Q1 2026 Lesaka Technologies Inc Earnings Call
Speaker #2: Welcome to LESAKA TECHNOLOGIES INC . Results webcast for the first quarter of fiscal 2026 . As a reminder , this webcast is being recorded .
Speaker #2: Management will address any questions you have at the end of the presentation . To ask a question , live participants are requested to join the chorus call line by registering via the link provided .
Speaker #2: Alternatively, please enter your questions into the questions tab of this webcast. Our press release and investor presentation are available on our Investor Relations website.
Speaker #2: During this call , we will be making forward looking statements . Please note the cautionary language regarding the risks and uncertainties associated with forward looking statements .
Speaker #2: As contained in our press release , presentation and form 10-q . As a domestic filer in the United States . We report results in US dollars under US .
Speaker #2: It is important to note that our operational currency is South African rand , and as such , we analyze our performance in South African rand , which is non-GAAP .
Speaker #2: This assists investors in understanding the underlying trends in our business . I will now turn the webcast over to Dan .
Speaker #3: Good morning . Good afternoon and welcome to
Speaker #3: quarter . I will begin today by GAAP addressing the financial performance for the group as well as for merchant , consumer and enterprise .
Speaker #3: Lincoln will then take you through the key performance drivers for the divisions in more detail . And we will end with Ali taking you through the progress made against our strategy , unpacking our drivers of revenue and our quarter two guidance .
Speaker #3: Going forward , we intend to follow this format for quarter one and quarter three results , coupled with the more comprehensive update in quarter two .
Speaker #3: And for . You can find more detail in our usual disclosures in our 10-q submission to the SEC . This is available on our website .
Speaker #3: I'm pleased to report that we have met our guidance for the 13th consecutive quarter . Net revenue came in at the low end of the range for Q1 at 1.53 billion rand , a 45% increase over last year .
Speaker #3: Group adjusted EBITDA landed at around the midpoint of the guidance range at 271 million rand , representing a 61% year on year growth .
Speaker #3: I'm happy to say that this quarter reflects an improvement in the quality of our earnings , with limited accounting anomalies and non-recurring items .
Speaker #3: Our adjusted earnings , which we believe is the most appropriate measure of our overall financial performance , has grown by 150% to 87 million rand for the quarter on a per share basis , our adjusted earnings has effectively doubled , up from $0.54 to one rand seven .
Speaker #3: Our net debt to adjusted EBITDA is 2.5 times and improvement from 2.6 times from this time last year , but meaningfully improved from our previous quarter of 2.9 times .
Speaker #3: As a reminder , we have maintained our medium term target of two times or less , which we deem appropriate under the current structure .
Speaker #3: We expect this to continue to trend down in FY 26 . Taking a closer look at our net revenue performance , we delivered 1.53 billion rand in the quarter , a 45% increase on Q1 in the previous year .
Speaker #3: Our enterprise division underwent a significant restructuring since Q1 , FY 25 . We closed non-core businesses , invested significantly in our platforms and completed the recharge acquisition .
Speaker #3: The 222 million rand net revenue reflects the new base and represents a 19% year on year improvement . Given the product offering . Enterprise is subject to seasonality and electricity sales , and ADP , but we are pleased with the quarter on quarter growth .
Speaker #3: Given this represents a relatively comparable period period a consumer division has continued to grow at a record pace over the past quarters , leading to a 43% year on year increase in net revenue .
Speaker #3: Our merchant division , net revenue is also up 43% , primarily driven by the acquisition of Addamo , which we acquired in consolidated from Q2 last year .
Speaker #3: Turning to our earnings for the quarter . Group adjusted EBITDA increased 61% year on year to 271 million rand , approximately achieving the midpoint of our guidance segment adjusted EBITDA was 162 million rand , an increase of 20% on Q1 .
Speaker #3: FY 25 . The majority of the year on year increase . which Merchant in the comparative quarter . As we mentioned in our previous earnings call , FY 26 will be a transformative year for merchant .
Speaker #3: We are building the foundations for future growth with a focus on three aspects in particular , bringing several businesses together , unifying our merchant brand and product offerings to clients , and rationalising our infrastructure in order to capture efficiencies .
Speaker #3: The integration of a variety of products and businesses in one go to market strategy requires a great degree of planning and disciplined execution .
