Lesaka Technologies, Inc. (NASDAQ:LSAK) Q3 2025 Earnings Call Transcript

Lesaka Technologies, Inc. (NASDAQ:LSAK) Q3 2025 Earnings Call Transcript May 10, 2025

Phillipe Welthagen : Welcome to Lesaka Tech’s Webcast for the Third Quarter of Fiscal 2025. As a reminder, the webcast is being recorded, and the presentation can be accessed through the webcast link provided. Management will address any questions you may have at the end of the presentation. [Operator Instructions] The webcast link as well as our press release and investor presentation are available on our Investor Relations website at ir.lesakatech.com. Lesaka filed its Form 10-Q after the U.S. market closed yesterday, which is also available on our website. During this call, we will be making forward-looking statements. I ask you to look at the cautionary language contained in our Form 10-Q regarding risks and uncertainties associated with forward-looking statements.

As a domestic filer in the United States, we report our results in U.S. dollars under U.S. GAAP. However, it is important to note that our operational currency is South African rand, and as such, we analyze our performance in rand, which is non-GAAP. This assists investors in understanding the underlying trends in our business. As you know, the company’s results can be significantly affected by the currency fluctuations between the U.S. dollar and the South African rand. I will now hand over the webcast to Dan.

Daniel Smith: Thank you, Phil. Good morning and good afternoon to our respective shareholders in the U.S., South Africa, Europe and Asia. I will start the presentation by taking you through the key developments for the quarter, followed by the Group’s financial performance. Steve will present the Merchant division, Lincoln the Consumer division and Naeem the Enterprise division. Ali will conclude with the outlook for the rest of our current financial year to June 2025 and will also provide guidance for our 2026 financial year. I characterize the past quarter as one of solid traction in the strategy that we are executing against. Our Consumer division had a standout quarter with record EPE transactional account enrollments, lending and insurance originations.

It is pleasing to see the impact of the reorganization and rejuvenation of our consumer business that we undertook over the past 3 years really coming to the fore. This momentum continues into quarter four. In early March, we concluded the acquisition of Recharger with 1 month’s performance included in our Q3 results. Recharger augments our alternative payment offering and marks a turning point in the transition of the Enterprise division to contribute to our earnings. In line with the execution of our strategy, we advanced the optimization of our Merchant and Enterprise divisions. We are building a multi-product fintech platform organized around our customers with M&A being a key part of our strategy. The acquisition of Adumo in quarter two of this financial year has significantly expanded our Merchant division.

As we continue to scale, the integration of product and people is core to our success, and we place a great deal of importance on the optimization, integration and augmentation of our investments. This process also includes realigning our capital allocation and efforts towards areas where we see significant growth, but equally being pragmatic in downscaling areas in which our bets have not worked or where we deem the market opportunity not to be attractive. Whilst this comes at a cost, which was approximately ZAR 20 million for this quarter, this is a net positive for the evolution of our business. Specific details focused around the areas of impact will come through in the Merchant and Enterprise sections. In the past quarter, we also completed the strategic reset of our debt facilities.

Q&A Session

I will provide more on the impact of this further on in my section of the presentation. As mentioned in last quarter’s presentation, our non-core investment, MobiKwik, listed on the Stock Exchange of India in December last year. MobiKwik share price has been volatile and we marked it to market this quarter with a net loss of ZAR 311 million, which significantly impacted our overall financial result for the quarter. We are locked up until June 2025 and we are exploring practical and sensible paths to monetization. The proceeds from this will most likely be used to primarily reduce our gearing, further strengthening our balance sheet. We are also very proud of the launch of our employee share ownership plan during the quarter. Our employees, excluding executives and senior leadership, now own 3% of the issued share capital of Lesaka, more closely aligning their interests with the success of Lesaka.

