Earnings Call Transcript - LSAK Q4 2025

Operator, Operator

Welcome to Lesaka Tech's Results Webcast for the Fourth Quarter of Fiscal 2025. As a reminder, the webcast is being recorded. Management will address any questions you may have at the end of the presentation. Our results press release and investor presentation are available on our Investor Relations website at ir.lesakatech.com. During this call, we will be making forward-looking statements. I ask you to look at the cautionary language contained in our press release, Form 8-K and results presentation regarding the risks and uncertainties associated with forward-looking statements. As a domestic filer in the United States, we report 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 South African rand, which is non-GAAP. This assists investors in understanding the underlying trends in our business. I will now turn the webcast over to Ali.

Ali Zaynalabidin Mazanderani, CEO

Welcome. Fiscal year 2025 has been a strong year for Lesaka. From a financial performance perspective, we finished the year with net revenue of ZAR 5.3 billion and EBITDA of ZAR 922 million, in line with our guidance for the year. Our adjusted earnings for the year of ZAR 186 million saw a significant increase from ZAR 51 million last year, resulting in adjusted earnings per share rising from ZAR 0.80 to ZAR 2.29. In March 2025, we refinanced our existing debt facilities and expanded our banking relationships to include both RMB and Investec. Our gross debt increased as we raised capital to fund acquisitions, leading to an increase in our net debt to group adjusted EBITDA to 2.9 times using 12-month trailing EBITDA. However, if we annualize Q4 adjusted EBITDA, this would be 2.2 times, nearing our target of less than 2 times leverage. From a mergers and acquisitions perspective, in October 2024, we completed the ZAR 1.7 billion acquisition of Adumo. In March 2025, we finalized the ZAR 507 million acquisition of Recharger. In June 2025, we announced the ZAR 1.1 billion acquisition of Bank Zero and sold our entire stake in MobiKwik for ZAR 290 million. Regarding our people, we have expanded our executive team, launched a graduate recruitment program, and implemented an employee share ownership plan, aiming to be the employer of choice for mission-driven individuals. In stakeholder engagement, we launched the Association of South African payment providers in January 2025 with Lincoln Mali as president to foster collaboration with regulators and industry stakeholders. In March 2025, we held our first Investor Day to better explain our business and growth opportunities to the investor community. Our three business units are at different stages of development. Our merchant business has seen substantial growth this year with net revenue of ZAR 3 billion, a 46% year-on-year increase, and EBITDA of ZAR 657 million, up 20% year-on-year, partly driven by acquisitions. Integration of the businesses is ongoing, with a short-term focus on completing that process and optimizing unit economics, after which we expect to accelerate organic growth. Our Consumer business has had an exceptional year, growing net revenue by 35% to ZAR 1.7 billion and EBITDA by 83% to ZAR 435 million. Our Enterprise business reported a 9% decline in net revenue to ZAR 651 million, with EBITDA dropping from ZAR 55 million to ZAR 24 million as we closed noncore business units and invested in building a leading enterprise business as the third pillar of the Lesaka platform. We already see positive developments in Q4, and our Enterprise business is poised to contribute significantly to our group's EBITDA and drive growth in the coming year. At the end of this presentation, I will provide more details on the transformative Bank Zero acquisition, pending regulatory approval, as well as our outlook for FY '26 and guidance. I'll now hand it over to Dan for further details on our performance in the past quarter.

