EDGAR 10-K Filing

Company CIK: 1041514
Filing Year: 2024
Filename: 1041514_10-K_2024_0001562762-24-000222.json

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ITEM 1. BUSINESS
ITEM 1.
BUSINESS
Overview
Lesaka is
a South
African Fintech
company that
utilizes its
proprietary banking
and payment
technologies to
deliver financial
services solutions and software to consumers and merchants in Southern Africa.
Our vision is to build and operate the leading full-service fintech platform
in Southern Africa.
Our
core
purpose
is
to
provide
financial
services
to
Southern
Africa’s
underserviced
consumers
and
merchants,
improving
people’s lives and increasing financial inclusion in the markets in which we operate. We
achieve this through our ability to efficiently
digitalize the last mile
of financial inclusion,
providing a full-service
fintech platform
offering both cash
and digital, and
facilitating
the secular shift from cash to digital that is currently taking place.
We
offer a wide
range of solutions
including transactional
accounts (banking), lending,
insurance, cash management
solutions,
card acceptance, supplier payments, software services
and bill payments. By providing
a full-service fintech platform in
our connected
ecosystem, we facilitate the digitization of commerce in our markets.
In May 2024
we announced the
acquisition of Adumo
RF (Pty)
Ltd (“Adumo”), an
acquisition subject to
satisfaction of customary
closing
conditions,
expected
to
close
in
October
2024.
The
acquisition
continues
Lesaka’s
consolidation
in
the
Southern
African
fintech sector and enhances Lesaka's strengths in both the consumer and merchant
markets.
Reportable Segments
We
operate through
two divisions: Our
B2C Consumer Division
(“Consumer”) and
our B2B Merchant
Division (“Merchant”).
Within these two divisions, Lesaka has four
broad customer types: consumers, micro-merchants, merchants, and
enterprise clients.
While there are mutually
reinforcing dynamics and overlap
between our verticals,
within each vertical, we
offer distinct brands
with unique value propositions. Our platform addresses a wide range
of customers that are not generally serviced by our competitors,
an advantage that we use
to benefit from economies
of scale. We
believe that we deliver
high quality products that
provide excellent
value to our customers.
While we
operate in
competed markets,
we believe
that we
are unique
in offering
a comprehensive
product portfolio,
serving
both formal and informal consumers and merchants with omnichannel
financial services through physical and digital touchpoints.
Consumer (B2C)
Customers
Through Consumer we focus
on individuals who
have historically been excluded
from traditional financial services.
Our products
are designed for consumers at the lower socioeconomic
end of the market within Living Standards Measures
(“LSMs”) 1 to 6, which
comprises approximately
26 million
people as
of 2023
(according to
a report
by Genesis
Analytics). As
of the
date of
this Annual
Report, we have approximately 1.5 million active consumer customers.
Products
We offer
consumers transactional accounts (banking),
insurance, lending (short-term loans),
payments solutions (digital wallet)
and various
value-added services
to underserved
consumers in
South Africa.
Our value proposition
and products
are designed
to be
simple, relevant and cost effective for our target
market.
Merchant (B2B)
Customers
Through Merchant, we focus on micro-merchants, merchants and enterprises operating
in the informal and formal sectors of the
Southern African economy.
Micro-merchants, or informal sector merchants,
are often sole
proprietors, usually with lower
revenues, that operate in
rural areas
or in informal urban areas and do not always have access to a full-suite of
traditional banking products.
Merchants, or
formal sector
merchants, are
generally in
urban areas,
have higher
revenues and
have access
to multiple
service
providers.
Enterprises are large-scale corporate and government
organizations, including but not limited
to banks, mobile network
operators
(“MNOs”) and municipalities.
Including
micro-merchants
and
merchants,
there
are
more
than
2.7
million
merchants
in
South
Africa,
of
which
more
than
890,000
merchants
are immediately
serviceable
merchants
for
Lesaka.
Merchant
currently
has over
96,600
customers
in
Southern
Africa, of
which more than
87,000 are in
South Africa (this
excludes the
impact of the
Adumo acquisition,
not effective
at June 30,
2024 and expected to close in October 2024).
Products
To
micro-merchant
and
merchant
customers
(B2B),
we
offer
cash
management
and
digitalization
solutions
through
our
proprietary vault
technology,
card acceptance,
supplier payments,
software services,
lending, prepaid
accounts and
bill payments
to
empower merchants to grow their businesses and transact more efficiently.
To
larger enterprise
customers (B2B), we offer
bill and supplier
payments and VAS
products through
our proprietary financial
switch, as well as point of sale device and maintenance, bank and SIM card production
and other specialized technology products.
Market Opportunity
Our primary
market is
currently South
Africa with
its approximately
62 million
population and
$381 billion
economy (GDP,
according to IMF World
Economic Outlook Database as
of October 2023). With
the acquisition of Adumo
(an acquisition subject to
regulatory approvals
and satisfaction of
customary closing conditions,
expected to close
in October 2024)
we augment our
presence
in South Africa,
Namibia, Botswana and
Zambia and expand
into Kenya. Together this represents
a 140 million
population addressable
market, larger than that of Mexico or Japan (GDP according to IMF
World Economic
Outlook Database as of October 2023).
Over
the
past
decade,
both
financial
inclusion
and
smartphone
penetration
throughout
the
region
have
grown
significantly.
According to a report
by Genesis Analytics, between 2015
and 2023, the proportion
of low-income workers in South
Africa that had
used a debit
card to transact
rose from 17%
to 50%. According
to the same
report, between 2015
and 2021, the
proportion of
South
Africans accessing online
banking services increased
from 31%
to 55%, and
between 2018 and
2024, smartphone penetration
increased
from 55% to 76%.
These favorable tailwinds
have helped position
Africa as the fastest-growing
Fintech market globally,
according to a
report by
Boston Consulting Group that projects growth in the African Fintech revenue pool
to grow by 13 times between 2021 and 2030.
Given
the
significant
challenges
in
delivering
financial
services
in
Southern
Africa;
however,
many
service
providers
in
our
markets continue to rely on expensive and unreliable legacy systems and focus on narrow customer segments with mono-line (single-
line) products.
We
believe that this
presents a significant
opportunity for Lesaka
to build and
operate the leading
full-service Fintech platform
in Southern Africa, empowering underserviced consumers and merchants by delivering
innovative financial services focused on their
specific needs.
Competition
With our comprehensive offerings to
both consumers and merchants, we compete with a wide range of service providers. While
there are
competitors for
specific products
and services,
few offer
end-to-end solutions,
particularly in
the lower-income
consumer
market and the informal merchant market, where we have a significant footprint
and strong penetration.
In our
Consumer Division,
there are
a number
of traditional
and digital
providers of
low-cost transactional
bank accounts
and
micro financial services. These include South African banks such as
FNB, Standard Bank, Absa, Nedbank, African Bank and Capitec,
the South African
Post Bank, and digital
banks such as, Tyme
Bank and Bank
Zero. In the South
African ATM
network market, we
compete against the South African banks, ATM
Solutions and Spark ATM
Systems.
In the informal merchant sector, there
are no competitors which offer a comprehensive product
set of cash, card, payment, VAS
and capital
solutions, such
as ours.
In the
formal merchant
sector there
is significantly
more competition,
with banks
and non-bank
fintech companies targeting these merchants.
In card acquiring, competitors include
Yoco,
iKhokha, Sureswipe and the South African
banks; in VAS
and bill payments, they
include Flash, Blue Label, Shop2Shop, Pay@ and Ukeshe; in lending, they
include Lulalend, Merchant Capital, Retail Capital and the
South African banks; and in cash management, they include Fidelity,
G4S, Cashnet and the South African banks.
At an enterprise level, our financial switch and VAS and bill payments business competes with BankservAfrica, Pay@, eCentric
and Transaction Junction.
Human Capital Resources
Over
the
last
two
years
we
have
built
a
diverse
team
of
high-caliber
individuals,
from
different
organizations,
to
form
our
leadership group. This
leadership group is
deeply committed to
building a high-performance
culture that is
based on our core
values
and a commitment to the care and development of our people.
Lesaka’s Core Values:
•
Entrepreneurial spirit;
•
Integrity;
•
Collective wisdom;
•
Ownership; and
•
A bias to action.
These are our
values that underpin
our mission
to enable
Merchants to compete
and grow,
and Grant
Beneficiaries to improve
their lives, by providing innovative financial technology and value
-creating solutions.
Employee training and skills development
We strongly believe that learning
is an ongoing process and that the majority of learning is in the doing. As such, while we offer
a range of formal
programs (as listed further
below), more importantly,
we continue to encourage
a culture of learning
in everything
that we do.
Sustainable
employee
training and
development
programs impact
employee
retention,
and
we believe
that our
willingness to
invest
in
employee
development
contributes
to
employee
satisfaction
and
belonging.
This
increases
loyalty,
which
will
in
turn
contribute
to employee retention. We
offer the following development programs to enhance employee
performance and skills:
•
unemployed and employed learnerships;
•
internships;
•
leadership development programs;
•
training programs;
•
financial assistance to pursue further studies and obtain formal qualifications;
•
other in-house and cross-functional training to aid with career advancement;
and
•
succession planning - training interventions to address scarce and critical skills.
Equal opportunity
Having an inclusive
and diverse workforce
which reflects our
economically active population
and society in
general, is crucial
for helping the organization attract and retain talent and is important for long-term organizational success. Our
human resources team
emphasizes recruiting
and retaining
a talented
and diverse
workforce with
special focus
on hiring
previously disadvantaged
groups
whenever possible. We
are committed to hiring qualified candidates without regard
to their personal status, while taking into account
the
unique
circumstances
affecting
our
operations
in
South
Africa
and
the
need
to
uplift
previously
disadvantaged
groups.
This
commitment extends to all levels of our organization,
including within senior management and our board of directors.
As of June 30, 2024, the composition of our workforce was:
•
55% female and 45% male;
•
40% between 18 and 34 years old, 55% between 35 and 54 years old, and 5% over
55 years old; and
•
69% Black, 11% two or more races, 8% Indian and 12%
White.
We have no
female named executive officer.
We
continue
to strive
to build
a more
inclusive workforce
and to
enhance our
pay structures
by taking
measures to
eliminate
potential remuneration discrimination
and to help close gender pay gaps
to progress towards gender equality
at work. We
have taken
positive strides towards a rewards philosophy that rewards high performance, is externally benchmarked and focuses on equal pay for
work of equal value.
Employee compensation programs
We
are committed
to
ensuring
that
all
our
employees
are
paid
fair
and
competitive
remuneration. To
that
end,
we
offer the
following to our employees:
•
Access to a comprehensive medical, dental, and vision plan that our employees
have the option to join;
•
Access to a defined contribution retirement plan that our employees have
the option to join;
•
Paid sick, study, annual
and family responsibility leave;
•
Maternity benefits;
•
Life and disability insurance coverage;
•
Financial aid to fund tertiary education for children of employees;
•
Employee assistance programs; and
•
Product discounts.
Annual
increases
and
incentive
compensation
are
based
on
merit,
which
is
communicated
to
employees
at
onboarding
and
documented as part of our annual remuneration review process.
Our number
of employees
allocated
on a
segmental
and
group
basis as
of the
years ended
June 30,
2024,
2023 and
2022,
is
presented in the table below:
Number of employees
Consumer
(1)
1,333
1,306
1,826
Merchant
(1)
1,189
Total segments
2,522
2,296
2,650
Group
(1)
Total
2,531
2,303
2,657
(1) Consumer includes one executive officer for each of fiscal 2024, 2023 and 2022. Merchant includes one executive officer
for
each of fiscal 2024, 2023 and 2022. Group includes two executive officers
for fiscal 2024 and 2023 and three for fiscal 2022.
On a functional basis, four of our employees are our named
executive officers, 1,350 were employed in sales and marketing, 500
were employed in finance and administration, 266 were employed in information
technology and 411 were employed in operations.
Health and safety laws and regulations
We
are
subject
to various
South
African
laws and
regulations
that
regulate
the health
and
safety of
our
South
African-based
workforce, including
those laws monitored
by the
South African
Department of
Employment and
Labour which
stipulates the
legal
framework within
which we
need to
function. This
framework comprises
the Occupational
Health and
Safety Act,
Act 85
of 1993
(“OHSA”),
the
Compensation
for
Occupational
Injuries
and
Diseases
Act,
Act
of
(“COIDA”),
the
Basic
Conditions
of
Employment Act,
Act 75
of 1997
(“BCEA”) and
the Labour
Relations Act,
Act 66
of 1995
(“LRA”). Compliance
with COVID-19
regulations remains
regulated by the
National Institute of
Occupational Health (“NIOH”),
and the Occupational
Health Surveillance
System
(“OHSS”),
the
Centre
for
Scientific
Industrial
Research
(“CSIR”)
and
the
National
Institute
for
Communicable
Diseases
(“NICD”).
We
have
implemented
and regularly
update human
capital-related
policies that
are designed
to ensure compliance
with
applicable South African laws and regulations.
Our Executive Officers
The table below presents our executive officers, their
ages and their titles:
Name
Age
Title
Ali Mazanderani
Executive Chairman and Director
Naeem E. Kola
Group Chief Financial Officer and Director
Lincoln C. Mali
Chief Executive Officer: Southern Africa and Director
Steven J. Heilbron
Executive and Director
Ali Mazanderani
has been our Executive
Chairman since February
1, 2024. He is
a fintech investor and
entrepreneur. He
is the
co-founder
and
chairman
of Teya,
a pan-European
fintech. He
is also
a non-executive
director
on the
board of
several companies
including Thunes (Singapore based
private fintech), Kushki (Latin
American payments company) and
is the president
of The European
Digital Payments Industry Alliance
(EDPIA). He was previously
on the board of
several other leading payments
companies globally
including
StoneCo
(Nasdaq:
STNE)
in
Brazil
and
Network
International
Holdings
Plc
(LSE:NETW)
in
the
Middle
East.
He
was
formerly a Partner at Actis, a London-based emerging market private equity firm, where
he led multiple landmark fintech investments
globally. Prior to his career at Actis, Mr.
Mazanderani advised private equity and corporate clients for OC&C Strategy Consultants in
London
and
served
as
lead
strategy
consultant
for
First
National
Bank
based
in
Johannesburg.
He
holds
postgraduate
degrees
in
Economics from
the University of
Pretoria, Oxford University
and the London
School of Economics,
an MBA from
INSEAD and a
Masters in Business Law from the University of St Gallen.
Naeem E. Kol
a has been our Group Chief Financial Officer since March 1, 2022. Mr. Kola has progressively held senior finance
roles in
Dubai, most
notably as
Chief Financial
Officer of
the Emerging
Markets Payments
Group (“EMP”),
a high-growth
fintech
business that grew
materially and successfully
concluded and integrated
five acquisitions during
Mr. Kola’s
six-year tenure as Chief
Financial
Officer.
Prior
to
becoming
Chief
Financial
Officer,
Mr.
Kola
was
Senior
Vice
President
for
Investments,
Strategy
and
Business Planning at EMP. Since the acquisition of EMP by Network International in 2017, Mr. Kola has been an
Operations Director
and Strategic Advisor to the emerging market private
equity firm Actis, where he again focused on fintech businesses.
Lincoln
C.
Mali
has
been
our
Chief
Executive
Officer:
Southern
Africa
since
May
1,
2021.
Mr.
Mali
is
a
financial
services
executive with over 25 years in the
industry. Until April 2021, he was the Head of Group
Card and Payments at Standard Bank
Group,
having
served
in many
different
roles within
that organization
since 2001.
Mr.
Mali chaired
the board
of directors
of Diners
Club
South Africa
until April
2021, and
was a
member of
the Central
and Eastern
Europe, Middle
East and
Africa Business
Council for
Visa.
Mr.
Mali holds
Bachelor of
Arts (BA)
and Bachelor
of Laws
(LLB) degrees
from Rhodes
University,
an MBA
from Henley
Management College, various diplomas and attended an Advanced
Management Program at Harvard Business School.
Steven J. Heilbron
has been the Chief
Executive Officer of the Connect Group since
2013 and joined us
following the acquisition
of Connect
in the
same capacity.
Mr.
Heilbron has
two decades
of financial
services experience,
having spent
19 years
working for
Investec in South Africa
and the UK,
where he served as
Global Head of Private
Banking and Joint Chief
Executive Officer of Investec
Bank plc. He led a private consortium that acquired Cash Connect Management Solutions (Pty) Ltd (“CCMS”) in 2013. Mr. Heilbron
has presided over significant
organic growth in the
rebranded Connect Group, as
well as spearheading the
successful acquisition and
integration of Kazang and EFTpos acquired from the Paycorp Group in February 2020. He is a member of the South African Institute
of Chartered Accountants.
Financial Information about Geographical Areas and Operating
Segments
Refer
to
Note
to
our
audited
consolidated
financial
statements
included
in
this
Annual
Report
contains
detailed
financial
information about our operating segments for fiscal 2024, 2023 and 2022. Revenues based on the geographic location from which the
sale originated and geographic location where long-lived assets are held for the years ended June 30, are presented in the table below:
Revenue
(1)
Long lived assets
$'000
$'000
$'000
$'000
$'000
$'000
South Africa
537,594
505,558
215,046
286,700
300,104
359,725
India (MobiKwik)
-
-
-
76,297
76,297
76,297
Rest of the world
26,628
22,413
7,563
2,548
2,197
2,811
Total
564,222
527,971
222,609
365,545
378,598
438,833
(1)
Refer to
Note 16
to our
audited consolidated
financial statements
included
in this
Annual Report
which contains
detailed
financial information about our revenue for fiscal 2024, 2023
and 2022.
Corporate history
Lesaka was incorporated
in Florida in
May 1997 as
Net 1
UEPS Technologies, Inc. and
changed its name
to Lesaka Technologies,
Inc. on May 12, 2022. In 2004, Lesaka acquired Net1 Applied Technology
Holdings Limited (“Aplitec”), a public company listed on
the Johannesburg
Stock Exchange
(“JSE”). In
2005, Lesaka
completed an
initial public
offering
and listed
on the
NASDAQ Stock
Market. In
2008, Lesaka
listed on
the JSE
in a
secondary listing,
which enabled
the former
Aplitec shareholders
(as well
as South
African residents generally) to hold Lesaka common stock directly.
Available information
We maintain a website at www.
lesakatech.com. Our Annual Report, Quarterly Reports on Form 10-Q, Current Reports on Form
8-K, and amendments to those reports, as well as our proxy statements, are available free of charge through the “SEC filings” portion
of our website,
as soon as
reasonably practicable after
they are filed
with the SEC.
The information contained
on, or accessible
through,
our website is not incorporated into this Annual Report.
The SEC
maintains a
website at
www.sec.gov
that contains
reports, proxy
and information
statements, and
other information
regarding issuers that file electronically with the SEC.