Overall, Q3 has been a continuation of our delivery of a strong and consistent performance. We delivered revenue of ZAR 2.5 billion, net revenue of ZAR 1.36 billion and Group adjusted EBITDA of ZAR 237 million, achieving our guidance across all metrics in this quarter. Our fundamental earnings, which we believe is the most appropriate measure of our overall performance, has grown 98% year-on-year to ZAR 58 million. Our net debt to Group adjusted EBITDA ended at 2.8x for the quarter, both well within our bank covenants and our current risk appetite. Our focus is primarily on net revenue as this more accurately shows the true reflection of our business’ top-line performance. As a reminder, the difference between our revenue to net revenue is due to the accounting treatment of selling Pinned Airtime, which we have to recognize the principal rather than the commission as revenue.

It also impacts cost of sales. There is no impact of this accounting treatment on the actual profit recognized. Net revenue increased 42% year-on-year, primarily driven by the inclusion of Adumo this year and a 32% increase in Consumer. At the Group adjusted EBITDA level, we recognized a 29% increase year-on-year. This result includes approximately ZAR 20 million of reorganization costs with the integration and strategic realignment processes underway in our Merchant and Enterprise divisions. Outside of these costs, our Group adjusted EBITDA would have come in towards the top end of guidance provided for the quarter. Fundamental earnings, which in management’s view is the true reflection of our sustainable operating performance, grew 98% year-on-year to ZAR 58 million for the quarter.

At a per share level, this translates to ZAR 0.72, an increase of 60%. The primary adjustment between fundamental earnings and net income is the change in the fair value of MobiKwik, as mentioned earlier in the presentation. This quarter’s performance reflects the highest fundamental earnings since the formation of Lesaka in 2022. Cash generated from business operations increased to ZAR 277 million. Interest paid on bank borrowings decreased to ZAR 52 million with a ZAR 4.5 billion debt refinance concluding in February 2025. This represents 2 months of interest paid as we settled facilities ahead of the refinance, whereas typically it would be 3 months. Cash generated in working capital was ZAR 156 million, impacted by the timing of transaction processing at quarter end in our Merchant and Enterprise divisions, reduced inventory levels and an enhanced focus on working capital management.

Cash generated in working capital was offset by ZAR 217 million outflow in funding the growth in our Consumer and Merchant loan books. This follows a strong uptake in the enhanced consumer lending proposition and a significant uptick in our merchant lending business this quarter. Bulk airtime purchases made in Q2 unwound this quarter with an inflow of ZAR 41 million. Net cash provided by operating activities increased to a pleasing ZAR 196 million. Following the Group debt restructure, which I will explain in more detail shortly, our gross debt position has increased to ZAR 4 billion. This is primarily due to increased funding requirements for the Recharger acquisition as well as the growth in the Consumer and Merchant loan books. Cash on hand has increased from ZAR 1.1 billion to ZAR 1.3 billion.

Our net debt to Group adjusted EBITDA was 2.8x for the quarter. As part of our leverage calculation, we include the market value of our MobiKwik position at the time of reporting. Whilst this cannot be monetized currently due to lock-up restrictions, the share price can affect our net debt to Group adjusted EBITDA ratio. We have communicated to the market that we are looking to continue bringing our net debt to Group adjusted EBITDA ratio down with a medium-term objective of 2x, which we believe is comfortably serviceable and is the appropriate capital structure for the business. During the quarter, we completed the refinance of our debt facilities. The outcomes can be summarized in 3 net positives. Firstly, the refinance has resulted in a simpler and more cost-effective debt facility structure with more advantageous pricing.

Previously, our weighted average cost of debt at current market rates was approximately 12% per annum, whereas going forward, our cost of debt will be approximately 10.7% per annum. On gross debt of ZAR 4 billion, this equates to a saving of approximately ZAR 52 million a year. Secondly, we have enhanced our financial flexibility as we repay debt and have established sufficient headroom to fund growth in our business. Thirdly, the debt restructure is in partnership with RMB and Investec, 2 of South Africa’s leading commercial and investment banks. Not only has this brought the diversification in our funders, it is encouraging that our banking partners are supportive of Lesaka’s growth story and improved risk profile. We spent ZAR 83 million on CapEx this quarter, primarily driven by investment in growing our business.

