turnaround in 3 months.
Consolidated revenue for the quarter was 2.4 billion, 11% growth compared to Q1 2023, attributed to a strong performance across the merchant business, especially in the VELS, card acquiring and merchant capital products as highlighted earlier by Steve. In addition, we recorded 97 million rent in revenue from the portfolio.
We achieved a group adjusted EBITDA of 130 million RAN as compared to 72 million in Q1 2023, an uplift of 81% quarter on quarter. The group adjusted EBITDA of 130 million RAN for the quarter was above the upper end of guidance for the quarter in RAN.
Group costs of 40 million rain were consistent for guidance. The Merchant Division, including Connect Group, continues its strong performance trajectory and achieved a revenue of 2.1 billion in a segment in just an year with our 160 million rain.
The performance for the quarter includes between R2 million and Iberda from the sale of POS devices in the quarter that is lumpy and in line with expectations. We do not see this continuing in the rest of the quarters for fiscal 2023. While the segment adjusted Iberda profit in the consumer division is an important landmark in our journey, we do not see this continuing in the rest of the quarters for fiscal 2023.
that we embarked on in Q2-222 where we are now reaping the benefits of a successful turnaround strategy.
including the cost savings realized from the right-size and consumer division. We delivered a segment adjusted Ibadau 10 million rain in the quarter as compared to a segment adjusted Ibadau loss of 3.4 million rain in Q123. This is a 34 million rain positive as compared have shaped engine manufacturing.
Stock-based compensation charges increased in the quarter compared to Q1 2023, mainly due to a one-off award of R23 million issued to secure a longer-term contract with a key senior executive. I will further expand on how this will normalize going forward. At a group-adjusted Iberda level, the impact of the turnaround continues to be evident and significant.
We have turned around the group performance from an adjusted Iberda loss of 84 million Rand in Q2 2022 to an adjusted Iberda profit of 130 million Rand in the current quarter. A 215 million Rand turned around over 12 months. This performance is evidence of the significant transformation.
the group achieves through the acquisition of Connect Group and the cost right sizing and the structure in the consumer division.
Turning to our cash flow in capital structure, you will know that we have made further progress in creating a stable and long-term capital structure for the SACA as well as generated a positive operating cash flow.
Our operational cash flow before working capital and loan book funding generated 53 million reigning the quarter, improving from negative 7 million reigning Q1223. From a cash flow perspective, we continue to make improvements with stable and well managed working capital requirements and a reduced reliance on cash reserves to fund operations and customer loan book growth.
Cash available in the quarter increased from 541 million REN to 722 million REN.
Net debt to IVIDA ratio on an annualized basis has improved to 3.3 times as compared to 5.9 times in Q122.
Working capital funding requirements are stable and we do not require significant changes to support growth. We do experience peaks and crafts which arise when taking advantage of bulk-order discounts in our various business.
We expect future loan book funding to be largely self-funded along with the banking facilities that are sized appropriately and therefore we do not envisage loan book growth to be a constraint on our cash flow. Our capital expenditure in Q2 FY20-3 is a mounted to 70 million rent.
of the 64 million ran or 91% related to growth capital expenditure and 6 million ran 9% related to maintenance capital expenditure. Capital expenditure in the business is mainly driven by growth in the merchant business. This growth capital expenditure is mainly in the form of point of sale terminals in the business from the
as well as the manufacturing of walls in the cash connect business. In both these businesses, this growth cap act is highly cash-generated with short paid expirients. I will now move on to analyze the stock-based compensation charges. Stock-based compensation is a critical part of the overall compensation proposition that enables the soccer to attract the best
of the continued run rate costs. Whereas review the sign on awards and the connect acquisition awards is largely one off in nature incurred at the beginning of the transformation journey.
The increase in stock-based compensation costs between fiscal 2022 and 2023 is mainly due to fiscal 2022 only includes part-year charge whereas fiscal 2023 includes a full-year charge as well as a 23 million one-off for senior executives to secure long-term commitment.
We estimate that in the medium term, once the effect of sign-ons and the connected acquisition amortize, that annual stock-based compensation charges should be in the range of 60 million Rand to 70 million Rand per annum. This would imply that the stock-based compensation charge should trend towards a single digit percent of G Spanishwidth Ibrahim.
as benchmark to market norms. Overall Q2 2023 is evident of the efforts we implemented in fiscal 2022 and we are now reaping the positive results. Our continued focus on the strategic initiatives is progressing well and we are optimistic about delivering on positive performance for the remainder of the year.