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ITEM 1A. RISK FACTORS
ITEM 1A. RISK FACTORS
OUR OPERATIONS
AND FINANCIAL
RESULTS
ARE SUBJECT
TO VARIOUS
RISKS AND
UNCERTAINTIES,
INCLUDING
THOSE
DESCRIBED
BELOW,
THAT
COULD
ADVERSELY
AFFECT
OUR
BUSINESS,
FINANCIAL
CONDITION, RESULTS
OF OPERATIONS,
CASH FLOWS, AND THE TRADING PRICE OF OUR COMMON STOCK
Risks Relating to Our Business
To achieve our mission, our
strategy is to
build and operate
the leading South
African full service
fintech
platform offering cash
management, payment and
financial services. Our
future success, and
our ability to
return
to
profitability
and
positive
cash
flow
is
substantially
dependent
on
our
ability
to
complete
the
implementation of this strategy successfully.
Our board conducted an extensive
review of our business strategy
and operations in July 2020,
and decided to focus on
our South
African
operations
and
other
business
opportunities
in
South
Africa
and,
to
a
lesser
extent,
the
rest
of
the
African
continent.
The
restructuring
of
the
consumer
business
and
acquisition
of
Connect
were
integral
parts
of
the
strategy
to
return
the
business
to
profitability and positive cash flow. We have made significant progress on both of these initiatives however we cannot assure you that
we will be able to complete our strategy successfully and return to profitability and
positive cash flow.
Even if we do return to profitability, achieving net income does not necessarily
ensure positive cash flows. Future periods of net
losses
from
operations
could
result
in
negative
cash
flow
and
may
hamper
ongoing
operations
or
prevent
us
from
sustaining
or
expanding our business. We cannot assure you that we will achieve, sustain or increase profitability in the future and if we do not, our
business will be materially and adversely affected.
In 2017
and 2018 we
suffered significant
reputational damage
as a result
of irregularities in
the awarding of
the South African
Social Security Agency (“SASSA”)
grant distribution contract in
2012 and allegations of abuse
of group companies’ access to social
grant recipients.
An entirely new
board and management
team were appointed
to develop and
execute the new
strategy however we
cannot provide assurance that issues related to those events will not resurface
and adversely affect the business.
We
have a
significant amount
of indebtedness that
requires us
to comply with
restrictive and financial
covenants. If we are unable to comply with these
covenants, we could default on this debt, which would have
a material adverse effect on our business and financial condition.
As
of
June
30,
2024,
we
had
aggregate
long-term
borrowing
outstanding
of
ZAR
2.6
billion
($143.2
million
translated
at
exchange rates
as of June
30, 2024). We
financed our acquisition
of Connect
in April 2022
through South
African bank borrowings
of ZAR 1.1 billion
($71.7 million, translated at
closing date exchange
rate (as defined in the
Sale Agreement) of $1:ZAR
14.65165).
The borrowings
are secured
by a
pledge of
certain of
our bank
accounts, and
the cession
of Lesaka’s
shareholding
in certain
of its
subsidiaries. These borrowings contain customary covenants that require Lesaka Technologies
(Pty) Ltd (“Lesaka SA”) to maintain a
specified total asset
cover ratio and restrict
the ability of
Lesaka, Lesaka SA,
and certain of its
subsidiaries to make
certain distributions
with respect
to their
capital stock,
prepay other
debt, encumber
their assets,
incur additional
indebtedness, make
investment above
specified levels, engage in certain business combinations and engage
in other corporate activities.
The loan agreements also include a credit enhancement mechanism of ZAR
350 million ($23.9 million, translated at closing date
exchange rate), which has been provided by investment
funds managed by Lesaka’s
largest shareholder, Value
Capital Partners (Pty)
Ltd (“VCP”)
which includes
a contingent
subscription for
new shares.
There can
be no
assurance that
VCP will
perform under
the
commercially agreed
terms and failure
by it to
fulfil its obligation
under the credit
enhancement mechanism
may put our
funding or
future repayments at risk.
We also
have borrowings through
Connect. Connect’s
credit facilities include (i)
an overdraft facility (general
banking facility)
of ZAR 205.0
million (of which
ZAR 170.0 million
has been utilized);
(ii) Facility A
of ZAR 705.5
million; (iii) Facility
B of ZAR
550.0 million (both fully utilized and ZAR 512.5 million outstanding after scheduled repayments); and (iv) an asset-backed facility of
ZAR 200.0 million (of which ZAR
152.3 million has been utilized). These borrowings are secured
by a pledge of, among other things,
Cash Connect Management Solutions’(“CCMS”)
entire equity interests in
its subsidiaries and investments
and any claims
outstanding.
These
borrowings
contain
customary
covenants
that require
CCMS to
maintain
specified debt
service,
interest
cover and
leverage
ratios.
Within our merchant lending
operations, we have
borrowing arrangements through
Cash Connect Capital
(Pty) Limited (“CCC”).
CCC has a
ZAR 300
million revolving
credit facility agreement
.
We
have utilized
approximately ZAR
215.3 million
as of June
30,
2024.
This
facility
contains
customary
covenants
that
require
the
borrowing
parties
to
collectively
maintain
a
specified
capital
adequacy ratio, restrict the ability of the entities to make certain distributions with respect to their capital stock,
encumber their assets,
incur additional indebtedness, make investments, engage in certain
business combinations and engage in other corporate activities.
These security arrangements and covenants may
reduce our operating flexibility or
our ability to engage in
other transactions that
may
be
beneficial
to
us.
If
we
are
unable
to
comply
with
the
covenants,
we
could
be
in
default
and
the
indebtedness
could
be
accelerated. If this were to occur, we might not be able to obtain waivers of default or to refinance the debt with another lender and as
a result, our business, financial condition and stock price would suffer.
We
need to
significantly grow
our consumer
operations in
order to
ensure their
profitability and
long-
term sustainability.
Following the conclusion of our contract
with SASSA, we refocused our resources and technology
on the provision of financial
inclusion services
to our
target market
and currently
have an
established base
of approximately
1.5 million
customers. Our
strategy
involves significantly expanding this base over
the coming years. While
we believe that our financial
services offerings are convenient
and cost-effective,
the success
of our
strategy will
depend on
the extent
to which
we successfully
market our
offering
to grow
the
customer base.
Factors that may prevent us from successfully operating and expanding our
Consumer Division include, but are not limited to:
•
insufficient adoption and utilization of our products and
services;
•
inability to access sufficient funding for our ATM
infrastructure;
•
increased
competition
in
the
marketplace
and
restrictions
imposed
by
SASSA
or
the
South
African
government
on
the
manner in which grant recipients may transact;
•
political interference and changes in the regulatory environment;
•
failure to comply with laws and regulations related to our Consumer lending
business;
•
failure to comply with anti-money laundering and anti-corruption laws and
regulations;
•
cyber-attacks, data breaches and data leaks;
•
further civil unrest similar to that experienced in July 2021;
•
loss of key technical and operations staff;
•
expired property leases disrupting business operations; and
•
logistical and communications challenges, including scheduled and unscheduled
power supply disruptions.
Failure
to
complete,
or
delays
in
completing,
the
Adumo
acquisition,
could
materially
and
adversely
affect our results of operations and stock price.
The completion of
the Adumo
acquisition is subject
to a
number of conditions
precedent, including receipt
of regulatory approvals
and certain third-party consents. Some of these conditions are outside
our control.
To
complete
the
acquisition,
we
must
make
certain
filings
with
and
obtain
certain
consents
and
approvals
from
various
governmental and regulatory authorities.
The regulatory approval processes may
take a lengthy period of time to complete,
and there
can be no assurance
as to the outcome
of the approval processes,
including the undertakings
and conditions that
may be required for
approval, or whether the regulatory approvals will be obtained at all.
In addition,
the completion
of the
acquisition is
conditional
on, among
other things,
no action
or circumstance
occurring that
would result in a material adverse effect on the Adumo’s
business operations or financial results.
We cannot
provide any assurance regarding if or
when all conditions precedent to the acquisition
will be satisfied or waived. If,
for any reason, the acquisition is
not completed, or its completion is
materially delayed and/or the transaction agreement is terminated,
the market price of our common stock may be materially and adversely
affected.
In addition, if the acquisition is not completed for any reason, there are risks that (i) the announcement of the acquisition and (ii)
the dedication
of management’s
attention and other
of our resources
to the completion
thereof, could have
a negative impact
on our
relationships with our stakeholders
and could have a material
adverse effect on
our current and future operations,
financial condition
and prospects.
We may not realize some or all of the anticipated benefits from the Adumo acquisition.
Even if we complete the
Adumo acquisition, we may experience
unforeseen events, changes or
circumstances that may adversely
affect us. For example, we may incur unexpected costs, charges or
expenses resulting from the transaction, including charges to future
earnings if Adumo’s business
does not perform as expected. Our expectations regarding
Adumo’s business and prospects may not
be
realized,
including
as a
result
of
changes
in
the
financial
condition
of the
markets
that Adumo
serves.
In
addition,
there
are
risks
associated with
Adumo’s
product and
service offerings
or results
of operations,
including the
risk of
failing to
comply with
certain
regulatory rules required to operate its business.
Further, there are
numerous challenges, risks
and costs
involved with integrating
the operations
of Adumo
with ours.
For example,
integrating Adumo into
our company will require
significant attention from our
senior management which
may divert their attention
from
our
day-to-day
business.
The
difficulties
of
integration
may
also
be
increased
by
cultural
differences
between
our
two
organizations and the necessity of retaining and integrating personnel,
including Adumo’s key employees.
Our Sarbanes-Oxley
Act of
2002 (“Sarbanes”)
management certification
and auditor
attestation regarding
the effectiveness
of
our internal
control over
financial reporting
as of
June 30,
2024, excludes
the operations
of Adumo,
as we
only expect
to close
the
transaction in fiscal 2025.
The requirement to evaluate
and report on our
internal controls also applies
to companies that we
acquire.
As a group of
South African private companies,
Adumo is not required
to comply with Sarbanes
prior to the time
we acquire it.
The
integration of
Adumo into
our internal
control over
financial reporting would
be expected
to require
significant time
and resources
from our
management and
other personnel
and is expected
to increase
our compliance
costs. If
we fail
to successfully
integrate the
operations of Adumo into our
internal control over financial reporting for
fiscal 2025, our internal
control over financial reporting may
not be effective.
If some or all
of the aforementioned or
other risks materialize, our
ability to realize the
anticipated benefits of Adumo
could be
materially impaired, and as a result, our financial condition, results of operations,
cash flows and stock price could suffer.
We may undertake acquisitions
that could
increase our
costs or
liabilities or
be disruptive
to our
business.
Acquisitions are
an integral part
of our new
growth strategy
as we seek
to expand our
business and deploy
our technologies
in
new markets
in Southern
Africa. However,
we may
not be
able to
locate suitable
acquisition
candidates at
prices that
we consider
appropriate.
If
we
do
identify an
appropriate
acquisition
candidate,
we
may
not be
able to
successfully
negotiate
the
terms
of
the
transaction, finance it
or, if the
transaction occurs, integrate the
new business into
our existing business.
These transactions may
require
debt financing or additional equity financing, resulting in additional leverage
or dilution of ownership.
Acquisitions of businesses
or other material
operations and the
integration of these
acquisitions or their
businesses will require
significant attention
from members
of our senior
management team,
which may
divert their
attention from
our day-to-day
business.
The difficulties
of integration
may be
increased by
the necessity
of integrating
personnel with
disparate business
backgrounds
and
combining
different
corporate cultures.
We
also may
not be
able to
retain key
employees or
customers
of an
acquired business
or
realize
cost
efficiencies
or
synergies
or
other
benefits
that
we
anticipated
when
selecting
our
acquisition
candidates.
Acquisition
candidates may have liabilities or adverse operating issues that we fail to
discover through due diligence prior to the acquisition.
We
may
need
to record
write-downs
from future
impairments of
goodwill or
other intangible
assets, which
could reduce
our
future reported earnings.
Geopolitical conflicts,
including the
conflict between
Russia and
Ukraine and
between Israel
and Hamas,
may adversely affect our business and results of operations.
The current
conflict between
Russia and
Ukraine and
between Israel
and Hamas
are creating
substantial uncertainty
about the
future of the
global economy.
Countries across the
globe are instituting
sanctions and other
penalties against
Russia. The retaliatory
measures that have been taken, and could be taken
in the future, by the U.S., NATO,
and other countries have created global security
concerns that could result in broader European military and political conflicts and otherwise have a substantial impact on regional and
global economies, any or all of which could adversely affect our business.
While the broader consequences are uncertain at this time, the continuation
and/or escalation of the Russian and Ukraine and Israel-
Hamas conflicts, along with any expansion of the conflict to surrounding areas,
create a number of risks that could adversely impact
our business, including:
•
increased inflation and significant volatility in the macroeconomic
environment;
•
disruptions to our technology infrastructure, including through cyberattacks,
ransom attacks or cyber-intrusion;
•
adverse changes in international trade policies and relations;
•
disruptions in global supply chains; and
•
constraints, volatility or disruption in the credit and capital markets.
All of these risks could materially
and adversely affect our business
and results of operations. We
are continuing to monitor the
situation in Ukraine and the Middle East and globally and assessing the potential
impact on our business.
A prolonged economic
slowdown or lengthy
or severe recession
in South Africa
or elsewhere could
harm
our operations.
A prolonged economic
downturn or recession
in South Africa
could materially
impact our results
from operations, particularly
in light of
on-going electricity disruptions
during calendar 2022
and 2023, a
significantly weak USD/
ZAR exchange rate
compared
with previous periods, and our strategic decision to focus on our South African operations. Economic confidence in South Africa, our
main operating
environment, is
currently low
and, as
a result, the
risk of
a prolonged
economic downturn
is increased, which
could
have a negative impact on merchants and retailers; mobile phone operators; our account holders; the
level of transactions we process;
the take-up of
the financial services
we offer and
the ability of our
customers to repay
our loans or to
pay their insurance
premiums.
If
financial
institutions
and
retailers experience
decreased
demand
for
their products
and services,
our
hardware,
software,
related
technology sales and processing revenue could decrease.
Our investment in MobiKwik
subjects us to certain
risks, including the possibility
of fluctuations in the
carrying value based on readily determinable fair values. In addition, our ability to dispose of our interest in
MobiKwik on acceptable terms, or at all, may be limited under certain circumstances.
We
have elected to
account for our
investment in MobiKwik
at cost minus impairment,
if any,
plus or minus changes
resulting
from observable
price changes
in orderly
transactions for
the identical
or similar
instrument of
the same
issuer because
it does
not
have a readily determinable fair value. The determination of the fair value of an investment requires us to make significant judgments
and estimates and we are required to
base our estimates on assumptions which
we believe to be reasonable, but
these assumptions may
be unpredictable and inherently uncertain. The value of our investment in MobiKwik as of
June 30, 2024 and 2023, was $76.3 million
and was determined
based on a
share issuance concluded
by MobiKwik in
June 2021, implying
a fair
value per equity
share of $12.275.
We did not identify any observable price changes during either of fiscal 2024, 2023 and 2022 and therefore did not adjust the value of
our investment during the years ended June 30, 2024, 2023
and 2022, respectively.
MobiKwik originally intended to complete its initial public offering
in November 2021. However, MobiKwik
delayed its initial
public
offering
given
prevailing
market
conditions
at
the
time
and
has
indicated
its
intention
to
pursue
an
initial
public
listing
in
calendar 2024. MobiKwik filed its draft red herring prospectus in January 2024.
We
may
need to
record a
write-down of
the carrying
value of
our investment
in MobiKwik
in the
future (i)
if it
is unable
to
successfully complete its contemplated initial public offering, (ii) due to fluctuations in its market price upon listing, including during
the lock up
period after its
initial public
offering, or
(iii) if it
has not listed,
there is an
observable transaction
indicating a
fair value
per share
which is
lower than
our
June 30,
2024 price
per share.
Furthermore,
it may
be difficult
to dispose
of some
or all
of our
investment on acceptable terms, if at all, if MobiKwik fails to list.
Our
ability
to
fund
our
ATM
network
requires
that
we
continue
to
have
access
to
sufficient
lending
facilities, which requires compliance with restrictive and financial covenants.
The operational
maintenance
of our
ATM
network,
along with
an increase
in our
consumer
banking
client base,
necessitates
access to large
amounts of cash
to stock the
ATMs
and maintain uninterrupted
service levels. We
have credit facilities
from a South
African
bank
which
includes
security
arrangements
as
well
as
restrictive
and
financial
covenants.
The
security
arrangements
and
covenants included in our lending facilities may reduce our operating flexibility or our ability to engage in other transactions that may
be beneficial to us. If we are unable to comply
with the covenants in South Africa, we could be in default
and the indebtedness could
be accelerated. If this were to occur, we might not be able to obtain waivers of default or to refinance the debt with another lender and
as a result, our business and financial condition would suffer.
We may not be able to extend the terms
of these debt facilities or
refinance them, in each case, on
commercially reasonable terms
or at all. Our
ability to continue the
uninterrupted operation of
our ATM
network will be adversely
impacted by our failure
to renew
our debt facilities, any adverse change to the terms
of our credit facilities, or a
significant reduction in the amounts available under our
credit facilities,
or our
failure to
increase our
facilities if
required. We
may also
suffer reputational
damage if
our service
levels are
negatively impacted due to the unavailability of cash.
Our
consumer
microlending
loan
book
and
merchant
lending
book
expose
us
to
credit
risk
and
our
allowance for doubtful finance loans receivable may not be sufficient to absorb future write-offs.
All of our microfinance loans made are for a period of six months or less and all of our merchant lending through Connect is for
a period
of less
than 12
months. We
have created
an allowance
for doubtful
finance loans
receivable related
to these
books. When
creating the allowance,
management considered
factors including the
period of the
finance loan outstanding,
creditworthiness of
the
customers and the past payment history of the borrower. We consider this policy to be appropriate as it takes into account factors such
as historical bad debts, current
economic trends and changes in our
customer payment patterns. However,
additional allowances may
be required should the ability
of our customers to
make payments when due
deteriorate in the future.
A significant amount of judgment
is required to assess the ultimate recoverability of these microfinance
loan receivables.
We may face competition from other
companies that offer innovative
payment technologies and payment
processing,
which
could
result
in
the
loss
of
our
existing
business
and
adversely
impact
our
ability
to
successfully market additional products and services.
Our primary competitors in
the payment processing
market include other independent
processors, as well
as financial institutions,
independent
sales
organizations,
new
digital
and
fintech
entrants
and,
potentially
card
networks.
Many
of
our
competitors
are
companies who
are larger
than we
are and
have greater
financial and
operational resources
than we
have. These
factors may
allow
them to offer better pricing
terms or incentives to customers, which
could result in a loss of our potential
or current customers and/or
force us to lower our prices. Either of these actions could have a significant effect
on our revenues and earnings.
Our
future
success
will
depend
in
part
on
our
ability
to
attract,
integrate,
retain
and
incentivize
key
personnel
and
a
sufficient
number
of
skilled
employees,
particularly
in
the
technical,
sales
and
senior
management areas.
We believe our management team has the right experience
and skills to execute on our strategy. However,
in order to succeed in
our product
development and
marketing efforts,
we may
need to identify
and attract new
qualified technical
and sales personne
l, as
well as motivate and retain our
existing employees. As a result, an
inability to hire and retain such
employees would adversely affect
our ability to
achieve our strategic
goals and maintain
our technological relevance.
We may face difficulty in
assimilating, transitioning
and integrating
newly-hired
personnel or
management of
any future
acquisitions into
our existing
management team,
and this
may
adversely affect
our business. Competitors
may attempt
to recruit
our top
management and
employees. In
order to attract
and retain
personnel in
a competitive
marketplace, we
must provide
competitive pay
packages, including
cash and equity
-based compensation
and
the
volatility
in
our
stock
price
may
from
time
to
time
adversely
affect
our
ability
to
recruit
or retain
employees.
We
do
not
maintain
any
“key
person”
life
insurance
policies.
If
we
fail
to
attract,
integrate,
retain
and
incentivize
key
personnel
and
skilled
employees, our ability to manage and grow our
business could be harmed and our product
development and marketing activities could
be negatively affected.
System failures, including breaches in the security of our system, could harm our business.
We
may experience
system failures
from time
to time,
and any
lengthy interruption
in the availability
of our
back-end system
computers could harm our business and severely affect our customer relationships. Frequent or persistent interruptions in our services
could cause current or potential
customers and users to
believe that our systems are
unreliable, leading them to
avoid our technology
altogether, and could permanently harm our reputation and brands. These interruptions would increase the burden on our staff, which,
in turn, could delay our
introduction of new applications and
services. Finally, because our customers may use our products
for critical
transactions,
any
system
failures
could
result
in
damage
to
our
customers’
businesses.
These
customers
could
seek
significant
compensation from us for their losses. Even if unsuccessful, this type of
claim could be time-consuming and costly for us to address.
Although certain of our systems
have been designed to reduce
downtime in the event of
outages or catastrophic occurrences, they
remain vulnerable to damage or interruption from earthquakes, floods, fires, power loss, telecommunication
failures, terrorist attacks,
computer viruses, computer denial-of-service attacks and similar events. Some of
our systems are not fully
redundant, and our disaster
recovery planning may not be sufficient for all eventualities.
Protection against fraud is of key
importance to the purchasers and end
users of our solutions. We
incorporate security features,
including encryption
software, biometric
identification and
secure hardware,
into our solutions
to protect
against fraud in
electronic
transactions and
to provide for
the privacy and
integrity of cardholder
data. Our solutions
may be vulnerable
to breaches in
security
due
to
defects
in
the
security
mechanisms,
the
operating
system,
applications
or
the
hardware
platform
as
well
as
through
risk
introduced
into
our
environment
through
third
party
supplies,
which
the
group
relies
heavily
on.
Security
vulnerabilities
could
jeopardize the security of
information transmitted using our solutions.
If the security of our
solutions is compromised, our
reputation
and marketplace acceptance of
our solutions may be
adversely affected, which would cause
our business to
suffer, and we may become
subject to damage claims. We
have not yet experienced any significant security breaches affecting
our business.
Despite any precautions we may take, the occurrence of a natural disaster or other unanticipated problems with our
system could
result in lengthy interruptions
to our services. Our current
business interruption insurance may
not be sufficient to
compensate us for
losses that may result from interruptions in our service as a result of system failures.
Cash
Paymaster
Services,
or
CPS,
has
been
placed
into
liquidation.
While
no
claim
has
been
made
against Lesaka for CPS’ obligations, we cannot provide assurance that no such claim will be made.
CPS has significant obligations and ongoing litigation related to its SASSA contract and has been placed into liquidation. While
no claim has been made against Lesaka to be held liable for CPS’ current
obligations or any future obligations under any future court
judgments, and while we do not believe that there would be a legitimate legal basis for any such claims, we cannot assure you that no
such claim
will be
made against
us. If
SASSA or
another
third party
were to
seek and
ultimately succeed
in obtaining
a judgment
against us in respect of CPS’ liabilities, any such judgment would have a material
adverse effect on our financial condition, results of
operations and cash flows.
Defending
our
intellectual
property
rights
or
defending
ourselves
in
infringement
suits
that
may
be
brought against us is expensive and time-consuming and may not be successful.
Litigation to
enforce our
patents, trademarks
or other
intellectual property
rights or
to protect
our trade
secrets could
result in
substantial costs and may not be successful. Any loss of, or inability to protect, intellectual property in our technology could diminish
our competitive advantage and also seriously harm our business. In addition, the laws of certain foreign countries may not protect our
intellectual property
rights to
the same
extent as
do the
laws in
countries where
we currently
have patent
protection. Our
means of
protecting our intellectual property rights in countries where we currently have patent or trademark protection, or any other country in
which we operate, may not be
adequate to fully protect our intellectual
property rights. Similarly, if third parties claim that we infringe
their intellectual property rights, we may be required to incur significant costs and
devote substantial resources to the defense of such
claims,
to
discontinue
using
and
selling
any
infringing
technology
and
services,
to
expend
resources
to
develop
non-infringing
technology or
to purchase
licenses or
pay royalties
for other
technology.
In addition,
if we
are unsuccessful
in defending
any such
third-party
claims, we
could
suffer
costly judgments
and
injunctions
that could
materially
adversely
affect
our business,
results of
operations or financial condition.
We
may incur
material losses
in connection
with our
movement of
cash through
our infrastructure
in
South Africa.
In our merchant
business we collect
and process large
volumes of cash
from our customers,
assuming the
risk of loss
from the
moment that cash is
deposited into our vaults.
We are then responsible for its
collection and transportation to
processing centers, which
we outsource to various cash in transit service providers. These services extend
across all areas of South Africa.
South Africa
suffers from
high levels of
crime and in
particular cash in
transit heists. We
cannot insure
against certain risks
of
loss or
theft of
cash from
our delivery
and collection
vehicles and
we will
therefore bear
the full
cost of
certain uninsured
losses or
theft in connection with the cash handling process, and such losses could materially and adversely affect our financial condition, cash
flows and results of operations. We
have not incurred any material losses
resulting from cash distribution in
recent years, but there is
no assurance that we will not incur any such material losses in the future.
We depend upon third-party suppliers, making us vulnerable to supply shortages and price fluctuations,
which could harm our business.
We obtain
our smart cards, ATMs,
POS devices, components for our
safe assets, and the other hardware
we use in our business
from a limited number of
suppliers, and do not
manufacture this equipment ourselves. We generally do not have long-term
agreements
with our manufacturers
or component suppliers.
If our suppliers become
unwilling or unable to
provide us with adequate
supplies of
parts or products when we need
them, or if they increase their
prices, we may not be
able to find alternative sources in
a timely manner
and could be faced
with a critical shortage.
This could harm our
ability to meet customer
demand and cause our
revenues to decline.
Even
if we
are able
to secure
alternative
sources in
a timely
manner,
our costs
could increase
as a
result of
supply or
geopolitical
shocks, which may lead to an increase in the prices of goods and
services from third parties. A supply interruption, such as the recent
global shortage of semiconductors, or an increase in
demand beyond current suppliers’ capabilities could harm our ability
to distribute
our equipment and thus
to acquire new customers
who use our technology.
Any interruption in the supply
of the hardware necessary
to operate
our technology,
or our
inability to
obtain substitute
equipment at
acceptable prices
in a
timely manner,
could impair
our
ability to meet the demand of our customers, which would have an adverse
effect on our business.
Our EasyPay Insurance business exposes us to risks typically experienced by life assurance companies.
EasyPay Insurance is a life insurance company and exposes us to risks typically experienced by life assurance companies. Some
of these risks include the extent
to which we are able to continue
to reinsure our risks at acceptable costs,
reinsurer counterparty risk,
maintaining regulatory capital adequacy, solvency and
liquidity requirements, our ability
to price our
insurance products appropriately,
the risk
that actual
claims experience
may exceed
our estimates, the
ability to
recover policy
premiums from
our customers
and the
competitiveness of the South African insurance market. If we are unable to maintain our desired level of reinsurance
at prices that we
consider acceptable, we would have to either
accept an increase in our risk exposure
or reduce our insurance writings. If our reinsurers
are unable
to meet
their commitments
to us
in a
timely manner,
or at
all, we may
be unable
to discharge
our obligations
under our
insurance contracts. As such, we are exposed to counterparty risk, including
credit risk, of these reinsurers.
Our
product
pricing
includes
long-term
assumptions
regarding
investment
returns,
mortality,
morbidity,
persistency
and
operating
costs
and
expenses
of
the
business.
Using
the
wrong
assumptions
to
price
our
insurance
products
could
materially
and
adversely affect our financial
position, results of
operations and cash flows.
If our actual
claims experience is
higher than our
estimates,
our financial position, results of
operations and cash flows could be
adversely affected. Finally,
the South African insurance industry
is
highly
competitive.
Many
of
our
competitors
are
well-established,
represented
nationally
and
market
similar
products
and
we
therefore may not be able to effectively penetrate the South
African insurance market.
Risks Relating to Operating in South Africa and Other Foreign Markets
Operating in Southern Africa,
an emerging market, subjects
us to greater risks
than those we would
face
if we operated in more developed markets.
Emerging markets such as
Southern Africa are subject
to greater risks
than more developed markets.
While we focus
our business
primarily
on
emerging
markets
because
that
is
where
we
perceive
the
greatest
opportunities
to
market
our
products
and
services
successfully, the
political, economic and market conditions
in these markets present risks that
could make it more difficult
to operate
our business successfully.
Some of these risks include:
•
political, legal and economic instability,
including higher rates of inflation and currency fluctuations;
•
high levels of corruption, including bribery of public officials;
•
loss due to civil strife, acts of war or terrorism, guerrilla activities and insurrection;
•
a
lack
of
well-developed
legal
systems
which
could
make
it
difficult
for
us
to
enforce
our
intellectual
property
and
contractual rights;
•
logistical, utilities (including electricity and water supply) and communications
challenges;
•
potential
adverse
changes
in
laws
and
regulatory
practices,
including
import
and
export
license
requirements
and
restrictions, tariffs, legal structures and tax laws;
•
difficulties in staffing and managing operations
and ensuring the safety of our employees;
•
restrictions on the right to convert or repatriate currency or export assets;
•
greater risk of uncollectible accounts and longer collection cycles;
•
indigenization and empowerment programs;
•
exposure to liability under the UK Bribery Act; and
•
exposure to
liability under
U.S. securities
and foreign
trade laws,
including the
Foreign Corrupt
Practices Act,
or FCPA,
and regulations established by the U.S. Department of Treasury’s
Office of Foreign Assets Control, or OFAC.
If
we
do
not
achieve
applicable
Broad-Based
Black
Economic
Empowerment
objectives in
our
South
African businesses, we
may be subject
to fines and
we risk losing
our government and/or
private contracts.
In addition,
it is
possible that
we may
be required
to increase
the Black
shareholding of
our company
in a
manner that
could dilute
your ownership
and/or change
the companies
from which
we purchase
goods or
procure services (to companies with a better BEE Status Level).
The legislative framework for the promotion of Broad-Based Black Economic Empowerment (“BEE”), in South Africa
has been
established through
the Broad-Based
Black Economic
Empowerment
Act, No.
53 of
2003, as
amended from
time to
time, and
the
Amended
BEE
Codes
of
Good
Practice,
2013,
or
BEE
Codes,
and
any
sector-specific
codes
of
good
practice,
or
Sector
Codes,
published pursuant
thereto. Sector
Codes are
fully binding
between and
among businesses
operating in
a sector
for which
a Sector
Code has been
published. Achievement
of BEE objectives
is measured by
a scorecard which
establishes a weighting
for the various
elements. Scorecards
are independently
reviewed by
accredited BEE
verification agencies
which issue
a verification
certificate that
presents an
entity’s
BEE Status
Level. This
BEE verification
process must
be conducted
on an
annual basis,
and the
resultant BEE
verification certificate is only
valid for a period
of 12 months from the
date of issue of the verification
certificate.
We currently
have
a level 4 BEE rating for our South African business.
Certain of our South African
businesses are subject to either
the Amended Information and
Communication Technology
Sector
Code, or ICT Sector Code, or the
Amended Financial Services Sector Code,
or the FS Sector Code. The ICT
Sector Code and the FS
Sector Code have been amended and aligned with the new
BEE Codes and were promulgated in November 2016 and December
2017,
respectively.
Licensing
and/
or
regulation
authorities
overseeing
these
South
African
businesses
may
set
minimum
adherence
requirements to BEE standards as a condition for an operating license to
trade.
The BEE scorecard includes
a component relating to management
control, which serves to determine
the participation of Black
people
within
the
board,
as
well
as
at
various
levels
of
management
within
a
measured
entity
(including,
inter
alia
,
Executive
Management, Senior
Management, Middle
Management and
Junior Management).
The BEE
Codes and/or
Sector Codes
define the
terms
"
Senior
Management
",
"
Middle
Management
"
and
"
Junior
Management
"
as
those
occupational
categories
as
determined
in
accordance
with
the
Employment
Equity
Regulations,
with
specific
emphasis
on
improving
participation
in
proportion
to
the
demographics
of the
Economically Active
Population
of South
Africa,
as published
by Statistics
South
Africa,
from time
to time.
Employment Equity legislation
seeks to drive the
alignment of the workforce
with the racial composition
of the economically active
population
of
South
Africa
and
accelerate
the
achievement
of
employment
equity
targets,
introducing
monetary
fines
for
non-
compliance
with
the Employment
Equity
legislation
and misrepresented
submissions.
Annexure
EEA9
to the
Employment
Equity
Regulations sets out the various occupational levels which are determined in accordance with the relevant grading systems applied by
the measured entity and referred to in said Annexure.
We
have taken a
number of actions
as a company
to increase empowerment
of Black (as
defined under applicable
regulations)
South Africans.
For instance,
the South
African competition
authorities approved
the Connect
transaction subject
to certain
public
interest conditions
relating to
employment, increasing
the spread
of ownership
by historically
disadvantaged people
(“HDPs”), and
investing
in both
enterprise and
supplier development.
Further to
increasing the
spread of
ownership
by HDPs,
we are
required
to
establish
an
Employee
Share
Ownership
Plan
scheme
(“ESOP”)
within
months
of
the
implementation
of
the
transaction
that
complies with certain design principles. This will benefit the workers of the merged entity and result in them receiving a shareholding
in our
company equal
in value
to at
least 3%
of the
issued shares
in our
company as
of April
14, 2022.
If within
24 months
of the
implementation date of the transaction, we generate a positive net profit for three consecutive quarters, the ESOP shall increase to 5%
of the issued
shares in our company
as of April 14,
2022. The final structure
of the ESOP is
contingent on shareholder
approval and
relevant regulatory and governance approvals. The ESOP had not been
established as of the date of this Annual Report.
During fiscal 2024, we made cash contributions to 31 community-based organizations and enterprises to enable them to
promote
growth
and
strengthen
their
capacity
to
develop
innovative
platforms
or
provide
services
to
the
markets
they
serve.
We
provided
funding
to build
necessary
infrastructure
to a
high
school
based
in
a rural
community
and
also
contributed
800 mobile
devices
to
disadvantages South
African scholars.
We
have also
established a
fund to
aid vulnerable
communities affected
by fires
and floods.
Our donations to
this fund included
food, blankets, and
replacements for personal
belongings and household
goods, helping community
members recover and regain economic stability. However,
it is possible that these and other actions may not be sufficient to enable us
to achieve the
applicable BEE objectives
set out for
specific financial years.
In that event, in
order to maintain
competitiveness with
both government and private sector clients, we may have to seek to increase
compliance through other means, including by selling or
placing additional
shares of Lesaka
or of our
South African subsidiaries
to Black
South Africans
(either directly
or indirectly),
over
and above what
has already been
approved. Such sales
or placements of
shares could have
a dilutive impact
on your ownership
interest,
which could cause the market price of our stock to decline.
We
expect that our
BEE Status Level
will be important
in order for
us to remain
competitive in the
South African marketplace
and we continually
seek ways to
improve our BEE
Status Level, especially
the ownership element
(so-called “equity element”)
thereof.
We
may not be
able to effectively
and efficiently
manage the disruption
to our operations
as a result
of
erratic electricity supply in
South Africa, which could
adversely affect our, financial position, cash flows
and
future growth.
Our businesses in
South Africa are
dependent on electricity
generated and supplied
by the state-owned
utility,
Eskom, in order
to operate, and Eskom has been unable to generate and
supply the amount of electricity required by the South African economy which
has resulted in significant and
often unpredictable electricity supply disruptions. Eskom has
implemented a number of short- and
long-
term mitigation
plans to correct
these issues but
supply disruptions
continued
to occur
regularly and
with no predictability
in recent
years,
although
consistency
of
electricity
supply
has
improved
significantly
since
April
2024.
As
part
of
our
business
continuity
programs, we have
installed back-up diesel
generators in order
for us to continue
to operate our core
data processing facilities in
the
event of intermittent disruptions to our electricity supply. We have to perform regular monitoring and maintenance of these generators
and also source
and manage
diesel fuel levels.
We
may also
be required
to replace these
generators on
a more frequent
basis due
to
the additional burden placed on them.
Our results of operations, financial position, cash flows
and future growth could be adversely affected if Eskom is
unable to raise
sufficient funding to operate
and/or commission new electricity-generating
power stations in accordance with its
plans, or at all, or if
we are unable to effectively and efficiently test, maintain,
source fuel for, and replace, our generators.
Fluctuations in
the value
of the
South African
rand have
had, and
will continue
to have,
a significant
impact
on
our
reported
results
of
operations,
which
may
make
it
difficult
to
evaluate
our
business
performance between reporting periods and may also adversely affect our stock price.
The South
African rand,
or ZAR,
is the
primary operating
currency for
our business
operations while
our financial
results are
reported in U.S. dollars. Therefore, any depreciation in
the ZAR against the U.S. dollar, would negatively impact
our reported revenue
and net
income. The
U.S. dollar/ZAR
exchange rate
has historically
been volatile
and we
expect this
volatility to
continue (refer
to
Item
7 - “Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations-Currency
Exchange
Rate
Information.”).
Due
to
the
significant
fluctuation
in
the
value
of
the
ZAR
and
its
impact
on
our
reported
results,
you
may
find
it
difficult to
compare our results
of operations between
financial reporting periods
even though we
provide supplemental information
about our
results of
operations determined
on a
ZAR basis.
Similarly,
depreciation in
the ZAR
may negatively
impact the
prices at
which our stock trades.
We generally do not engage in any currency hedging
transactions intended to reduce the
effect of fluctuations in foreign currency
exchange rates on our results of
operations, other than economic hedging
using forward contracts relating to
our inventory purchases
which are settled in U.S.
dollars or euros. We
cannot guarantee that we will
enter into hedging transactions
in the future or,
if we do,
that these transactions will successfully protect us against currency fluctuations.
South Africa’s
high levels of
poverty, unemployment
and crime may
increase our costs
and impair our
ability to maintain a qualified workforce
While South Africa has a highly developed financial and legal infrastructure, it also has high levels of crime and unemployment,
relative to peer
countries in Africa
and other emerging
economies, and there
are significant differences
in the level
of economic and
social development among its people,
with large parts of the population,
particularly in rural areas, having limited
access to adequate
education, healthcare, housing and other
basic services, including water
and electricity. In addition, South Africa has
a high prevalence
of HIV/AIDS and tuberculosis. Government policies aimed at alleviating and redressing the disadvantages suffered by the majority of
citizens
under
previous
governments
may
increase
our
costs and
reduce
our
profitability,
all of
which
could
negatively
affect
our
business.
These
problems
may
prompt
emigration
of
skilled
workers,
hinder
investment
into
South
Africa
and
impede
economic
growth. As a result, we may have difficulties attracting and retaining
qualified employees.
The
economy
of
South
Africa
is
exposed
to
high
rates
of
inflation,
interest
and
corporate
tax,
which
could
increase
our
operating
costs
and
thereby
reduce
our
profitability.
Furthermore,
the
South
African
government requires additional
income to fund
future government
expenditures and may
be required,
among
other things, to
increase existing income
tax rates, including
the corporate income tax
rate, amend existing
tax legislation or introduce additional taxes.
The economy of
South Africa in the
past has been, and
in the future may
continue to be, characterized
by rates of inflation
and
interest that
are substantially
higher than
those prevailing
in the United
States and
other highly-developed
economies. High
rates of
inflation could increase our South African-based costs and decrease our operating margins. High interest rates increase the cost of our
debt financing, though conversely, they also
increase the amount
of income we
earn on any
cash balances. The
South African corporate
income tax rate, of 27%, is higher than the
U.S. federal income tax rate, of 21%. Any increase
in the effective South African corporate
income tax rate would adversely impact our profitability and cash flow generation.
Risks Relating to Government Regulation
We
are required to
comply with
certain laws
and regulations, including
economic and trade
sanctions,
which could adversely impact our future growth.
We
are
subject
to U.S.
and
other
trade
controls,
economic sanctions
and
similar
laws and
regulations,
including
those in
the
jurisdictions
where
we
operate.
Our
failure
to
comply
with
these
laws
and
regulations
could
subject
us
to
civil,
criminal
and
administrative
penalties
and
harm
our
reputation.
These
laws and
regulations
place
restrictions
on
our
operations,
trade
practices,
partners
and
investment
decisions.
In particular,
our operations
are subject
to U.S.
and
foreign
trade
control laws
and
regulations,
including various export controls and economic sanctions programs, such as those administered by OFAC. We monitor compliance in
accordance with
the 10
principles as
set out
in the
United Nations
Global Compact
Principles, the
Organisation
for Economic
Co-
operation and
Development recommendations
relating to
corruption, and
the International
Labor Organization
Protocol in
terms of
certain of the items to be
monitored. As a result of doing business
in foreign countries and with foreign
partners, we are exposed to a
heightened risk of violating trade control laws as well as sanctions regulations.
Violations
of
trade
control
laws and
sanctions
regulations
are
punishable
by civil
penalties,
including
fines,
denial
of export
privileges,
injunctions,
asset seizures,
debarment
from
government
contracts
and revocations
or restrictions
of licenses,
as
well
as
criminal fines and imprisonment.
We have
developed policies and procedures as
part of a company-wide compliance
program that is
designed to
assist our compliance
with applicable
U.S. and international
trade control laws
and regulations,
including trade controls
and sanctions programs administered
by OFAC,
and provide regular training
to our employees to create awareness
about the risks of
violations of trade
control laws and
sanctions regulations and
to ensure compliance
with these laws
and regulations.
However, there
can be no assurance that all of our employees, consultants,
partners, agents or other associated persons will not act in violation
of our
policies and these laws and regulations, or that our policies and
procedures will effectively prevent us from violating these regulations
in every transaction
in which we
may engage, or
provide a defense
to any alleged
violation. In particular,
we may be
held liable for
the actions that our
local, strategic or joint venture
partners take inside or outside
of the United States, even
though our partners may
not be
subject to
these laws.
Such a
violation, even
if our
policies prohibit
it, could
materially and
adversely affect
our reputation,
business,
results
of
operations
and
financial
condition.
Any
expansion
into
developing
countries,
and
our
development
of
new
partnerships and joint venture relationships, could increase the risk
of OFAC violations in the
future.
In addition,
our payment
processing and
financial services
activities are
subject to
extensive regulation.
Compliance with
the
requirements under the various
regulatory regimes may cause
us to incur significant
additional costs and failure
to comply with such
requirements could result in the shutdown of
the non-complying facility, the imposition of liens, fines and/or civil or
criminal liability.
We
are
required
to
comply
with
anti-corruption
laws
and
regulations,
including
the
FCPA
and
UK
Bribery Act, in the
jurisdictions in which we
operate our business, which could
adversely impact our future
growth.
The FCPA prohibits
us from providing anything of value to foreign
officials for the purposes of obtaining or retaining business,
or
securing
any
improper
business
advantage,
and
requires
us
to
keep
books
and
records
that
accurately
and
fairly
reflect
our
transactions.
As part
of
our
business,
we
may
deal
with
state-owned
business
enterprises,
the
employees
of
which
are
considered
foreign
officials
for
purposes of
the FCPA.
The UK
Bribery
Act includes
provisions
that extend
beyond bribery
of foreign
public
officials and also apply to
transactions with individuals not employed
by a government and
the act is also
more onerous than the FCPA
in a number of other respects, including
jurisdiction, non-exemption of facilitation
payments and penalties. Some of the international
locations in which we operate or have investments lack a developed
legal system and have higher than normal levels of corruption.
Any
failure
by
us
to
adopt
appropriate
compliance
procedures
and
ensure
that
our
employees,
agents
and
business
partners
comply with
the anti-corruption
laws and
regulations could
subject us
to substantial
penalties, and
the requirement
that we
comply
with these laws could
put us at a
competitive disadvantage against
companies that are not
required to comply.
For example, in many
emerging
markets,
there
may be
significant
levels
of official
corruption,
and
thus, bribery
of public
officials
may
be
a comm
only
accepted cost
of doing
business. Our
refusal to
engage in
illegal behavior,
such as
paying bribes,
may result
in us not
being able
to
obtain business that we
might otherwise have been able
to secure or possibly
even result in unlawful,
selective or arbitrary action being
taken against us.
Violations of anti-corruption laws and regulations are punishable by civil penalties, including fines, as well as criminal fines and
imprisonment. We
have developed policies
and procedures as part
of a company-wide
compliance program that
is designed to assist
our compliance with applicable U.S.,
South African and other international
anti-corruption laws and regulations,
and provide regular
training to our
employees to comply
with these laws
and regulations. However,
there can be
no assurance that
all of our
employees,
consultants, partners, agents or other associated persons will not take actions in violation of our policies or
these laws and regulations,
or that our
policies and procedures
will effectively prevent
us from violating
these regulations in every
transaction in which
we may
engage, or
provide a defense
to any alleged
violation. In
particular,
we may be
held liable for
the actions
that our
local, strategic
or
joint venture
partners take inside
or outside
of the United
States, even though
our partners may
not be subject
to these
laws. Such a
violation,
even
if
our
policies
prohibit
it,
could
materially
and
adversely
affect
our
reputation,
business,
results
of
operations
and
financial condition.
We
do not
have a South
African banking license
and, therefore, we
provide our EPE
solution through
an arrangement with
a third-party bank,
which limits our
control over this
business and the
economic benefit
we derive from it.
If this arrangement were
to terminate, we would
not be able to operate
our EPE business
without alternate means of access to a banking license.
The
South
African
retail
banking
market
is
highly
regulated.
Under
current
law
and
regulations,
our
EasyPay
Everywhere
(“EPE”) business activities require
us to be registered as
a bank in South Africa
or to have access to an
existing banking license.
We
are not currently so registered,
but we have an agreement
with Grindrod Bank, a subsidiary
of African Bank Limited, that
enables us
to implement
our EPE
program in
compliance
with the
relevant laws
and regulations.
If this
agreement
were to
be terminated,
we
would
not
be
able
to
operate
these
services
unless
we
were
able
to
obtain
access
to
a
banking
license
through
alternate
means.
Furthermore, we have
to comply with the
South African Financial
Intelligence Centre Act,
2001 and money
laundering and terrorist
financing
control
regulations,
when
we
open
new
bank
accounts
for
our
customers
and
when
they
transact.
Failure
to
effectively
implement and
monitor responses
to the
legislation and
regulations may
result in
significant fines
or prosecution
of Grindrod
Bank
and ourselves.
In
addition,
the
South
African
Financial
Advisory
and
Intermediary
Services
Act,
2002,
requires
persons
who
act
as
intermediaries between financial product
suppliers and consumers in
South Africa to register
as financial service providers.
EasyPay
Insurance was
granted a Financial
Service Provider,
or FSP,
license on June
9, 2015, and
EasyPay Financial
Services (Pty) Ltd
was
granted
a FSP
license on
July 11,
2017. If
our FSP
licenses are
withdrawn or
suspended, we
may be
stopped from
continuing our
financial
services businesses in South Africa unless we are able to enter into a representative arrangement
with a third party FSP.
Furthermore, the
proposed Conduct
of Financial
Institutions Bill
will make
significant changes
to the
current licensing
regime
however, the current proposal is that existing licences will be converted. The second draft of the Conduct of Financial
Institutions Bill
was published for public comment on September 29, 2020.
We
may
be
subject
to
regulations
regarding
privacy,
data
use
and/or
security,
which
could
adversely
affect our business.
We are
subject to regulations in
a number of the countries
in which we operate
relating to the processing
(which includes,
inter
alia
, the collection, use, retention, security and transfer) of
personal information about the people (whether natural or juristic)
who use
our products
and services.
The interpretation
and application
of user
data protection
laws are
in a
state of
flux. These
laws may
be
interpreted
and
applied
inconsistently
from
country
to
country
and
our
current
data
protection
policies
and
practices
may
not
be
consistent with those interpretations and applications. Complying
with these varying requirements could cause us to incur
substantial
costs or
require us
to change
our business
practices in
a manner
adverse to
our business.
Any failure,
or perceived
failure, by
us to
comply with any regulatory requirements or international
privacy or consumer protection-related laws and regulations could
result in
proceedings
or
actions
against
us
by
governmental
entities
or
others,
subject
us
to
significant
penalties
and
negative
publicity.
In
addition, as
noted above,
we are
subject to
the possibility
of security
breaches, which
themselves may
result in
a violation
of these
laws.
Amendments to
the NCA
were signed into
law in
South Africa
in August 2019.
Compliance with
these
amendments may adversely impact our micro-lending operations in South Africa.
In August 2019, the National Credit Amendment Bill, or debt-relief bill, was signed into law in South Africa.
The effective date
of the debt-relief
bill has not
yet been announced
and has been
significantly delayed.
We
believe that the
debt-relief bill will
restrict
the ability of financial services providers to provide lending
products to certain low-income earners and will increase
the cost of credit
to
these
consumers.
As a
result,
compliance
with
the debt
-relief
bill
may
adversely
impact
our
micro-lending
operations
in
South
Africa. Furthermore, we expect that it will take us, and other credit providers, some time to fully understand, interpret and implement
this new legislation
in our lending processes
and practices. Non-compliance
with the provisions of
this new legislation may
result in
financial loss and penalties, reputational loss or other administrative punishment.
Risks Relating to our Common Stock
Our stock price has been and may continue to be volatile.
Our stock price has periodically experienced significant volatility. During the 2024
fiscal year, our stock price ranged from a
low
of $3.00 to a high of $5.33. We
expect that the trading price of our common stock may
continue to be volatile as a result of a number
of factors, including, but not limited to the following:
•
any adverse developments in litigation or regulatory actions in which we are
involved;
•
fluctuations in currency exchange rates, particularly the U.S. dollar/ZAR exchange
rate;
•
announcement
of
additional
BEE
transactions,
especially
one
involving
the
issuance
or
potential
issuance
of
equity
securities or dilution or sale of our existing business in South Africa;
•
quarterly variations in our operating results;
•
significant fair value adjustments or impairment in respect of investments or
intangible assets;
•
announcements of acquisitions or disposals;
•
the timing of, or delays in the commencement, implementation or completion
of major projects;
•
large purchases or sales of our common stock; and
•
general conditions in the markets in which we operate.
Additionally,
shares of
our common
stock can
be expected
to be
subject to
volatility resulting
from purely
market forces
over
which we have no control.
The put
right we granted
to the IFC
Investors on the
occurrence of certain
triggering events may
have
adverse impacts on us.
In May
2016, we
issued an
aggregate of
9,984,311
shares of
our common
stock to
the IFC Investors,
of which,
as of
June 30,
2024,
the
IFC
Investors
held
7,366,866
shares.
We
granted
the
IFC
Investors
certain
rights,
including
the
right
to
require
us
to
repurchase
any
share held
by the
IFC Investors
pursuant
to
the
May
2016 transaction
upon
the occurrence
of specified
triggering
events,
which
we refer
to as
a
“put
right.”
The put
price
per share
will be
the higher
of the
price
per share
paid
to us
by
the IFC
Investors and
the volume-weighted
average price
per share prevailing
for the 60
trading days preceding
the triggering
event, except
that with respect
to a put right
triggered by rejection
of a bona
fide offer,
the put price
per share will
be the highest
price offered
by
the offeror.
If a put triggering event occurs, it could adversely impact
our liquidity and capital resources. In addition,
the existence of
the put right could also affect whether or on what terms a third party might in the future offer to purchase our company.
Our response
to any such offer could also be complicated, delayed or otherwise influenced
by the existence of the put right.
Approximately
35%
of
our
outstanding
common
stock
is
owned by
two shareholders.
The
interests of
these shareholders may conflict with those of our other shareholders.
There is a concentration of ownership
of our outstanding common stock because
approximately 35% of our outstanding common
stock is owned by two
shareholders. Based on their most
recent SEC filings disclosing
ownership of our shares, Value Capital Partners
(Pty) Ltd, or VCP,
and IFC Investors, beneficially own approximately 24% and 11%
of our outstanding common stock as of June 30,
2024,
respectively.
The interests of
VCP and the
IFC Investors may
be different
from or conflict
with the interests
of our other
shareholders. As a
result of
the significant
combined ownership
by VCP
and the
IFC Investors,
they may
be able,
if they
act together,
to significantly
influence the
voting outcome
of all
matters requiring
shareholder approval.
This concentration
of ownership
may have
the effect
of
delaying or preventing
a change of control of
our company,
thus depriving shareholders
of a premium for
their shares, or facilitating
a change of control that other shareholders may oppose.
We may seek to raise
additional financing by
issuing new securities
with terms or
rights superior to
those
of shares of our common stock, which could adversely affect the market price of such shares.
We
may require
additional financing
to fund future
operations, including
expansion in
current and new
markets, programming
development and acquisition,
capital costs and
the costs of any
necessary implementation of
technological innovations or
alternative
technologies, or to fund acquisitions. We may also wish to raise additional equity funding to
reduce the amount of debt funding on our
balance sheet. Because of the exposure to market risks associated
with economies in emerging markets, we may not
be able to obtain
financing on favorable terms or at all.
If we raise additional funds by
issuing equity securities, the percentage ownership of our
current
shareholders will be reduced, and the holders of the new equity securities may have rights superior to those of the holders of shares of
common stock,
which could
adversely affect
the market
price and
voting power
of shares
of common
stock. If
we raise
additional
funds by issuing debt securities, the holders of these debt securities would similarly have some rights senior
to those of the holders of
shares of common stock, and the terms of these debt securities could impose restrictions on operations and
create a significant interest
expense for us.
Issuances
of significant
amounts of
stock in
the future
could potentially
dilute
your equity
ownership
and adversely affect the price of our common stock.
We
believe that
it is necessary
to maintain
a sufficient
number of
available authorized
shares of our
common stock
in order
to
provide
us
with
the flexibility
to
issue shares
for
business
purposes
that
may
arise
from time
to
time.
For example,
we
could
sell
additional shares to raise
capital to fund our
operations, to reduce debt
or to acquire other
businesses, issue shares in
a BEE transaction,
issue additional shares under our stock incentive plan or declare a stock dividend. Our board may authorize
the issuance of additional
shares of common stock without notice to, or further
action by, our shareholders, unless shareholder approval is required by law or the
rules of the NASDAQ Stock
Market. The issuance of
additional shares could dilute the
equity ownership of our current
shareholders
and any such additional shares would likely be freely tradable, which could
adversely affect the trading price of our common
stock.
We
have
identified
material
weaknesses
in
our
internal
control
over financial
reporting
which, if
not
timely
remediated,
may
adversely
affect
the
accuracy
and
reliability
of
our
financial
statements,
and
our
reputation, business and stock price, as well as lead to a loss of investor confidence in us.
As described
under Item
9A - “Controls and
Procedures.”, we
concluded that
our disclosure
controls and
procedures were
not
effective
as of
June 30,
2024 and
that we
had, as
of such
date, material
weaknesses in
our internal
control over
financial reporting
related
to
information
technology
general
controls
and
our
annual
goodwill
impairment
assessment.
A
material
weakness
is
a
deficiency, or a combination
of deficiencies, in internal control over financial reporting such that there
is a reasonable possibility that
a material
misstatement of
our annual
or interim
consolidated financial
statements would
not be
prevented or
detected on
a timely
basis. The material weaknesses
identified in Item 9A - “Controls
and Procedures.”, did
not result in any adjustments
or restatements
of our audited and unaudited consolidated financial statements or disclosures
for any prior period previously reported by us.
We
intend to remediate
these material weaknesses.
While we believe
the steps we
take to remediate
these material weaknesses
will improve
the effectiveness
of our
internal
control over
financial
reporting
and will
remediate the
identified deficiencies,
if our
remediation
efforts
are
insufficient
to
address the
material
weakness
or
we identify
additional
material
weaknesses in
our
internal
control over financial reporting in the future, our ability
to analyze, record and report financial information
accurately, to prepare
our
financial statements within
the time periods
specified by the rules
and forms of the
SEC and to otherwise
comply with our
reporting
obligations
under
the federal
securities
laws may
be
adversely
affected.
The occurrence
of,
or failure
to
remediate,
these material
weaknesses and any future material weaknesses in our internal control over financial reporting may adversely affect
the accuracy and
reliability of our financial
statements and have other
consequences that could
materially and adversely affect
our business, including
an
adverse
impact
on
the
market
price
of
our
common
stock,
potential
actions
or
investigations
by
the
SEC
or
other
regulatory
authorities, shareholder lawsuits, a loss of investor confidence and
damage to our reputation.
Failure to maintain effective internal control over financial
reporting in accordance with Section 404
of
the Sarbanes-Oxley Act, especially
over companies that we may
acquire, could have a material
adverse effect
on our business and stock price.
Under
Section
of
Sarbanes,
we
are
required
to
furnish
a
management
certification
and
auditor
attestation
regarding
the
effectiveness of our
internal control over
financial reporting. We
are required to
report, among other things,
control deficiencies that
constitute
a
“material
weakness”
or
changes
in internal
control
that materially
affect,
or are
reasonably
likely to
materially
affect,
internal control
over financial reporting.
A “material weakness”
is a deficiency,
or a combination
of deficiencies, in
internal control
over financial reporting such that
there is a reasonable
possibility that a material misstatement
of annual or interim
financial statements
will not be prevented or detected on a timely basis.
The
requirement
to
evaluate
and
report
on
our
internal
controls
also
applies
to
companies
that
we
acquire.
Some
of
these
companies,
such as Adumo, may not be required to comply with Sarbanes prior
to the time we acquire them. The integration of these
acquired companies into
our internal
control over financial
reporting could require
significant time
and resources
from our
management
and
other
personnel
and
may
increase
our
compliance
costs.
If
we
fail
to
successfully
integrate
the
operations
of
these
acquired
companies into our internal control over financial reporting, our
internal control over financial reporting may not be effective.
While
we
continue
to
dedicate
resources
and
management
time
to
ensuring
that
we
have
effective
controls
over
financial
reporting, failure to
achieve and maintain
an effective internal
control environment could
have a material
adverse effect on
the market’s
perception of our business and our stock price.
You
may
experience
difficulties
in
effecting
service
of
legal
process,
enforcing
foreign
judgments
or
bringing
original
actions
based
upon
U.S.
laws,
including
federal
securities
laws
or
other
foreign
laws,
against us or certain of our directors and officers and experts.
While Lesaka is incorporated in the state of Florida, United States, the company is headquartered in Johannesburg, South Africa
and substantially all of the company’s
assets are located outside the United
States. In addition, the majority of
Lesaka’s directors and
all
its
officers
reside
outside
of
the
United
States
and
the
majority
of
our
experts,
including
our
independent
registered
public
accountants, are based in South Africa.
As a
result, even
though you
could effect
service of
legal process
upon Lesaka,
as a
Florida corporation,
in the
United States,
you may not be able
to collect any judgment obtained
against Lesaka in the United
States, including any judgment based
on the civil
liability
provisions
of
U.S.
federal
securities
laws,
because
substantially
all
of
our
assets
are
located
outside
the
United
States.
Moreover, it may not be possible for
you to effect service of legal process upon the majority of
our directors and officers or upon our
experts within
the United
States or
elsewhere outside
South Africa
and any
judgment obtained
against any
of our
foreign directors,
officers and experts in
the United States, including
one based on the
civil liability provisions of the
U.S. federal securities laws,
may
not be collectible in the United States and may not be enforced by a South African
court.
South Africa
is not
a party
to any
treaties regarding
the enforcement
of foreign
commercial judgments,
as opposed
to foreign
arbitral awards. Accordingly, a foreign judgment that
is not recognized in
South Africa has
no extra territorial effect, and
is not directly
enforceable in South Africa, but
constitutes a cause of action
which may be recognized and enforced
by South African courts provided
that:
•
the court which
pronounced the judgment
had international jurisdiction
and competence to entertain
the case according to
the principles recognized by South African law with reference to the jurisdiction
of foreign courts;
•
the judgment is final and conclusive (that is, it cannot be altered by the court which
pronounced it);
•
the judgment has not lapsed;
•
the recognition and
enforcement of the
judgment by South African
courts would not
be contrary to public
policy in South
Africa, including observance of the rules of natural justice which require
that no award is enforceable unless the defendant
was duly served with documents
initiating proceedings, that he
or she was given a
fair opportunity to be
heard and that he
or she enjoyed the right to be legally represented in a free and fair trial before an impartial
tribunal;
•
the judgment was not obtained by improper or fraudulent means;
•
the
judgment
does
not involve
the
enforcement
of a
penal
or
foreign
revenue
law or
any
award
of multiple
or punitive
damages; and
•
the enforcement of the judgment is not otherwise precluded by the provisions of
the Protection of Business Act 99 of 1978
(as amended), of the Republic of South Africa.
It has been the policy
of South African courts to award
compensation for the loss or damage
actually sustained by the person
to
whom the compensation is awarded. South African courts have awarded compensation to shareholders who have suffered damages as
a result
of a
diminution in
the value
of their
shares based
on various
actions by
the corporation
and its
management. Although
the
award
of punitive
damages
is generally
unenforceable
in the
South
African legal
system, that
does not
mean
that such
awards are
necessarily
contrary
to
public
policy.
The
award
of
punitive
damages
is
governed
by
the
relevant
South
African
legislation,
the
Conventional Penalties Act 15 of 1962 (as amended).
Whether a judgment
was contrary to
public policy
depends on the
facts of each
case. Exorbitant,
unconscionable, or
excessive
awards will generally be contrary to public policy. South African courts cannot enter into the merits of a foreign judgment and cannot
act as a court of appeal or review over the foreign court. Further, if a foreign judgment is enforced by a South African court,
it will be
payable in South African currency unless approval is obtained from SARB or an Authorised Dealer of SARB, to settle the judgement
in another
currency.
Also, under
South Africa’s
exchange control
laws, the
approval of
SARB or
an Authorised
Dealer is
required
before a defendant
resident in South Africa
may pay money to
a non-resident plaintiff
in satisfaction of a
foreign judgment enforced
by a court in South Africa.
It is
doubtful
whether an
original action
based on
United States
federal
securities laws
may
be brought
before South
African
courts. A plaintiff who
is not resident in South Africa may
be required to provide security for
costs in the event of proceedings being
initiated in
South Africa.
Furthermore, the
Rules of
the High
Court of
South Africa
require that
documents executed
outside South
Africa must be authenticated for the purpose of use in South African courts. In reaching the foregoing conclusions in respect of South
Africa, we consulted with our South African legal counsel, Werksmans
Inc.