ZAR 22 million of this spend relates to the rollout of our new Smart Safe product. These cash vaults are an important part of our holistic merchant offering and enables an opportunity for a greater cross-sell given South Africa is still largely a cash-dominated economy. Our growth CapEx includes software development costs related to the enhancement of our payment switch in our Enterprise division, which Naeem will talk to later. We also invested ZAR 12 million in POS devices in Kazang and Adumo to support growth in these businesses. I will hand over now to Steve, who will take you through the Merchant division KPI performance in greater detail.

Steven Heilbron: Thank you, Dan. Good afternoon and good morning, everyone. Before I discuss the Merchant division’s third quarter results and KPIs, I would like to briefly recap the key takeaways from our recent Investor Day. Firstly, Lesaka is a business that has the rare capability to serve merchants of all sizes across both formal and informal markets. This enables us to capture volume across the market spectrum from micro merchants to large national retailers, which is not common in Africa. Secondly, we are at the epicenter of the digitization trend for the markets that we serve, processing increasingly larger volumes every year, which gives us valuable data and insights into the activities and needs of our merchants. As a result, we can use this unique position to develop and sell a wide range of solutions that help our merchants across their financial life cycles.

We use these insights to provide a comprehensive suite of products encompassing software, card acquiring, cash and access to capital. Thirdly, we have a differentiated go-to-market capability that enables us to reach merchants across the 5 countries in which we operate. We continually invest in and evolve our solutions, teams, infrastructure and technology to ensure our platform and ecosystem offer holistic solutions that enhance and add value to our merchants’ businesses. Looking at our third quarter performance. Our merchant acquiring offering now has over 81,000 points of presence, demonstrating the additional scale that Adumo has brought to our merchant customer base. This acquisition enhanced our product set both in terms of hardware and software integrations, bolstering our ability to compete.

Throughput on these devices was ZAR 9.9 billion for the quarter compared to ZAR 3.9 billion a year ago. The inclusion of Adumo for the quarter accounted for the majority of this strong growth and was supported by double-digit growth in Kazang Pay. In our software business this quarter, the most notable being GAAP, we now operate 9,640 sites and generated an ARPU of approximately 3,360 per month. This business has annual recurring revenues of greater than 70%. We are beginning to see real opportunities and positive traction in the cross-sell of merchant acquiring to the GAAP customer base, which we expect to be a material throughput contribution in coming quarters. Turning to our cash KPIs, which include cash vaults and ATMs. We effectively put the bank in our merchants and micro merchant stores, enabling them to digitize cash immediately as received and reduce their cash holding risk.

Cash will continue to play a large role in the South African economy for the foreseeable future with our vaults playing an important and differentiated part of our offering. Devices grew 2% to over 4,500 with throughput growing 2% to ZAR 27.5 billion for the quarter. An encouraging indicator included in this result is strong growth in our devices state and throughput in the informal sector. This is off a relatively low base, but could be indicative of higher future growth. We have seen a significant uptick in our merchant lending business this quarter. This has been driven by interventions in our sales model, including the establishment of a dedicated sales team, access to improved merchant data and a focus on new client originations as well as repeat borrowers.

This has not been affected by any change to our credit criteria or credit policies. Credit disbursed for Q3 increased to ZAR 332 million compared to ZAR 219 million last year with a net loan book of ZAR 494 million at the 31st of March, 2025. Alternative digital payments cover prepaid solutions, including electricity, airtime, data and gaming, supplier-enabled payments and international money transfers. Our devices in field have grown 16% year-on-year to over 89,000. Prepaid solutions throughput increased 4% year-on-year to ZAR 5.3 billion. We saw good growth in our gaming products and electricity. However, increased competition in airtime and data sales held growth back. With product, hardware and distribution interventions, we aim to reposition this business back to higher growth levels.

Throughput on our supplier-enabled payments platform increased 57% year-on-year to ZAR 5.9 billion. This was driven by throughput on both international money transfers and supplier payments increasing over ZAR 1 billion year-on-year. Supplier payments, similar to international money transfers, attracts a lower commission rate than traditional prepaid solutions. This is a key component in the merchant ecosystem into which we continue to invest. This has a positive pull-through effect on our cash and card acquiring offerings, which feed the merchant wallet, enabling supplier payments. Our ARPU calculated on net revenue per device has grown 8% year-on-year. We are focusing on higher revenue sites, which will improve our ARPU potential. Turning to the financial performance of the Merchant division.