Daniel Smith, CFO

Thank you, Ali, and good day, everyone. As Ali has highlighted, Lesaka is going through a period of significant transformation, marked by strategic acquisitions, balance sheet optimization and internal restructuring as we continue to build out a fintech platform. Despite it being a very busy period in evolution, we have consistently delivered on our guidance. This quarter marks our 12th consecutive period of meeting profitability guidance, underscoring the consistency and reliability of the execution of our strategy. This quarter reflects strong financial momentum with positive contributions to both net revenue and profitability from all 3 of our divisions. Our Consumer division delivered another excellent quarter with robust growth in both top line and bottom line performance. In our Merchant division, we accelerated the integration of our micro merchant and merchant businesses as we build an integrated multiproduct platform, serving merchants of all sizes. This includes the unification of our brands under a single Lesaka identity. Some of these actions has resulted in reorganization costs being incurred as well as additional intangible amortization charges as we shortened the deemed useful lives of some of our brands. In our Enterprise division, it's been a year of build. We've refreshed our strategy, refined our core product offering and realigned the business. These changes incurred once-off reorganization costs, but Q4 now reflects the fully scaled up Enterprise division aligned with a new strategic direction. Pleasingly, the strong performance of the recently acquired Recharger business has come through for a full quarter for the first time, leading to a growing overall contribution from our Enterprise division. We completed the disposal of our major noncore asset, MobiKwik, for ZAR 290 million with the proceeds received at the end of June. These funds have been included in our cash balances and used to partially offset our debt, in line with our stated intention. We continued to optimize our balance sheet through the refinancing of the merchant blending facility, resulting in an upsize to ZAR 400 million in capacity to fund growth and a 75 basis point reduction in the overall funding cost. Turning to the numbers. Q4 has been another positive quarter with the Lesaka shape now being represented wholly for the first time through full 3-month contributions of both the Adumo and Recharger acquisitions. Net revenue was 47% higher at ZAR 1.5 billion, with group adjusted EBITDA of ZAR 306 million, up 61% on last year. Our adjusted earnings, which we believe is the most appropriate measure of our overall performance, has grown almost threefold to ZAR 80 million this quarter. On a per share basis, adjusted earnings is up from ZAR 0.32 to ZAR 0.99, representing an increase of over 200%. Our net debt to group adjusted EBITDA ratio increased from 2.5x to 2.9x at year-end. As mentioned by Ali, given this is the first quarter of full representation for Lesaka, annualizing our Q4 adjusted EBITDA results in a leverage ratio of 2.2x, approaching our target of 2x. Our focus is on net revenue as a top line KPI, which recognizes only the commissions earned on the sale of certain types of vouchers, thus eliminating volatility caused by changes in sales mix. Net revenue increased 47% year-on-year, driven primarily by the inclusion of Adumo and a stellar Consumer division performance. Enterprise division net revenue reduced 17% for the year, reflecting the restructuring of the division and the closure of noncore lines of business. At an adjusted EBITDA level, we reported a 61% year-on-year growth for the quarter to ZAR 306 million. The Merchant division's growth of 37% was primarily driven by the inclusion of Adumo this quarter compared to last year. During the quarter, we also continued to make technology investments in the micro merchant business, which are mostly recognized as operating costs and therefore, impacted our overall EBITDA growth. In the Consumer division, we have seen standout performance with growth of 106%, reflecting the increased scale of our customer base as well as success in our insurance and lending cross-sell initiatives. We also had Adumo payouts this quarter compared to the prior year with a positive contribution. The Enterprise division adjusted EBITDA increased 66%, reflective of being a bold year with the investment in the platform, closure of unprofitable business activities and reorganization costs of ZAR 8 million for the quarter. This was offset by the inclusion of Recharger for the full quarter. Taken as a whole, Q4's performance with group adjusted EBITDA in excess of ZAR 300 million provides a good indication of our current quarterly earnings run rate before taking into account seasonality, organic growth and cost savings we expect to extract as we consolidate and scale our platforms. Standing back, 2025 and this quarter in particular, had multiple significant anomalies in the income statement. This shifted the strong growth in group adjusted EBITDA to a significant overall net loss position. Let me unpack this in a bit more detail. Firstly, we recorded ZAR 239 million of transaction costs, of which ZAR 225 million arises from the post-combination compensation charges related to the Recharger acquisition. Here, the deferred portion of the purchase price paid to the seller is required to be accounted for as a compensation charge given he is providing consulting services to Lesaka for a period of time post acquisition. This is nonrecurring. Secondly, we incurred additional amortization charges related to our intangible assets, specifically brand names. As a result of the unification of our Merchant division, we accelerated the amortization of the useful lives, resulting in a noncash charge of ZAR 46 million for the quarter with a further ZAR 160 million accelerated charge expected next year. Thirdly, we recognized ZAR 335 million in noncash goodwill impairments during the quarter. It's important to note that our assessment of goodwill in aggregate has increased across each of the acquisitions we've made relative to initial assessments at the time of each transaction. However, under accounting standards, goodwill is assessed at the level of the individual cash-generating units acquired. As a result, some of the individual CGUs required impairment with there being no equivalent mechanism to raise or write up for increases in assessed goodwill and other CGUs to offset this. This is a noncash accounting charge and does not reflect the change in our confidence of the strategic value of our acquisitions nor the price paid. Fourthly, we realized a loss of ZAR 101 million on the sale of MobiKwik. Finally, we recognized a benefit of ZAR 210 million arising from the reversal of deferred tax valuation allowance. This adjustment reflects the improved profitability in our consumer lending entity, which has strengthened our confidence in the use of the significant assessed losses. This reversal is a noncash accounting benefit and it highlights the positive trajectory of our Consumer division's performance. We believe adjusted earnings per share is the most accurate reflection of our operating performance. Adjusted earnings per share accounts for fully diluted shares, including those issued for acquisitions and related to stock-based compensation. In quarter 4, our adjusted earnings per share grew by 211% to ZAR 0.99. And for the full year, it increased by 187% to ZAR 2.29. This increase underscores the strength of our underlying business and the successful execution of both organic and inorganic growth strategies being value accretive for our shareholders. We continue to see strong growth in cash generated from business operations with operating cash flow increasing by ZAR 101 million quarter-on-quarter, reaching ZAR 370 million in quarter 4. This is consistent with the sustained quarterly growth trajectory we have observed in prior periods. Working capital movements remain volatile, largely due to the timing of transactions around quarter ends, particularly in our Merchant and Enterprise divisions. In quarter 4, we utilized ZAR 42 million in working capital. We also saw increased funding requirements of ZAR 230 million, driven by strong growth in our consumer and merchant loan books. In our micro merchant business, we took advantage of bulk discount opportunities with a net ZAR 34 million investment in inventory. We paid provisional tax of ZAR 49 million in the quarter. Interest paid for the quarter increased to ZAR 139 million, primarily due to 4 months of accrued interest payments being settled in June 2025. As you'll recall, in quarter 3, only 2 months of interest were payable, owing to the timing of the conclusion of our debt refinance at the end of February 2025. The net result for the quarter is net cash utilized in operating activities of ZAR 116 million. While our net cash flow may fluctuate quarter-to-quarter, we remain confident in the cash-generating capacity of our business. Our net debt to adjusted EBITDA increased marginally from 2.8 to 2.9x. We received the proceeds from the sale of our MobiKwik shareholding this quarter, which boosted cash holdings. Our medium-term target is a net debt to adjusted EBITDA ratio of 2x, which is comfortably serviceable and an appropriate capital structure for Lesaka. Our gross debt at ZAR 4 billion does not take into account any impacts of the proposed acquisition of Bank Zero, which we anticipate closing before the end of our 2026 financial year and from which we see significant opportunity to reduce both our cost of funding and overall gross debt levels. We spent ZAR 103 million on capital expenditure this quarter and ZAR 378 million for the year. Key expenditures include the continued rollout of our new Smart Safe product, capitalized development costs and the rollout of POS acquiring devices. ZAR 33 million was spent on maintenance CapEx, primarily related to POS devices and cash vaults. Looking ahead to 2026, we expect our annual capital expenditure to remain below ZAR 400 million, in line with our disciplined investment approach. This will be roughly flat compared to 2025 despite continued growth in group adjusted EBITDA. Looking back on the quarter, we've made significant progress in establishing a scalable fintech platform. Our platform is now almost fully represented. Looking forward, we remain focused on driving sustainable growth, maintaining capital discipline and enhancing shareholder value. I will now hand over to Steve to address key developments and results in our Merchant division.