---

ITEM 1B. UNRESOLVED STAFF COMMENTS
ITEM 1B.
UNRESOLVED
STAFF COMMENTS
None.

---

ITEM 2. PROPERTIES
ITEM 2.
PROPERTIES
We lease our corporate
headquarters facility which consists of approximately 81,000 square feet in Johannesburg,
South Africa.
We also lease properties throughout South
Africa, including an
approximately 10,000 square foot
manufacturing facility in Lazer
Park,
Johannesburg, 194 financial
services branches, 14 financial service
express stores and 14 satellite
branches. We
also lease additional
office space
in Johannesburg,
Cape Town
and Durban, South
Africa; and Gaborone,
Botswana. These leases
expire at various
dates
through
2029,
assuming
the
exercise
of
options
to
extend.
We
believe
that
we
have
adequate
facilities
for
our
current
business
operations.

---

ITEM 3. LEGAL PROCEEDINGS
ITEM 3.
LEGAL PROCEEDINGS
Litigation related to CPS
As
a
result
of
significant
obligations
relating
to,
and
ongoing
litigation
arising
out
of,
CPS’
SASSA
contract,
including
the
exhaustion
of CPS’
legal appeals
against a
court judgment
to repay
additional SASSA
implementation
costs, CPS
was placed
into
liquidation in October
2020. As a
result, CPS’ liquidators
are currently in
control of the CPS
liquidated estate
and are managing
the
affairs in
relation thereto.
We
have proven
our claims
and are
noted as
a creditor
along with
other creditors
in the
liquidated estate.
See Item
1A - “Risk Factors
-Cash Paymaster
Services, or
CPS, has
been placed
into liquidation.
While no
claim has
been made
against Lesaka for CPS’ obligations, we cannot provide assurance that
no such claim will be made” for additional information.
There are no other material pending legal proceedings, other than ordinary
routine litigation incidental to our business, to which
we are a party or of which any of our property is the subject.

---

ITEM 4. MINE SAFETY DISCLOSURE
ITEM 4.
MINE SAFETY DISCLOSURES
Not applicable.
PART
II

---

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY,
RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES
Market information
Our common stock is listed on The NASDAQ Global Select Market, or Nasdaq, in the United States under
the symbol “LSAK”
and on the JSE in South Africa under the symbol “LSK.” The Nasdaq is
our principal market for the trading of our common stock and
we have a secondary listing on the JSE.
Our transfer
agent in
the United
States is
Computershare Shareowner
Services LLC,
480 Washington
Blvd, Jersey
City,
New
Jersey,
07310.
According
to
the
records
of
our
transfer
agent,
as
of
August
30,
2024,
there
were
shareholders
of
record
of
our
common stock.
We
believe that
a substantially
greater number
of beneficial
owners of
our common
stock hold
their shares
though
banks, brokers,
and other financial
institutions (i.e. “street
name”). Our transfer
agent in South
Africa is JSE
Investor Services (Pty)
Ltd, One Exchange Square, 2 Gwen Lane, Sandown, Sandton, 2196, South
Africa.
Dividends
We
have not
paid any
dividends on
shares of our
common stock
during our
last two
fiscal years
and presently
intend to
retain
future earnings to finance the expansion of
the business. We do not anticipate paying any cash dividends in
the foreseeable future. The
future dividend policy will depend on our earnings, capital requirements, debt commitments, expansion plans, financial condition and
other relevant factors.
Issuer purchases of equity securities
On
February
5,
2020,
our
board
of
directors
approved
the
replenishment
of
our
existing
share
repurchase
authorization
to
repurchase up to an aggregate of $100 million of common stock. The authorization
has no expiration date.
The table
below presents
information relating
to purchases
of shares
of our
common stock
during the
fourth quarter
of fiscal
2024:
Period
(a)
Total
number of
shares purchased
(b)
Average price
paid per share ($)
(c)
Total
number of shares
purchased as part of
publicly announced
plans or programs
(d)
Maximum dollar value
of shares that may yet
be purchased under the
plans or programs ($)
April 2024
-
-
100,000,000
May 2024
(1)
262,468
4.84
-
100,000,000
June 2024
(1)
3,568
4.58
-
100,000,000
Total
266,036
-
(1) Relates to the delivery of shares of our common
stock to us by certain of our employees to settle their income
tax liabilities.
These shares do not reduce the repurchase authority under the share repurchase
program.
Share performance graph
The chart
below compares
the five-year
cumulative return,
assuming the
reinvestment of
dividends, where
applicable, on
our
common stock with that of the S&P 500 Index and the NASDAQ Industrial Index. This graph assumes
$100 was invested on June 30,
2019, in each of our common stock, the companies in the S&P 500 Index, and the companies
in the NASDAQ Industrial Index.

---

ITEM 6. SELECTED FINANCIAL DATA
ITEM 6.
[RESERVED]