Speaker #3: We are confident with the new management team we have in place , led by Chris Cole and are excited to drive growth in the market .
Speaker #3: We believe is ripe for disruption . Consumer again delivered standout performance with segment adjusted EBITDA increasing 90% to 150 million rand . We expect this trend to continue in the medium term and Lincoln will discuss how growth in our active consumer base and innovations to our onboarding system continue to yield effective results in Rpu and product penetration .
Speaker #3: Enterprise delivered 22 million rand of segment adjusted EBITDA for the quarter , up 241% year on year . We continue to invest in our platform , and although we anticipate some volatility in enterprise quarterly earnings , we do expect an earnings uplift later in the year and into FY 27 as product platforms go live , a quarterly run rate of approximately 30 million rand continues to be a near term target , and will lead to enterprise being a meaningful contributor to EBITDA for the group .
Speaker #3: Our group costs were 64 million this quarter , elevated relative to prior quarters . This included some non-recurring finance and administrative charges . We expect group costs to trend towards a quarterly run rate of 55 million rand .
Speaker #3: Our adjusted earnings per share showed a continued upward trend , almost doubling year on year to one rand $0.07 for the quarter . This demonstrates our ability to ensure creative growth as part of having both an organic and inorganic strategy .
Speaker #3: Shifting our focus now to cash flow and our balance sheet health cash flows from business operations continue to be healthy . Totaling 341 million rand for the quarter , closely tracking our quarterly EBITDA evolution , we reinvested 122 million rand of that cash flow into growing our lending books , and 106 million rand to fund our net interest costs , capital expenditure for the quarter was 90 million rand , of which 51 million rand was spent investing in growth .
Speaker #3: This consists primarily of continued expansion of our smart , safe product capitalization of software development and funding . Additional merchant acquiring devices . We expect our annual capital expenditure to remain below 400 million rand , and we remain on track to do so .
Speaker #3: Through positive increased EBITDA performance and careful cash management , we have seen a reduction in our net debt to adjusted EBITDA ratio from 2.9 times last quarter to 2.5 times .
Speaker #3: This is as planned for in the execution of our capital allocation framework , and we expect continued improvement in this ratio as adjusted EBITDA increases with no material increase in debt .
Speaker #3: We anticipate that Bank zero will allow us to fund expansionary cash flows from our lending activities with customer deposits , further deleveraging our balance sheet .
Speaker #3: This will materially increase our cash conversion rate relative to our current funding structure . I will now hand over to Lincoln , who will take you through the revenue drivers and KPIs for merchant , consumer and enterprise .
Speaker #3: Lincoln .
Speaker #4: Thank you . Dan . Good morning and good afternoon to everyone on the call . We have changed our presentation slightly this quarter .
Speaker #4: And with Dan having taken you through the financial performance of the divisions , I will focus on the operational KPIs that drove that performance .
Speaker #4: As Dan mentioned , our merchant division is undergoing transition integrating businesses , unifying our brand , and offering streamlining costs and infrastructure . And operating under new leadership .
Speaker #4: The year on year increase in net revenue and segment adjusted EBITDA is largely due to a Domo , which wasn't included in the prior year's figures .
Speaker #4: Looking at our card , acquiring our TPV has more than doubled , reflecting the scale their acquisition has contributed to our business . We processed 9.2 billion rand this quarter , up from 4.2 billion last year .
Speaker #4: The number of our devices has grown from 53,500 to almost 88,000 at the end of the quarter . We are seeing continued success across our multi-product customers who hold more than one solution .
Speaker #4: We are still in the early stage of evolving into a one unified merchant offering , but the Directory of Travel is positive . Conversely , we experienced moderately higher churn from small to medium single product merchants .
Speaker #4: This is primarily driven by price sensitivity . For these merchants , however , we saw no impact to the overall TPV process , reinforcing our strategy to build deeper relationships with our clients and evolve from a single product provider to a multi-product solution partner .
Speaker #4: Moving over to TPV , we continue to see a decline in cash usage trend in the small to medium merchant sector . Cash primacy in the micro merchant sector .
Speaker #4: However , remains . We have increased our cash vault in the micro merchant sector to 4600 . This partly offsets the reduction in cash experienced in the small to medium sector , resulting in a modest decrease of 4% .