Steven Heilbron, Merchant Division Head

Thank you, Dan. When we announced the acquisition of Connect in 2022, which included offerings for small to medium merchants and micro merchants under the Kazang brand, we outlined a clear vision, one that remains unchanged today. In setting this vision, the opportunity presented included the inevitable digitization of South Africa's economy driven by secular trends and solving for the pain points of under-serviced merchants in Southern Africa. We set out to build an integrated multiproduct platform serving merchants of all sizes, ranging from micro merchants to small to medium merchants. We've been involved for 3 years and during that time, we've made significant progress in executing on this vision. The division has scaled organically and through acquisitions, product integration and cross-selling. The merchants we serve face challenges that extend well beyond accepting card payments. Our goal is to provide comprehensive solutions that help them manage their finances, operate their businesses more efficiently and ultimately succeed. We strive to build multiproduct relationships. The more services we layer, the more value we create for our merchants and the more efficient and scalable our merchant platform becomes as we integrate our tech stack. Our growth strategy remains balanced between organic initiatives and inorganic initiatives being strategic acquisitions, each designed to deepen our customer base or expand our product set as we build a scalable fintech platform. In a competitive landscape where banks, retailers and MNOs are all buying for merchant engagement, we believe Lesaka stands apart. Our comprehensive product suite spans both the formal and informal merchant sectors, giving us a differentiated value proposition with the ability to execute at scale. We are still in the early stages of our journey, but we've reached a pivotal point in the evolution of our merchant division. Let me walk you through our four key developments that impact both the year under review and our focus for the year ahead. Firstly, scale and product augmentation through the Adumo acquisition. We acquired Adumo, South Africa's largest independent payments processor to significantly scale our merchant footprint and broaden our product offering. This transaction added more than 23,000 merchants to our base. It expanded our geographical presence and opened new verticals, most notably hospitality point-of-sale software through GAAP. GAAP is the leading provider of integrated point-of-sale software and hardware to the hospitality sector in Southern Africa, servicing in excess of 9,600 sites with on-the-ground operations in South Africa, Botswana and Kenya. This acquisition positions us to ultimately offer a bundled solution of software, card acquiring, cash lending and Alternative Digital Products, creating a compelling cross-sell opportunity and reinforcing Lesaka's role as a natural consolidator in Southern African fintech. By broadening our product offering, we can put more hooks into our merchant value proposition and thereby enhance the stickiness of our relationship with each merchant. Cross-selling and bundling are central to improve our unit economics and achieving operating efficiencies that support margin expansion in the merchant division. Secondly, integration, optimization and brand consolidation. We have seen good organic growth over the past 3 years and have brought together Kazang and Connect and then added to Adumo and GAAP. We believe we have made some early progress in integrating our merchant businesses through extracting efficiencies and executing on cross-sell opportunities, but most of this opportunity is in front of us. Naturally, we have inherited duplication across product sets management structures and distribution channels. As Dan mentioned, we are consolidating our brands under a single Lesaka identity. This streamlining effort is essential to reduce complexity, eliminate duplication and unify our go-to-market strategy. This isn't the first time Lesaka has faced the challenge of streamlining operations and unifying its go-to-market strategy. A few years ago, in our Consumer division, we successfully realigned our sales force, implemented targeted sales force training and deployed a new front-end platform, Bonngwe to enable a 360-degree view of the customer. This allowed us to identify cross-sell and upsell opportunities more effectively, driving improved customer engagement and delivering better unit economics. We are now applying the same disciplined approach to our merchant division with the integration of multiple product offerings into a single and efficient platform, early but meaningful progress has been achieved. Notably, we have started to see our operating margins increase from 19% in Q3 '25 to 23% in Q4 '25. However, we recognize there's still work to be done, particularly on extracting efficiencies and executing cross-sell initiatives across Adumo and Connect. Our integration plan is underway, and consolidating our merchant brands under the Lesaka identity is a key step towards simplifying our go-to-market strategy and unlocking the same efficiencies we achieved in our Consumer division. Key levers to enhance unit economics and support our multiproduct offering include optimizing our solution set with best-of-breed technologies, unifying our digital distribution channels to maximize reach and enhance cross-sell potential, and maximizing platform efficiencies. Ultimately, it's about delivering more and better products to more merchants from a single unified platform. Thirdly, cross-sell momentum. We are seeing early signs of success in cross-selling across our merchant ecosystem with two key facets emerging. Firstly, we are driving cross-sell of cash and lending solutions into our merchant acquiring base and vice versa. This is early stage, but we have already seen positive results as merchants increasingly adopt bundled offerings that help them manage their business. Secondly, we are cross-selling merchant acquiring into our GAAP software base. Although still in its early stages, the potential is considerable. Currently, only about 10% of our software customers utilize our point-of-sale acquiring solutions, compared to global benchmarks of over 50% on the front book and 100% on the back book. This creates a clear opportunity to increase product penetration and boost merchant value. We are seeing a compelling opportunity to take this even further. Once merchant software and card acquiring are integrated, we plan to layer in lending and cash solutions. Over the medium term, we also intend to introduce an integrated banking offering, enabled by the completion of our recently announced Bank Zero transaction, further expanding the appeal of our merchant value proposition. This strategy positions Lesaka to deliver more products to more merchants, more efficiently while driving stronger unit economics and long-term growth. Globally, the most successful fintechs have distinguished themselves not by offering the lowest price per product, but by delivering comprehensive end-to-end solutions with a clear and compelling value proposition for merchants. Hence, our focus is on solving real business problems, integrating payments, software, lending and financial services into a unified platform that drives efficiency, growth and stickiness. And lastly, expansion into the licensed tavern market. Following on from our Touchsides acquisition, we have furthered our push into the licensed tavern market, a vibrant and underserviced segment of the micro merchant economy. The tavern base is now fully integrated into our micro merchant business, allowing for a shift in management's focus to selling more product to taverns specifically focusing on merchant acquiring through Kazang Pay, supplier payments through our wallet ecosystem and credit opportunities as these merchants manage their working capital cycles. We are seeing encouraging results as we layer additional products into the space, further deepening our reach and relevance in