I would now like to hand over back to Chris who will address the cruise outlook.
Turning to the outlook for Lusaka, we wanted to provide you with gardens on the near-term performance of the group.
And although we report results in US dollars under US gap, our operational currency is in South African Rand and we analyse our performance in South African Rand. And as such, we believe that providing guidance in Rand is more useful. I'm very pleased to reaffirm our prior guidance provided for financial year 2020.
5 million rent, consumer segment adjusted EBITDAW between 95 million rent and 110 million rent, and adjusted for group costs, which we expect to be between 165 million rent and 150 million rent, this implies an adjusted group EBITDAW
of between R$480 million and R$525 million for FY 2023. For Q3 FY 23, our outlook for group revenue is between R$2.5 billion and R$2.8 billion for the three months ending March 31, 2023.
and we expect merchant segment adjusted EBITDA between 140 million rand and 145 million rand. Consumer segment adjusted EBITDA between 40 million rand and 45 million rand and group costs between 45 million rand and 40 million rand for Q3 FY 2023.
which taken together means group adjusted EBITDA of between 135 million Rand and 150 million Rand for Q3 FY 2023. It is important to note that the merchant segment adjusted EBITDA of 160 million Rand for FY 23 Q2 FY 2023.
Included 22.1 million rand, relating to point-to-sell devices in our new its business.
and this is not forecasted to repeat in FY23 Q3 or Q4 given the lampy nature of bulk sales in this business.
And in addition, seasonal trends indicate that our Q2 is usually a slightly stronger quarter due to higher than average transaction volumes in December . Looking forward, we expect the Connect Group to continue to maintain its strong growth trajectory in line with historical trends.
And so, taken together, we believe that should current trends continue, there is potential upside.
and we will re-evaluate this position in a few months time when we report LASARQIS Q3 2023 results.
we will re-evaluate this position in a few months time when we report LASARQIS Q3 2023 results. Before I conclude,
I want to give special thanks to Alex Smith, the Group's Chief Accounting Officer.
In January 2023 we announced that Alex would be leaving Lusaka to pursue other opportunities outside the group.
The past 18 months, there have been a time a significant transformation for La Saka, and Alex has played a key role in the Saka's growth journey, and is transitioned from NetWine to La Saka.
Prior to my appointment, Alex was interim group CEO for every year and served as a group chief financial officer for more than four years. And I would like to thank Alex for his valuable contribution to the company. So in conclusion, this past quarter represents a real milestone for the soccer.
Our results bear testament to the progress made since the transformation began.
and we will continue building on the momentum created across the business to drive growth, including by realizing the benefits and synergies of our unique dual sided ecosystem. We believe there is tremendous scope for both our merchant and consumer divisions to grow and scale in their respective target markets in their own right. assisted
by the self-reinforcing business model we are building as part of the soccer's unique value proposition. And with that we'd like to open up the Q&A session and take your questions.
Thank you.
Thanks, Chris.
The Q&A session will now begin. As a reminder, to ask a question, please use the raise your hand button at the bottom of your screen or click on the Q&A icon to submit a question.
We will call on those who have requested to participate. And if you're asking a live question, just know your line will remain muted until you are called on.
We're going to take a minute to build with you. And while we do, we're going to read two questions that were submitted by Sven Thortzen of Anchor Securities.
Chris, Sven wants to know what the impact of load shedding has been on the business and specifically in the merchant division. How much hitting is the reality in our lives here in South Africa?
impact the ability to expect from those things? I'll just keep having this comment on it. Yeah, sure. Thanks, Chris. I think the reality is we delivered a very strong set of results despite the load shedding. So the question really is, how much worse could it actually get? Now we believe as we move into Q3, we have a strong momentum.
and our business has been stress tested from stage 3 to stage 6 and at times even stage 8. So the numbers speak for themselves.
to the next meeting. We read these with a performance in the next meeting. Both had we seen a quarter on quarter of the spike, the low shedding impact that our return customer has had. So I'm surprised to be getting one of the things in.