Speaker #4: As a result of this , increased footprint , Kstp-tv in the micro merchant segment has grown 75% year on year , and now accounts for 18% of all cash volumes in quarter one financial year 2026 , up 10% from last year .
Speaker #4: Cash deposits in this part of the market consists of lower values , but higher frequency . This results in lower standalone margins than in the small to medium sector of the market .
Speaker #4: This provides an important hook for merchants who we can then sell alternative digital products , thus creating an ecosystem cash deposit into our vaults .
Speaker #4: Top up micro merchants , digital wallets , which is then immediately available to purchase prepaid solutions , make supplier payments or transfer to a bank account for EFTs .
Speaker #4: This is a vital part of our offering . The result of this cash led strategy is evident in ADP , where TPV grew 21% year on year , whilst devices grew approximately 9.5% to 97,500 .
Speaker #4: Our supplier payment platform continued its strong growth trend , increasing 37% year on year , strengthened by gaining traction from the cash solution .
Speaker #4: We now have more than 1900 suppliers on our platform , significantly reducing cash holdings and transaction risk and improving administrative efficiency for our micro merchants and their suppliers .
Speaker #4: Within prepaid solutions , we saw a 4% increase in TPV , driven by a shift in product mix with some pressure on airtime and data sales during the period , which was offset by growth in electricity purchases in our merchant lending business , we originated 201 million rands for the quarter , a 21% increase on last year .
Speaker #4: We are spending time and effort to enhance our merchant lending offering as we believe this is a key axis of growth for the division .
Speaker #4: As mentioned last quarter , we have reduced the turnover threshold for our merchants to qualify for credit . But maintained our credit scoring criteria .
Speaker #4: Some of the changes include redesigning our onboarding procedures to make it more efficient for merchants to access our lending products , our overall loan book grew 72% on a year on year basis .
Speaker #4: However , our penetration within the merchant base remains modest . The relatively small number of merchants holding a loan confirms that we are under index in segment and is an area of strategic importance in our software or our GAAP business .
Speaker #4: The number of sites was up 3% and our arppu up 4% to 3184 . App was impacted by lower pricing at some major customers , partially offset by increased adoption of our cloud based integrated unit product , which enables greater customer lifetime value , prioritizes long term growth , and enables rapid product development .
Speaker #4: We expect the adoption of unity to deepen market penetration at the cost of lower upfront subscription fees . This ensures we remain the preferred partner for restaurants looking to transform their success .
Speaker #4: I will now move on to consumer KPIs . I'm pleased to report that the momentum in financial year 2025 has carried into financial 2026 , with the division delivering another excellent result for the first quarter .
Speaker #4: During quarter one , we continued to expand our share of the Grand beneficiary market , ending the quarter with just over 1.9 million active consumers , which is inclusive of approximately 220,000 non-permanent Grand beneficiaries .
Speaker #4: This represents a 24% increase compared to last year . Net new additions for the quarter were 49,000 , compared to 24,000 in quarter one 2025 .
Speaker #4: This indicates not only the effectiveness of our sales channel , but the quality of our product value proposition that drives engagement . Our market share for the permanent grand beneficiary base is 14.1% , compared to 11.4% a year ago .
Speaker #4: Most of this growth has come at the expense of the post Bank , as its customers shift towards better value propositions . More than 20% of the post Bank migration chose Osaka , which is disproportionate to our market share .
Speaker #4: There have been three core drivers to our disproportionate growth . First , innovative go to market tools . Our agents are able to sign up clients both in our branches and in the field , using proprietary digital first onboarding system .
Speaker #4: We clients can sign up with their fingerprints and have a card in under five minutes . Two expanding our low cost branch network from 223 in quarter one financial year 2025 to 238 in quarter one financial year , 26 , and a plan of an additional 15 during this financial year .
Speaker #4: We also plan to have over 50 servicing points that will connect us to rural communities like never before . Three Lesaka is invested in staff training and a remuneration structure that incentivize onboarding and engage clients .
Speaker #4: Our approach has increased 13% year on year to 89 runs in quarter one . The rise in output has been driven by the success of cross-selling of our lending and insurance products , aided by the rollout of Bungay .
Speaker #4: As mentioned earlier , this results in increasing engagement in our consumer base . Those consumers using all three of our products has grown to 18% of the base , compared to 15% at this point last year .