Net revenue was up 58% to ZAR 782 million with segment adjusted EBITDA up 7% to ZAR 150 million for Q3 2025. As discussed in our Q2 presentation, we have made significant investments in our Kazang business over the past year, which has resulted in an increase in our operating expenditure. In addition, as Dan explained earlier, we innovate, execute and learn quickly. During this quarter, we pulled back on some of these investments, which led to one-off reorganization costs and have impacted profitability, but has positioned us well for coming quarters. We are in exciting and dynamic times in the evolution of our merchant platform. A key component of our strategy is to differentiate ourselves by being customer-led as opposed to product-led. We are evolving our product offering to meet the various needs of our customers with no single competitor offering the range of merchant solutions and addressing as many sub-segments.

Thank you. Lincoln will now take you through the Consumer performance.

Lincoln Mali: Good morning and good afternoon, everyone. I’m pleased to report on another extremely successful quarter for the Consumer business. Today, I will focus on the quarter three results, but refer you to our recent Investor Day webcast for detailed explanations of our consumer offering, strategy and business model. Our core value proposition is built around addressing pain points of our primary market, permanent SASSA ground recipients. We currently serve 1.9 million consumers every month on our EasyPay Everywhere and EasyPay Payouts platforms. We begin the cycle by helping our consumers receive their money and deposit their funds with us. This includes helping them collect their government grants or employee benefits, which are very critical in our markets.

Then we help them manage their money. We enable them to make bill payments to hundreds of billers quickly and easily and provide them with a simple digital banking solution and Mastercard debit card to conduct their daily spending or withdrawals. Once we’ve gotten to know our customers, we can then help them borrow money. Since we can see their funding and spending activities, we can use this data to underwrite small, short to medium-term loans. For most government grant recipients, we are the only regulated credit provider for this Consumer segment in the market. And finally, we can help them protect their assets and families. We sell small amounts of insurance to help their families in case of death. Every aspect of our product suite, value proposition and distribution model are designed with this customer in mind and the results have been exceptional.

According to the latest SASSA data, we increased our market share this quarter to 13%, which is approximately 1.5 million permanent grant recipients. However, on a revenue basis, our estimated share is just under 7% of the ZAR 25 billion annual revenue opportunity in this market. As we continue to build brand in this segment through focused relevant solutions, we see substantial opportunity to sustain and accelerate our growth trajectory. Turning to our KPIs. Our performance has been driven by consumer base expansion and effective cross-selling of our lending and insurance products. Our permanent SASSA grant customer base grew 17% year-on-year to 1.5 million. Including temporary SRD grants, our total grant customer base reached 1.7 million.

Notably, the SRD grant has been extended to March 2026. We have maintained our monthly account fee at ZAR 7.50 since 2022, while continuing to improve financial outcomes through scale and product penetration. Encouragingly, a natural consequence of demand for our offering means we have had to increase capacity with our sales force now at approximately 800 sales agents compared to approximately 750 just three months ago. Our lending product tailored for the grant market has seen remarkable uptake. We launched a new variant in quarter two, which has been well received and is contributing to our success. Our micro loans are now capped at ZAR 4,000 as opposed to ZAR 2,000 before with simple terms and repayment periods up to nine months when previously it was up to 6 months.

Gross advances rose 54% year-on-year with the loan book growing 59% to ZAR 808 million. Our loan loss ratio has remained stable at approximately 6%, a strong result for this segment and a testament to the product’s value to our customers. Our insurance business has also delivered very strong results. Active policies grew 27% year-on-year to 527,000. Gross premiums written for the quarter increased 25% year-on-year to ZAR 97 million. And premium collection rates remained high at 96%, well above industry norms for this market. Cross-sell momentum remains strong with EPE account base penetration reaching 45% for loans and 34% for insurance, both up on a significantly higher base. In our EasyPay Payouts business, we now serve around 300 corporate clients and over 200,000 cardholders.