Great. Sven's second question is about guidance. He wants to know, given the strong performance and guidance speed in the second quarter, why your outlook is being reaffirmed and not raised. Chris, can you unpack your thoughts on the full year outlook and overview your expectations...
supports advertisements to do messages and internetri- arrival, so negative and negative and negative. um
We saw a large bar quarter in our new edge business, 12 divided by devices which had around a 22 million running pattern on either side. That's a lampy business, a lampy order cycle when you look at it quarter on quarter, you need to look at it.
over a wider, longer period. So taking that out of the picture, firstly, is important. Secondly, December , in the first, is a big month. We see.
to increase volumes across the business seasonally as an expectation. So again, we want to factor that into our thinking. So we believe that the, as I've said, the growth drivers that underpin our business remain intact and most importantly, we believe that the growth drivers that underpin our business remain intact and most importantly, we believe that
the growth trajectory that we've seen, particularly within the kinetic group, we expect that to continue into the future. So, we'll look at it again in a few months time when we present Q3, and if necessary, if the conditions and the momentum are continuing while they are, we might look at it.
from David Garrity of GCA. How does Lusaka recognize revenue from hardware terminal sales?
and temporarily or over an expected period of use.
Hopefully you can hear me. And hopefully my previous answer came through. If you need me to repeat any of that, I'm happy to. But just picking up on the question regarding revenue recognition on our positive, I think we lost 19, and maybe just do the rest. That's okay.
Thanks, Chris. So just to understand the question, if we are referring to the hardware term of sales that we sell to our new business, these are sales that we do to customers and ownership of these terminals are taken over by the customer. So we recognize our revenue on the time of delivery.
And the way that is treated from an accounting perspective is that on the time of sale, because the risk is transferred and we do not have any underlying ownership, we recognize the revenue as a gross number in our income statement. And the related inventory that is sold is then recognized on our cost of sales.
Thanks, Nate. Okay, great. Our next question is a live question from Frank Gang. Frank, your line is going to be unmuted.
Hi guys, thanks again and we're asking the quarter. Just a few questions from me. They're somewhat related. You know, maybe first that many more linking yet. Can you provide some rough commentary on how much work in capital?
before the Lowend book funding, you'd expect to invest per year. And how much that's to maintain the business versus growing it.
Second, I guess, how should we think about usage of cash going forward?
And third, you know, now that you've extended the lending facilities, you know, are there any other levers to continue to optimize capital structure, reduce debt repayments, reduce interest expense? And what's the new maturity on the debt?
Thanks folks. I'm going to put those questions to Naeem to respond to and just to help you deal with it. I think the first question was around our working capital requirements in our requirements to mid to working capital requirements.
So look, I think from a working capital perspective, it's quite important to understand that the majority of our working capital is really in our viz and the kind acquiring business. If you look at our cash management business as well as the business related to the consumer,
The working capital requirements are not that significant because we receive the funds from the customer upfront. So, you know, those are held on a wallet. If I look at the current facilities, you will see as well that as we highlighted between quarters, we can have quite a swing in terms of the working capital requirements in the Kazem business, depending on when the month ends or when the quarters end.
and that is managed through adequate facilities that we have at the moment in terms of cash as well as an overdraw facility. We do also take advantage of opportunities where we can earn higher margins specifically on our value-added services business in terms of air time and electricity and in those circumstances we would fund upfront.
and that's done specifically to cash reserves. So I think we do those only in circumstances where we can earn a higher margin and it's a cost-effective way of increasing the margin and the business. In terms of going forward, we do not envisage a significant increase in working capital requirements.
We are experiencing quite a significant growth in our card acquiring business, but the capital requirements in terms of working capital are well managed and within our facilities that we would be able to do in our overdraft. So I think that our longer term view in terms of working capital is that we don't believe there is a significant increase anticipated.
Thanks, I think the question was good and the change in the facilities and the leaders that we've got around. Do you want to say something as well? Yeah, sure. Look, I think for us, firstly, we're super excited about the fact that we've been able to......
really negotiate a position with our bankers. Number one, you know, over the last six to nine months, it's very indicative of the confidence that the bankers are already seeing in the performance. And, you know, the extension of the facility to three years, taking us up to 31st December 2025.
gives us the ability to really focus on making the right kind of decisions in terms of capital management. And in addition to that, there is the potential up-sizing of that facility that will help us fund our loan book growth, mainly on the consumer side of the business. So that is quite a significant change for us.
In terms of levers, as we've highlighted in the number of our presentations, the focus for us in the business is really the consumer and the merchant business in South Africa. We have the non-co-investments, such as Moby Creek and Fundborne, and we will be looking at means and ways to advert those positions in a responsible way.