Speaker #4: Our lending product has been a key driver of the consumer division success over the past two years . This product is tailored to the needs and financial resources of permanent grand beneficiaries , including immediate access to funds , and has been very well received by our customers .
Speaker #4: Our rate on loans is high , exceeding 75% originations for quarter one amounted to 820 million rands , compared to 462 million last year .
Speaker #4: And our closing book almost doubled to 1.1 billion from 564 million a year ago . We've seen excellent growth over the past year , driven by innovations in both product and distribution .
Speaker #4: The launch of a new 4000 rand loan value with a nine month term has been positively received in the market . This allows us to gain more data and continually refine our offering .
Speaker #4: Existing clients can also originate loans digitally through our new USSD in under five minutes and get immediate access to funds , saving consumers time while engaging through low cost digital channels .
Speaker #4: Encouragingly , our credit loss ratio remains stable and is relatively consistent to what we've experienced over the past few years . Our new lending product with larger values and longer repayment terms , has thus far not had a significant impact on our credit loss ratio , as the lending product mix scales to the larger and longer term loan product , we expect a modest but non-material increase in the credit loss ratio .
Speaker #4: We actively manage this to ensure we remain within our risk appetite . Our insurance product has been equally successful with gross written premiums increasing 38% year on year to 120 million for the quarter , with a number of enforced policies rising 27% to approximately 589,000 .
Speaker #4: Policies similar to lending , our insurance products are customized and priced specifically for the Grand beneficiary market . We offer a traditional funeral plan and a pensioner's plan .
Speaker #4: Our customers value these insurance policies highly , and we were demonstrating continued operating leverage with collecting ratios , maintaining around 97% . This is exceptional for this segment of the market .
Speaker #4: With the success of our funeral plans in quarter two , we begin to offer policies to non easypay everywhere account holders . It has been another very successful quarter for our consumer division .
Speaker #4: Looking at the enterprise division now , as Naim noted , during our full year results presentation in September , the Enterprise Division went through a transformative year in financial year 2025 , and it was only quarter four that our results were a proper representation of its potential and a clear outline of its strategy .
Speaker #4: I'm pleased to report that enterprise had a successful first quarter and is making good progress against its strategy . Enterprise is becoming an increasingly important contributor to the group , not only in terms of profitability , but also as a technology provider to the merchant and consumer divisions .
Speaker #4: Our alternative digital products business provides the integration technology to enable any customer in South Africa to purchase a prepaid solution . For example , airtime , electricity or facilitating a bill payment through channels such as retail distribution networks and online banking apps .
Speaker #4: We are one of the largest aggregators in South Africa . The ADB ecosystem consists of collectors and receivers . Our collectors are enterprises that act as sales and payment channels , enabling consumers , merchants , and businesses to access our platform .
Speaker #4: We are integrated with major retailers , banks and numerous fintechs on the receiver side , partners include all the mobile network operators , electricity providers , insurers , gaming and money transfer service companies .
Speaker #4: Our bill payment platform enables businesses and consumers to settle accounts with over 620 billers , including municipalities , DStv , telcos and retailers .
Speaker #4: The extensive integration with our billing partners is a source of competitive advantage for Lusaka , as replicating this is very challenging . Bill payments represent over 75% of the ADP volumes and was a key driver of the 13% year on year growth in ADP , TPV to 11.9 billion rand .
Speaker #4: As a reminder , we earn a fixed fee for bill payments while other payment earnings are based on the value of the transaction .
Speaker #4: Lesaka utilities is the recharge business we acquired last year . We sell prepaid electricity meters and prepaid electricity vouchers . Utility TPV increased by 21% year on year to 396 million rand for quarter one , approximately 8% reflects a pass through of the electricity price increase in August , with the remainder representing organic growth .
Speaker #4: Recurring revenue is generated through the vending of vouchers for these meters . Patriots through the Lusaka Utilities platform . The electricity meters are mainly sold through large retailers such as builders Warehouse , Leroy Merlin and Buco .
Speaker #4: Currently we have 500,000 registered meters and 270,000m , of which are up 16% year on year . As a reminder , we measure active units as meters where there has been a top up in the last month .
Speaker #4: We've made substantial progress in the integration of the recharger business into our utilities vertical, both from a product and a people's perspective.