the tavern vertical. Turning to our KPIs for the quarter and the year under review. Our merchant acquiring footprint expanded to 84,541 points of presence by the end of FY '25, up from 51,880 a year ago, and includes devices from the Adumo acquisition. Most recently, our Q3 to Q4 '25, total points of presence grew by 4%, indicative of a 16% annualized growth. Kazang Pay devices grew 10% organically for FY '25. We expect mid-teens growth going forward driven by expansion in the licensed tavern vertical and conversion of ADP merchants to our acquiring platform. Throughput for the year reached ZAR 35.5 billion, including 9 months of Adumo with a 15% year-on-year growth attributable to Kazang Pay. Looking ahead, we anticipate stronger throughput growth in our micro merchant offering supported by deeper device penetration and cross-sell initiatives. In the small to medium merchant market, our focus is on increasing volumes per device through enhanced merchant engagement. GAAP sites in the field increased 5% year-on-year, exhibiting steady growth, reflecting on our GAAP revenue performance and an 8% year-on-year increase in subscription or rental revenue across both Q4 and the full fiscal year represents the strength of our recurring revenue base. These streams form the backbone of our annuity model and provide a consistent, scalable foundation for long-term growth. Our sales team is proactively moving to push unity, a more feature-rich cloud-based software solution that is priced to attract a wider customer base. This approach enables greater customer lifetime value prioritizes long-term growth and market penetration, ensuring we remain the go-to partner for restaurants looking to transform their success. GAAP Pay card processing volumes grew 26% year-on-year with only 10% of GAAP sites currently using our integrated payment solution. This is well below the global benchmark of approximately 50%. Given this cross-sell opportunity is still nascent, we are excited about the prospects related to increasing ARPU as we scale our cross-sell efforts. Our cash business reflects a tale of two cities. In the small to medium merchant sector, cash usage continues to decline with flat vault growth consistent with macro trends. In the micro-merchant market, cash remains prevalent, driving strong growth with our vaults digitizing cash by enabling merchants to deposit funds locally, avoiding bank fees and enabling instant wallet availability for stock purchases, supplier payments or transfers. Micro-merchant vault deposits grew 92% year-on-year from ZAR 7.2 billion to ZAR 13.8 billion. Now representing more than 10% of total vault throughput for the year compared to over 5% a year ago. This result is becoming a meaningful contributor to our business and a key differentiator in informal markets. Our push into this segment has opened a new growth vector, allowing us to expand in a space often seen as declining. Additionally, Adumo and Connect's integrated sales teams are unlocking revenue synergies, especially among large merchants with both cash and card needs, supporting our strategy of pricing the relationship, not the product. Our lending portfolio includes Connect's offering and Adumo's JV with retail capital. After a challenging macro environment, lending has returned to growth driven by an investment into a direct sales team dedicated to loan origination and customer relationship management and leveraging merchant transactional data. We've lowered the turnover threshold for loan qualification to improve qualifying merchants' accessibility to credit. We have not changed our credit scoring criteria and have, to date, not experienced any change to our risk ratios. Our net loan book closed at ZAR 479 million with ZAR 234 million dispersed in Q4 and ZAR 917 million for FY '25. Our Alternative Digital Products offering in the Merchant division focuses in the main on the micro merchant market, offering prepaid solutions, including airtime, data, electricity, gaming, bill payments, international remittances and supplier payments. The majority of our point-of-sale devices are also enabled to accept card payments, often referred to as Kazang Pay. Devices in the field grew 8% year-on-year, now exceeding 94,000. Throughput on prepaid solutions increased 6% to ZAR 19.1 billion. We believe we gained market share in that we grew by 6%, despite losses in throughput resulting from macroeconomic forces. These include direct-to-consumer digital penetration coupled with airtime volumes coming under pressure due to changing consumer behaviors and increased public WiFi access. Gaming throughput showed strong growth, partially offsetting airtime softness. Our supplier-enabled payments platform continues to show excellent growth as the risk and efficiency benefits of the digitization of business-to-business transactions gains traction, supply-enabled payments increased 57% year-on-year to ZAR 23.4 billion. The product market fit for supplier payments is clear. Merchants benefit from instant settlement, enabling immediate use of funds for supplier payments and working capital needs. While supplier payments are lower margin, they create a positive pull-through effect encouraging adoption of our merchant acquiring solutions. Turning to the financial performance of the Merchant division. Net revenue was up 46% to ZAR 3 billion with segment adjusted EBITDA up 20% to ZAR 657 million for FY '25. This performance is a function of both organic and inorganic activity. FY '25 includes 9 months of Adumo contribution and has had a positive impact on this year's performance. As Ali stated in the Investor Day, our expectation for the merchant business over the next 12 months is to focus on bolstering our unit economics and extracting efficiencies on our merchant platform delivering on a bundled merchant offering. Although nascent, we are pleased to see an uptick in operating margins between Q3 and Q4 '25. In closing then, we remain well positioned to capture prevailing trends in our merchant market. Cash remains prevalent in the micro merchant market, but the shift towards digitization is accelerating. Micro merchants are increasingly recognizing the value of digital tools to enhance operational efficiency, streamline administration and mitigate risk. This growing adoption is reflected in transaction behavior with the average value per card transaction decreasing, indicating more frequent use for everyday purchases. The digitization trend is further reinforced by changes in supplier practices. Many FMCG suppliers serving micro merchants have stopped accepting cash payments, adding momentum to the shift. The number of supplier payment transactions grew by more than 10% in FY '25 compared to FY '24. The average value per transaction increased by over 40% and total throughput by approximately 60% over the same period. Ali will discuss the Bank Zero acquisition in more detail, but for the Merchant division, we are excited about what the transaction brings to our offering and capabilities. Bank Zero will enable Lesaka to offer merchant bank accounts and banking solutions tailored for small to medium merchants as well as for certain micro merchants such as taverns. Migrating Adumo merchants to Bank Zero will allow for a more competitive and comprehensive merchant offering. In the medium term, our vertically integrated fintech platform will offer a banking service as an added feature for our merchants. The combination of Bank Zero's digital platform with Lesaka's broad product offering aligns directly with Lesaka's mission to deliver customer-focused, low-cost financial services. The Merchant division is at a pivotal stage in its development. Our objective is to operate under a single brand and extract efficiencies as we integrate our merchant platform. I'm pleased to welcome Kagiso Khaole and Roland Naidoo to the team. We look forward to their contribution and leadership as we take on the task of driving our merchant division through its next phase of growth. Lincoln will now take us through the performance of the Consumer division.