---

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND
RESULTS
OF OPERATIONS
The following
discussion and
analysis should
be read
in conjunction
with Item
8 - “Financial Statements
and Supplementary
Data.” In
addition
to historical
consolidated
financial
information,
the following
discussion
and
analysis contains
forward-looking
statements that involve risks, uncertainties and assumptions. See Item 1A -
“Risk Factors” and “Forward Looking Statements.”
U.S. securities laws
require that when
we publish any
non-GAAP measures, we
disclose the reason
for using these
non-GAAP
measures
and
provide
reconciliations
to
the
most
directly
comparable
GAAP
measures.
We
discuss
why
we
consider
it
useful
to
present these non-GAAP
measures and the
material risks and
limitations of these
measures, as well
as a reconciliation
of these non-
GAAP measures
to the
most directly
comparable GAAP
financial measure
below at
“-Results of Operations
-Use of Non-GAAP
Measures” below.
Overview
We
offer a wide
range of solutions
including transactional
accounts (banking), lending,
insurance, cash management
solutions,
card acceptance, supplier payments, software services
and bill payments. By providing
a full-service fintech platform in
our connected
ecosystem, we facilitate the digitization of commerce in our markets.
Sources of Revenue
We
generate our
revenues by
charging
transaction fees
to merchants,
financial service
providers, utility
providers, bill
issuers
and consumers; by selling airtime to merchants;
by providing loans to merchants and consumers,
and insurance products to consumers
and by selling hardware, licensing software and providing related technology
services to merchants.
We act
as a service provider whereby we
own and operate the technology and
apply it in a system ourselves,
charging one-time
and
ongoing fees
for
the use
of the
system either
on a
fixed or
ad valorem
basis. For
instance,
through
Connect,
we provide
cash
management
and payment
services to
merchant
customers
through
a digital
vault which
is located
at the
customer’s
premises and
generate processing revenue from
the provision of
these services. We also offer merchant customers
access to platforms through
which
we (a)
generate revenue
from the
sale of
prepaid airtime
and (b)
generate fees
from distribution
of VAS,
including prepaid
airtime,
prepaid electricity,
gaming voucher,
and other
services, to
users of
our platforms.
We
also generate
fees from
debit and
credit card
transaction processing and interest revenue from qualifying merchant customers who are able to access short-term loans. The revenue
and
costs
associated
with
these
services
and
sales
are
included
in
our
merchant
operating
segment.
We
also
generate
fees
from
consumers utilizing our ATM
network.
We
provide consumers with
bank accounts from
which we generate
a monthly fee
and also charge
fees on an ad
valorem basis
for goods
and services
purchased. Usage
of our
bank accounts
also provides
our customers
with access
to short-term
loans and
life
insurance products. The revenue and costs associated with this approach are
reflected in our consumer operating segment.
Developments during Fiscal 2024
This item
generally discusses
our 2024
results compared
to our
2023 results.
Discussions of
our 2023
results compared
to our
2022 results can be found within our Annual Report on Form 10-K
for the year ended June 30, 2023.
Fiscal 2024 represents
a transformative year for
Lesaka. The continuation of
our strong and consistent
performance delivered a
robust improvement
in profitability,
and we believe
the anticipated completion
of the Adumo
acquisition, announced
in fiscal 2024,
will facilitate
an acceleration
of our
organic
growth story
and cement
Lesaka’s
position as
Southern
Africa’s
leading Fintech.
The
consistent strengthening in our financial position enables us to continue
pursuing our organic and inorganic growth strategies.
Operating income of $3.6 million (ZAR 67.3 million) improved $18.9 million (ZAR
342.6 million) compared with an operating
loss of
$15.3 million
(ZAR 275.3
million) during
fiscal 2023.
We
reported a
net loss
attributable to
the company
of $17.4
million
(ZAR 326.1
million) during fiscal 2024 compared with a net loss of $35.1 million (ZAR 629.2
million) during fiscal 2023.
We
achieved our
Group Adjusted
EBITDA guidance,
a non-GAAP
measure, delivering
$36.9 million
(ZAR 690.9
million) in
fiscal 2024,
a 55%
increase in
ZAR, compared
to $24.8
million (ZAR
445.5
million) during
fiscal 2023,
demonstrating consistent
execution against our growth strategy.
Refer to reconciliation below at “-Results
of Operations-Use of Non-GAAP Measures”
for
a reconciliation
of Group
Adjusted EBITDA.
The continued
resilience of
our business
model in
a challenging
environment for
our
merchant and consumer customers demonstrates the value our customers
place on our services.
Our mission
at Lesaka
is to
provide
financial services,
including software,
to Southern
Africa’s
underserviced consumers
and
merchants, improving people’s lives and
increasing financial inclusion in the markets in which we operate.
We achieved this through
our ability to efficiently digitalize commerce by providing a full-service fintech platform and facilitating the secular shift from cash to
digital that is currently taking place.
Merchant Division
The year-on-year growth achieved
by our Merchant
Division (“Merchant”) is
supported by the
robust secular trends
underpinning
financial
inclusion,
cash management
and
digitalization
to empower
micro-merchants,
merchants
and
enterprise
clients to
transact
efficiently and fulfill their potential.
Performance in Merchant has been driven by:
●
Our
VAS
and supplier payments
business continues to see adoption by micro-merchants.
VAS
and supplier payments
Fiscal year ended June 30,
2024 vs.
2 year
CAGR %
Approximate number of devices in deployment
87,500
75,000
51,000
17%
31%
Throughput for the year (ZAR billions)
33.0
27.6
20.6
20%
27%
Throughput
for
the
year
excluding
international
money transfers (ZAR billions)
30.6
21.4
13.7
43%
49%
1.
2024 includes approximately 6,400 devices attributable to the acquisition of Touchsides,
effective May 01, 2024, which are
not enabled for VAS
and supplier payments on the Kazang platform.
o
We
had
approximately
87,500 devices
deployed
at June
30, 2024,
representing
a 17%
year-on-year
growth
compared to approximately 75,000
devices one year ago, and
represents a 2-year CAGR of
31% compared to
June 30, 2022.
o
The 87,500 devices
includes approximately 2,300 Touchsides merchants with
devices already enabled for
VAS
and
supplier
payments
on
the
Kazang
platform
and
an
additional
6,400
Touchsides
devices
which
are
not
enabled
for
VAS
and
supplier
payments
on
the
Kazang
platform.
These
6,400
sites
present
an
immediate
opportunity to deploy a Kazang device enabling VAS
sales and supplier payments.
o
Core to our device placement strategy
is the decision to focus on
quality business and optimizing our
existing
fleet, which is reflected in a healthy throughput growth and margin
per device.
o
As previously
communicated,
our
product
mix for
VAS
and supplier
payment
sales has
changed
with low-
margin
money transfers
reducing significantly
due to
a change
in the
regulatory environment
impacting the
industry as a
whole. Money
transfers comprised
7% of VAS
and supplier
payment throughput
in fiscal 2024
compared to 22% in
fiscal 2023. This change
has had limited impact
on profitability as money
transfers are a
very low margin product.
o
VAS
and supplier
payments throughput,
excluding the low-margin
money transfers,
increased 43%
year-on-
year to ZAR 30.6 billion, and represents a 2-year CAGR of 49% compared
to June 30, 2022.
o
Whilst we saw growth in our traditional
VAS
products of electricity,
airtime and gaming, much of the growth
has
been
driven
by
the
uptake
of
our
supplier
payments
platform
by
micro-merchants.
As
we
bring
more
suppliers onto our platform,
we anticipate these volumes
will continue to grow.
Supplier payment throughput
volumes increased 124%
in fiscal 2024
compared to fiscal 2023
and now accounts
for approximately 35%
of
our VAS
throughput volumes, compared to approximately 20% a year ago.
o
Touchsides was acquired
at the end of April 2024 (refer below).
●
Our
card acceptance
solutions to micro-merchants via Kazang Pay and to merchants through Card Connect.
Card acceptance
Fiscal year ended June, 30
2024 vs.
2 year
CAGR %
Approximate number of devices in deployment
51,850
44,900
22,650
15%
51%
Throughput for the year (ZAR billions)
15.6
12.0
6.1
30%
60%
●
Our
lending
solutions offered to merchants through Capital Connect
in the merchant market.
Lending
Fiscal year ended June, 30
2024 vs.
2 year
CAGR %
Capital Connect credit disbursed (ZAR millions)
(7)%
9%
Capital Connect loan book
size at period end (ZAR
millions)
(4)%
11%
o
Capital
Connect
disbursed
ZAR
million
during
fiscal
2024,
compared
to
ZAR
million
in
the
comparable
period
last
year,
representing
a
7%
decrease,
reflective
of
challenging
economic
conditions,
including higher interest rates, experienced by merchants in South
Africa during fiscal 2024
o
We
continue
to
see
demand
for
our
merchant
lending
offering
however
the
deteriorating
performance
and
financial strength of many
of our merchants means they
do not meet our credit
criteria, resulting in fewer and
smaller extensions.
Whilst strict
application of
our credit
criteria has
led to
negative growth,
it has
protected
and maintained the quality of our book through this cycle. Growth in credit disbursed and the Capital Connect
loan book size at the end of the year represents a 2-year CAGR of 9% and 11%
respectively.
o
Capital
Connect’s
lending
proposition
is
an
important
component
in
enabling
the
merchants
we
serve
to
compete and
grow.
Since inception,
Capital Connect
has distributed
more than
ZAR 3
billion of
funding to
merchants and can provide funding
of up to ZAR 5
million in under 24 hours. Quick
access to affordable and
flexible opportunity
capital is
vital in
every stage
of a
merchants’ lifecycle,
enabling them
to never
miss an
opportunity.
o
In fiscal 2024 Capital
Connect launched
“Fuel Connect”
, a tailored lending
solution addressing complexities
in fuel ordering, aimed at solving for merchants’ pain points.
o
Kazang Pay
Advance, our
lending offering
in the micro
-merchant sector,
was suspended
in early fiscal
following the decision to discontinue
the current product, especially in
the high interest rate environment. We
continued
to
explore
other
options
with
respect
to
this
offering
with
it
now
in
live
pilot
phase.
We
are
monitoring payment
behavior on a
smaller loan book
and applying stricter
lending criteria before
the official
relaunch later in fiscal 2025.
●
Our
cash
management
and
digitalization
solutions
effectively
“puts
the
bank”
in
approximately
4,440
merchants’
stores.
Cash management and digitalization
Fiscal year ended June 30,
2024 vs.
2 year
CAGR %
Approximate number of devices in deployment
4,440
4,390
4,080
1%
4%
Cash
settlements
(throughput)
for
the
year
(ZAR
billions)
112.6
110.1
102.1
2%
5%
o
Our cash
business remains
a
vital product
in our
merchant offering
and is
a key
differentiator
for
us in
the
digitalization
of cash.
We
provide
robust
cash vaults
in
the SME
sector
(Cash
Connect) and
are building
a
presence
in
the
micro-merchant
sector
(Kazang
Vaults),
which
enables
our
merchant
customer
base
to
significantly mitigate their operational risks pertaining to cash management
and security.
o
Whilst there
is trend
towards digital payments,
cash remains
as the
most significant portion
of retail transactions
especially in informal markets. This business is
primarily exposed to the mid-market SMEs, a
sector which has
experienced
challenges such
as power
outages,
high
price inflation
and
a slowdown
in consumer
spending,
over
the
past
months.
This
impacted
the
merchants
we
serve
in
this
sector
and
resulted
in
increased
bankruptcies and vault upliftments which affected
the net growth in the vault estate.
o
Our merchants deposited over ZAR 113 billion in cash into our vaults in fiscal 2024 evidencing the value they
derive from our ability to digitalize this cash and immediately provide access to working
capital.
Acquisition of Touchsides
In February 2024
we announced the acquisition
of Touchsides
(Pty) Ltd (“Touchsides”)
and the deal
closed on April 30,
2024.
Touchsides
is a leading
data analytics and
insights company,
and highly
complementary with
our Kazang
business. The
acquisition
significantly expands
Kazang’s
footprint in
the informal
market by
adding an
established solution
that has
a strong
presence in
the
licensed tavern market. The business
provides platform-as-a-service (“PaaS”) and software-as-a-service (“SaaS”) solutions
to licensed
tavern
outlets,
enabling
the
measurement
of
sales
activity
in
real-time,
management
of
stock
levels
and
informing
commercial
decisions, such as pricing and promotional offers.
The data and insights gathered from these terminals carries significant value and potential to be monetized through relationships
with
a
range
of
clients
including
fast-moving
consumer
goods
companies,
retailers,
wholesalers,
route-to-market
suppliers,
and
financiers.
Touchsides is managed
as part of our micro-merchant business and has been allocated to our Merchant operating
segment.
Acquisition of Adumo
In May 2024
we announced the acquisition
of Adumo RF (Pty)
Ltd (“Adumo”), which
is subject to shareholder
and regulatory
approvals.
Adumo is an independent
payments and commerce enablement
platform in Southern Africa,
serving approximately 23,000 active
merchants with
operations across
South Africa,
Namibia, Botswana
and Kenya.
For more
than two
decades, Adumo
has facilitated
physical and online commerce between retail merchants and end-consumers by offering
a unique combination of payment processing
and integrated software
solutions, which currently
include embedded payments,
integrated payments, reconciliation services,
merchant
lending, customer engagement tools, card issuing program management
and data analytics.
Adumo operates
across three
businesses, which
provide payment
processing and
integrated software
solutions to
different
end markets:
●
The Adumo
Payments business offers
payment processing,
integrated payments
and reconciliation
solutions to small-
and-medium
(“SME”)
merchants
in
South
Africa,
Namibia
and
Botswana,
and
also
provides
card
issuing
program
management to corporate clients such as Anglo American and Coca-Cola;
●
The Adumo ISV business, also known as GAAP,
has operations in South Africa, Botswana and Kenya, and clients in a
further 21
countries, and
is the
leading provider
of integrated
point-of-sales software
and hardware
to the
hospitality
industry in Southern Africa, serving clients such as KFC, McDonald’s,
Pizza Hut, Nando’s and Krispy Kreme;
and,
●
The Adumo
Ventures
business offers
online commerce
solutions (Adumo
Online), cloud-based,
multi-channel point-
of-sales
solutions
(Humble)
and
an
aggregated
payment
and
credit
platform
for
in-store
and
online
commerce
(SwitchPay) to SME merchants and corporate clients in South Africa and Namibia.
Adumo generates
the majority
of its
revenue from
per transaction
fees that
are calculated
as a
percentage of
transaction value,
and software-as-a-service (“SaaS”) subscription fees charged to
merchants. As of June
30, 2024, Adumo employed approximately
employees throughout Southern Africa.
The
acquisition
continues
Lesaka’s
consolidation
in
the
Southern
African
fintech
sector.
The
Lesaka
ecosystem
will
serve
approximately 1.7 million
active consumers,
120,200 merchants,
and processes
over ZAR
270 billion
in throughput
(cash, card
and
VAS)
per year.
The
combined
Group
will
have
over
3,300
employees
operating
on
the
ground
in
five
countries:
South
Africa,
Namibia,
Botswana, Zambia, and Kenya.
The acquisition enhances Lesaka's strengths in both the consumer
and merchant markets.
The purchase
consideration will
be settled
through the
combination of
an issuance
of 17,279,803
shares of
our common
stock
and a ZAR 232 million ($12.5
million, translated at the prevailing rate of
$1: ZAR 18.5 as of
May 6, 2024) payment in cash.
The share
issuance
was
based
off
of
the
Base
Purchase
Consideration,
as
defined
in
the
transaction
agreement,
of
ZAR
1.59
billion
($85.9 million),
less
the
ZAR
million
cash
payment,
implying
a
value
per
share
of
$4.25
((ZAR
1.59
billion
-
ZAR
0.232
billion)/17,279,803 /
ZAR 18.5). Adumo
shareholders include Apis
Growth Fund I,
a private equity
fund managed by
Apis Partners
LLP (“Apis”), African Rainbow
Capital (“ARC”), the largest
shareholder of Crossfin Holdings
(RF) Pty Ltd (“Crossfin”),
as well as
the International Finance Corporation and Adumo management.
As of September 11, 2024, the majority of shareholder and regulatory approvals required in finalizing this transaction have been
satisfied. The transaction is expected
to close by October 2024 (quarter two
of fiscal 2025) once the remaining procedural
customary
closing conditions are satisfied.
Consumer Division
In
our
Consumer
Division
we
offer
transactional
accounts
(banking),
insurance,
lending
and
payments
solutions
designed
to
improve the lives
of historically underserviced
consumers and continue
to deliver against
our strategic focus
areas underpinning our
growth
strategy.
Progress made
on these
levers: (i)
growing active
EasyPay Everywhere
(“EPE”)
account numbers,
(ii) increasing
average
revenue
per
user
(“ARPU”)
through
cross-selling
and
(iii)
cost
optimization,
and
(iv)
enhancing
our
product
and
service
offering, resulted in revenue and profitability growth in
the Consumer Division in fiscal 2024.
Consumer
Fiscal year ended June 30,
2024 vs.
Transactional accounts
(banking) - EasyPay Everywhere ("EPE")
Approximate
Gross
EPE
account
activations
for
the
year
-
Permanent
grant
recipients (number)
326,000
186,000
75%
Approximate
Net
EPE
account
activations
for
the
year
-
Permanent
grant
recipients (number)
192,000
79,000
143%
Total active EPE transactional
account base at year end (millions)
1.51
1.28
19%
Total
active
EPE
transactional
account
base
at
year
end
-
Permanent
grant
recipients (millions)
1.33
1.10
21%
Lending - EasyPay Loans
Approximate number of loans originated during the year (number)
1,061,000
850,000
24%
Gross advances (ZAR billions)
1.7
1.3
29%
Loan book size, before allowances, at year end
(ZAR millions)
32%
Insurance - EasyPay Insurance
Approximate number of insurance policies written in the year (number)
170,000
124,000
37%
Total active insurance
policies on book at year end (number)
439,000
335,000
31%
Average revenue per customer per month,
as of June
30, (permanent grant
beneficiaries) (ZAR)
13%
1.
Gross loan book, before
provisions.
The progress on our key initiatives is as follows:
●
Driving customer acquisition
o
Gross
EPE
account
activations,
for
the
permanent
base,
during
fiscal
showed
significant
year-on-year
improvement due
to various strategic
initiatives. We
achieved approximately
326,000 gross account
activations in
the year, increasing
75% compared to approximately
186,000 in fiscal 2023.
After accounting for churn, net
active
account growth for the year increased 143%
to approximately 192,000 accounts, compared to approximately 79,000
in fiscal 2023.
o
Our
total
active EPE
transactional
account base
stood
at
approximately
1.47 million
at
the end
of June
2024,
of
which approximately
1.33 million
(or approximately
87%) are
permanent grant
recipients. The
balance comprises
Social Relief of Distress
(“SRD”) grant recipients, which was
introduced during the COVID pandemic and
extended
in calendar year 2023.
o
Our priority
is to grow
our permanent
grant recipient
customers base,
where we
can build
deeper relationships
by
offering other products such as insurance and lending. We do not offer the same breadth of service to the SRD grant
base due to the temporary nature of the grant.
●
Progress on cross
selling
EasyPay Loans
o
We
originated approximately
1.06 million
loans during
the year
with our
consumer loan
book, before
allowances
(“gross book”), increasing
32% to ZAR 548
million as of June
30, 2024, compared
to ZAR 415 million
as of June
30, 2023.
o
We have not
amended our credit scoring or other lending criteria and the growth is reflective of the demand
for our
tailored
loan
product
for
this
market,
growth
in
EPE
bank
account
customer
base
and
improved
cross-selling
capabilities.
o
The
loan
conversion
rate continues
to improve
following
the implementation
of
a number
of targeted
Consumer
lending campaigns and encouraging results from our digital channels during
the year.
o
The portfolio loss ratio
of approximately 6%,
calculated as the loans
written off during
fiscal 2024 as a percentage
of the total gross
loan book at the
end of the period,
remained stable on an
annualized basis, compared to
fiscal 2023.
EasyPay Insurance
o
Our funeral
insurance product continued
its strong growth
and is a
material contributor
to the improvement
in our
overall ARPU. We
have been able to improve customer
penetration to approximately 33% of our
active permanent
grant account base
as of
June 30, 2024,
compared to approximately
31% as
of June 30,
2023. Approximately 170,000
new policies were
written during
fiscal 2024, increasing
37%, compared
to approximately
124,000 in
fiscal 2023.
The
total
number
of
active
policies
has
grown
by
31%
to
approximately
439,000
policies
as
of
June
30,
2024,
compared to June 30, 2023.
ARPU
o
ARPU
for
our
permanent
client
base
has
increased
to
approximately
ZAR
as
of
June
30,
2024,
from
approximately ZAR 80 as of June 30, 2023.
Economic Environment and Impact of loadshedding
The economic environment in South Africa remains challenging for our consumer and merchant customers. Whilst inflation
has
come down
into the top
end of the
Reserve Bank’s
target range,
the impact of
the past two
year’s high
inflationary and interest
rate
environment has
impacted consumers.
Likewise, our
merchant customers
have operated
in a challenging
environment, especially
in
the
formal
SME
segment
where
we
have
seen
the
impact
in
our
cash
and
lending
business.
Notwithstanding
the
challenges,
our
business model
has proved
resilient, and
we have
managed to
continue growing
our consumer
and merchant
base whilst
delivering
improved Group Adjusted EBITDA.
Recent developments have bolstered confidence in our economy.
Whilst, as of the date of this Annual Report, the Reserve Bank
has not reduced interest rates, there is a
possibility that a downward cycle in interest rates will
start soon. Power cuts, or loadshedding,
has seen a marked improvement compared to last year. South Africa recently went through more than 100 days without loadshedding.
The lead up to the
national elections in May 2024 was
a period of significant uncertainty for
South Africa. The eventual outcome, with
a Government of National Unity being formed, was positively received by
the market, with the stock exchange reaching record highs
and the bond market recording record inflows, reflecting renewed confidence.
Overall,
the
South
African
economy
remains
challenging
with
high
unemployment,
high
interest
rates
and
low
growth
expectations. We do not foresee
any major changes
however anticipate that
a lower interest
rate environment would
bring much needed
relief to consumers and merchants in South Africa.
Improvement in our Broad Based Black Economic
Empowerment (“B-BBEE”) rating to level 4
B-BBEE is
a key
strategic priority
for us. Achievement
of B-BBEE
objectives is
measured by
a scorecard
which establishes
a
weighting
for
various
elements.
Scorecards
are
independently
reviewed
by
accredited
BEE
verification
agencies
which
issue
a
certificate that presents an entity’s BEE Contributor Status Level, with
level 1 being the highest
and “no rating” (a level
below level 8)
as the lowest. During fiscal 2023, we made
significant progress in terms of improving our empowerment credentials and
in September
2023 we
reported that
our independently
verified B-BBEE
rating improved
to a
level 5
rating from
a level
8 rating,
simultaneously
setting out our aim to achieve a level 4 rating by the end of fiscal year 2024.
Together with various B-BBEE initiatives and programmes being rolled
out, including our Youth Employment Services (“YES”)
programme, we
achieved this
target during
the second
quarter of
fiscal 2024
and have
received an
independently verified
B-BBEE
rating of level 4.
Leadership Changes in fiscal 2024
On February 29, 2024 Mr. Chris Meyer completed his tenure as
Group CEO of Lesaka, a position he
held since July 1, 2021. Mr.
Ali Mazanderani
took
over
the majority
of
Mr.
Meyer’s
responsibilities
as Executive
Chairman
of Lesaka
on
March 1,
2024.
Ali
Mazanderani has been integral to the development of Lesaka’s strategy and has been a Non-Executive Director since 2020. As part of
the change
in leadership,
Mr.
Kuben Pillay,
stepped down
as our
Chairman on
January 31,
2024, and
commenced his
role as
Lead
Independent Director of Lesaka on February 1, 2024.
Critical Accounting Policies
Our audited consolidated
financial statements have
been prepared in accordance
with U.S. GAAP,
which requires management
to
make
estimates
and
assumptions
about
future
events
that
affect
the
reported
amount
of
assets
and
liabilities
and
disclosure
of
contingent assets and liabilities.
As future events and
their effects cannot be
determined with absolute certainty,
the determination of
estimates requires
management’s
judgment based
on a
variety of
assumptions and
other determinants
such as
historical experience,
current
and
expected
market
conditions
and
certain
scientific
evaluation
techniques.
Management
believes
that
the
following
accounting policies
are critical due
to the degree
of estimation required
and the impact
of these policies
on the understanding
of the
results of our operations and financial condition.
Business Combinations and the Recoverability of Goodwill
A significant component
of our growth
strategy is to acquire
and integrate businesses
that complement
our existing operations.
The purchase
price of
an acquired
business is
allocated to
the tangible
and intangible
assets acquired
and liabilities
assumed
based
upon their estimated
fair value at the
date of purchase.
The difference between
the purchase price and
the fair value of
the net assets
acquired is
recorded as goodwill.
In determining
the fair value
of assets acquired
and liabilities assumed
in a business
combination,
we use various
recognized valuation methods, including
present value modeling.
Further, we make assumptions
using certain valuation
techniques, including discount rates and timing of future cash flows.
We review the carrying value of goodwill annually
or more frequently if circumstances indicating impairment have occurred. In
performing this review,
we are required to estimate
the fair value of goodwill that
is implied from a valuation of
the reporting unit to
which the goodwill
has been allocated
after deducting the
fair values of
all the identifiable
assets and liabilities
that form part
of the
reporting
unit.
The determination
of
the fair
value
of a
reporting
unit requires
us
to
make
significant
judgments
and estimates.
In
determining the fair value of reporting units for fiscal 2024, our key judgements related to reporting unit revenue growth rates and the
weighted-average cost
of capital applicable
to peer and
industry comparables
of the reporting
units. In
determining the
fair value of
reporting units
for fiscal
2023, we
considered entity-specific
growth rates,
future expected
cash flows
to be
used in
our discounted
cash flow model, and the weighted-average cost of capital applicable to
peer and industry comparables of the reporting units. We base
our estimates
on assumptions
we believe
to be
reasonable but
that are
unpredictable and
inherently uncertain.
In addition,
we make
judgments and assumptions in allocating assets and liabilities to each of our reporting
units.
The results of our impairment tests during fiscal 2024
indicated that the fair value of our reporting units exceeded
their carrying
values and
so did
not require
impairment. The
results of
our impairment
tests during
fiscal 2023
indicated that
the fair value
of our
reporting
units
exceeded
their carrying
values,
with
the
exception
of
the $7.0
million
of goodwill
impaired
during
fiscal 202
3,
as
discussed in Note 10 to our audited consolidated financial statements.
Intangible Assets Acquired Through Acquisitions
The
fair values
of the
identifiable
intangible
assets acquired
through
acquisitions
were determined
by management
using
the
purchase method
of accounting.
We
did not
identify any
significant intangible
assets related
to the
Touchsides
acquisition in
fiscal
2024. We completed the acquisition
of Connect during fiscal 2022 where we identified and recognized intangible assets. We
used the
relief from royalty method to value identified brands
and the multi-period excess earnings method to value
the integrated platform and
identified customer relationships. We
have used the relief from royalty method,
the multi-period excess earnings method, the income
approach
and
the
cost
approach
to
value
other
historic
acquisition-related
intangible
assets.
In
so
doing,
we
made
assumptions
regarding
expected
future revenues
and
expenses
to develop
the underlying
forecasts, applied
contributory
asset charges,
discount
rates, exchange rates, cash tax charges and useful lives.
The valuations were based on information available at the
time of the acquisition and the expectations and
assumptions that were
deemed reasonable by us. No assurance can be given, however,
that the underlying assumptions or events associated with such assets
will occur as
projected. For these
reasons, among others,
the actual cash
flows may vary
from forecasts of
future cash flows.
To
the
extent actual cash flows vary, revisions to the useful life or impairment of intangible assets may be necessary.
Management assess the
useful life of
the acquired intangible
assets upon initial
recognition and revisions
to the useful
life or impairment
of these intangible
assets may be necessary in the future.
Revenue recognition - principal versus agent considerations
We generate
revenue from the provision of transaction-processing
services through our various platforms
and service offerings.
We
use these
platforms to
(a) sell
prepaid airtime
vouchers which
was held
as inventory
and (b)
distribute VAS,
including prepaid
airtime vouchers (which
we do
not hold as
inventory), prepaid electricity, gaming voucher,
and other services,
to users
of our platforms.
The
determination
of whether
we
act as
a principal
or as
an agent
when providing
these services
requires
a significant
amount
of
judgement and is based on whether (i)
we are primarily responsible for fulfilling the promise
to provide the specified goods or service,
(ii) we
have
inventory
risk before
the specified
good or
service has
been
transferred
to a
customer
and
(iii) we
have
discretion
in
establishing the
price for
the specified
good or
service. When
we are
the principal
in a
transaction, such
as when
we purchase
(and
thus control and assume
inventory risk) prepaid airtime
before selling it to customers
utilizing our platform,
revenue is reported on
a
gross basis. When
we are an
agent in a
transaction, such
as when we
distribute VAS
on behalf of
our customers,
and do not
control
the
good
or
service
to
be
provided,
revenue
is
recognized
based
on
the
amount
that
we
are
contractually
entitled
to
receive
for
performing the distribution service on behalf of our customers using our
platform.
Valuation
of investment in Cell C
We have elected to measure
our investment in
Cell C, an
unlisted equity security, at fair
value using the
fair value option.
Changes
in
the
fair
value
of
this
equity
security
are
recognized
in
the
caption
“change
in
fair
value
of
equity
securities”
in
our
audited
consolidated statements of operations. The tax impact related to the change in
fair value of equity securities is included in income tax
expense in our audited
consolidated statements of operation.
The determination of
the fair value of this
equity security requires us
to
make significant judgments
and estimates.
We base our estimates
on assumptions we
believe to be
reasonable but that
are unpredictable
and inherently uncertain. Refer
to Note 6
of our audited consolidated
financial statements regarding the
valuation inputs and
sensitivity
related to our investment in Cell C.
We used a discounted cash flow model to determine the fair value of our investment in Cell C as of June 30, 2024 and 2023, and
valued Cell C at
$0.0
(zero) as of each of
June 30, 2024 and 2023.
We utilized the latest business plan provided by Cell
C management
for the period ended December 31,
2027, for the June 30, 2024
and 2023 valuations, and the
following key valuation inputs were used:
Weighted Average
Cost of Capital:
Between 21% and 26% over the period of the forecast
Long-term growth rate:
4.5% (4.5% as of June 30, 2023)
Marketability discount:
21% (20% as of June 30, 2023)
Minority discount:
24% (24% as of June 30, 2023)
Net adjusted external debt - June 30, 2024:
(1)
ZAR 8 billion ($0.4 billion), no lease liabilities included
Net adjusted external debt - June 30, 2023:
(2)
ZAR 8.1 billion ($0.4 billion), no lease liabilities included
(1) translated from ZAR to U.S. dollars at exchange rates applicable
as of June 30, 2024.
(2) translated from ZAR to U.S. dollars at exchange rates applicable
as of June 30, 2023.
We
believe the
Cell C
business plan
is reasonable
based on
the current
performance and
the expected
changes in
the business
model. Refer to the sensitivity analysis included in
Note 6 to our audited consolidated financial statements
related to our valuation of
Cell C as of June 30, 2024.
Recoverability of equity securities and equity-accounted investments
We
review our
equity securities
and equity-accounted
investments for
impairment whenever
events or
circumstances indicate
that the
carrying amount
of the
investment may
not be
recoverable.
In performing
this review,
we are
required to
estimate the
fair
value of our
equity-accounted investments and other
equity securities. The
determination of the
fair value of
these investments requires
us to make significant judgments and estimates.
Other equity securities include our investments in MobiKwik and CPS. These equity securities do not have readily determinable
fair
values
and
therefore
we
have
elected
to
measure
these
investments
at
cost
minus
impairment,
if
any,
plus
or
minus
changes
resulting
from
observable
price
changes
in
orderly
transactions
for
the
identical
or
a
similar
investment
of
the
same
issuer.
If
we
identify an impairment indicator related
to these equity
securities, we are required
to assess the
carrying value of these
equity securities
against their fair
value. We
did not identify
any impairment indicators
during each
of fiscal 2024,
and 2022,
and therefore did
not recognize any impairment losses related to these equity securities during
those years.
The determination of the fair value of an investment requires us to make significant judgments and estimates. We are required to
base our
estimates on
assumptions
which we
believe to
be reasonable,
but these
assumptions may
be unpredictable
and inherently
uncertain.
The Company did
not identify any
observable transactions
during either of
the years ended June
30, 2024, 2023
and 2022, and
therefore there was no change in
the fair value of MobiKwik
during the year. During the year ended June 30,
2021, MobiKwik entered
into
a
number
of
separate
agreements
with
new
shareholders
to
raise
additional
capital
through
the
issuance
of
additional
shares.
Specifically,
our
current
valuation
is based
on
an
observable