Speaker #4: We are beginning to realize synergies from owning more . The value chain as part of this transaction and expect to see increased incremental margin as a result from financial year 2026 , quarter two .
Speaker #4: Thank you . That concludes the segment . Operational overview for Cora1 . I will hand over to Ali now to take you through the key updates in our quarterly guidance .
Speaker #4: Good morning and good afternoon to all of those joining.
Speaker #3: Us .
Speaker #4: Our progression towards one Lusaka is not .
Speaker #5: Merely about brand. It is a critical step of strategic initiatives designed to simplify and organize the business to unlock bottom line growth, as well as help facilitate the drivers of top line growth, which I will touch on in a minute.
Speaker #5: From a cultural and brand perspective , bringing our divisions together toward a unified Lusaka is the next necessary step of this journey . We will refresh our corporate identity to staff in November , greatly improving not just the visual representation , but also the clear articulation of what Lusaka represents .
Speaker #5: We look forward to celebrating who we are and consolidating our marketing spend to maximize the impact . Having a single unified brand and culture will help facilitate our stated objective of building relationships with our customers , rather than selling products as well as aligning this with the representation we have to the market and to our employees , this effort extends to our physical footprint on the office consolidation front .
Speaker #5: We have identified a new Johannesburg office , our expectation is to have all divisions housed under one building by the fourth quarter of fiscal 26 .
Speaker #5: We will also be consolidating our hubs in Cape Town and Durban and reducing our overall lease footprint from over 40 locations to approximately 20 over the coming calendar year .
Speaker #5: Over time , this will reduce our occupancy cost , but more importantly , it will create a more efficient and integrated cross-functional organization .
Speaker #5: On our strategic initiatives , the Bank Zero acquisition continues to progress well with positive momentum while we remain subject to the regulatory process , we are on track to close the acquisition as planned .
Speaker #5: We have no change to our expected timeline of completion by the end of FY 2026. We are also continuing to simplify our business and balance sheet.
Speaker #5: This includes simplifying our corporate structure by selling or exiting subscale non-core business lines and closing legal entities . In addition , we have reached an agreement with TPC , a subsidiary of Blue Label Telecoms .
Speaker #5: The reference shareholder of SLC , to monetize our equity position with an underpin of 50 million rand . Should the business list in the near term while retaining optionality on the upside of a potential IPO .
Speaker #5: This stake is currently valued at zero . On our balance sheet . This streamlining will allow management to focus time and capital on our core mission as we continue to build the Lusaka platform .
Speaker #5: We are also simplifying representation to focus on the structural drivers of our revenue . Lusaka is structured into three distinct and complementary divisions consumer , merchants and enterprise .
Speaker #5: This deliberate segmentation ensures each division operates with a clear strategy targeting specific growth levers , providing Lusaka with a diversified and resilient revenue base .
Speaker #5: Our primary financial measures are aligned with this strategy . At the next investor presentation , we will reference the KPIs provided as the core drivers of our net revenue and the building blocks of our equity story .
Speaker #5: In the same way as we have been providing the number of customers and the Rpu and the consumer business , we will be providing the equivalency in the merchant and enterprise business .
Speaker #5: Our hope is that this will help simplify the explanation of how we make our money . The Rpu for each customer is a function of the individual revenue drivers for each product , and amplified by the level of cross-sell achieved for that customer .
Speaker #5: Within that division . For merchant Rpu , our cash card and ADP products are a function of volumes and take rates . Our lending product is a function of origination volumes and yield , and software is a function of hardware and software fees .
Speaker #5: The consumer . We will continue to disclose arppu in terms of transaction fees and volume for our transaction . Banking product lending originations and yield for loans and premiums and collection rates for insurance enterprise Rpu is based on three products ADP and utilities , which are a function of TPV and take rates and payments , which is a function of the number of transactions and transaction fee on the expected completion of the bank .
Speaker #5: Zero acquisition . We will have additional customers and product offerings which will augment the existing base of consumers , merchant and enterprise clients , and augment our product offerings across all three business lines .
Speaker #5: Having evolved , our team and products over the course of the last year , the focus for FY 26 is on maintaining discipline , focus and execution .
Speaker #5: We are pleased to reaffirm our FY 26 annual guidance on net revenue group adjusted EBITDA , Net Income , profitability and our adjusted EPs measure .