Lincoln Mali, Consumer Division Head

Thank you, Steve. I want to take a moment to recap what has been an extremely busy and rewarding year for the Consumer team. Through a combination of innovation and disciplined execution, we've seen several strategic developments that have significantly strengthened our position. Our unwavering focus and relentless commitment have driven the continued increase in our market share within the grant beneficiary market. This translated into 35% revenue growth and an 83% increase in EBITDA for this division for financial year 2025. These results are a testament to the team's dedication and strategic clarity, setting a strong foundation for sustained success. We launched Bonngwe at the start of the financial year. Bonngwe serves as our sales front engine and provides our service consultants with a comprehensive view of each consumer, enabling them to deliver significantly improved service to our existing clients, support cross-sell efforts for lending, insurance, and ADP, and assist with the sign-up and onboarding of new EPE customers. Bonngwe has equipped our frontline staff with the tools to serve consumers efficiently and has achieved excellent results. In our lending business, after thorough research into our consumers' financial needs and borrowing habits, we introduced a revised loan product that has been very well received. Consumers often resorted to unregulated lenders, so we increased our maximum loan amount and extended repayment terms without altering our lending criteria. We also completely rebuilt the lending system to make it more customer-friendly, scalable, and better able to manage risk. Many of our consumers have taken advantage of the new lending product, positively contributing to higher ARPUs. We have invested in our distribution capabilities, both talent and infrastructure, expanded our frontline teams, and plan to open 50 new branches in financial year 2026 along with adding 50 branded service points. All of this is part of our effort to better serve our customers and provide convenient access. We are now more present in rural communities than ever before, which is significant for attracting new customers and serving our existing ones. We have continued investing in our digital platforms, rebuilding our USSD platform to make it more reliable and user-friendly, allowing our customers to access our services digitally from anywhere, saving them time and money. Usage of our USSD platform continues to grow exponentially. Turning to our addressable market and future prospects, since we repositioned our consumer business to focus on customer experience through investments in training, brand enhancement, distribution, and IT platforms, we have increased our permanent grant beneficiaries by 23% year-on-year. Over a two-year period, our market share has increased from 9.1% to 13.6%. This growth has primarily come at the expense of the Post Bank, which has experienced a decline in share following its various challenges. Encouragingly, we have been receiving a large share of the Post Bank migration, with approximately 20% of Post Bank customers signing up with Lesaka in financial year 2025. Moving forward, we believe we can sustain this momentum for another 12 to 18 months and attract further Post Bank customers at an accelerated rate that exceeds our market share. Lesaka is evolving rapidly, along with our customer offerings. Beyond the core grant beneficiary market, we see new opportunities in the payout business as we invest in this platform. With the success of our insurance offering, we're in the process of opening this up to non-EPE bank account holders. We have recently completed the systems work to allow for this and anticipate commencing trials in the second quarter. The proposed acquisition of Bank Zero presents a significant opportunity for us to expand our consumer offering beyond the grant market, which is very exciting. During the quarter, we implemented a strategic refinement in how we report and measure our consumer base, aligning our evolving monetization strategy with an increased focus on unit economics. Historically, we segmented our grant beneficiary base into permanent and non-permanent categories, but both segments generate revenue. We now report them as a combined consumer base, which better reflects the financial and operational performance of the division and the revenue-generating engagement of our entire consumer base. Approximately 90% of our active consumer base consists of permanent grant beneficiaries, underscoring the stability of our core customer segment, which strengthens our ability to drive cross-sell opportunities. An active consumer is defined as any EPE consumer, whether a permanent or temporary grant beneficiary, who has completed a voluntary debit or credit transaction within the last 90 days. Consumers who are charged a monthly bank fee but have not made any voluntary transactions during this period are excluded from the active count. This tighter definition more accurately captures revenue-generating engagement and aligns with our monetization strategy. We will continue to show the EasyPay Payout separately since it follows a different monetization model. The fourth quarter saw another rise in net active consumers to 166,000 and 348,000 for financial year 2025. A year ago, for the comparative quarter, we saw an increase of 34,000 active consumers and 235,000 for financial year 2024. We are proud of this achievement, which reflects the investment we have made in our service offering and distribution, continuing the momentum in customer acquisition. Under the revised methodology, our ARPU is ZAR 85 per active customer per month, representing a 23% growth over the previous three years. Turning to our KPIs, we now have 1.9 million customers, up from 1.5 million last year, representing a 23% increase. Approximately 90% of this space are permanent grant customers, with 40% now holding a lending product and 34% having an insurance product. As I mentioned earlier, we launched a new lending product this year, which has been well received. While we did not modify our credit scoring criteria, we increased the maximum loan size and repayment terms, contributing to an 82% growth in our lending book to ZAR 996 million at the end of the year, with total origination of ZAR 2.5 billion for the year, up 48%. The loan conversion rate continues to improve following several targeted consumer lending campaigns and encouraging results from our digital channels. Our loan loss ratio has remained consistent at approximately 6% for the year. With the rollout of the new lending product targeting larger loans for a longer term, we expect a modest and non-material increase in the portfolio loan loss ratio going forward. In insurance, we also saw encouraging growth, with gross premiums increasing 38% for the year. We have maintained our high collection ratio and lapse rate on our insurance book, indicating the value that our customers place on these products. These excellent operational KPIs have been reflected in our financial performance, with revenue increasing 35% annually to ZAR 1.7 billion and adjusted EBITDA up 83% to ZAR 435 million. I commend our consumer team for their tireless efforts and commitment. I will hand over to my brother, Naeem, to take you through our plans and performance for the Enterprise division.