In quarter three, operational challenges at Post Bank, particularly around expiring SASSA cards led many of their customers to seek alternative banking service providers. Our strong brand and extensive distribution network, supported by targeted marketing enabled us to capture a significant share of this migration, resulting in 89,000 net new account activations. As mentioned earlier, this contributed meaningfully to our market share gains. Our cross-sell strategy continues to drive ARPU growth. With a growing number of EPE account holders using multiple products, ARPU has increased to ZAR 106 compared to ZAR 94 last quarter and ZAR 90 a year ago. March 2025 saw record lending and insurance sales with April 2025 then outperforming this record.

We expect this ARPU growth trend to continue into quarter four and beyond. These KPIs reflect another outstanding quarter for the Consumer division and resulted in revenue growth of 32% year-on-year to ZAR 446 million and the segment adjusted EBITDA increasing 65% to ZAR 117 million. This week marks a personal milestone for me. I joined Lesaka exactly four years ago. Reflecting on our journey and presenting these results, considering where we came from is truly humbling. Across the country and even in the most remote branches, I see the impact of our work, beautifully refurbished and rebranded offices, dedicated staff proudly wearing their EasyPay Everywhere uniform and many satisfied customers. We are making a meaningful difference in people’s lives.

As we grow, we remain committed to enhancing the customer experience through better distribution, service and product innovation. I am so, so proud of our consumer team, the new faces and those who have been with us since the beginning. Their dedication and resilience have been instrumental in our success. By building a value proposition centered on our customers’ needs, the Consumer division has become an invaluable contributor to Lesaka’s success. Thank you. And with that, I’ll hand over to my brother, Naeem, who will take you through the performance of our Enterprise division.

Naeem Kola: During Q3 FY ’25, we continued rebuilding and restructuring the Enterprise business. We focused on repositioning the products and services to deliver on the requirements internally within the Group and developing a robust external enterprise offering. As noted in previous quarters, during Q3, we exited the point-of-sale hardware business and incurred costs related to this that has been taken into the Q3 results. Further, we look at exiting the payment card hardware business. Although this impacts revenue and costs, we will see the benefits in FY ’26 as these products contributed negatively to EBITDA. We continue investing in and upgrading our technology as well as investing in senior executives to roll out strategy in FY ’26.

We have new products that have been launched and we are excited about the opportunities these products will deliver. We are developing our enterprise as a material Group adjusted EBITDA contributor in the coming years, which is why we are investing into it. The acquisition of the Recharger business closed in March 2025 and we have commenced integrating this business into the Group’s Enterprise division. This will be a significant contributor to the Enterprise division and will create an important position for the Group in the electricity vending business. I will talk in more detail about the business in the next slide. As mentioned earlier, FY ’25 is very much a bill year for the Enterprise division with a significant amount of uncapitalized development expenditure and restructuring costs impacting EBITDA this quarter.

The result this quarter was an EBITDA of ZAR 2 million, down from ZAR 14 million last year. EasyPay, our payment aggregator solution enabling B2B connections for bill payment and alternative payment solutions is embedded in the major retail businesses across Southern Africa as well as smaller retailers. During Q3 FY ’25, EasyPay bill payments processed ZAR 8 billion in throughput, which is up 12% on last year. On utility payments, we saw a 9% growth in throughput compared to last year, including approximately ZAR 100 million throughput for 1 month from the Recharger business. The hardware security modules business operating under the Prism brand sells very specialized high-end data security devices that are used in data centers processing sensitive information.

This business generates revenue from sales of units as well as annual maintenance contracts. We continue to see good growth and demand for products and consultancy revenues. As highlighted in last quarter’s presentation, we have officially gone live with our Prism Switch. Our Prism switch enhances our go-to-market strategy and is strategically important. We see this as a significant opportunity to continue to release synergies across the Group and internalize transaction flows. We continue to believe this unique expertise will enable the business to compete much more effectively. In Q3 FY ’25, we processed over 2 million transactions through the Switch. The Recharger acquisition closed in March ’25. Recharger is a South African prepaid electricity sub-metering and payments business [indiscernible] base of over 500,000 registered prepaid electricity meters.