price
change
in
an orderly
transaction
for
similar
or
identical equity
securities issued by MobiKwik
in a capital raise concluded
in June 2021, of $245.50
per share. The carrying value
of our investment
in MobiKwik is
$76.3 million as
of June 30,
2024. Any change
in the fair
value of MobiKwik
is included in
the caption “Change
in
fair value of equity securities” in our audited consolidated statement of operations
.
We did
not identify any impairment indicators
during fiscal 2022 and therefore
did not recognize any impairment
losses related
to our
equity-accounted investments
during that
year.
We
performed impairment
assessments
during fiscal
2024 and
2023, for
our
investment in
Finbond Group
Limited “(Finbond”)
following the
identification of
certain impairment
indicators. The
results of
our
impairment tests
during fiscal
and 2023,
resulted in
impairments of
$1.2 million
and $1.1
million, respectively,
related to
our
equity-accounted investments. These impairments are discussed in Note
9 to our audited consolidated financial
statements. On August
10, 2023, we, through our wholly owned subsidiary
Net1 Finance Holdings (Pty) Ltd, entered into an agreement
with Finbond to sell
our remaining shareholding to Finbond for a cash consideration of ZAR 64.2
million ($3.5 million), or ZAR 0.2911 per share.
For
fiscal
2024,
in
determining
the
fair
value
of
Finbond,
we
used
the
price
of
ZAR
0.2911
referenced
in
the
August
agreement to calculate
the determined fair value
for Finbond. For
fiscal 2023, in determining
the fair value of
Finbond, as it is
listed
on the Johannesburg Stock Exchange, its market price as
of the impairment assessment dates, adjusted for a
liquidity discount of 25%.
We based our estimates on assumptions
we believe to be reasonable but that are unpredictable and inherently uncertain. The fair
value of
our investment
in Finbond
was sensitive
to movements
in its
market price,
which is
quoted in
ZAR, because
we used
the
market price as the basis of our valuation.
Deferred Taxation
We
estimate
our
tax
liability
through
the
calculations
done
for
the
determination
of
our
current
tax
liability,
together
with
assessing temporary
differences
resulting
from the
different
treatment of
items for
tax and
accounting purposes.
These differ
ences
result in deferred tax assets and liabilities which are disclosed on our balance
sheet.
Management then
has to assess
the likelihood
that deferred tax
assets are more
likely than not
to be realized
in the foreseeable
future. A valuation allowance is
created if it is determined
that a deferred tax asset will not
be realized in the foreseeable
future. Any
change to the valuation allowance
would be charged or
credited to income in the period
such determination is made. In
assessing the
need for a valuation allowance,
historical levels of income, expectations
and risks associated with estimates of
future taxable income
and
ongoing
prudent
and
practicable
tax
planning
strategies
are
considered.
During
fiscal
2024,
2023,
and
2022,
respectively
we
recorded a net decrease of $5.6 million,
$8.0 million and $1.7 million, to our
valuation allowance. As of June 30, 2024
and 2023, the
valuation allowance related to deferred tax assets was $114.7
million and $109.1 million, respectively.
Stock-based Compensation
Management is required to make estimates and assumptions related to our valuation and recording of stock-based
compensation
charges under
current accounting
standards. These standards
require all share-based
compensation to employees
to be recognized
in
the
statement
of
operations
based on
their
respective
grant date
fair
values
over
the requisite
service
periods
and
also
requires
an
estimation of forfeitures when calculating compensation expense.
We utilize the Cox Ross
Rubinstein binomial model to
measure the fair
value of stock
options granted to
employees and directors.
We
have also utilized
a bespoke adjusted Monte
Carlo simulation discounted
cash flow model to
measure the fair value
of restricted
stock with market
conditions granted to
employees and directors.
The stock-based compensation
cost related to
these valuations has
been
recognized
on
a
straight-line
basis.
These
valuation
models
require
estimates
of
a
number
of
key
valuation
inputs
including
expected volatility, expected dividend yield, expected term and
risk-free interest rate. Our
management has estimated forfeitures based
on
historic
employee
behavior
under
similar
compensation
plans.
The
fair
value
of
stock
options
is
affected
by
the
assumptions
selected. The fair value calculation is especially sensitive
to our valuation assumption with respect to expected volatility. For instance,
a 5% increase (to 53%) or 5% decrease (to 43%) in the expected volatility used (of 48%) to value stock options granted in June 2024,
would result
in a
charge that
was 11%
higher (if
53% were
used) or
11%
lower (if
43% were
used). Net
stock-based compensation
expense from continuing operations was $7.9 million, $7.3 million and $3.0
million for fiscal 2024, 2023 and 2022, respectively.
Accounts Receivable and Allowance for Credit Losses
We
use a lifetime loss rate by expressing
write-off experience as a percentage
of corresponding invoice amounts (as
opposed to
outstanding balances). The allowance for credit losses related to these receivables has been calculated by multiplying the lifetime loss
rate with recent invoice/origination amounts.
Prior to July 1, 2023, a specific provision is established where it is considered likely that all or a portion of the amount due from
customers
renting
safe
assets,
point
of
sale
(“POS”)
equipment,
receiving
support
and
maintenance
or
transaction
services
or
purchasing licenses
or SIM
cards from
us that
will not
be recovered.
Non-recoverability is
assessed based
on a
quarterly review
by
management of the
ageing of outstanding
amounts, the location and
the payment history of
the customer in relation
to those specific
amounts.
We use historical default experience over the lifetime of loans in order to calculate a lifetime loss
rate for our lending books. The
allowance for
credit losses related
to Consumer
finance loans receivables
is calculated by
multiplying the
lifetime loss rate
with the
month-end outstanding lending book.
Prior to July
1, 2023, we
regularly reviewed the
ageing of outstanding
amounts due from
borrowers and adjusted
its allowance
based
on
management’s
estimate
of
the
recoverability
of
the
finance
loans
receivable.
We
write
off
microlending
finance
loans
receivable and related service fees and
interest if a borrower is in arrears
with repayments for more than three months
or is deceased.
We write off merchant and working capital finance
receivables and related fees when
it is evident that
reasonable recovery procedures,
including where deemed necessary,
formal legal action, have failed.
Lending
Merchant lending
The allowance for credit losses related to Merchant finance loans receivables
is calculated by adding together actual receivables
in
default
plus
multiplying
the
lifetime
loss
rate
with
the
month-end
outstanding
lending
book.
Our
risk
management
procedures
include adhering to
our proprietary lending
criteria which
uses an
online-system loan application
process, obtaining necessary
customer
transaction-history
data
and
credit
bureau
checks.
We
consider
these
procedures
to
be
appropriate
because
it
takes
into
account
a
variety of factors such as the customer’s credit capacity and
customer-specific risk factors when originating a loan.
We
recently (in the past
three years) commenced lending
to merchant customers and
uses historical default experience
over the
lifetime of loans generated thus
far in order to calculate
a lifetime loss
rate for the lending book.
The allowance for credit losses
related
to these merchant finance loans receivables is calculated by adding together actual receivables in default plus multiplying the lifetime
loss
rate
with
the
month-end
outstanding
lending
book.
The
lifetime
loss
rate
as
of
each of
July
1,
and
June
30,
2024,
was
approximately 1.18%.
The performing
component (that
is, outstanding
loan payments
not in
arrears), under-performing
component
(that is, outstanding loan payments that are in arrears)
and non-performing component (that is, outstanding loans
for which payments
appeared to have ceased) of the book represents approximately 84%, 15% and 1%, respectively, of the outstanding lending book as of
June 30, 2024.
Prior to
July 1, 2023,
we maintained
an allowance
for credit
losses -
finance loans
receivable related
to our Merchant
services
segment
with
respect
to
short-term
loans
to
qualifying
merchant
customers.
Our
policy
was
to
regularly
review
the
ageing
of
outstanding
amounts due
from these
merchants and
an allowance
is created
for the
full amount
outstanding if
the customer
was in
arrears for more than 15 days. We wrote off loans and related interest and fees when it is evident that reasonable recovery procedures,
including where deemed necessary,
formal legal action, had failed.
Consumer microlending
The allowance for credit
losses related to Consumer finance
loans receivables is calculated
by multiplying the lifetime
loss rate
with
the
month-end
outstanding
lending
book.
Loans
to
customers
have
a
tenor
of
up
to
six
months,
with
the
majority
of
loans
originated having a
tenor of six months.
Credit bureau checks
as well as an
affordability test are
conducted as part
of the origination
process, both
of which
are in
line with
local regulations.
We
consider this
policy to
be appropriate
because the
affordability
test it
performs takes into account a variety of factors such
as other debts and total expenditures on normal
household and lifestyle expenses.
Additional allowances
may be
required should
the ability
of its
customers to
make payments
when due
deteriorate in
the future.
A
significant amount
of judgment is
required to
assess the ultimate
recoverability of
these finance loan
receivables, including
ongoing
evaluation of the creditworthiness of each customer.
We
have operated this
lending book for
more than five
years and use
historical default experience
over the lifetime
of loans in
order to calculate a lifetime loss rate for the lending book.
We
analyze this lending book as a single portfolio because the loans within
the portfolio
have similar characteristics
and management
uses similar processes
to monitor
and assess the
credit risk of
the lending
book. The allowance for credit losses related to these microlending finance loans receivables is calculated
by multiplying the lifetime
loss rate with the month end outstanding lending book. The
lifetime loss rate as of each
of July 1, 2023 and June 30, 2024,
was 6.50%.
The performing
component
(that is,
outstanding
loan payments
not in
arrears)
of the
book exceeds
more than
98% of
outstanding
lending book as of June 30, 2024.
Prior to July
1, 2023, we
maintained an allowance
for credit losses
- finance loans
receivable related to
our Consumer services
segment with respect
to short-term loans
to qualifying customers.
Our policy was
to regularly review
the ageing
of outstanding amounts
due from
borrowers and
adjust the
provision based
on management’s
estimate of
the recoverability
of finance
loans receivable.
We
wrote off microlending loans and related service fees if
a borrower is in arrears with repayments for more than three months or dies.
Recent Accounting Pronouncements
Recent accounting pronouncements adopted
Refer
to
Note
2 of
our
audited consolidated
financial
statements for
a full
description
of recent
accounting
pronouncements,
including the dates of adoption and effects on financial
condition, results of operations and cash flows.
Recent accounting pronouncements not yet adopted as of June 30, 2024
Refer to Note 2
of our audited consolidated
financial statements for a
full description of recent
accounting pronouncements not
yet adopted as of June 30, 2024, including the expected dates of adoption
and effects on financial condition, results of operations and
cash flows.
Currency Exchange Rate Information
Actual exchange rates
The actual exchange rates for and at the end of the periods presented were
as follows:
Table 1
June 30,
ZAR : $ average exchange rate
18.7070
17.7641
15.2154
Highest ZAR : $ rate during period
19.4568
19.7558
16.2968
Lowest ZAR : $ rate during period
17.6278
16.2034
14.1630
Rate at end of period
18.1808
18.8376
16.2903
Translation Exchange Rates
We are required
to translate our results of operations from ZAR to U.S. dollars on a monthly
basis. Thus, the average rates used
to translate this data for the years ended June 30, 2024, 2023 and 2022, vary slightly from the averages shown in the table above. The
translation rates we use in presenting our results of operations are the rates shown
in the following table:
Table 2
June 30,
Income and expense items: $1 = ZAR
18.6844
17.9400
15.1978
Balance sheet items: $1 = ZAR
18.1808
18.8376
16.2903
We have translated the results of operations and operating segment information for the year
ended June 30, 2024, provided in the
tables below
using the
actual average
exchange rates
per month
between the
USD and
ZAR in order
to reduce
the reconciliation
of
information presented to our chief operating
decision maker. The impact of
using this method compared with the average rate
for the
quarter and year to date is not significant, however, it does result in minor differences.
We believe that presentation using
the average
exchange
rates
per
month
compared
with
the
average
exchange
rate
per
quarter
and
for
the
year
improves
the
accuracy
of
the
information presented in our
external financial reporting and
leads to fewer
differences between our external reporting
measures which
are supplementally presented in ZAR, and our internal management
information, which is also presented in ZAR.
Results of operations
The
discussion
of our
consolidated overall
results of
operations is
based on
amounts
as reflected
in our
audited consolidated
financial statements which are prepared in accordance
with U.S. GAAP.
We analyze our
results of operations both in U.S. dollars, as
presented in the audited consolidated financial statements, and supplementally in ZAR, because ZAR is the functional currency of the
entities which contribute the majority of our results and is the currency in which
the majority of our transactions are initially incurred
and
measured.
Presentation
of
our
reported
results
in
ZAR
is
a
non-GAAP
measure.
Due
to
the
significant
impact
of
currency
fluctuations between
the U.S. dollar
and ZAR on
our reported
results and
because we
use the
U.S. dollar as
our reporting
currency,
we believe that
the supplemental presentation
of our results
of operations in
ZAR is useful
to investors to
understand the changes
in
the underlying trends of our business.
Our
operating
segment
revenue
presented
in
“-Results
of
operations
by
operating
segment”
represents
total
revenue
per
operating segment before intercompany
eliminations. A reconciliation between
total operating segment revenue and
revenue, as well
as the reconciliation between our segment performance measure and net loss before tax (benefits) expense, is presented in our audited
consolidated financial statements in Note
21 to those statements. Our chief operating
decision maker was our Group Chief
Executive
Officer until
February 29, 2024
and has been
our Executive Chairman
since March 1,
2024, and our
Group Chief Executive
Officer
evaluated and our
Executive Chairman evaluates,
respectively,
segment performance based
on segment earnings
before interest, tax,
depreciation
and amortization
(“EBITDA”),
adjusted for
items mentioned
in the
next sentence
(“Segment Adjusted
EBITDA”) for
each operating
segment. We
do not allocate
once-off items
(as defined below),
stock-based compensation
charges, depreciation
and
amortization,
impairment
of goodwill
or other
intangible assets,
certain
lease
expenses
(“Lease expenses”),
other
items
(including
gains or
losses on
disposal of
investments,
fair value
adjustments to
equity
securities, fair
value
adjustments
to currency
options),
interest income, interest expense, income tax expense or loss
from equity-accounted investments to our reportable segments. Once-off
items represents non-recurring expense
items, including costs related to
acquisitions and transactions consummated
or ultimately not
pursued. The Lease
expenses reflect lease
expenses (refer to
Note 8 to
our audited consolidated
financial statements)
and the Stock-
based compensation
adjustments reflect
stock-based compensation
expense and
are both
excluded from
the calculation
of Segment
Adjusted EBITDA and
are therefore reported
as reconciling items to
reconcile the reportable
segments’ Segment Adjusted
EBITDA
to our loss before income tax expense.
Group Adjusted
EBITDA represents
Segment
Adjusted EBITDA
after deducting
Lease expenses
and group
costs. Refer
also
“Results of Operations-Use of Non-GAAP Measures” below.
Fiscal 2024
and 2023 includes
Connect for
the entire fiscal
year and
fiscal 2022
includes consolidation
of Connect
from April
14, 2022. Refer also to Note 3 to the audited consolidated financial statements for
additional information regarding this transaction.
We analyze our business and operations in terms of two
inter-related but independent operating segments: (1) Merchant Division
and (2)
Consumer Division.
In addition,
corporate activities
that are
impracticable to
allocate directly
to the
operating segments,
as
well as any inter-segment eliminations, are included in Group costs. Inter-segment revenue eliminations are included
in Eliminations.
Fiscal 2024 Compared to Fiscal 2023
The following factors had
a significant influence on
our results of
operations during fiscal 2024
as compared with
the same period
in the prior year:
●
Higher revenue:
Our revenues increased by 11.4% in ZAR, primarily due to an increase in low margin prepaid airtime sales
and other value-added
services, as well as
higher transaction, insurance
and lending revenues, which
was partially offset
by
lower hardware sales revenue in our POS hardware distribution business given
the lumpy nature of bulk sales;
●
Operating
income
generated:
Operating
profitability
was
achieved
following
years
of
operating
losses
as
a
result
of the
various cost reduction initiatives in Consumer implemented in prior periods as well as the contribution
from Connect;
●
Higher net interest charge:
The net interest
charge increased to
ZAR 311.2
million from ZAR 299.9
million primarily due
to higher interest rates;
●
Significant transaction costs:
We expensed $2.3 million of transaction costs related to the Adumo transaction in fiscal 2024;
and
●
Foreign exchange movements:
The U.S. dollar was 4.1% stronger against the ZAR during fiscal
2024 compared to the prior
period, which adversely impacted our U.S. dollar reported results.
Consolidated overall results of operations
This discussion is based on the amounts prepared in accordance with U.S. GAAP.
The following tables show the changes in the items comprising our statements of operations,
both in U.S. dollars and in ZAR:
Table 3
In U.S. Dollars
Year
ended June 30,
$ %
$ ’000
$ ’000
change
Revenue
564,222
527,971
7%
Cost of goods sold, IT processing, servicing and support
442,673
417,544
6%
Selling, general and administration
92,001
95,050
(3%)
Depreciation and amortization
23,665
23,685
(0%)
Impairment loss
-
7,039
nm
Transaction costs related to Adumo transaction
2,293
-
nm
Operating income (loss)
3,590
(15,347)
nm
Reversal of allowance for EMI doubtful debt receivable
-
nm
Loss on disposal of equity-accounted investment
-
nm
Interest income
2,294
1,853
24%
Interest expense
18,932
18,567
2%
Loss before income tax expense (benefit)
(12,798)
(32,266)
(60%)
Income tax expense (benefit)
3,363
(2,309)
nm
Net loss before loss from equity-accounted investments
(16,161)
(29,957)
(46%)
Loss from equity-accounted investments
(1,279)
(5,117)
(75%)
Net loss attributable to us
(17,440)
(35,074)
(50%)
Table 4
In South African Rand
Year
ended June 30,
ZAR %
ZAR ’000
ZAR ’000
change
Revenue
10,553,233
9,471,800
11%
Cost of goods sold, IT processing, servicing and support
8,280,262
7,490,739
11%
Selling, general and administration
1,720,585
1,705,196
1%
Depreciation and amortization
442,570
424,909
4%
Impairment loss
-
126,280
nm
Transaction costs related to Adumo transaction
42,561
-
nm
Operating income (loss)
67,255
(275,324)
nm
Reversal of allowance for EMI doubtful debt receivable
4,741
-
nm
Loss on disposal of equity-accounted investment
-
3,678
nm
Interest income
42,896
33,243
29%
Interest expense
354,048
333,092
6%
Loss before income tax expense (benefit)
(239,156)
(578,851)
(59%)
Income tax expense (benefit)
62,616
(41,423)
nm
Net loss before loss from equity-accounted investments
(301,772)
(537,428)
(44%)
Loss from equity-accounted investments
(24,298)
(91,799)
(74%)
Net loss attributable to us
(326,070)
(629,227)
(48%)
Revenue increased by $36.3 million (ZAR 1.1 billion), or 6.9% (in ZAR, 11.4%),
primarily due to the increase in the number of
low-margin
prepaid
airtime
vouchers
sold
and
an
increase
in
volume
of
other
value-added
services
provided,
as
well
as
higher
transaction volumes processed, insurance premiums collected
and lending revenues following an increase in loan
originations, which
was partially offset
by a lower
number of
hardware sales in
our POS hardware
distribution business
given the
lumpy nature of
bulk
sales. Refer to discussion above at “-Recent Developments”
for a description of key trends impacting our revenue this fiscal year.
Cost of goods sold, IT processing, servicing and
support increased by $25.1 million (ZAR
0.8 billion), or 6.0% (in ZAR,
10.5%),
primarily due to
the increase in low
margin prepaid airtime
sales, which were
partially offset by
the lower cost of
goods sold related
to fewer hardware sales.
Selling, general and
administration expenses decreased
by $3.0 million
(in USD 3.2%),
and increased by
ZAR 15.4 million
(in
ZAR, 0.9%)
.
In ZAR,
the modest
increase
was primarily
due to
higher employee
-related expenses
related
to the
expansion of
our
senior management team and the year-over-year
impact of inflationary increases on employee-related
expenses, which were partially
offset by the benefits of various cost reduction initiatives in Consumer
.
Depreciation and amortization expense decreased by $0.02
million (in USD, 0.1%),
and increased by ZAR 17.7 million
(in ZAR,
4.2%).
In ZAR, the increase was due to an increase in depreciation expense related to additional POS devices
deployed.
During fiscal 2023, we
recorded an impairment loss
of $7.0 million related
to the impairment of
our hardware/ software supply
business
unit’s
allocated
goodwill.
Refer
to
Note
of
our
audited
consolidated
financial
statements
for
additional
information
regarding these impairment losses.
Transaction costs related to Adumo
acquisition includes fees
paid to external
service providers associated
with legal, commercial,
financial and tax due
diligence activities performed,
fees paid to legal advisors
to draft the purchase
agreement as well as
other legal
and advisory services procured related to the transaction.
Our operating income
(loss) margin in
fiscal 2024 and 2023
was 0.6% and (2.9%),
respectively.
We
discuss the components of
operating loss margin under “-Results of operations
by operating segment.”
We
did
not
record
any
changes
in
the
fair
value
of
equity
interests
in
MobiKwik
and
Cell
C
during
fiscal
and
2023,
respectively.
We continue
to carry our investment
in Cell C at $0
(zero). Refer to Note
9 to our consolidated financial
statements for
the methodology
and inputs used
in the fair
value calculation for
MobiKwik and Note
6 for the
methodology and
inputs used in
the
fair value calculation for Cell C.
During fiscal 2024, we
received an outstanding amount
of $0.3 million related
to the sale
of Carbon in fiscal
2023, which resulted
in the reversal
of an allowance
for doubtful
loans receivable
of $0.3
million recorded
in fiscal 2023.
We
recorded a
net loss of
$0.2
million comprising a
loss of $0.4 million
related to the disposal of
a minor portion of
our investment in Finbond
and a $0.25 million
gain related to the disposal of our entire interest in Carbon during fiscal 2023. Refer
to Note 9 to our consolidated financial statements
for additional information regarding these disposals.
Interest on
surplus cash
increased to
$2.3 million
(ZAR 42.9
million) from
$1.9 million
(ZAR 33.2
million), primarily
due to
higher interest rates.
Interest expense increased
to $18.9 million
(ZAR 354.0 million)
from $18.6 million
(ZAR 333.1 million),
primarily as a
result
of higher overall
interest rates and
higher overall borrowings
during fiscal 2024
compared with comparable
period in the
prior year,
which was partially offset by lower interest
expense incurred on certain of our borrowings
for which we were able to negotiate lower
rates of interest during the latter half of fiscal 2023 and again towards the end
of calendar 2023.
Fiscal 2024 tax
expense was $3.4
million (ZAR 62.6
million) compared to
a tax benefit
of $(2.3) million
(ZAR (41.4) million)
in
fiscal
2023.
Our
effective
tax
rate
for
fiscal
was
impacted
by
the
tax
expense
recorded
by
our
profitable
South
African
operations, a
deferred tax
benefit related
to acquisition-related
intangible asset
amortization, non-deductible
expenses, the
on-going
losses incurred by certain
of our South African businesses and
the associated valuation allowances created
related to the deferred tax
assets recognized regarding net operating losses incurred by these entities.
Our effective
tax rate for
fiscal 2024 was impacted
by a reduction
in the enacted
South African corporate
income tax rate from
28% to 27% from January 2023 (but backdated to July 1, 2022), the tax expense recorded by our profitable South African operations,
a
deferred
tax
benefit
related
to
acquisition-related
intangible
asset
amortization,
non-deductible
expenses,
a
deferred
tax
benefit
related to an expense paid by Connect before
we acquired the business and which subsequently has been
determined to be deductible
for
tax purposes,
the on-going
losses incurred
by certain
of our
South
African
businesses and
the associated
valuation
allowances
created related to the deferred tax assets recognized regarding net operating
losses incurred by these entities.
Finbond is listed on the Johannesburg Stock Exchange
and reports its six-month results during
our first half and its
annual results
during our fourth quarter.
We sold
our entire remaining interest in
Finbond during the second
quarter of fiscal 2024.
We
recorded an
impairment loss related to our
investment in Finbond in fiscal
2024 as the carrying value
of Finbond exceeded the fair
value of holding
in Finbond
using the
price of
ZAR 0.2911
per share
referenced in
the August
2023 agreement
with Finbond.
We
also recorded
an
impairment loss in fiscal 202
following on-going losses reported
by Finbond and its lower
listed share price.
Refer to Note 9 to
our
consolidated financial statements for additional information
regarding the impairments.
The table below
presents the relative loss
from
our equity accounted investments:
Table 5
Year
ended June 30,
$ %
$ ’000
$ ’000
change
Finbond
(1,445)
(5,206)
(72%)
Share of net (loss) income
(278)
(4,096)
(93%)
Impairment
(1,167)
(1,110)
5%
Other
87%
Share of net income (loss)
87%
Total
loss from equity-accounted investment
(1,279)
(5,117)
(75%)
Results of operations by operating segment
The composition of revenue and the contributions of our business activities to operating
(loss) income are illustrated below:
Table 6
In U.S. Dollars
Year
ended June 30,
% of
% of
%
Operating Segment
$ ’000
total
$ ’000
total
change
Consolidated revenue:
Merchant
498,314
89%
463,701
88%
7%
Consumer
69,211
12%
62,801
12%
10%
Subtotal: Operating segments
567,525
101%
526,502
100%
8%
Not allocated to operating segments
-
-
1,469
-
nm
Corporate/Eliminations
(3,303)
(1%)
-
-
nm
Total
consolidated revenue
564,222
100%
527,971
100%
7%
Group Adjusted EBITDA:
Merchant
(1)
33,368
90%
33,531
135%
(0%)
Consumer
(1)
14,650
40%
3,314
13%
342%
Lease expenses
(2)
(3,238)
(9%)
(2,906)
(11%)
11%
Group costs
(7,844)
(21%)
(9,109)
(37%)
(14%)
Group Adjusted EBITDA (non-GAAP)
(3)
36,936
100%
24,830
100%
49%
(1) Segment Adjusted EBITDA for Merchant includes retrenchments costs of $0.3 million and Consumer includes retrenchment
costs of $0.2 million for fiscal 2024.
(2) Lease expenses
which were previously
excluded from the
calculation of Group
Adjusted EBITDA have
now been included
in the calculation. This change is
in response to comments received from
the staff of the SEC in
March 2024 regarding our non-GAAP
financial reporting. Comparative information has been adjusted to conform
with the updated presentation.
(3) Group Adjusted EBITDA is a non-GAAP measure, refer to reconciliation below
at “-Results of Operations-Use of Non-
GAAP Measures”.
Table 7
In South African Rand
Year
ended June 30,
% of
% of
%
Operating Segment
ZAR ’000
total
ZAR ’000
total
change
Consolidated revenue:
Merchant
9,320,468
89%
8,318,796
88%
12%
Consumer
1,294,632
12%
1,126,650
12%
15%
Subtotal: Operating segments
10,615,100
101%
9,445,446
100%
12%
Not allocated to operating segments
-
-
26,354
-
nm
Corporate/Eliminations
(61,867)
(1%)
-
-
nm
Total
consolidated revenue
10,553,233
100%
9,471,800
100%
11%
Group Adjusted EBITDA:
Merchant
(1)
624,111
90%
601,546
135%
4%
Consumer
(1)
274,190
40%
59,453
13%
361%
Lease expenses
(2)
(60,543)
(9%)
(52,134)
(11%)
16%
Group costs
(146,815)
(21%)
(163,415)
(37%)
(10%)
Group Adjusted EBITDA (non-GAAP)
(3)
690,943
100%
445,450
100%
55%
(1)
Segment
Adjusted
EBITDA
for
Merchant
includes
retrenchments
costs
of
ZAR
4.9
million
and
Consumer
includes
retrenchment costs of ZAR 3.5 million for fiscal 2024.
(2) Lease expenses
which were previously
excluded from the
calculation of Group
Adjusted EBITDA have
now been included
in the calculation. This change is
in response to comments received from
the staff of the SEC in
March 2024 regarding our non-GAAP
financial reporting. Comparative information has been adjusted to conform
with the updated presentation.
(3) Group Adjusted EBITDA
is a non-GAAP measure, refer
to reconciliation below at
“-Results of Operations-Use of
Non-
GAAP Measures”.
Merchant
Segment revenue increased due to the increase in prepaid airtime vouchers
sold and other value-added services provided, which
was partially offset
by a lower
number of
hardware sales in
our POS hardware
distribution business
given the
lumpy nature of
bulk
sales as
well as
lower revenue
generated
from a
decrease
in certain
valued-added
services transaction
volumes processed
(such
as
international money transfers). In ZAR, the increase in Segment Adjusted EBITDA
is primarily due to the higher sales activity, which
was partially offset by lower hardware sales
Prepaid airtime sales
In South Africa and other countries, mobile network operators (“MNOs”) offer prepaid or contract (or postpaid) services to their
customers to telephony
services using a
mobile telephony network
or networks. MNOs
also offer similar
products (prepaid or
postpaid)
for mobile data
which uses other
wireless network protocols
such as wireless
fidelity (“wifi”).
We
use the term
“prepaid airtime”
to
include both of these prepaid products.
Generally speaking, the difference between the two
models is that prepaid is
paid for upfront by the
customer and contract is paid
in arrears. MNOs sell prepaid products directly to their customers and also indirectly
to their customers through distribution channels
(which include wholesalers, retailers and other parties, including ourselves).
We sell
a variety of products through our
distribution channels, including prepaid airtime,
prepaid electricity,
gaming vouchers.
We refer to these
products collectively as VAS.
In order to “load” airtime onto
a mobile device an MNOs customer
requires a prepaid airtime voucher. A unique code is
assigned
to each prepaid
airtime voucher and
is required to
activate the prepaid
airtime on a
mobile device. Like
certain tangible goods,
once
sold, our
customers cannot
return prepaid
airtime vouchers
to us (except
of course
if there is
a defect
in the
service provided
by us,
which rarely occurs).
We
can either
purchase an
agreed quantity
of prepaid
airtime vouchers
upfront directly
from
wholesalers or
other parties
(so
called “Pinned airtime” - these electronic vouchers are stored
on a server owned and maintained by us and we treat
these vouchers as
inventory)
or
we
can
“interface”
directly
into
a
wholesaler
and
deliver
the
airtime
voucher
directly
to
our
customers
(typically
merchants) as the airtime is sold by the merchant to MNOs customers (so called Pinless airtime).
Our Segment
Adjusted EBITDA
(loss) margin
(calculated as
Segment Adjusted
EBITDA (loss)
divided by
revenue) in
fiscal
2024 and 2023 was 6.7% and 7.2%, respectively.
Consumer
Segment revenue increased
primarily due to
more transaction fees
generated from the
higher EPE account
holders base, higher
insurance revenues, and an increase
in lending revenue as
a result of an
increase in loan originations.
This increase in revenue,
together
with the cost reduction
initiatives initiated in fiscal
2022 and through
fiscal 2023, have
translated into a turnaround
in the Consumer
Division and
the realization
of sustained
positive Segment
Adjusted EBITDA
in fiscal
2024 compared
with fiscal
2023. Consumer
Segment Adjusted
EBITDA during
fiscal 2024
was also
impacted by
higher credit
losses (as
a result
of an increase
in originations)
and higher insurance-related claims (as a result of a higher number of
insurance policies) compared with fiscal 2023.
Our Segment Adjusted EBITDA margin in fiscal 2024
and 2023
was 21.2% and 5.3%, respectively.
Group costs
Our group
costs primarily
include employee
related costs
in relation
to employees
specifically hired
for group
roles and
costs
related
directly
to
managing
the
US-listed
entity;
expenditures
related
to
compliance
with
the
Sarbanes-Oxley
Act
of
2002;
non-
employee directors’ fees; legal fees; group and US-listed related audit
fees; and directors’ and officers’ insurance premiums.
Our group costs for
fiscal 2024 decreased compared
with the prior period
due to lower external
audit, legal and consulting
fees
and lower provision for executive bonuses, which was partially offset
by higher employee costs and travel expenses.
Fiscal 2023 Compared to Fiscal 2022
The following factors had
a significant influence on
our results of
operations during fiscal
2023 as compared with
the same period
in the prior year:
●
Higher revenue:
Our revenues
increased by
180.0% in
ZAR, primarily
due to
the contribution
from Connect
in Merchant
and an increase in account fees and insurance revenues in Consumer;
●
Lower operating
losses:
Operating
losses decreased,
delivering
an improvement
of 55%
in ZAR
compared
with the
prior
period
primarily
due
to
the
contribution
from
Connect,
strong
hardware
sales,
and
the
implementation
of
various
cost
reduction
initiatives
in
Consumer,
which
was
partially
offset
by
an
increase
in
acquisition
related
intangible
asset
amortization;
●
Higher
net
interest
charge:
The
net
interest
charge
increased
to
ZAR
299.9
million
from
ZAR
56.9
million
due
to
the
additional borrowings
incurred in
order to
fund the
acquisition of
Connect as
well as
the debt
acquired within
the Connect
business itself;
●
Significant transaction costs:
We expensed $6.0 million of transaction
costs related to
the Connect acquisition in
fiscal 2022;
and
●
Foreign exchange movements:
The U.S. dollar was 18.0% stronger against the ZAR
during fiscal 2023, which impacted our
reported results.
The following tables show the changes in the items comprising our statements of