Naeem Kola, Enterprise Division Head

Good day, everyone, and thank you, Lincoln. Today, I'm excited to share the latest developments, key performance indicators and strategic direction for Enterprise division as we close out fiscal year 2025. Let's begin by reflecting on some of the major milestones and key developments from this quarter and fiscal year 2025. This fiscal year has been transformative for our Enterprise division as we developed a much clearer business and strategy. There have been material developments relating to channel expansion, technology updates, inorganic strategy and business reorganization. First, we made significant strides in expanding distribution channels for our Alternative Digital Payments or ADP solutions. We are now integrated and successfully went live with Standard Bank, Nedbank and Shoprite to provide ADP solutions. This expansion helps us further gain market share by embedding our services within trusted enterprise environments. Second, we completed the acquisition of the electricity private utility business, Recharger and are well underway with the migration of the meter hosting infrastructure into our proprietary Enterprise technologies. This acquisition strengthens our utilities vertical and demonstrates our ongoing commitment to integrating and scaling high-value infrastructure. Third, we began the migration of the merchant acquiring volumes that have traditionally been processed through third-party providers. This strategic move will allow us to have tighter control over processing and is expected to deliver a full volume migration over the course of FY '26. Lastly, we executed the shutdown of legacy business units, sharpening our focus on our core product offering. It's important to note that this reorganization led to one-off costs of ZAR 17 million. However, this step positions us for sustainable focused growth in the years ahead. I will briefly take you through each business vertical within our enterprise business, outlining the solution and the revenue model. Our Alternative Digital Payments, or ADP business is one of the largest ADP aggregator and solutions providers in South Africa. The ADP network effect creates a powerful force multiplier by selling into downstream enterprises; we enable them to reach their own customers efficiently, which in turn improves economics and scalability of our upstream partnerships. Our ADP product suite includes both payments, providing a platform for consumers and businesses to settle accounts or invoices through our platform. We currently have over 620 billers on our platform. These include municipal bills, DStv, all telco companies and other organizations. The significant investment and integration with billers enables us to be in a unique position to allow our clients one integration, and they have access to all our billers. This position is hard to replicate by competitors. We typically earn a fixed fee per transaction processed. ADP prepaid solutions, we are amongst the largest providers of electricity, airtime, data and gaming vouchers, primarily to banks, retailers and fintechs. Voucher sales allow consumers to purchase vouchers at retail outlets or online to top up the required services. This is a B2B product offering. Our revenue model is based on commission percentage of rand volume processed. Utilities, our core products here are electricity voucher generation and prepaid utility meters. We service a range of clients, including private landlords, property managers and municipalities. Currently, our primary channel is large retailers such as Builders Warehouse, Leroy Merlin, ARB and BUCO. We generate revenue both as a percentage of volume processed for voucher generation and through unit sales for meters. Once the meters are installed, the tenants recharge the meters through vouchers that they purchase through retailers or online. This is a high double-digit margin product offering, providing a predominantly recurring transaction-based revenue stream. Payments, we are developing proprietary payment solutions such as PRISM Switch and PRISM HSM, to enable payment acceptance for both the group and external enterprises. This area is seeing growth in transaction volumes and device sales. All these products and services are delivered through robust enterprise channels, and our customers include banks, retailers, telcos and content providers. Moving on to our financial and operational performance for the quarter and the year. Enterprise division delivered a net revenue of ZAR 190 million in Q4, and ZAR 651 million for fiscal 2025, and a group adjusted EBITDA of ZAR 15 million in Q4 and ZAR 24 million for fiscal 2025. The group adjusted EBITDA includes ZAR 17 million of reorganization costs incurred in closing hardware business related to POS terminals and cards. Given the focused core offering of enterprise, we've presented our core products. In terms of the relative contributions in Q4 2025, ADP accounted for 60% of net revenue, utilities accounted for 35% of net revenue and payments represented approximately 5% of net revenue. In fiscal 2025, Enterprise was not a meaningful EBITDA contributor to the group. This was a year of consolidation and build to gear up for FY '26, as we've mentioned in previous earnings calls. Q4's EBITDA result of ZAR 15 million for the quarter includes the impact of restructuring costs, excluding these costs, Q4 2025 implies a run rate of over ZAR 30 million per quarter. In FY 2026, we're expecting the Enterprise division's contribution to total segment adjusted EBITDA to be north of 10%, thus becoming a meaningful part of the business going forward. I will now hand back to Ali.

Ali Zaynalabidin Mazanderani, CEO

Thank you, Naeem. As we enter FY 2026, we are enthusiastic about our business prospects. One of the most important milestones for us is the anticipated completion of the Bank Zero transaction, which we finalized at the end of the last financial year. Bank Zero, a South African neobank, boasts a modern and scalable technology platform with a streamlined cost structure that supports digital onboarding. We believe there is no more efficient banking operation in the country, nor one with fewer third-party dependencies that is ready for growth. This transaction is more about enhancing capabilities and integrating teams than a typical acquisition, as we will mainly settle the purchase in Lesaka shares, with the Bank Zero team joining us. They recognize the potential for accelerated growth through our distribution and complementary product offerings, just as we see in them. The team is exceptional, experienced, and entrepreneurial, sharing our goal of transforming the market to better serve consumers and merchants. I have had the pleasure of working with several team members previously, and I look forward to collaborating with them again. We are eager to welcome Michael Jordaan, former CEO of FNB, to our Board, and Yatin Narsai, former CEO of Retail Banking at FNB, to our executive leadership team. The opportunity here is substantial, and I would summarize the rationale for the transaction in three key areas. First, in terms of product and cost. We expect to reduce reliance on third parties, enhance responsiveness to clients, increase availability, minimize friction, and widen our customer reach. On the cost front, we currently incur expenses related to bank sponsorship, which negatively affects our profit and loss statement. While we believe in a collaborative payment ecosystem and will keep some third-party bank relationships, our dependencies will lessen, and our flexibility will increase. Second, the acquisition will broaden our product offerings, allowing us to provide banking services to our merchants and enterprise clients, facilitating cross-selling and supporting fintechs with an alliance banking solution that is currently underrepresented in the South African market. Additionally, Bank Zero is working on obtaining an FX license, pending approval, which would enable cross-border opportunities for our customers. Third, after completing the transaction, we anticipate reducing gross debt by around ZAR 1 billion by maintaining a significant portion of the consumer and merchant book in the bank. This will give us more leeway in expanding our portfolio at a lower cost as we build customer deposits. Another key development this year will be the consolidation of our office and brand presence. We currently operate 41 offices outside of our branch network and feature multiple brands. During the financial year, we will consolidate this to fewer than 20 offices, focusing particularly on Johannesburg, Cape Town, and Durban, where we have the largest employee base. We are also streamlining our brands and will soon introduce a refreshed umbrella brand to improve our representation to stakeholders, employees, and customers, enabling us to better allocate marketing resources. This consolidation will have the most significant impact on our merchant business, as discussed previously. To lead this effort, we are thrilled to have Kagiso join us as the CEO of our merchant business. He is a remarkable leader with experience at SpaceX, Starlink, Uber, and Samsung, making him well-suited to advance our merchant operations. We are proud to attract top talent in the country and the continent to our mission. Kagiso will join other exceptional leaders in our executive team in the upcoming months, including Roland and Akash, who we mentioned earlier this week. These are among several executive appointments we have made recently, enhancing our organizational strength. Regarding our outlook, we are pleased to reaffirm our guidance for net revenue, group adjusted EBITDA, and positive net income for FY '26. Furthermore, we are providing Q1 2026 guidance for net revenue and group adjusted EBITDA, and for the first time, we are introducing adjusted earnings per share guidance. It is important to note that in 2024, our adjusted earnings per share was ZAR 0.80, and this year, it rose to ZAR 2.29. Our guidance for FY 2026 is over ZAR 4.60 per share, reflecting an increase of more than 100% year-on-year. We have the team, the resources, and the market opportunity. We look forward to realizing this potential over the next year and continuing to create value for the consumers, merchants, and enterprises we serve, as well as for our shareholders. We will now take any questions you may have.