We are excited by this opportunity as it expands our enterprise offerings and enables us to drive a significant strategy in electricity voucher vending through our platforms. The Recharger business provides solutions to property owners and managers to effectively manage electricity utilization through sub-meters that are installed in each unit. We sell these units through leading South African retailers. Tenants recharge meters using vouchers that are vended through Recharger using bill collectors such as EasyPay. The vending creates a significant annuity revenue that is growing through increase in number of meters and inflation in utility price increases. This creates a natural inflation hedge for the business. This creates a strong force multiplier effect as we look at cross-sell opportunities for these tenants.

The underlying KPIs of the business continue to show strong growth year-on-year. Vending throughput grew by 28% and the number of registered meters grew by 18%. The business has a 95% annuity revenue contribution and generates a free cash flow in excess of 70%. Ali will now take you through the Group’s outlook.

Ali Mazanderani: Thank you, Naeem. Good day, everyone. Turning to our guidance for full year FY ’25. We are reaffirming our revenue guidance of ZAR 10 billion to ZAR 11 billion, net revenue guidance of ZAR 5.2 billion to ZAR 5.6 billion and Group adjusted EBITDA guidance of ZAR 900 million to ZAR 1 billion. At the midpoint of the ranges, this implies a net revenue increase of 42% year-on-year and a Group adjusted EBITDA increase of 37% for FY ’25, continuing the strong growth trend of the past few years. As mentioned before, we believe net revenue, which eliminates the effect of changes in revenue mix between agency and principal sales of airtime, is a more appropriate indicator of top-line growth for our business than gross revenue.

Looking at FY ’26. We are now including revenue and net revenue guidance and confirming the Group adjusted EBITDA guidance given last quarter. For FY ’26, we anticipate revenue of ZAR 11.4 billion to ZAR 12.2 billion, net revenue of ZAR 6.4 billion to ZAR 6.9 billion and Group adjusted EBITDA of ZAR 1.25 billion to ZAR 1.45 billion. From the midpoint of FY ’25 to FY ’26 guidance, this implies 12% revenue growth, 23% net revenue growth and 42% growth in Group adjusted EBITDA. At the midpoint of the range, this would imply a Group adjusted EBITDA to net revenue margin of 20%. We are also adding a new guidance measure for FY ’26 year-end, positive net income on a U.S. GAAP basis. We expect that our Q4 FY ’25 and FY ’26 results will be driven by growth across each of our divisions.

Our Consumer division has had an excellent FY ’25 to date and we expect the momentum to continue into FY ’26. We have materially and profitably grown our EPE base over the last couple of years and there remains significant runway ahead. At the same time as this, we’ve also increased our ARPU and operating margins. The journey we went on with the consumer business in creating a customer-centric fintech under a single brand that had previously operated as disparate products serving the same customer under multiple brands is similar to the journey we are undertaking with our Merchant division. Accordingly, in the short-term in the Merchant division, the priority is unit economics, cash conversion and strong EBITDA growth with increasing margins rather than top-line growth.

We do, however, expect to grow much faster than the market. And from a product perspective, we expect this to be primarily driven by merchant acquiring and software where we benefit from secular tailwinds. The Enterprise division, which was constituted in FY ’25, is now emerging as a material contributor to EBITDA. In FY ’25, we closed down legacy businesses to focus on building strategic technology products, for example, an enhanced payment switch. We also invested in the electricity vertical, both organically and through the Recharger acquisition as we believe there is an opportunity here to increase not just the volumes we process, but also our take rate. It is a pleasure to reflect that we now have 3 engines of growth as part of the Lesaka platform, all with excellent independent prospects, but which are enhanced by the connectivity between them.

I’d like to close the presentation by taking a step back and review the progress we’ve made in Lesaka. The shape and components of the business today look very different than they did 3 years ago. From my perspective, Lesaka is effectively a 3-year-old business, the catalyst being the 2022 Connect Group acquisition. The consolidated Lesaka business at that time was sub-scale and deeply loss-making. We were driven by a vision to create a special business out of the constituent parts, not just the leading fintech in Southern Africa, but a global reference. We are well on the way. The plan is working. Management has consistently pointed to where we are going and achieved the objectives set. We have now delivered on 11 consecutive quarters of profitability guidance.