And that would result in quite a significant cash in so far too many. In addition to that, I think we would be also looking at the right time in the market in terms of adjusting the structure of our capital position. Great. Next question is...
the ATM transaction fees and the higher insurance fees, and also what's happening in the ARPU and how you are able to push it up and what should we see that going forward in terms of the traction and the conversion of the accounts.
Professor, thank you so much. I think firstly I want to say how pleased we are with the turnaround of the consumer business. I think that we've spoken over the last few months about the work we've done to get our staff to understand the importance of cross selling.
and all that work is starting to come through. You're starting to see more of our clients taking our insurance business and our insurance products and our landing products.
Those two things, how to drive our Apple. As long as we've got quality clients, and those clients are able to take more of our lending products, and our insurance products, we want to see that Apple increasing. And we think that if we maintain that, you'll set to see some upside on that Apple even so.
And on the ATM transaction fees was that?
primarily because of reducing your infrastructure.
Can you just clarify the question specifically on ATM fees? On the ATM transaction fees they were lower and it was that because of the reduction in the infrastructure. Did they Inside-Nexus
Can you describe how the patient specificity on ATM, but you have to move on? Yes, you know, on the ATM transaction fees, they were lower. And it was that because of the reduction in the infrastructure, I know that the ATM, ATM, ATM's have become far more efficient.
and productive. So, yes. So, what I like to, let me comment on just the macro points around the 80 of business and then we can talk about some of the monochrome movements going on board really well. I think that important to highlight is we take the 80 of the stakes down from around one and a half. So, we take the 80 of the stakes down from around one and a half.
is a significant increase in volumes on those ATMs, in what we would call them-on-us transactions, which means other banks, the clients of other banks using our ATMs. So, you know, with it, and it says that it's essentially hard. We are seeing... we're protecting our volumes.
that we plan on the ADM, started to drive productivity and people to divide. Yeah, thank you. And then just a question on Connect. Just wanted to understand how is it better than initial expectations when Connect was acquired? Has it has pens?
Connect, surprise you in any particular segment.
You know, surprise you positively. So, you know, I think on the whole, the connect route, perhaps, has delivered. You know, it's exactly what was laid out in terms of the vision and the opportunity for the business. And it has seamlessly integrated into the progress.
and forecast around volume and growth in their business and their being exceeded. And that's probably the best side. So that's been a big positive. We've seen growth in our merchant numbers ahead of our business cases. So it turns the road out to bad devices that has been ahead of us.
and I originally expect tensions, so using positive, but I think what it's saying to us is it's just underlying, and the lining rather, you know, the...
the market opportunity particularly in the informal space and we've spoken about the fact that you know 1.4 million informal merchants out there in the targeted addressable market, we've got something like 65,000 devices we've spoken about the fact that a 4% or better balance.
of emergency and informal space of our connected car homes. You know, we've seen our volume doubled. Our car homes were doubled last six months in the informal space. So, those themes are, you know, well understood or have been identified and I think other.
Great. Our next question was submitted by Judge Raphagan of Plough Penny Partners. His first question is for Steve. Steve, you have a stellar growth rate in the merchant division, even quarter on quarter. Can we expect this type of momentum on a quarterly basis going forward?
Maybe let me just circle back quickly to the earlier question raised around load shedding. And maybe what I want to remind everybody about is retailers in this country, particularly the MSME sector and more broadly, if you look at the last three years we've had COVID,
We've had in the in the case of the area. We had significant flooding We've had riots and of course now we've got this perpetual low jetting so you know the business You know the merchant your merchants have been stressed tested I think one of the one of the things that will have to watch in as we go into Q3 is is is the
perpetual nature of this has some form of exhaustive effect on the retail merchants. So you know we we produced a very good set of results as you can see in Q2. Our momentum going into Q3 you know we are through January we have very strong momentum and and and that has has continued but you know
perhaps some of that slow down which we may see in some of those areas relating to load shedding our offset by some of the innovation that sits within the business. And Chris touched on it already. So, you know, as I've mentioned before, Kazang pay was a spin-off of Kazang and our Kazang pay advance is a spin-off of Kazang pay.
And some of these ideas and businesses which we were pregnant with including our supplier payments businesses and our capital connect businesses are starting now to see much stronger momentum than we initially anticipated. So I think whilst we have a well balanced offering we are solving and having a lot of fun solving for the pain points of our lives.