Speaker #5: Looking forward to the second quarter on a net revenue basis , we are providing a guidance range of 1.575 billion rand to 1.725 billion rand .
Speaker #5: The midpoint of which implies a year on year growth of circa 20% . We are also providing a group adjusted EBITDA range of 280 million rand to 320 million rand .
Speaker #5: The midpoint of which implies a year on year growth of circa 42% . Note that the Q2 FY 2025 comparable actuals incorporates the acquisition .
Speaker #5: We are excited for the year ahead and looking forward to continuing to deliver on our strategy and commitments . I will now turn the call over for any questions .
Speaker #2: Thank you . Ali , Dan and Lincoln participants . You are now reminded to please enter your questions into the questions tab of the webcast , or ask your questions on the conference call line .
Speaker #2: Ali will route the questions to the team as appropriate . Okay , we have our first question on the conference call line . Operator , please , could you open for Ros Creek from Investec Securities ?
Speaker #6: Good afternoon , everyone . Thanks very much for the call . Yeah . So I've got four questions all on the merchant segment .
Speaker #6: Maybe I'll just ask them one by one if that's easier . Just on the sequential performance of the revenue line . So that it looks like that declined quarter on quarter .
Speaker #6: So I'm just keen to unpack . Is there some seasonality in that ? Is there mix effect any any color you could give would be useful .
Speaker #6: Thanks .
Speaker #5: All right . There is some seasonality in that . There is also some non-core business lines that we are closing down and exiting .
Speaker #5: So yes , there's there's both of those .
Speaker #6: Okay . Thanks . And then maybe if I can extend that to the margin as well . I mean , I suppose the it's probably a similar answer , but any any comments on the on the change in margin , sequential change in margin .
Speaker #5: Yeah . That that has an additional component , which is we did have some non-recurring costs within the the merchant business , and we made the election that we were not going to exclude these from the group adjusted EBITDA .
Speaker #5: We want to minimize any exclusions that were providing . I think the a closer representation of the run rate can be inferred from the guidance that we're providing for the the next quarter .
Speaker #5: So if you if the edema transaction clearly is incorporated , as said in the presentation in the Q2 2025 numbers , and we're guiding the market to at the midpoint of the range group adjusted EBITDA of north of 40% year on year .
Speaker #5: So you can get a better idea of underlying growth through that .
Speaker #6: Thanks . Audie . I understood on the then maybe I'll just ask these two questions and one . So firstly , just on the the rationalization of infrastructure that you that you talked about , I mean , it might be too early to ask , but I don't know if you've thought about what the impact on the cost base will be from any of those activities .
Speaker #6: And secondly , I guess somewhat related , but in terms of the cross-sell . So clearly there's a consolidation going on . You , in terms of all the acquisitions done , including most recently at Duma , just so so that that first question is more on the cost side of that and where you end up .
Speaker #6: And secondly , then on the actual sort of cross-sell part of that , where I think you've talked in the past about being able to do that , it's still early days , but just curious if there's any milestones you think you've reached , if there's any data points that we should know about , there .
Speaker #5: Thanks . I'll start with the cross-sell question . I'll ask Dan to talk a little bit about the the infrastructure rationalization . So on the cost .
Speaker #5: So as we sort of to in the presentation , we're going to from the next quarter , be providing the attachment rates by one , two , three , four , five products for the merchant business , as we've been doing in the consumer business .
Speaker #5: So that you can track the quarter on quarter evolution of that cross-sell . However , where we are today is that the vast majority of our merchants do have an attachment rate of of more than one product .
Speaker #5: The the largest two contributors of products to our alluded EBITDA are in the business is merchant acquiring an ADP and there is a high attachment rate for customers who have merchant acquiring to a second product already , the biggest one being ADP .
Speaker #5: But software is also an irrelevant attachment product from next quarter , we'll be able to talk merchant specificity of those numbers , but we do expect to materially increase that cross-sell over time in in terms of the rationalization , I mean , we have already spoken about the fact that we believe there's quite a material operating leverage associated with our business as we scale .
Speaker #5: But I'll let Dan augment . Yeah .
Speaker #3: Thanks , Ali . Ross , just around the the overall costs , I mean , in effect , we're bringing together for businesses under the umbrella of our overall merchant division .