operations, both in U.S. dollars and in ZAR:
Table 8
In U.S. Dollars
Year
ended June 30,
$ %
$ ’000
$ ’000
change
Revenue
527,971
222,609
137%
Cost of goods sold, IT processing, servicing and support
417,544
168,317
148%
Selling, general and administration
95,050
74,993
27%
Depreciation and amortization
23,685
7,575
213%
Impairment loss
7,039
-
nm
Reorganization costs
-
5,894
nm
Transaction costs related to Connect acquisition
-
6,025
nm
Operating loss
(15,347)
(40,195)
(62%)
Gain related to fair value adjustment to currency options
-
3,691
nm
Loss on disposal of equity-accounted investment
(45%)
Gain on disposal of equity securities
-
nm
Interest income
1,853
2,089
(11%)
Interest expense
18,567
5,829
219%
Loss before income tax (benefit) expense
(32,266)
(39,900)
(19%)
Income tax (benefit) expense
(2,309)
nm
Net loss before loss from equity-accounted investments
(29,957)
(40,227)
(26%)
Loss from equity-accounted investments
(5,117)
(3,649)
40%
Net loss attributable to us
(35,074)
(43,876)
(20%)
Table 9
In South African Rand
(US GAAP)
Year
ended June 30,
ZAR %
ZAR ’000
ZAR ’000
change
Revenue
9,471,800
3,383,166
180%
Cost of goods sold, IT processing, servicing and support
7,490,739
2,558,047
193%
Selling, general and administration
1,705,196
1,139,728
50%
Depreciation and amortization
424,909
115,123
269%
Impairment loss
126,280
-
nm
Reorganization costs
-
89,576
nm
Transaction costs related to Connect acquisition
-
91,567
nm
Operating loss
(275,324)
(610,875)
(55%)
Gain related to fair value adjustment to currency options
-
56,095
nm
Loss on disposal of equity-accounted investment
3,678
5,714
(36%)
Gain on disposal of equity securities
-
10,942
nm
Interest income
33,243
31,748
5%
Interest expense
333,092
88,587
276%
Loss before income tax (benefit) expense
(578,851)
(606,391)
(5%)
Income tax (benefit) expense
(41,423)
4,970
nm
Net loss before loss from equity-accounted investments
(537,428)
(611,361)
(12%)
Loss from equity-accounted investments
(91,799)
(55,457)
66%
Net loss attributable to us
(629,227)
(666,818)
(6%)
Revenue increased by $305.4 million (ZAR 6.1 billion), or 137.2% (in ZAR, 180.0%), primarily due to the inclusion of Connect
for
the entire
fiscal year,
which has
substantial low
margin
prepaid
airtime sales
in addition
to its
core processing
revenue and
an
increase in account fees and insurance revenues.
Cost of
goods sold,
IT processing,
servicing and
support increased
by $249.2
million (ZAR
4.9 billion),
or 148.1%
(in ZAR,
192.8%), primarily due to the inclusion of Connect,
which were partially offset by the benefits of
various cost reduction initiatives in
Consumer and lower insurance-related claims.
Selling, general and administration expenses increased by $20.1 million (ZAR 0.6 billion), or 26.7% (in ZAR, 49.6%), primarily
due
to
higher
employee-related
expenses
related
to
the
expansion
of
our
senior
management
team,
the
year-over-year
impact
of
inflationary
increases
on
employee-related
expenses
and
the
inclusion
of
expenses
related
to
Connect’s
operations,
which
were
partially offset by the benefits of various cost reduction initiatives in Consumer.
Depreciation and
amortization expense
increased by
$16.1 million
(ZAR 309.8
million), or
212.7% (in
ZAR, 269.1%),
due to
the
inclusion
of
acquisition-related
intangible
asset
amortization
related
to
intangible
assets
identified
pursuant
to
the
Connect
acquisition, as well as the inclusion of depreciation expense related to
Connect’s property,
plant and equipment.
During fiscal 2023, we
recorded an impairment loss
of $7.0 million related
to the impairment of
our hardware/ software supply
business
unit’s
allocated
goodwill.
Refer
to
Note
of
our
audited
consolidated
financial
statements
for
additional
information
regarding these impairment losses.
We embarked on a retrenchment process on January 10, 2022, and incurred reorganization expenses of $5.9 million during fiscal
2022.
Transaction
costs related
to Connect
acquisition in
fiscal 2022
includes fees
paid to
external service
providers associated
with
the contract drafting and negotiations; corporate finance advisory services; legal, financial and tax due diligence
activities performed;
warranty and
indemnity insurance
related to the
transaction; and other
advisory services procured;
as well as
our portion
of the fees
paid to competition authorities related to the regulatory filings made in
various jurisdictions.
Our operating loss
margin in fiscal
and 2022
was
(2.9%) and
(18.1%), respectively.
We
discuss the
components of operating
loss margin under “-Results of operations by operating
segment.”
We
did
not
record
any
changes
in
the
fair
value
of
equity
interests
in
MobiKwik
and
Cell
C
during
fiscal
and
2022,
respectively.
We continue
to carry our investment
in Cell C at $0
(zero). Refer to Note
9 to our consolidated financial
statements for
the methodology
and inputs used
in the fair
value calculation for
MobiKwik and Note
6 for the
methodology and
inputs used in
the
fair value calculation for Cell C.
Gain related to fair value adjustment to currency options
represents the realized gain related to foreign exchange
option contracts
entered into in November 2021
in order to manage the risk of
currency volatility and to fix
the USD amount to be utilized
for part of
the Connect purchase
consideration settlement. The
foreign exchange option
contracts matured on
February 24, 2022.
Refer to Note
6 to our consolidated financial statements for additional information
related to these currency options.
We
recorded
a
net
loss
of
$0.2
million
comprising
a
loss
of
$0.4
million
related
to
the
disposal
of
a
minor
portion
of
our
investment in Finbond and a $0.25 million gain related to
the disposal of our entire interest in Carbon
during fiscal 2023. We recorded
a loss of $0.4
million related to the disposal of a minor portion of our
investment in Finbond during fiscal 2022. Refer to Note 9 to
our
consolidated financial statements for additional information regarding
these disposals.
We recorded
a gain of $0.7 million related to the disposal of our entire interest
in an equity security during fiscal 2022. Refer to
Note 9 to our consolidated financial statements for additional information
regarding this gain.
Interest on surplus cash decreased to $1.9 million (ZAR
33.2 million) from $2.1 million (ZAR 31.7 million), primarily
due to the
inclusion of Connect, which was partially offset by lower overall surplus
cash balances following the acquisition of Connect.
Interest expense increased
to $18.6 million
(ZAR 333.1 million)
from $5.8 million
(ZAR 88.6 million),
primarily as a result
of
additional
interest
expense
incurred
related
to
borrowings
obtained
to
partially
fund
the acquisition
of
Connect,
interest
expenses
incurred in Connect to fund our cash management, digitization and VAS offerings, and a higher utilization of our facilities to fund our
ATMs,
which was also coupled with an increase in base interest rates.
Fiscal 2023
tax benefit was $(2.3) million (ZAR (41.4) million) compared
to a tax expense of $0.3 million (ZAR 5.0 million) in
fiscal 2022. Our effective tax rate for fiscal 2023 was impacted by a reduction in
the enacted South African corporate income tax rate
from
28%
to
27%
from
January
(but
backdated
to
July
1,
2022),
the
tax
expense
recorded
by
our
profitable
South
African
operations, a deferred
tax benefit related to
acquisition-related intangible asset
amortization, non-deductible
expenses, a deferred tax
benefit related
to an
expense paid
by Connect
before we
acquired the
business and
which subsequently
has been
determined to
be
deductible
for
tax
purposes,
the
on-going
losses
incurred
by
certain
of
our
South
African
businesses
and
the
associated
valuation
allowances created related to the deferred tax assets recognized regarding
net operating losses incurred by these entities.
Our effective
tax rate
for fiscal
2022 was
impacted by
the tax
expense recorded
by our
profitable South
African operations,
a
deferred
tax
benefit
related
to
acquisition-related
intangible
asset
amortization,
non-deductible
expenses
(including
transaction
expenses
related
to
the
acquisition
of
Connect),
the
on-going
losses
incurred
by
certain
of
our
South
African
businesses
and
the
associated valuation allowances created
related to the deferred
tax assets recognized regarding
net operating losses incurred
by these
entities.
Finbond is listed on the Johannesburg Stock Exchange
and reports its six-month results during
our first half and its
annual results
during
our fourth
quarter.
We
recorded
impairment
losses related
to
our investment
in Finbond
in fiscal
following
on-going
losses reported
by Finbond
and its
lower listed
share price.
Refer to
Note 9
to our
consolidated
financial statements
for additional
information regarding the impairments.
The table below presents the relative loss from our equity accounted investments:
Table 10
Year
ended June 30,
$ ’000
$ ’000
$ % change
Finbond
(5,206)
(3,665)
42%
Share of net (loss) income
(4,096)
(3,665)
12%
Impairment
(1,110)
-
nm
Other
456%
Share of net loss
456%
Total
loss from equity-accounted investments
(5,117)
(3,649)
40%
Results of operations by operating segment
The composition of revenue and the contributions of our business activities to operating
(loss) income are illustrated below:
Table 11
In U.S. Dollars
Year
ended June 30,
% of
% of
%
Operating Segment
$ ’000
total
$ ’000
total
change
Consolidated revenue:
Merchant
463,701
88%
156,689
70%
196%
Consumer
62,801
12%
65,932
30%
(5%)
Subtotal: Operating segments
526,502
100%
222,621
100%
137%
Not allocated to operating segments
1,469
-
-
-
nm
Corporate/Eliminations
-
-
(12)
-
nm
Total
consolidated revenue
527,971
100%
222,609
100%
137%
Group Adjusted EBITDA:
Merchant
33,531
135%
12,646
(59%)
165%
Consumer
(1)
3,314
13%
(21,674)
100%
nm
Lease expenses
(2)
(2,906)
(11%)
(3,955)
19%
(27%)
Group costs
(9,109)
(37%)
(8,587)
40%
6%
Group Adjusted EBITDA (non-GAAP)
(3)
24,830
100%
(21,570)
100%
nm
(1) Consumer Segment Adjustment EBITDA for fiscal 2022 includes reorganization
cost of $5.9 million.
(2) Lease expenses which were previously excluded from the calculation of
Group Adjusted EBITDA have now been included in the
calculation. This change is in response to comments received from the staff
of the SEC in March 2024 regarding our non-GAAP
financial reporting. Comparative information has been adjusted to conform
with the updated presentation.
(3) Group Adjusted EBITDA is a non-GAAP measure, refer to reconciliation
below at “-Results of Operations-Use of Non-
GAAP Measures”.
Table 12
In South African Rand
Year
ended June 30,
% of
% of
%
Operating Segment
ZAR ’000
total
ZAR ’000
total
change
Consolidated revenue:
Merchant
8,318,796
88%
2,381,323
70%
249%
Consumer
1,126,650
12%
1,002,021
30%
12%
Subtotal: Operating segments
9,445,446
100%
3,383,344
100%
179%
Not allocated to operating segments
26,354
-
-
-
nm
Corporate/Eliminations
-
-
(178)
-
nm
Total
consolidated revenue
9,471,800
100%
3,383,166
100%
180%
Group Adjusted EBITDA:
Merchant
601,546
135%
192,197
(59%)
213%
Consumer
(1)
59,453
13%
(329,403)
100%
nm
Lease expenses
(2)
(52,134)
(11%)
(60,107)
19%
(13%)
Group costs
(163,415)
(37%)
(130,503)
40%
25%
Group Adjusted EBITDA (non-GAAP)
(3)
445,450
100%
(327,816)
100%
nm
(1) Consumer Segment Adjustment EBITDA for fiscal 2022 includes
reorganization cost of ZAR 89.6 million.
(2) Lease expenses
which were previously
excluded from the
calculation of Group
Adjusted EBITDA have
now been included
in the calculation. This change is
in response to comments received from
the staff of the SEC in
March 2024 regarding our non-GAAP
financial reporting. Comparative information has been adjusted to conform
with the updated presentation.
(3) Group Adjusted EBITDA
is a non-GAAP measure, refer
to reconciliation below at
“-Results of Operations-Use of
Non-
GAAP Measures”.
Merchant
Segment
revenue
increased
due
to
the
contribution
from
Connect
for
the
full fiscal
year
compared
with
only
two
and a
half
months in fiscal
2022. This increase
was partially offset
by lower hardware
sales revenue given
the lumpy nature
of bulk sales.
The
increase in
Segment Adjusted
EBITDA is
also due
to the inclusion
of Connect,
which was partially
offset by
lower hardware
sales.
Connect records a significant proportion of its airtime sales in revenue and cost of sales, while only earning a relatively small margin.
This significantly depresses the Segment Adjusted EBITDA margins
shown by the business.
Our Segment
Adjusted EBITDA
(loss) margin
(calculated as
Segment Adjusted
EBITDA (loss)
divided by
revenue) in
fiscal
and 2022 was 7.2% and 8.1%, respectively.
Consumer
Segment revenue increased primarily due to higher insurance revenues and higher account holder fees, though this was partially
offset by
lower ATM
transaction fees.
We
embarked on a
retrenchment process
during the third
quarter of fiscal
2022 and recorded
an expense of
$5.9 million which is
included in Segment
Adjusted EBITDA loss. The
cost reduction initiatives
we initiated in
fiscal
2022 delivered
a significant
reduction in
Consumer’s operating
expenses which
resulted in
a significantly
lower Segment
Adjusted
EBITDA
loss
compared
with
fiscal
2022.
Specifically,
expenses
associated
with
operating
a
mobile
distribution
network
were
discontinued
in
early
fiscal
2022,
and
we
have
streamlined
our
fixed
distribution
network
through
reductions
in
certain
expenses
including
employee-related
costs,
security,
guarding
and
premises costs.
In
June
we
recalibrated
our
allowance
for
doubtful
microlending finance
loans receivable
from 10%
of the
lending book
outstanding to
6.5% of
the lending
book, which
resulted in
a
release from the allowance in fiscal 2022.
Our Segment
Adjusted EBITDA loss
margin in
fiscal 2023
and 2022
was 5.3% and
(32.9%), respectively.
After adjusting for
the
reorganization
charge
our fiscal
Segment
Adjusted
EBITDA
loss margin
was
(23.9%).
Segment
Adjusted
EBITDA
loss
margin before the reorganization charge is a non-GAAP measure. We believe that the presentation of our Segment Adjusted EBITDA
loss margin
before the
reorganization
charge
is useful
to investors
to understand
the improvement
in the
operating performance
in
Consumer, before the reorganization
charge, in fiscal 2023 compared with fiscal 2022.
Group costs
Our
group
costs
for
fiscal
increased
compared
with
the
prior
period
due
to
higher
employee
costs
and
an
increase
in
directors’ and officers’ insurance premiums.
Use of Non-GAAP Measures
U.S. securities laws
require that when
we publish any
non-GAAP measures, we
disclose the reason
for using these
non-GAAP
measures and provide reconciliations to the most directly comparable GAAP measures. The presentation of Group Adjusted EBITDA
is
a
non-GAAP
measure.
We
provide
this
non-GAAP
measure
to
enhance
our
evaluation
and
understanding
of
our
financial
performance
and
trends.
We
believe
that
this
measure
is
helpful
to
users
of
our
financial
information
understand
key
operating
performance and
trends in our
business because
it excludes certain
non-cash expenses
(including depreciation
and amortization
and
stock-based compensation charges) and income
and expenses that we consider once-off in nature.
Non-GAAP Measures
Group
Adjusted
EBITDA
is
earnings
before
interest,
tax,
depreciation
and
amortization
(“EBITDA”),
adjusted
for
non-
operational transactions (including loss on disposal
of equity-accounted investments, gain related to
fair value adjustments to currency
options), (earnings)
loss from
equity-accounted investments,
stock-based compensation
charges and
once-off
items. Once-off
items
represents non-recurring income and
expense items, including
costs related to
acquisitions and transactions consummated
or ultimately
not pursued.
Lease expenses
which were
previously excluded
from the
calculation of
Group Adjusted
EBITDA have
now been
included in
the calculation. This
change is in response
to comments received from
the staff of the
SEC in March 2024
regarding our non-GAAP
financial reporting. Comparative information has been adjusted to conform
with the updated presentation.
The table below presents the reconciliation between GAAP net loss attributable
to Lesaka to Group Adjusted EBITDA:
Table 13
Years
ended June 30,
$ ’000
$ ’000
$ ’000
Loss attributable to Lesaka - GAAP
(17,440)
(35,074)
(43,876)
Loss from equity accounted investments
1,279
5,117
3,649
Net loss before loss from equity-accounted investments
(16,161)
(29,957)
(40,227)
Income tax expense (benefit)
3,363
(2,309)
Loss before income tax expense
(12,798)
(32,266)
(39,900)
Interest expense
18,932
18,567
5,829
Interest income
(2,294)
(1,853)
(2,089)
Reversal of allowance for doubtful EMI loan receivable
(250)
-
-
Gain on disposal of equity securities
-
-
(720)
Net loss on disposal of equity-accounted investment
-
Gain related to fair value adjustment to currency options
-
-
(3,691)
Operating loss
3,590
(15,347)
(40,195)
Impairment loss
-
7,039
-
PPA amortization
(amortization of acquired intangible assets)
14,419
15,149
3,826
Depreciation
9,246
8,536
3,749
Stock-based compensation charges
7,911
7,309
2,962
Once-off items
(1)
1,853
1,922
8,088
Unrealized Loss FV for currency adjustments
(83)
-
Group Adjusted EBITDA - Non-GAAP
(A)
36,936
24,830
(21,570)
(A) As noted in
footnote (3) to table
11 and 12,
Lease expenses which
were previously excluded
from the calculation of
Group
Adjusted EBITDA have now been included in the calculation.
(1) The table below presents the components of once-off
items for the periods presented:
Table 14
Years
ended June 30,
$ ’000
$ ’000
$ ’000
Transaction costs related to Adumo transaction
2,293
-
-
Transaction costs
6,460
(Income recognized) Expenses incurred related to closure of legacy
businesses
(952)
-
Non-recurring revenue not allocated to segments
-
(1,469)
-
Employee misappropriation of company funds
-
1,202
-
Indirect taxes provision
-
-
Separation of employee expense
-
-
Legacy processing adjustments
-
-
1,628
Total once-off
items
1,853
1,922
8,088
Once-off items are non-recurring in nature, however, certain
items may be reported in
multiple quarters. For instance, transaction
costs include costs incurred related to acquisitions and
transactions consummated or ultimately not pursued. The transactions can span
multiple
quarters,
for
instance
in
fiscal
we
incurred
significant
transaction
costs
related
to
the
acquisition
of
Adumo
over
a
number of quarters, and the transactions are generally non-recurring.
(Income
recognized)
Expenses
incurred
related
to
closure
of
legacy
businesses
represents
(i)
gains
recognized
related
to
the
release of
the foreign
currency translation
reserve on
deconsolidation
of a
subsidiary
and (ii)
costs incurred
related
to subsidiaries
which we are
in the process of
deregistering/ liquidation and
therefore we consider
these costs non-operational
and ad hoc in
nature.
Non-recurring revenue
not allocated
to segments
includes once
off revenue
recognized that
we believe
does not
relate to
either our
Merchant
or
Consumer
divisions.
Employee
misappropriation
of
company
funds
represents
a
once-off
loss
incurred.
Indirect
tax
provision includes non-recurring indirect taxes which have been provided related to prior periods following an on-going investigation
from a tax authority. We
incurred separation costs related to the termination of certain senior-level employees, including an executive
officer and
senior managers,
during the
fiscal year
and we consider
these specific
terminations to
be of
a non-recurring
nature. The
legacy processing
adjustments represents
amounts we
identified during
fiscal 2022
related to
prior periods
that are
payable to
third
parties.
Liquidity and Capital Resources
At June 30,
2024, our unrestricted
cash and cash
equivalents were $59.1
million and comprised
of ZAR-denominated
balances
of
ZAR
961.6
million
($52.9
million),
U.S.
dollar-denominated
balances
of
$4.5
million,
and
other
currency
deposits,
primarily
Botswana pula, of
$1.7 million, all
amounts translated at
exchange rates applicable as
of June 30,
2024. The increase in
our unrestricted
cash balances from June 30, 2023, was primarily due to a positive contribution from our Merchant
and Consumer operations, the sale
of
certain
Cell
C
prepaid
inventory
held,
higher
year
end
clearing
accounts
and
vendor
wallet
balances,
and
utilization
of
our
borrowings facilities
to fund
certain components
of our
operations, which
was partially
offset by
the utilization
of cash
reserves to
fund certain scheduled and
other repayments of our borrowings,
pay transaction related expenses,
purchase ATMs
and vaults, and to
make an investment in working capital.
We generally
invest any surplus cash held by our
South African operations in overnight
call accounts that we maintain at
South
African banking institutions,
and any surplus
cash held by
our non-South African
companies in
U.S. dollar-denominated money market
accounts.
Historically,
we have financed
most of our
operations, research and
development, working capital,
and capital expenditures,
as
well
as
acquisitions
and
strategic
investments,
through
internally
generated
cash
and
our
financing
facilities.
When
considering
whether to borrow under our financing
facilities, we consider the cost
of capital, cost of financing, opportunity cost
of utilizing surplus
cash and
availability of
tax efficient
structures to
moderate financing
costs. For
instance, in
fiscal 2022,
we obtained
loan facilities
from RMB
to fund
a portion
of our
acquisition of
Connect.
Following the
acquisition of
Connect, we
now utilize
a combination
of
short
and
long-term
facilities to
fund our
operating
activities and
a long-term
asset-backed
facility to
fund
the acquisition
of POS
devices and
safe assets.
Refer to
Note 12
to our
consolidated financial
statements for
the year
ended June
30, 2024,
for additional
information related to our borrowings.
Available short-term
borrowings
Summarized below are our short-term facilities available and utilized as of
June 30, 2024:
Table 15
RMB Facility E
RMB Indirect
RMB Connect
Nedbank
$ ’000
ZAR ’000
$ ’000
ZAR ’000
$ ’000
ZAR ’000
$ ’000
ZAR ’000
Total
short-term facilities
available, comprising:
Overdraft
-
-
-
-
11,276
205,014
-
-
Overdraft restricted as to
use
(1)
49,503
899,996
-
-
-
-
-
-
Total overdraft
49,503
899,996
-
-
11,276
205,014
-
-
Indirect and derivative
facilities
(2)
-
-
7,425
134,991
-
-
8,611
156,553
Total
short-term facilities
available
49,503
899,996
7,425
134,991
11,276
205,014
8,611
156,553
Utilized short-term
facilities:
Overdraft
-
-
-
-
9,351
170,011
-
-
Overdraft restricted as to
use
(1)
6,737
122,480
-
-
-
-
-
-
Indirect and derivative
facilities
(2)
-
-
1,821
33,106
-
-
2,105
Total
short-term facilities
available
6,737
122,480
1,821
33,106
9,351
170,011
2,105
Interest rate, based on South
African prime rate
11.75%
11.65%
(1) Overdraft may only be used to fund ATMs
and upon utilization is considered restricted cash.
(2) Indirect and derivative facilities may only be used for guarantees, letters of credit and forward
exchange contracts to support
guarantees issued by RMB and Nedbank to various third parties on our behalf.
Long-term borrowings
We have aggregate long-term
borrowings
outstanding of ZAR 2.6 billion ($143.2 million translated at exchange rates as of June
30, 2024) as
described in Note
12. These borrowings
include outstanding
long-term borrowings
obtained by Lesaka
SA of ZAR
1.0
billion,
including
accrued
interest,
which
was
used
to
partially
fund
the
acquisition
of
Connect.
The
Lesaka
SA
borrowing
arrangements
were amended
in March
2023 to
include
a ZAR
million
revolving
credit facility.
We
used this
revolving
credit
facility
during
the
year
ended
June
30,
2024,
and
ZAR
70.0
million
was
drawn
as
of
June
30,
2024,
with
the
remaining
balance
available for utilization in the future. In contemplation of
the Connect transaction, Connect obtained total facilities of ZAR
1.3 billion,
which were
utilized to
repay its existing
borrowings, to
fund a
portion of
its capital
expenditures and
to settle
obligations under
the
transaction documents,
and which has
subsequently been
upsized for its
operational requirements
and has an
outstanding balance
as
of June 30, 2024, of ZAR 1.2
billion, We also have a revolving credit facility, of ZAR 300.0 million which is utilized to fund a
portion
of our merchant finance loans receivable book.
Restricted cash
We
have credit
facilities with RMB
in order
to access cash
to fund
our ATMs
in South Africa.
Our cash, cash
equivalents and
restricted cash
presented in
our consolidated
statement of
cash flows
as of
June 30,
2024, includes
restricted cash
of approximately
$6.7
million
related
to
cash
withdrawn
from
our
debt
facility
to
fund
ATMs.
This
cash
may
only
be
used
to
fund
ATMs
and
is
considered restricted as to use and therefore is classified as restricted cash on
our consolidated balance sheet.
We
have also
entered into
cession and
pledge agreements
with Nedbank
related to
our Nedbank
credit facilities
and we
have
ceded and
pledged certain
bank accounts
to Nedbank.
The funds
included in
these bank
accounts are
restricted as
they may
not be
withdrawn without
the express permission
of Nedbank. Our
cash, cash equivalents
and restricted cash
presented in our
consolidated
statement of cash flows as of June 30, 2024, includes restricted cash of approximately
$0.1 million that has been ceded and pledged.
Cash flows from operating activities
Net cash
provided by
operating activities
during fiscal
was $28.8
million (ZAR
537.9 million)
compared to
$0.4 million
(ZAR 7.4 million) during fiscal
2023. Excluding the impact of
income taxes, our cash
provided by operating activities during
the fiscal
2024 was positively impacted by the contribution from Merchant and
Consumer, the sale of Cell C inventory and temporary
working
capital movements within
our merchant business
as a result
of quarter-end
transaction processing activities
closing on a
Sunday and
which were settled in the following week, which was partially offset
by growth in our consumer finance loans receivable book.
Net cash provided
by operating activities
during fiscal
2023 was $0.4
million (ZAR 7.4
million) compared
to net cash
utilized
by
operating
activities
of
$37.2
million
(ZAR
565.3
million)
during
fiscal
2022.
Excluding
the
impact
of
income
taxes,
our
cash
provided by operating activities
during fiscal 2023 was
impacted by the positive
contribution from Connect and
certain business within
our consumer
business, which was
partially offset
by growth
in our consumer
and merchant finance
loans receivable
books. During
fiscal 2023, we
observed fluctuations in
our working capital, primarily
within our merchant business,
as a result of
monthly changes
in our inventory and prepayment
account balances as a result of
payments made to secure prepaid
airtime inventory.
Certain of these
purchases were funded from our borrowing arrangements and the impact
of the funding is included in financing activities.
During fiscal 2024,
we paid our
first provisional South
African tax payments
of $2.7 million
(ZAR 49.5 million)
related to our
tax year. During fiscal 2024, we
also made our second
provisional South African tax
payments
of $2.9 million (ZAR
52.7 million
related to our 2024
tax year and received
tax refunds of $0.04
million (ZAR 0.8 million).
We
also paid taxes totaling
$0.4 million in
other tax jurisdictions, primarily in the Botswana.
During fiscal 2023,
we paid our
first provisional South
African tax payments
of $3.0 million
(ZAR 50.8 million)
related to our
2023 tax year. During fiscal 2023,
we also made
our second provisional South
African tax payments of
$4.1 million (ZAR 76.1
million
related to our
2023 tax year
and received
tax refunds of
$0.2 million (ZAR
3.8 million).
We
also paid taxes
totaling $0.4
million in
other tax jurisdictions, primarily in the Botswana.
During fiscal 2022,
we made our
first provisional South
African tax payments
of $0.6 million
(ZAR 9.1 million)
related to our
tax year. During fiscal 2022, we
also made our second
provisional South African tax
payments
of $0.7 million (ZAR
10.9 million
related to our 2022 tax year and made an additional tax payment of $0.001 million (ZAR
0.02 million) related to our 2021 tax year.
Taxes paid during
fiscal 2024, 2023 and 2022 were as follows:
Table 16
Year
ended June 30,
$
$
$
ZAR
ZAR
ZAR
‘000
‘000
‘000
‘000
‘000
‘000
First provisional payments
2,663
2,955
49,534
50,798
9,142
Second provisional payments
2,861
4,079
52,721
76,089
10,929
Taxation paid related
to prior years
12,187
Tax refund received
(38)
(210)
(300)
(768)
(3,756)
(4,542)
Total South African
taxes paid
6,127
6,839
113,674
123,404
15,548
Foreign taxes paid
7,063
6,482
2,482
Total
tax paid
6,506
7,200
1,138
120,737
129,886
18,030
We expect to make additional provisional
income tax payments in South Africa related to our 2024 tax year in the first quarter of
fiscal 2025, however, the amount was not quantifiable
as of the date of the filing of this Annual Report.
Cash flows from investing activities
Cash used
in investing
activities for
fiscal 2024
included capital
expenditures of
$12.7 million
(ZAR 236.6
million), primarily
due
to
the
acquisition
of
vaults
and
POS
devices.
During
fiscal
2024,
we
received
proceeds
of
$3.5
million
related
to
the
sale of
remaining interest in Finbond and $0.25 million related to the second (and final) tranche from the
disposal of our entire equity interest
in Carbon.
Cash used
in investing
activities for
fiscal 2023
included capital
expenditures of
$16.2 million
(ZAR 289.8
million), primarily
due to the
acquisition of ATMs
.
During fiscal 2023,
we received proceeds
of $0.25 million
related to the
first tranche (of
two) from
the disposal of our entire equity interest in Carbon and $0.4 million related to
the sale of minor positions in Finbond.
During fiscal
2022, we
paid approximately
$4.6 million
(ZAR 69.3
million), primarily
due to
the roll
out of
our new
express
branches, acquisitions of ATMs and the acquisition of
computer equipment. During fiscal
2022, we paid approximately
$202.2 million
(ZAR 2.9 billion), net of cash acquired, for 100% of Connect. We
also received funds totaling approximately $11.4
million related to
the sale of Bank
Frick in fiscal
2021, proceeds from sale of
property, plant and equipment of $4.2 million,
and proceeds of $0.9
million
and $0.7 million, respectively, related to the sale of minor positions in Finbond and from the disposal of our entire interest in Revix in
fiscal 2022.
Cash flows from financing activities
During fiscal 2024, we utilized approximately $183.0
million from our South African overdraft facilities to fund
our ATMs
and
repaid $199.6 million of these facilities. We utilized approximately
$23.7 million of our long-term borrowings to fund the acquisition
of certain
capital expenditures
and for
working capital
requirements.
We
repaid approximately
$20.1 million
of these
long-term in
accordance with our repayment schedule as
well as to settle
a portion of our revolving credit
facility utilized. We received $0.1
million
from the exercise of stock options. We also paid $1.5 million to repurchase shares from employees in order for the
employees to settle
taxes due related to the vesting of shares of restricted stock.
During fiscal 2023, we utilized approximately $520.1 million
from our South African overdraft facilities to fund our ATMs
and
our cash management business through Connect and
repaid $547.3 million of these facilities.
We utilized approximately $24.4 million
of our long-term
borrowings to settle approximately
$10.5 million of our
revolving credit facilities, fund
our merchant finance
loans
receivable business, and to fund the acquisition of certain capital expenditures.
We repaid approximately
$17.5 million of these long-
term, including approximately $10.5 million to settle our
revolving credit balance in full. We
received $0.5 million from the exercise
of stock options. We also paid $1.3 million to repurchase shares from employees in order for the employees to settle taxes due related
to the vesting of shares of restricted stock and to settle the strike price due and taxes
due related to the exercise of stock options.
During fiscal 2022, we utilized approximately $570.9 million
from our South African overdraft facilities to fund our ATMs
and
our cash management business through Connect and
repaid $525.5 million of these facilities.
We utilized approximately $78.9 million
of our long-term borrowings
to fund a portion
of the acquisition of Connect,
to fund our merchant
finance loans receivable business,
and to fund the acquisition
of certain capital expenditures. We
repaid approximately $5.6 million
of these long-term borrowings.
We
also received $0.8 million from the exercise of stock options.
Contractual Obligations
The following table sets forth our contractual obligations as of June 30, 2024:
Table 17
Payments due by Period, as of June 30, 2024 (in $ ’000s)
Total
Less than 1
year
2-3 years
3-5 years
Thereafter
Short-term credit facilities
(A)
16,088
16,088
-
-
-
Long-term borrowings
Principal repayments
(A)(B)
143,186
3,878
83,404
55,904
-
Interest payments
(A)(B)
34,010
10,136
18,291
5,583
-
Operating lease liabilities, including imputed interest
(C)
8,831
3,143
4,306
1,382
-
Purchase obligations
2,478
2,478
-
-
-
Capital commitments
-
-
-
Other long-term obligations reflected on our balance
sheet
(D)(E)
2,595
-
-
-
2,595
Total
207,517
36,052
106,001
62,869
2,595
(A) - Refer to Note 12 to our audited consolidated financial statements.
(B) - Long-term
borrowings principal
repayments for the
3-5 year period
includes all unamortized
fees as of
June 30, 2024.
Interest payments based on
applicable interest rates as of
June 30, 2024, and expected
outstanding long-term borrowings over
the period. All amounts converted from ZAR to USD using the June 30, 2024,
USD/ ZAR exchange rate.
(C) - Refer to Note 8 to our audited consolidated financial statements.
(D) - Includes policyholder liabilities of $2.6 million related to
our insurance business. All amounts are translated at exchange
rates applicable as of June 30, 2024.
(E) -
We
have excluded
cross-guarantees in
the aggregate
amount of
$0.1 million
issued as
of June
30, 2024,
to RMB
and
Nedbank
to secure
guarantees it
has issued
to third
parties on
our behalf
as the
amounts that
will be
settled in
cash are
not
known and the timing of any payments is uncertain.
Off-Balance Sheet Arrangements
We have no off
-balance sheet arrangements.
Capital Expenditures
Capital expenditures for the years ended June 30, 2024, 2023 and 2022
were as follows:
Table 18
$
$
$
ZAR
ZAR
ZAR
‘000
‘000
‘000
‘000
‘000
‘000
Consumer
1,317
3,170
1,712
24,607
56,870
26,019
Merchant
11,348
12,986
2,846
212,030
232,969
43,253
Total
12,665
16,156
4,558
236,637
289,839
69,272
Our capital expenditures
for fiscal 2024,
2023 and 2022, are
discussed under “-Liquidity
and Capital Resources-Cash
flows
from investing activities.”
All of our capital expenditures
for the past three fiscal
years were funded through
internally-generated funds, except
for certain
capital
expenditures
of
POS devices
and
safe
assets, made
by
Connect
which
were funded
through
the utilization
of asset-backed
borrowings.
We
had
outstanding
capital commitments
as of
June 30,
2024,
of $0.3
million.
We
expect
to fund
these expenditures
through
internally-generated
funds.
In
addition
to
these
capital
expenditures,
we
expect
that
capital
spending
for
fiscal
will
include acquisition
of POS devices,
safe assets, vehicles,
computer and office
equipment, as well
as for our
ATM
infrastructure and
branch
network
in
South
Africa.
These
assets
will
be
funded
through
the
use
of
internally-generated
funds
and
our
asset-backed
borrowing arrangement.