Operator, Operator

We have our first question on the conference call line. Please welcome Theo O'Neill from LHR.

Theodore O'Neill, Analyst

A couple of questions. First question on the Consumer division. It looks like you have a full plate of growth opportunities, and I was wondering if you could rank or talk about the near-term opportunity between your three core products and overall market share and maybe rank where you think the strength will be in the near term?

Lincoln Mali, Consumer Division Head

Thanks. This is Lincoln. Firstly, the most important thing for us is always account growth. We have taken more market share from the Post Bank migration. We've taken the largest chunk than our natural market share. We've taken about 20% of those customers that are migrating. So we think that's important for us. We have also launched our lending product. We see a lot of room for that, and we think that, that's an important one. And the third one is us growing beyond our EPE based on our insurance. There's about 4 million customers who don't have access to funeral plans who are grant beneficiaries. We see that opportunity. So we see ourselves growing within this space. And of course, in the medium-term, we do see opportunities when the Bank Zero transaction has been consummated for us to give more opportunities beyond just the grant space. So that's the way we would like to think of our business and the growth opportunities we see.

Operator, Operator

Anything else from your side Theo?

Theodore O'Neill, Analyst

Yes. I wanted to ask the same question on the Enterprise side. If you could rank or talk about the near-term growth expectations there across the core products and market share?

Naeem Kola, Enterprise Division Head

Theo, as you mentioned, for the Enterprise division, this was a transition year. We invested significantly in the platform. We've also grown our distribution network and we've now fully integrated the Recharger business. As I've mentioned during my script, if you look at the last quarter, the run rate of around group adjusted EBITDA of about ZAR 30 million is what we want to build on. And we're also looking at the Enterprise division will be contributing north of 10% of the guidance forecast that Ali provided for the full year.

Operator, Operator

We have another question from the Chorus Call line. This time, it's from Ross Krieger at Investec Securities.

Unknown Analyst, Analyst

Hello, everyone. Can you hear me okay?

Operator, Operator

We can hear you well. Thank you, Ross.

Unknown Analyst, Analyst

I have several questions, so please bear with me as I go through them one at a time. My first question is in two parts regarding the pending Bank Zero acquisition. First, how do you anticipate the integration of Bank Zero will unfold in terms of the time required and the costs involved? Second, concerning the expectation of a profitable contribution in the first year, is that figure net of all the factors mentioned earlier in the call, or is it based on Bank Zero as a standalone entity? I'll stop there.

Ali Zaynalabidin Mazanderani, CEO

Thanks, Ross. I mean, on the integration, if I can ask Steven to chat too. On the profitability, Ross, obviously, we don't know exactly when the transaction will complete. But my belief is that certainly, if the business is not profitable at the time of completion, it will be close to and with synergies that can be easily and quickly realized, it will be. So I don't think there'll be a material gap. That's excluding the more material, I suppose, revenue opportunities that were touched on in the presentation. On the integration, Steve?

Steven Heilbron, Merchant Division Head

From an integration perspective, we've got very detailed plans, which we're busy working on and we will be ready on the day the transaction closes to affect those integration plans. Clearly, we'll be putting the aspects of our consumer and merchant businesses that are engaged in banking activities into the bank. It won't change the way we ultimately report in terms of consumer and merchant. But the integration aspects are well planned. And we think, in the end, this is a business, I think we are taking on about 45 people. So it's very easily integratable. From a culture perspective, I think we're very well aligned. And to a large extent, much of what we are getting with Bank Zero is a part of the platform that we don't have. So it's complementary to what we do and very easy to integrate.

Operator, Operator

Thank you, Steve. Ross, do you want to shoot with your next question?

Unknown Analyst, Analyst

Thanks both. I just wanted to get more detail on the goodwill impairment. I understand there are various factors involved, and it's noncash. However, I would like to know which CGUs were affected and the reasons behind this situation.

Daniel Smith, CFO

So, goodwill, Ross, as you know, is obviously a very large number in our balance sheet, roughly $200 million, ZAR 3.5 billion. And it comprises basically the excess of the price we paid relative to the fair value of the underlying assets, both tangible and intangible that we acquired. When we bought the business, as I put them into the buckets, the Connect Group and the Adumo Group and the Recharger Group. Obviously, as integrated groups, they had a number of underlying businesses or cash-generating units. As we go through our impairment tests, we need to value each and every one of those cash-generating units. So I'll use, for example, Adumo, we bought one Adumo Group. But in effect, we've got seven different CGUs. So as we've been iterating the businesses, the business models within those combined seven has obviously given rise to an expectation of different levels of cash flows from each of those underlying seven different business units. When we run our goodwill impairment tests, some of those then have ended up with a lower carrying value than what we originally described for that specific CGU when we bought it, giving rise to then a handful of impairments of roughly ZAR 300 million in aggregate. The flip side of that is, obviously, some of the other underlying CGUs, our valuations have increased. But in terms of the accounting standards, we can't write up goodwill from over and above what we acquired at, but we are required to write down. So when I take them in aggregate, the businesses we bought, very comfortable that the valuations have appreciated but some of my parts in effect, don't equal whole from a goodwill impairment perspective. Maybe give you one specific example would be around our ME business, where we have iterated the business model, exiting some of the unprofitable lines. That obviously is a different view we had on the business and when we acquired it. And of course, when I run it through a DCF cash flow, that then gives rise to necessity for an impairment. I use it as a specific example. When I look across the whole chain, there's a number of these instances, which give rise to the combined impairment of just over ZAR 300 million.

Operator, Operator

Thank you, Dan. Ross, does that answer your question?

Unknown Analyst, Analyst

Yes, thanks, Dan. That's helpful. Moving on, I know you've been very clear about your competitive advantages during the Capital Markets Day and today. However, in light of Nedbank's acquisition of Ecokar, I think it would be beneficial to have an update on the competitive environment, especially considering the success they've had so far in the SME space and their intention to continue pushing in that area.