Speaker #3: There's a whole bunch of duplication of functions . On the one hand , and there's a misalignment is the individual businesses go to market with their customer propositions .
Speaker #3: So that's the unification we speak about of our merchant business within those operations , there will be some re-engineering of platforms as we bring them together .
Speaker #3: As I said , there'll also be the removal of a whole bunch of duplications of various functions . Ali touched on a simple example around our office rationalization in the Johannesburg region .
Speaker #3: We will look to be in the second half of financial year , all under one roof , and later in the year , both in Durban and Cape Town .
Speaker #3: Other areas as well . That'll effectively enable us to move from 40 odd offices to roughly 20 as a group as a whole .
Speaker #3: So use that as a simple example . Within that rationalization . Of course , there's an opportunity for significant cost savings . It's a little bit too early to give you some specific data points as to how much , but we do expect those significant savings to emerge over the next over the short to medium term .
Speaker #3: And also , if I may have just come back to the margin question on the merchant side , Russell will guide you . We disclosed margin quarter by quarter .
Speaker #3: There is some seasonality , of course , and there's some mixed effects around that . If one just looks through the overall margin trend within the merchant business , it oscillates anywhere from 19% to 25% across different quarters .
Speaker #3: So within each quarter , there are some different mix effects to encourage you to look at it as a blended or smooth rolling basis , rather than individual quarter by quarter .
Speaker #2: Thank you Dan Ross . Any additional questions ? I think that means that we have answered all of Ross's questions . The next question I have is on the webcast .
Speaker #2: There are two questions that are similar from at three six , one and Jared Houston at all . Whether , please , can you take us through the cell C potential IPO happy .
Speaker #2: Are you happy for it to list and get out . What and what was the rationale to put the option in place that you have ?
Speaker #5: I'll , I'll , I'll I'll start and then hand over to to Dan as well on that . I mean yes , I mean I think we wish the company all the best and we are very supportive of the planned IPO .
Speaker #5: The rationale to get out is the the fact that as a business , we say we are simplifying our operations . It's not a core part of the Lusaka strategy .
Speaker #5: And so we'd much rather allocate that capital towards our core purpose in terms of the specificity on structure than .
Speaker #3: Yeah , thanks . Is there anything I'd add to that ? Is we currently have a 5% stake in an existing cell C business as part of preparing it for its IPO .
Speaker #3: There's a variety of restructuring steps , both including injecting assets , airtime and restructuring of debt , which will culminate ultimately in the conversion of a lot of that into equity to give Selsey a sustainable balance sheet .
Speaker #3: That restructuring will result in the dilution of our equity percentage stake . And so the business being listed is very different to the one currently constituted in which we have our 5% holding to echo Ali's sentiment , we will absolutely delighted with a successful Selsey listing .
Speaker #3: And we've learned our economics very much around that . The market will adjudicate what the appropriate fair value for Selsey is and therefore our implied stake .
Speaker #3: And we've got some optionality around that where we've secured a minimum value of 50 million for our stake should sell list this year , of course , with upside .
Speaker #3: If the effective holding ends up being worth more , more than that .
Speaker #2: Thank you Dan . Thank you Ali . The next caller on the conference line is Theo O'Neill from LHR research . Operator , please could you open the line for Theo to ask his questions ?
Speaker #7: Thank you . And good day . I want to follow up on your first question about merchant . The merchant business margins . I believe you said that you the range from 19 to 25% .
Speaker #7: And I'm wondering when you when you think about margins for the merchant business , do you think about the overall number or do you think about the individual product margins , trying to stay within that range ?
Speaker #5: So it's thanks for the question , Theo . I mean , the whole evolution of the business is around trying to build relationships with customers and having multiple products associated with those customers .
Speaker #5: So I very much think about it as a collective . Rather than the individual margins per product . Partly because the way that a customer may be paying may not be the the entirety of what they're buying .
Speaker #5: And there's there's different aspects of that . There's an ecosystem component to our merchant business . The way that I would think about the margins in that business , I think we have in the past , given a reference that we believe that this business is a business as an aggregate , we should be able to trend the the EBITDA margin to certainly north of 30% .
Speaker #5: And I think we are through the integration process on the way towards that evolution .
Speaker #2: Thank you .