---

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A.
QUANTITATIVE
AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
We seek to manage our exposure to currency exchange, translation, interest rate, credit, microlending credit and equity price and
liquidity risks as discussed below.
Currency Exchange Risk
We are subject to currency exchange risk because we purchase components for vaults, that we assemble, and inventories that we
are required
to settle
in other
currencies, primarily
the euro,
renminbi, and
U.S. dollar.
We
have used
forward contracts
in order
to
limit our exposure
in these transactions
to fluctuations in
exchange rates between
the South African
rand (“ZAR”), on
the one hand,
and the U.S. dollar and the euro, on the other hand.
We
had no outstanding foreign exchange contracts as of June 30,
2024 and 2023.
Translation Risk
Translation risk relates to the risk that our
results of operations will vary significantly as
the U.S. dollar is our
reporting currency,
but we earn a significant amount of our revenues and
incur a significant amount of our expenses in ZAR. The U.S. dollar
to the ZAR
exchange rate has
fluctuated significantly over
the past three
years. As exchange rates
are outside our
control, there can
be no assurance
that future fluctuations will not adversely affect our results
of operations and financial condition.
Interest Rate Risk
As a result
of our normal borrowing
activities, our operating results
are exposed to fluctuations
in interest rates,
which we manage
primarily through
regular financing
activities. Interest rates
in South Africa
have been trending
upwards in recent
quarters but have,
as of the
date of this
Annual Report, stabilized and
are expected to
remain at current
levels, or perhaps
even decline moderately
towards
the last quarter of calendar 2024. We periodically evaluate the cost and effectiveness of interest rate hedging
strategies to manage this
risk.
We
generally
maintain
investments
in
cash
equivalents
and
held
to
maturity
investments
and
have
occasionally
invested
in
marketable securities.
We have
short and long-term borrowings in South
Africa as described in Note 12
to our consolidated financial statements which
attract interest
at rates
that fluctuate
based on
changes in
the South
African prime
and 3-month
JIBAR interest
rates. The
following
table illustrates the effect on
our annual expected interest charge,
translated at exchange rates
applicable as of June 30,
2024, as a result
of changes in the South African prime and 3-month JIBAR interest
rates, using our outstanding short and long-term borrowings
as of
June 30, 2024. The effect of a hypothetical 1% (i.e. 100 basis points) increase and a 1% decrease in the interest rates applicable to the
borrowings as of June 30,
2024, are shown. The
selected 1% hypothetical change does
not reflect what could be considered
the best-
or worst-case scenarios.
Table 19
As of June 30, 2024
Annual expected
interest charge
($ ’000)
Hypothetical
change in
interest rates
Impact of
hypothetical
change in
interest rates
($ ’000)
Estimated annual
expected interest
charge after
hypothetical change
in interest rates
($ ’000)
Interest on South Africa borrowings
19,930
1%
1,599
21,529
(1%)
(1,598)
18,332
Credit Risk
Credit risk
relates to
the risk of
loss that we
would incur
as a
result of non-performance
by counterparties.
We
maintain credit
risk
policies
in
respect
of
our
counterparties
to
minimize
overall
credit
risk.
These
policies
include
an
evaluation
of
a
potential
counterparty’s
financial
condition,
credit
rating,
and
other
credit
criteria
and
risk
mitigation
tools
as
our
management
deems
appropriate.
With
respect to
credit risk
on financial
instruments,
we maintain
a policy
of entering
into such
transactions only
with
South African and European financial institutions that have a credit rating
of “B” (or its equivalent) or better, as determined
by credit
rating agencies such as Standard & Poor’s, Moody’s
and Fitch Ratings.
Consumer microlending credit risk
We are exposed
to credit risk in our Consumer microlending activities, which provides unsecured short-term loans
to qualifying
customers. Credit bureau checks as well as an affordability test are conducted as part of the origination process, both of
which are line
with local regulations.
We
consider this policy to be appropriate because the affordability test we perform takes into account a variety
of
factors
such
as
other
debts
and
total
expenditures
on
normal
household
and
lifestyle
expenses.
Additional
allowances
may
be
required should the
ability of our customers
to make payments when
due deteriorate in
the future. A significant
amount of judgment
is required to assess the ultimate recoverability of these
finance loan receivables, including ongoing evaluation of the creditworthiness
of each customer.
Merchant lending
We
maintain an allowance
for doubtful finance
loans receivable related
to its Merchant
services segment with
respect to short-
term loans
to qualifying
merchant customers.
Our risk
management procedures
include adhering
to our
proprietary lending
criteria
which uses an online-system loan
application process, obtaining necessary customer transaction-history data and
credit bureau checks.
We
consider these procedures to be appropriate because it
takes into account a variety of
factors such as the customer’s credit capacity
and customer-specific risk factors when originating a loan.
Equity Securities Price Risk
Equity price risk relates to the risk
of loss that we would incur as
a result of the volatility in the exchange
-traded price of equity
securities that we hold. As of June 30, 2024, we did not have any equity securities that
were exchange-traded and held as available for
sale. Historically, exchange
-traded equity securities held as available for sale were expected to be held for an extended period of time
and we were
not concerned with
short-term equity price volatility
with respect to
these securities provided that
the underlying business,
economic and management characteristics of the company remained
sound.
The market price of these exchange-traded equity securities may fluctuate for a variety of reasons
and, consequently, the amount
we may obtain in a subsequent sale of these securities may significantly differ
from the reported market value.
Equity Securities Liquidity Risk
Equity liquidity risk
relates to the
risk of loss
that we would
incur as a
result of the
lack of liquidity
on the exchange
on which
those securities are
listed.
We
may not
be able to
sell some or
all of these
securities at one
time, or over
an extended period
of time
without influencing the exchange-traded price, or at all.
We monitor these investments for impairment and make appropriate reductions in carrying value when an impairment is deemed
to be other-than-temporary.
As of June 30, 2024, we did not own any exchange-traded equity securities.