Ali Zaynalabidin Mazanderani, CEO

Certainly, I'll begin by discussing the SME environment and then gather Steve's insights afterward. It's important to acknowledge the market opportunity that many recognize, indicating a significant growth potential both in our country and region, which is why we are strategically positioned. If a big opportunity arises, it's natural for other companies to get involved, and I believe multiple businesses can find success in this area, leading to beneficial outcomes for everyone. Our focus isn't on maximizing our slice of the market pie but rather on expanding that pie by offering customers improved solutions through innovation and new opportunities instead of competing over existing profits. We can collaborate effectively with other businesses in this endeavor. We have unique features in our merchant operations, particularly targeting businesses looking for more than just a single product solution. For instance, we concentrate on micro merchants in informal sectors where we can provide a mix of services, including alternative digital payments and cash management alongside traditional merchant services. Our approach with [Ecokar] demonstrates this tailored offering. In the formal sector, we emphasize integrated solutions, particularly through our software offerings, which we believe sets us apart in terms of the variety we offer to these markets. While we prioritize technology, we also maintain our own distribution channel specifically catering to these customer needs, allowing us to stand out. As we've shared in our investor presentations, we welcome collaboration with other businesses to enhance our service to customers.

Operator, Operator

Okay. Is that it guys from your side on that?

Steven Heilbron, Merchant Division Head

So I think the only thing that I would add possibly is that, as Ali said, first of all, it endorses our thesis, which is the interest in the segment endorses why we've positioned ourselves there. And the other point I would simply make is that we are not a proxy for the market. We are an insurgent. We have a very small market share, a substantial TAM and so we have the ability to grow significantly based on our current positioning.

Operator, Operator

Thanks, Steve. Ross, any further questions?

Unknown Analyst, Analyst

I wanted to ask about any upcoming regulatory developments from ASAPP engagements or other sources that we should be aware of regarding beneficial regulatory changes.

Lincoln Mali, Consumer Division Head

Thanks so much, Ross. We have had an engagement with the Reserve Bank where they had published the draft exemption to the bank's act. We, through ASAPP gave comprehensive feedback and comments. And the essence of the comments were to make sure that the regulator doesn't create many banks, doesn't create more onerous requirements to the industry and create an environment for more competition and more innovation. The Reserve Bank convened, a few weeks ago, a session where they reported back, and there was a positive sentiment from the ASAPP members that there was positive movement that has been done that they've heard a lot of the sentiments that were coming from the fintech community. We are now waiting for something in the next few weeks where the final proposal will come out. So we are waiting with bated breath to see what that indications will be. Obviously, we still have other engagements that we've made on other issues like the governance of the sector and meaningful participation by fintechs and we've also made representations on an interchange. So we're still waiting for feedback on those. But on the broad opening up of the payment system, directionally, it looks like the Reserve Bank is going in the right direction.

Operator, Operator

Ross, does that answer the question? Anything else? Or we're good...

Unknown Analyst, Analyst

Yes. Thanks, Lincoln. It does. Thanks, everyone. Appreciate your time. All the best.

Operator, Operator

I'm going to take the last question from the conference call, and then we'll move to the questions on the webcast. The next question is from Mike Steere at Avior Capital Markets.

Michael Steere, Analyst

Can you hear me all right?

Operator, Operator

Yes.

Michael Steere, Analyst

I have a few questions. I'll read them all at once and am happy to repeat if necessary. Firstly, considering the recent Cell C news, how does the restructuring affect Lesaka's current 5% shareholding? Are you supportive of the restructuring? Do you anticipate any benefits for the group if the restructuring and listing are successful, leading to a revaluation of that business? Next, regarding the disruption from Shoprite entering the banking sector, can you share your thoughts on this threat and your strategy for succeeding in this competitive environment? Lastly, you reported a strong quarter, but could you provide more details on the impairments and PPA acceleration? I know these are non-cash items, but we need to understand how much more we can expect. I believe you mentioned ZAR 160 million for next year, but will there be any anticipated increase to this figure following the Bank Zero acquisition?

Ali Zaynalabidin Mazanderani, CEO

All right. Thanks. Okay. So three topics, Cell C, Shoprite and PPA. On Cell C, I know, Dan, do you want to talk to briefly?

Daniel Smith, CFO

We currently hold a 5% stake in Cell C and have noted the public announcements regarding the IPO planned for later this year. We are actively involved in understanding the necessary steps for the conversion. Currently, our investment in Cell C is recorded at a zero valuation. We would be pleased to see the IPO succeed, allowing us to reflect a market valuation of our stake once it is listed. It is essential for us to ensure that we protect our rights and the potential valuation of our investment, and we will collaborate closely with the Cell C management team and their sponsors throughout the restructuring process.

Ali Zaynalabidin Mazanderani, CEO

Regarding Shoprite, as Steven mentioned in the consumer business sector, we are starting from a very low base and have a minimal market share. Shoprite's new proposition is just one of many new entrants in the market, where there are also much larger players with established strategic partnerships. We view this as an opportunity to ensure that what we offer to our customers meets their expectations and to focus on our unique differentiators. Our distribution model is different, and we have specific target areas that set us apart. Additionally, we maintain strong collaborations with them, and I don’t anticipate any changes in that due to their banking offering. Lincoln, do you have anything to add?

Lincoln Mali, Consumer Division Head

Yes. Just to again echo what Ali and Steve had said, again, this is another indication of a segment of the market that we've chosen on the consumer side, that other players are trying to come in there. Secondly, to also echo something else that Ali and Steve said that in certain of these environments, we're going to compete. But on some of these things, we will collaborate and we have some collaborations with Shoprite. However, I think the main point is that we're clear about what we offer. And we offer a much more comprehensive solution than other players in this specific market. We offer a transactional account. We are offering a lending proposition, offering insurance and we offer Alternative Digital Products. And so we think that we have a comprehensive proposition and that's what we will offer to our clients. We've got a unique distribution model for that customer base. So we will continue to do what we do and try to win the support of our customers.

Ali Zaynalabidin Mazanderani, CEO

I think ultimately, our principal competitor is always going to be inefficiency. Our principal competitor is always going to be what we are capable of delivering for our customers rather than other parties. And as long as we maintain that as our access and our true north, I think we'll continue to be successful. I think when other businesses are there, we can learn, and that is helpful. but it shouldn't be our focus. The third question you asked was on the PPA. I think there was quite a lot that was provided before. I don't know, Dan, if there's anything you want to add to what you did before?

Daniel Smith, CFO

Happy to recap the principles around PPA...