Speaker #7: Thank you . And on I have one more question here on the consumer side , you've successfully grown share over the years despite increased competition .
Speaker #7: And I'm wondering how long is the runway for that ?
Speaker #5: I'm going to let Lincoln answer that one .
Speaker #4: See , I think that we've indicated before that we still see some runway in growing our business , taking more share from the post bank .
Speaker #4: As we mentioned earlier , our share is 14% . Yet we're taking 20% of the customers coming out of the post bank . And we think that with the remaining customers , as they move a larger percentage will come to us .
Speaker #4: Secondly , if you look at our penetration rates , it gives you an indication that there's still room for us to grow in that space , both in our lending and in our insurance .
Speaker #4: Thirdly , we've indicated that on the insurance side , we have room to sell our product to Non-ep customers . That's another opportunity to grow .
Speaker #4: But if you think of . The optionality that comes with the bank acquisition , when that has been approved and consummated , it gives us an opportunity to see customers that are beyond the ground space .
Speaker #4: So when we think of our consumer business , we think of our consumer business in terms of that future that includes bank zero .
Speaker #4: So there's much more optionality for this business going forward.
Speaker #5: And just to add to Lincoln's comment , you know , part of the rationale , obviously , of the transaction is we believe that there's material complementarity between our distribution and the bank .
Speaker #5: Zero platform in being able to provide a very competitive offering in the open market . So we certainly don't feel like we're at a run rate .
Speaker #5: In fact , we feel like we're expanding that run road .
Speaker #7: Okay . Thank you very much .
Speaker #2: Thank you . Theo . We also have James Stark from RMB Morgan Stanley on the line . Operator , please , could you open the line for James ?
Speaker #8: James , your line is live .
Speaker #2: James , are you there or . Okay , let's . While we wait for James . Let's move to the next call on the webcast Q&A .
Speaker #2: This one is from Jared Houston at All weather . Could you provide a comment on the recent ramp up in fintech interest in South Africa ?
Speaker #2: For example , Icoca Optavia and by other large traditional financial players ?
Speaker #5: I mean , I think it's representative and endorsing of the strategy that we're engaging with . I think that while there has been an increase in the interest , I'd still say that the interest and the scale of the fintech ecosystem in the country is massively underweight relative to other geographies .
Speaker #5: So I certainly consider this to be the beginning of the evolution rather than in a particular spike . I believe that , you know , it .
Speaker #5: It benefits both us and it benefits the society for there to be a greater innovation in the in the country . And frankly , I'm delighted to see successful businesses emerging in the ecosystem .
Speaker #2: Thank you . Ali James , do you want to try and ask your question again ? Operator , could you please try and unmute James ?
Speaker #2: He says that he's struggling to unmute .
Speaker #8: James , your line is live .
Speaker #2: Okay . That's fine . Let's go on to the next question on the webcast Q&A . This one is from Finn Thordsen at anchor Securities .
Speaker #2: Good afternoon . Combining the midpoint of your Q2 guidance and reported Q1 adjusted EBITDA equates to about 550 570 million , leaving 780 million to be realized in the last two quarters .
Speaker #2: To achieve the midpoint of your full year guidance . This implies 390 million rand per quarter , which is a considerable leap on Q2 , which is a busy period for the group .
Speaker #2: Please elaborate on how this will be achieved . Does the base still include significant restructuring costs ?
Speaker #5: I mean , so I think I think your maths are right . I would also say that as a business , this is the 13th consecutive quarter of achieving our EBITDA guidance and we are reiterating our full year EBITDA guidance .
Speaker #5: So we have a lot of conviction associated with the growth evolution of our EBITDA . I think we did mention that there were some non-recurring costs that are embedded .
Speaker #5: Our run rate EBITDA at this juncture is closer to 300 million rand . If you excluded those non-recurring costs and from that base , we are expecting to grow organically through the strategies that we've outlined in both the consumer merchant and enterprise business and we're excited that effectively we have the engine room that can achieve those growth rates .
Speaker #2: Okay . Thank you . Ali . Those are all the questions we have for today . James , apologies that we couldn't get your question , but we'll contact you afterwards if there are any other questions , please reach out to me .
Speaker #2: Thank you for attending our webcast today . Thank you Ali . Thank you . Lincoln . Thank you Dan .