---

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8.
FINANCIAL STATEMENTS
AND SUPPLEMENTARY
DATA
Our audited
consolidated financial
statements, together
with the
reports
of our independent
registered public
accounting firms,
appear on pages through of this Annual Report.

---

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.

---

ITEM 9A. CONTROLS AND PROCEDURES
ITEM 9A.
CONTROLS AND PROCEDURES
Evaluation of disclosure controls
and procedures
Under the
supervision and
with the
participation of
our management,
including our
Executive Chairman
and our
Group Chief
Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as
such term is defined under Rule 13a-15(e)
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Based on this evaluation, our Executive Chairman and
Group Chief
Financial Officer
concluded that
our disclosure
controls and
procedures were
not effective
as of
June 30,
2024, due
to
the material weaknesses in internal control over financial reporting as described
below.
Internal Control over Financial Reporting
Internal control over financial reporting
is a process designed
by, or under the supervision of, our
Executive Chairman and Group
Chief
Financial
Officer,
or
persons
performing
similar
functions,
and
effected
by
our
board
of
directors,
management,
and
other
personnel, to provide
reasonable assurance regarding
the reliability of
financial reporting and
the preparation of
financial statements
for external purposes in accordance with U.S. GAAP.
Internal control over financial reporting includes
those policies and procedures that
(1) pertain to the
maintenance of records that,
in reasonable detail, accurately and fairly
reflect the transactions and dispositions of
our assets; (2) provide reasonable
assurance that
transactions are recorded as
necessary to permit preparation of
financial statements in accordance
with U.S. GAAP,
and that receipts
and expenditures of the company are being made only in accordance with authorizations of our officers and directors; and (3) provide
reasonable assurance regarding prevention
or timely detection of unauthorized
acquisition, use or disposition
of our assets that could
have a material effect on our audited consolidated financial statements.
Inherent Limitations in Internal Control
over Financial Reporting
Internal control over financial reporting cannot provide absolute assurance of achieving
financial reporting objectives because of
its inherent
limitations.
Internal
control
over
financial reporting
is a
process that
involves
human
diligence
and
compliance
and
is
subject
to
lapses
in
judgment and
breakdowns
resulting
from human
failures.
Internal
control over
financial
reporting
also
can
be
circumvented by collusion or improper
management override. Because of such
limitations, there is a risk that
material misstatements
may not
be prevented
or detected
on a
timely basis
by internal
control over
financial reporting.
However,
these inherent
limitations
are known features of the financial reporting
process. Therefore, it is possible to design into the process safeguards
to reduce, though
not eliminate, this risk.
Management’s
Report on Internal Control Over Financial Reporting
Management,
including
our
Executive
Chairman
and
our
Group
Chief
Financial
Officer,
is
responsible
for
establishing
and
maintaining
adequate
internal
control
over
our
financial
reporting.
Management
conducted
an
evaluation
of
the
effectiveness
of
internal control over financial reporting based on criteria established in Internal Control - Integrated Framework
(2013) issued by the
Committee
of Sponsoring
Organizations
of the
Treadway
Commission
(COSO). Based
on this
evaluation
and as
described
below,
management concluded that our internal control over financial reporting
was not effective as of June 30, 2024.
A material
weakness is
a deficiency,
or a
combination of
deficiencies, in
internal control
over financial
reporting, such
that a
reasonable
possibility
exists that
a
material
misstatement
of
our
annual
or
interim
financial statements
would
not
be
prevented
or
detected on a timely basis.
As
of
June
30,
2024,
we
identified
material
weaknesses
related
to
information
technology
general
controls
(“ITGCs”),
specifically
insufficient
risk
assessment,
design
and
implementation,
monitoring
activities
and
training
of
individuals
to
operate
controls in the
areas of user access
and program-change management
for certain information
technology (“IT”) systems
that support
our financial reporting processes. As a result, the related process-level
IT dependent manual and automated application controls were
deemed ineffective since they could not be relied upon.
Management has also identified material weaknesses
related to insufficient design and implementation of
controls and associated
policies and procedures in
its annual goodwill
impairment assessment, resulting in
a lack of
precision in evaluating certain
assumptions
used and a lack of validation of the completeness and accuracy of data used
in the goodwill impairment model.
The material
weaknesses described
above did
not result
in any
misstatements to
our
annual
or interim
consolidated
financial
statements, and
there were
no changes
to previously
reported financial
results. However,
each of
these material
weaknesses, if
not
remedied, present a
reasonable possibility that
a misstatement to
our financial statement
accounts or disclosures
would not be
prevented
or detected on a timely basis.
Lesaka’s independent registered public accounting firm, KPMG,
Inc., who audited the
consolidated financial statements
included
in this Annual
Report, has expressed
an adverse report
on the operating
effectiveness of our
internal control over
financial reporting
as of June 30, 2024, which appears in Part II, Item 8 of this Annual Report.
Remediation of Material Weaknesses
To
address
the
material
weaknesses,
our
management,
with
the
support
of
our
IT
governance
team,
has
commenced
with
remediation of these material
weaknesses including, but not
limited to: (1) developing
and implementing a comprehensive
remediation
plan
that includes
specific actions
aimed
at educating
control owners
about
the operation
and
importance
of ITGCs,
including
the
principles and requirements of each control,
with a focus on
user access and change management
controls over IT systems that
support
financial reporting processes;
(2) enhancing and
maintaining documentation of
ITGCs to ensure
continuity in the
event of employee
or personnel
changes; (3)
implementing improved
risk assessment
procedures and
controls for
IT system
changes to
better identify
financially relevant
applications and
to enhance the
selection, development,
and monitoring of
control activities and
procedures; (4)
collaborating
closely with
internal and
external assurance
partners
to ensure
the robustness
of our
remediation
plan; (5)
creating a
goodwill
impairment
model
reviewer
checklist
that
includes
specific
review
procedures
to
be
performed
by
the
reviewer
of
the
goodwill impairment
model, who
will be required
to complete the
checklist as
evidence of
their review;
and (6) enhanced
quarterly
reporting to the Audit Committee on the remediation measures and effectiveness
of the same.
While we are actively taking steps
to implement our remediation plan, the material weaknesses
will not be deemed resolved until
the enhanced controls operate
for a sufficient period
of time and
management has confirmed
through testing that the
same are operating
effectively.
We
will continue to
monitor the remediation
plan's effectiveness
and adjust
our efforts
as needed. As
we assess and
test
our internal control over financial reporting, we may identify the need for additional
measures or modifications to the plan.
Changes in Internal Control over Financial Reporting
Except as described above,
there were no changes
in our internal control over
financial reporting during the
quarter ended June
30, 2024, that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the shareholders
and Board of Directors of Lesaka Technologies,
Inc.
Opinion on Internal Control Over Financial Reporting
We
have
audited
Lesaka
Technologies,
Inc.
and
subsidiaries’
(the
Company)
internal
control
over
financial
reporting
as
of
June 30, 2024, based
on criteria established
in
Internal Control - Integrated
Framework (2013)
issued by the
Committee of
Sponsoring
Organizations of the Treadway Commission. In our opinion, because of the effect of the material weaknesses, described below, on the
achievement of the objectives
of the control
criteria, the Company has
not maintained effective internal
control over financial reporting
as of
June 30,
2024,
based on
criteria established
in
Internal
Control
- Integrated
Framework (2013)
issued by
the Committee
of
Sponsoring Organizations of the Treadway
Commission.
We
also have
audited, in
accordance with
the standards
of the
Public Company
Accounting Oversight
Board (United
States)
(PCAOB),
the consolidated
balance sheets
of the
Company as
of June
30, 2024,
the related
consolidated
statements of
operations,
comprehensive (loss) income, changes in equity,
and cash flows for the year ended June 30, 2024, and the related
notes (collectively,
the consolidated financial
statements), and
our report
dated September 11,
2024 expressed an
unqualified opinion on
those consolidated
financial statements.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there
is a reasonable possibility that
a material misstatement of the
company’s annual
or interim financial statements will
not be prevented
or
detected
on
a
timely
basis.
Material
weaknesses
related
to
information
technology
general
controls
(“ITGCs”),
specifically
insufficient
risk assessment,
design and
implementation, monitoring
activities and
training of
individuals to
operate controls
in the
areas of
user access
and program-change
management for
certain information
technology (“IT”)
systems that
support the
financial
reporting
processes
and
insufficient
design
and
implementation
of
controls
and
associated
policies
and
procedures
in
the
annual
goodwill
impairment
assessment
have
been
identified
and
included
in
management’s
assessment.
The
material
weaknesses
were
considered in determining
the nature, timing,
and extent of
audit tests
applied in our
audit of
the 2024 consolidated
financial statements,
and this report does not affect our report on those consolidated
financial statements.
Basis for Opinion
The
Company’s
management
is
responsible
for
maintaining
effective
internal
control
over
financial
reporting
and
for
its
assessment of
the effectiveness
of internal
control over
financial reporting,
included in
the accompanying
Management’s
Report on
Internal Control over Financial Reporting. Our
responsibility is to express
an opinion on the Company’s internal control over financial
reporting based
on our
audit. We
are a
public accounting
firm registered
with the
PCAOB and
are required
to be
independent with
respect to the
Company in accordance
with the U.S. federal
securities laws and
the applicable rules
and regulations of
the Securities
and Exchange Commission and the PCAOB.
We conducted
our audit in accordance with
the standards of the PCAOB. Those
standards require that we plan
and perform the
audit to
obtain reasonable
assurance about
whether effective
internal control
over financial
reporting was
maintained in
all material
respects. Our
audit of internal
control over financial
reporting included
obtaining an understanding
of internal control
over financial
reporting,
assessing
the
risk
that
a
material
weakness
exists,
and
testing
and
evaluating
the
design
and
operating
effectiveness
of
internal control
based on the
assessed risk. Our
audit also included
performing such other
procedures as we
considered necessary
in
the circumstances. We
believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A
company’s
internal
control
over
financial
reporting
is
a
process
designed
to
provide
reasonable
assurance
regarding
the
reliability of financial
reporting and the
preparation of financial
statements for external
purposes in accordance with
generally accepted
accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted
accounting principles, and that
receipts and expenditures of
the company are being made
only in
accordance
with
authorizations
of
management
and
directors
of
the
company;
and
(3)
provide
reasonable
assurance
regarding
prevention or timely detection of
unauthorized acquisition, use, or disposition
of the company’s assets that could have
a material effect
on the financial statements.
Because
of
its
inherent
limitations,
internal
control
over
financial
reporting
may
not
prevent
or
detect
misstatements.
Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies or
procedures may deteriorate.
/s/
KPMG, Inc
KPMG, Inc.
Registered Auditors
Johannesburg, South Africa
September 11, 2024

---

ITEM 9B. OTHER INFORMATION
ITEM 9B.
OTHER INFORMATION
Our Section 16 officers and directors, as defined in Rule 16a-1(f) of the Securities
Exchange Act of 1934 (the “Exchange Act”),
may from time to time
enter into plans for the
purchase or sale of our
common stock that are
intended to satisfy the affirmative defense
conditions of Rule 10b5-1(c) of the Exchange Act. During the
quarter ended June 30, 2024, no officers or directors, as defined in
Rule
16a-1(f),
adopted
,
modified
,
or
terminated
a
“Rule
10b5-1
trading
arrangement”
or
a
“non-Rule
10b5-1
trading
arrangement,”
as
defined in Item 408 of Regulation S-K.

---

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
Information
about
our
executive
officers
is
set
out
in
Part
I,
Item
under
the
caption
“Our
Executive
Officers.”
The
other
information required
by this
Item is incorporated
by reference
to the
sections of
our definitive
proxy statement
for our
2024 annual
meeting of shareholders entitled “Board of Directors and Corporate
Governance” and “Additional Information.”

---

ITEM 11. EXECUTIVE COMPENSATION
ITEM 11.
EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the sections of our definitive proxy
statement for our 2024
annual meeting of shareholders entitled
“Executive Compensation,” “Board of
Directors and Corporate Governance-Compensation
of Directors” and “-Remuneration Committee Interlocks and Insider Participation.”

---

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER
MATTERS
The information required by this Item is incorporated by reference to the sections of our definitive
proxy statement for our 2024
annual
meeting
of
shareholders
entitled
“Security
Ownership
of
Certain
Beneficial
Owners
and
Management”
and
“Equity
Compensation Plan Information.”

---

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
ITEM 13.
CERTAIN
RELATIONSHIPS
AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by this Item is incorporated by reference to the sections of our definitive proxy
statement for our 2024
annual
meeting
of
shareholders
entitled
“Certain
Relationships
and
Related
Transactions”
and
“Board
of
Directors
and
Corporate
Governance.”

---

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
ITEM 14.
PRINCIPAL ACCOUNTANT
FEES AND SERVICES
The information required by this Item is incorporated by reference to the sections of our definitive proxy
statement for our 2024
annual meeting of shareholders entitled “Audit and Non-Audit Fees.”
PART
IV

---

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
a)
The following documents are filed as part of this report
1. Financial Statements
The following financial statements are included on pages through.
Report of the Independent Registered Public Accounting Firm
-
KPMG, Inc.
(PCAOB Firm ID
)
Report of the Independent Registered Public Accounting Firm
-
Deloitte & Touche
(South Africa) (PCAOB
Firm ID 0
)
Consolidated balance sheets as of June 30, 2024 and 2023
Consolidated statements of operations for the years ended June 30, 2024,
2023 and 2022
Consolidated statements of comprehensive (loss) income for the years ended June 30, 2024, 2023 and 2022
Consolidated statements of changes in equity for the years ended June 30, 2024, 2023 and 2022
Consolidated statements of cash flows for the years ended June 30, 2024, 2023 and 2022
Notes to the consolidated financial statements
2. Financial Statement Schedules
Financial statement schedules have been
omitted since they are
either not required, not
applicable, or the
information is otherwise
included.
(b) Exhibits
Incorporated by Reference Herein
Exhibit
No.
Description of Exhibit
Included
Herewith
Form
Exhibit
Filing Date
2.1
Sale of Shares Agreement, dated October 31, 2021,
by and among Net1 Applied Technologies South
Africa Proprietary Limited; Net1 UEPS
Technologies, Inc.; Old Mutual Life Assurance
Company (South Africa) Limited; Lirast (Mauritius)
Company Limited; SIG International Investment
(BVI) Limited; Aldgate International Limited; Ivan
Michael Epstein; PFCC (BVI) Limited; PCF
Investments (BVI) Limited; Ovobix (RF) Proprietary
Limited; Luxanio 227 Proprietary Limited; Vista
Capital Investments Proprietary Limited; Vista
Treasury Proprietary Limited; K2021477132 (South
Africa) Proprietary Limited; and Cash Connect
Management Solutions Proprietary Limited.
8-K
10.1
November 2, 2021
2.2
Sale and Purchase Agreement, dated May 7, 2024,
between Lesaka Technologies Proprietary Limited;
Lesaka Technologies, Inc. and the parties listed in
Annexure A.
8-K
10.1
May 7, 2024
3.1
Amended and Restated Articles of Incorporation
8-K
3.1
May 17, 2022
3.2
Amended and Restated By-Laws of Lesaka
Technologies, Inc.
8-K
3.2
May 17, 2022
4.1
Form of common stock certificate
10-K
4.1
September 9, 2022
4.2
Description of registrant’s securities
X
10.1*
Form of Restricted Stock Agreement
10-Q
10.49
February 7, 2023
10.2*
Form of Stock Option Agreement
10-Q
10.50
February 7, 2023
10.3*
Form of Restricted Stock Agreement (non-employee
directors)
10-Q
10.51
February 7, 2023
10.4*
Form of Indemnification Agreement
X
10.5*
Form of non-employee director agreement
10-K
10.5
August 24, 2017
10.6*
Amended and Restated 2022 Stock Incentive Plan of
Lesaka Technologies, Inc.
14A
A
September 30, 2022
10.7*
Amendment to the 2022 Amended and Restated
Stock Incentive Plan of Lesaka Technologies, Inc.
14A
B
April 22, 2024
10.8*
Employment Agreement, dated as of December 4,
2023, between Lesaka Technologies, Inc. and Ali
Mazanderani
8-K
10.1
December 4, 2023
10.9*
Option Award Agreement between Ali Mazanderani
and Lesaka Technologies, Inc.
14A
A
April 22, 2024
10.10*
Contract of Employment, dated as of June 30, 2021,
between Net1 Applied Technologies South Africa
(Pty) Ltd and Christopher Guy Butt Meyer
8-K
10.1
June 30, 2021
10.11*
Restrictive Covenants Agreement, dated as of June
30, 2021, between Net1 Applied Technologies South
Africa (Pty) Ltd and Christopher Guy Butt Meyer
8-K
10.2
June 30, 2021
10.12*
Employment Agreement, dated as of June 30, 2021,
between Net 1 UEPS Technologies, Inc. and
Christopher Guy Butt Meyer
8-K
10.3
June 30, 2021
10.13*
Restrictive Covenants Agreement, dated as of June
30, 2021, between Net 1 UEPS Technologies, Inc.
and Christopher Guy Butt Meyer
8-K
10.4
June 30, 2021
10.14*
Contract of Employment, effective February 5, 2021,
between Net1 Applied Technologies South Africa
Proprietary Limited and Lincoln Mali
8-K
10.1
February 11, 2021
10.15*
Restrictive Covenants Agreement, effective February
5, 2021, between Net1 Applied Technologies South
Africa Proprietary Limited and Lincoln Mali
8-K
10.2
February 11, 2021
10.16*
Contract of Employment, dated as of December 9,
2021, between Net1 Applied Technologies South
Africa (Pty) Ltd and Naeem Kola
8-K
10.1
December 10, 2021
10.17*
Restrictive Covenants Agreement, dated as of
December 9, 2021, between Net1 Applied
Technologies South Africa (Pty) Ltd and Naeem Kola
8-K
10.2
December 10, 2021
10.18*
Employment Agreement, dated as of December 9,
2021, between Net 1 UEPS Technologies, Inc. and
Naeem Kola
8-K
10.3
December 10, 2021
10.19*
Restrictive Covenants Agreement, dated as of
December 9, 2021, between Net 1 UEPS
Technologies, Inc. and Naeem Kola
8-K
10.4
December 10, 2021
10.20*
Employment Agreement, dated as of February 8,
2023, between Lesaka Technologies, Inc. and Steven
John Heilbron
10-Q
10.52
May 9, 2023
10.21*
Restrictive Covenants Agreement, dated as of
February 8, 2023, between Lesaka Technologies, Inc.
and Steven John Heilbron
10-Q
10.53
May 9, 2023
10.22*
First Amendment to Restrictive Covenant
Agreements, dated as of December 9, 2021
8-K
10.7
December 10, 2021
10.23*
Consulting Agreement, dated August 5, 2020, by and
between the Company and Ali Mazanderani
8-K
10.2
August 5, 2020
10.24
Facility Letter between Nedbank Limited and Net1
Applied Technologies South Africa Limited and
certain of its subsidiaries dated as of December 13,
2013 and First Addendum thereto dated as of
December 18, 2013
8-K
10.27
December 19, 2013
10.25
Letter from Nedbank Limited to Net1 Applied
Technologies South Africa Proprietary Limited and
certain of its subsidiaries, dated December 7, 2016
8-K
10.50
December 9, 2016
10.26
Policy Agreement, dated April 11, 2016, among the
Company and the IFC Investors
8-K
10.32
April 12, 2016
10.27
Cooperation Agreement, dated May 13, 2020, by and
between Net 1 UEPS Technologies, Inc. and VCP
(Proprietary) Limited
8-K
10.1
May 14, 2020
10.28
Amendment No. 1 to Cooperation Agreement, dated
December 9, 2020, by and between Net 1 UEPS
Technologies, Inc. and Value Capital Partners (Pty)
Ltd
8-K
10.1
December 10, 2020
10.29
Amendment No. 2 to Cooperation Agreement, dated
March 22, 2022, by and between Net 1 UEPS
Technologies, Inc. and Value Capital Partners (Pty)
Ltd
10-K
10.32
September 9, 2022
10.30
Securities Purchase Agreement, dated March 22,
2022, among Net1 UEPS Technologies, Inc., Net1
Applied Technologies South Africa Proprietary
Limited and Value Capital Partners Proprietary
Limited
10-Q
10.58
May 10, 2022
10.31
Amendment No. 1 to Securities Purchase Agreement
dated March 16, 2023, among Lesaka Technologies,
Inc. (formerly Net1 UEPS Technologies, Inc.),
Lesaka Technologies Proprietary Limited (formerly
Net1 Applied Technologies South Africa Proprietary
Limited) and Value Capital Partners Proprietary
Limited
8-K
10.3
March 22, 2023
10.32
Senior Facility E Agreement, dated September 26,
2018, among Net1 Applied Technologies South
Africa Proprietary Limited, FirstRand Bank Limited
(acting through its Rand Merchant Bank division), as
lender, and FirstRand Bank Limited (acting through
its Rand Merchant Bank division), as agent
8-K
10.96
October 2, 2018
10.33
Letter of Amendment, dated August 2, 2021, among
Net1 Applied Technologies South Africa Proprietary
Limited and FirstRand Bank Limited (acting through
its Rand Merchant Bank division), as lender, related
to the amendment to the Senior Facility E Agreement
8-K
10.1
August 2, 2021
10.34
Letter of Amendment, dated January 22, 2024, among
Lesaka Proprietary Limited and FirstRand Bank
Limited (acting through its Rand Merchant Bank
division), as lender, related to the amendment to the
Senior Facility E Agreement
8-K
10.1
January 23, 2024
10.35
Fifth Amendment and Restatement Agreement, dated
March 16, 2023, between Lesaka Technologies
Proprietary Limited (as borrower), and FirstRand
Bank Limited (acting through its Rand Merchant
Bank division) (as lender), and FirstRand Bank
Limited (acting through its Rand Merchant Bank
division) (as facility agent)
8-K
10.1
March 22, 2023
10.36
Amendment and Restatement Agreement, dated
November 24, 2023, between Lesaka Technologies
Proprietary Limited (as borrower), and FirstRand
Bank Limited (acting through its Rand Merchant
Bank division) (as lender), and FirstRand Bank
Limited (acting through its Rand Merchant Bank
division) (as facility agent)
8-K
10.1
December 1, 2023
10.37
First Amendment and Restatement Agreement, dated
March 22, 2023, between Cash Connect Management
Solutions Proprietary Limited (as borrower), arranged
by FirstRand Bank Limited (acting through its Rand
Merchant Bank division) (as mandated lead arranger),
and FirstRand Bank Limited (acting through its Rand
Merchant Bank division) (as facility agent)
8-K
10.2
March 22, 2023
10.38
Revolving Credit Facility Agreement, dated
November 29, 2022, between Cash Connect Capital
Proprietary Limited, the Parties Listed in Part I of
Schedule 1 (the Original Guarantors) and FirstRand
Bank Limited (acting through its Rand Merchant
Bank division) (as Lender)
8-K
10.1
December 5, 2022
Code of Ethics
X
Subsidiaries of Registrant
X
23.1
Consent of Independent Registered Public
Accounting Firm - KPMG, Inc.
X
23.2
Consent of Independent Registered Public
Accounting Firm - Deloitte & Touche (South Africa)
X
31.1
Certification of Principal Executive Officer pursuant
to Rules 13a-14(a) and 15d-14(a) under the Securities
Exchange Act of 1934, as amended
X
31.2
Certification of Principal Financial Officer pursuant
to Rules 13a-14(a) and 15d-14(a) under the Securities
Exchange Act of 1934, as amended
X
Certification pursuant to 18 USC Section 1350
X
Compensation Clawback Policy
X
101.INS
XBRL Instance Document
X
101.SCH
XBRL Taxonomy
Extension Schema
X
101.CAL
XBRL Taxonomy
Extension Calculation Linkbase
X
101.DEF
XBRL Taxonomy
Extension Definition Linkbase
X
101.LAB
XBRL Taxonomy
Extension Label Linkbase
X
101.PRE
XBRL Taxonomy
Extension Presentation Linkbase
X
Cover Page Interactive Data File (formatted as inline
XBRL and continued in Exhibit 101)
X
* Indicates a management contract or compensatory plan or arrangement.