Great. Another question from Judd, and this is for Lincoln. Congrats at returning the consumer division to profitability. How should we look at the growth outlook of the consumer division over the medium term? Would you say that you now have fixed the cost structure in place to drive operating leverage from here? How do you think about...
the long-term stable margins in the consumer business.
We will now rip those benefits and then all of the work we've done in preparing our plans for new provisions will now be able to kind of build on that. And I think that in terms of the guidance you now will have a business that's growing.
to be in line with the guidance. So we've done a lot of the costs in terms of the bulk of what we need to do, but obviously there are still some tweaks that we need to do, but on the own, I think that those spaces of firefighting are gone.
We now construct a sink apart. What are the innovative things that we can do with our clients? What very propositions can offer them? And what can we do to compete with other players in the market? So that's how we look at the future from the consumer division.
Well, great. Thanks. We're running short on time, but we do have three more questions that I'd like to run through before we close up. Has there been a notable increase in SaaS of beneficiaries after the major glitches experience with Post Bank since November 2022? How do you guys?
Have you guys plan set up aggressive acquisition of customers currently served by post-bunk?
Yes, we have great plans around that. We are actively encouraging customers to join us. We are also making sure that we have more presence in terms of marketing, telling people what we offer and what alternative we have.
But what we're trying to think about going forward is not just the mistakes of the post bank or challenges that they have, but to work on our value proposition and make sure that our value proposition is quite competitive and enticing for customers to join us. And those are some of the things that we're working on.
What can we put in the table that makes customers excited to join us? Regardless of the challenges that Sasa and Emma facing.
Great, thank you. The next question is for Steve. Steve, there are a couple players in the Merchant Credit Provision Space, such as retail capital, habitat, who have been in the space longer. Have large data set provided by Yoko and others.
or large valedicties, how do you plan to differentiate yourselves from them? So at the art of it, I'm just so impressed with some of our young folk in the business who just perpetually innovate and bring good solutions to the market. So if we look at the capital connect business, the differentiator in that space,
is hassle free credit. Between the time of applying and it's all preloaded, our customers can have credit approved the money in their account within a few minutes. So I think that in itself is a major differentiator. Remember, we are well positioned in that business. We process close to 10 billion around a month through our vaulting infrastructure.
and we process close to, if you look at Q2, well Q2 in fact in December we did about 1.3, just under 1.3 billion in our card processing business. All of that data is attached to an algorithm which allows us to allow our retailers to take advantage of an opportunity when it knocks. Now, you know, there's an old saying, opportunity doesn't knock, it whispers.
And if you're an entrepreneur, you've got to take advantage of it immediately. So the intrinsic advantage we have is really the speed and the speed and ability to turn that round within minutes.
So the conventional approach, which is, I mean, management accounts, orders of accounts, a credit committee and will revert within a few days, is not a model that really is appropriate for the type of retailers that we're dealing with. And then, of course, on the back of that, we continue to innovate.
in terms of added value beyond simply the speed to market. Well, great. And guys, we're at our last question. And this is another question from David Garry. And it's for Chris. Chris, do you have an offer?
capacity or facility rather to repurchase shares in the market. I confirm the exact size for you offline, I know the number is with me here. But yes, the business does have that authority or ability to repurchase.
I think the broader question around share buybacks, you know, for us, as I've said before, our focus has been around stabilizing the business, it's been about on the consumer side and it's been about integrating the Connect acquisition and focusing on delivering the growth journey that you've been hearing about here today.
As our first courts have actually generating cash in the business at an operational level, we feel we've turned a real milestone. And our focus continues to reduce that debt, EBITDA ratio. You know, on a net debt basis, as we said, a net debt, EBITDA, we're not it.
3.3 times we'd like to see that come down a little bit more. So you know all of these things are our sort of immediate focus areas around our cash and our resources in the business. And you know we believe we are producing and delivering now a business that has excellent returns to shareholders.
return on your capital. And we hope to start to see that coming through and continue coming through in the quarters ahead. So yeah, we'll monitor the situation, we'll continue to focus on where we are and we're very allowed to...
to this question, we get it quite a lot. Well, Chris, everyone, thank you for your time. Thank you everybody for joining us today. We've run out of time. That concludes the call. I would encourage any investors who didn't get a chance to ask a question or have more questions.
to reach out to the IR team. We are here 24-7. Thank you.