And our guidance for FY ’26 marks a milestone in that we are providing positive net income guidance for the first time. The Investor Day we had in March of this year clearly sets out the enormous opportunity ahead of us and the competitive advantage we have been building. Our FY ’26 guidance is indicative of the growing confidence we have in our ability to execute against this opportunity. We are excellently positioned today, while confident our best days are ahead of us. Thank you. I will now hand it to Phillipe to open the webcast for questions to be addressed by the management team.

Operator: [Operator Instructions]

Phillipe Welthagen : We will now open for Q&A addressing questions submitted online. [Operator Instructions] The first question is from Frank Geng at Briarwood Capital. Another excellent quarter in Consumer. Comment on your market share gains in this business? And has this continued into April and May?

Lincoln Mali: Thanks, Frank. If you just go back to what Ali was saying, we’ve made significant investments in our people, technology, the value proposition and the distribution. Those — that investment has paid off in the sense that we’ve now been able to grow our customer base by 70% year-on-year to 1.5 million customers. We now have 13% market share in that base. But what you’ve seen over the last two months is that we’ve had record sales where we’ve taken more market share than our natural market share from competitors. And that is a vindication of the strategy that we embarked on two or three years ago. So we see more growth that’s coming. We see more customers coming to us because of the value proposition that we’ve put there.

But what is also pleasing is that at the very same time that we’re growing our customer base, we’ve seen a growth in our ARPU. We’ve seen our ARPU grow from ZAR 90 a year ago to ZAR 106. So going forward, we still see, as Ali was saying, lots of good runway with both account growth and the growth in our ARPU.

Phillipe Welthagen : Our next question comes from Theo O’Neill at LHR Research. How deep could the endpoint for penetration end up?

Lincoln Mali: If you think about our penetration in the insurance space, we have invested in this product as well. We’ve grown at 27% in terms of policies. We are now sitting with over 0.5 million insurance policies in place. And we’ve got a penetration now that is above 34%. We think that, a, we can start to grow that penetration rate into the 40s, but the biggest opportunity is outside the EPE base. We’ve built a new system that will enable us to be able to go to ’26 with the SASSA base so that we can attract customers that are not EPE customers and be able to sell our product. The next opportunity is as we start to think about customers beyond the grant space, we think that our funeral policy is very competitive and will be attractive in that environment. So we still see a lot of room to grow with our insurance product, both within the EPE base, outside the EPE base into the grant space and then outside the grant space.

Phillipe Welthagen : We have a question from Ross Krige at Investec Securities. In your Investor Day, you highlighted that the merchant market is expected to grow at 10% to 15% compound annual growth rate over the next five years. That said, two of your key merchant contributors, card acquiring and ADP appear to be growing slower than the market. Can you give us any insight on why this is currently the case and what will change going forward for these businesses to grow in line with the market or higher than the market?

Steven Heilbron: Thanks, Ross. Our top-line growth metric is net revenue. This is growing at 58% year-on-year, inclusive of M&A, with our organic growth component of this being at or around the market rates previously indicated. It’s important to understand that our net revenue contribution is a function of the net revenue generated from our full product suite. Your question is specific to the net revenue on card acquiring and ADP. To clarify, we do not disclose the net revenue at a product level. But having said that, our card acquiring net revenues are growing at market and we are confident on a go-forward basis that we can continue with this momentum and exceed the market rates that we’ve previously discussed. In relation to ADP, it’s important to draw a distinction between the prepaid component and our supplier payments business.

Focusing first on the supplier payments piece, we had stunning growth in the year that just passed at 57%. This is a healthy contributor to net revenues and acts as a strong pull-through product on our cash acquiring and card acquiring services, filling our wallets from which supplier payments are enabled. On the prepaid space, we underwhelmed with growth at 4% with a correlation in net revenue around that level. Having said that, we have now a number of interventions and we are very confident that we will restore that growth rate back to the mid-teen type levels. The last point that I want to make is that over the last period, we have spent a fair amount of time organically and inorganically building our foundation, broadening out our product suites, deepening our segment penetration and distribution capability.

In the year ahead, our focus is very much now on bolstering our unit economics, achieving the operational leverages that we have previously communicated and proving our business model.

Phillipe Welthagen : Thanks, Steve. I have another question. This one is from Luca at SPG Securities. Team, please elaborate on the Enterprise division’s contribution to Group adjusted EBITDA and what in the division has caused the deterioration of this contribution to both revenue and Group adjusted EBITDA?

Daniel Smith: As mentioned in the presentation, for us, Enterprise FY ’25 was a year of rebuild and restart. We closed legacy businesses, and obviously, that had contributed negatively to both revenue and EBITDA. But we also invested into new verticals such as the switch, as Ali mentioned as well, into the electricity, both from an acquisition perspective as well as organically growing that business. We’ve also invested into our EasyPay platform, which is now ready and we’ll be launching that on a much more broader basis and into different enterprises. So as we look into FY ’26, we’re expecting contribution to be north of 10% of segment adjusted EBITDA and this becoming a more meaningful part of the business going forward.

Phillipe Welthagen : A question from Sven Thorsen at Anchor Securities. You have consistently invested in a large percentage of your growth CapEx in cash vaults, yet this appears to be a low growth business compared to your other offerings. How do you think about capital allocation in this context? Would it not be better to invest expansionary CapEx in your higher growth businesses?

Daniel Smith: Thanks, Sven. Let me address CapEx more generally. We’re in the phase of investing in our business as we develop and scale our platforms. Over the last year, we spent approximately ZAR 360 million in CapEx. And going forward, I don’t expect that to change materially. However, if you look at the guidance we have provided on earnings, our midpoint this FY ’25 to FY ’26, we expect our earnings to grow in excess of 40%. On the similar base of CapEx, one can clearly see the benefits of our investments coming through in operating leverage in our business. If I turn specifically to the question of the cash vaults, we don’t view our vaults as a stand-alone business or product. It’s part of our holistic offering to our merchants.

The vaults quite simply digitize cash. They turn it into an electronic store of value for our merchants. In time, we migrate our merchants to card acquiring to ADP sales and we layer on credit to enable them to fund and grow their businesses. These other ancillary services we offer them are asset-light and lead to attractive unit economics when taken as a whole and strong cash conversion when taken as a whole. Of course, as we more fully serve our customer needs, we will integrate these businesses more and more to achieve these economies of scale and integrated unit economics.

Phillipe Welthagen : Thanks, Dan. I can confirm all the technical issues have been resolved. I think we have time for one more question. I have another one from Frank at Briarwood Capital. To the Group, how do you think we should think about margin evolution within your Group per division and as a whole? Where should margins get to over time?

Ali Mazanderani: Thanks, Phil. I’ll take that. And thanks, Frank, for the question. So the Merchant division had a segment adjusted EBITDA to net revenue margin of about 19% in Q3 and the Consumer division of about 26%. I would note that year-on-year, the Consumer division has increased from about 21% to about 26%. So there’s a material uplift in operational leverage at play there. And we have an expectation that the margin in the Consumer division could and should be north of 30% over time. I have a similar perspective on the Merchant division. The evolution that, that business is going through, we hope and expect will mirror what was achieved within the Consumer division and an EBITDA margin of 30% there is certainly obtainable.

Within the Enterprise division, obviously, it’s an earlier stage of evolution, but we certainly believe that margins — EBITDA margins of north of 20% in the short run are achievable there. In the aggregate, the Group adjusted EBITDA to net revenue in FY ’25 was 18%. The expectation of circa 18%, it will be based on the midpoint of the guidance range. In FY ’26, we expect it to be north of 20%. So that’s effectively a 2% margin increase in a single year given that our Group adjusted EBITDA is a composite of the divisions, minus obviously, the Group costs, which will — we expect to grow far slower than revenue growth. We would trend towards a 30% Group margin in that context. And we think that, that is, as I say, achievable in the medium-term at a similar evolution as we expect to achieve between ’25 and ’26.

Phillipe Welthagen : Thank you, Ali. Those are all the questions we have time for today. For the questions that we haven’t gotten to, I will contact you directly to answer those questions. Thank you so much for attending. And have a good afternoon.