One of South Africa’s biggest tech groups is betting big on the informal economy

Lesaka Technologies – formerly Net1 UEPS – has published its results for the third quarter that ended 31 March 2023, showing improved financial performance on the back of strong growth in the informal market business.

Lesaka’s strong third-quarter results were also driven by the acquisition and outperformance of the Connect Group in the Merchant Division and the successful turnaround of the Group’s Consumer Division, despite the persistently challenging economic environment.

The fintech company’s performance highlights for Q3 2023 include:

• Revenue of R2.4 billion, compared to R549.8 million in Q3 2022, an increase of 337% due to the inclusion and continued performance of the Connect Group and momentum in the successful turnaround of the Consumer Division.
• Net loss attributable to Lesaka of R104.4 million, compared to R51.9 million in Q3 2022. Operating income (loss) before PPA amortisation and net interest, a non-GAAP measure and reconciled below, was income of R34.0 million, compared to a loss of R146.8 million in Q3 2022, and excludes amortisation of acquired intangible assets R67.3 million, compared with R0.3 million in Q3 2022.
• Adjusted EBITDA of R137.1 million, a 221% improvement compared to the Q3 2022 loss of R112.7 million.
• Continued operating improvement was demonstrated by further narrowing the operating loss to R33.2 million, representing a 77% improvement from an operating loss of R147.1 million reported for Q3 2022.
• Continued outperformance from the Merchant Division, delivering Adjusted EBITDA of R148.7 million.
• Successful turnaround of the Consumer Division, delivering Adjusted EBITDA of R29.6 million, compared to a loss of R13.5 million in Q3 2022.
• Positive net cash generated by operating activities of R133 million, compared to an outflow of R81.3 million in Q3 2022.

Alongside the positive performance of the Merchant and Consumer Division, Lesaka is well positioned to benefit from the exponential secular demand for innovative fintech solutions that are transforming South Africa’s highly cash-driven informal economy, said Lesaka Group CEO Chris Meyer.

A key driver of this was the performance of the informal market business, Kazang, which delivered the best quarter in the business’ history.

Kazang makes it safe and easy for spaza shops and informal traders to sell prepaid airtime, data, electricity, and other services from our devices or Kazang mobile app.

Lesaka has leveraged disruptive technologies to build a unique fintech platform which meets the needs of both merchants and consumers operating in informal and formal markets, the group said.

More than 72,000 merchants use the Group’s cash management solutions, bill payment technologies, value-added services, business funding and card-acquiring solutions, and 1.3 million consumers access Lesaka’s unsecured credit, transactional banking and micro-insurance products and services, it added.

“In our Merchant Division, we are committed to enabling small merchants to compete and grow by providing access to innovative financial technology and value-creating solutions. In our Consumer Division, our mission is to improve the lives of South Africa’s grant beneficiaries by providing affordable access to essential financial services,” said Meyer.

Despite Consumer Division revenue coming in 3% lower compared with Q3 2022 due to currency impact, the group noted that on a constant currency basis, consumer segment revenue increased 11% compared to Q3 2022 and 5% compared to Q2 2023.

“Its successes in this segment were driven mainly by higher insurance revenues, higher revenue from account holder fees, given the increase in the number of accounts and modest lending revenue growth,” said Lesaka.

“The continued digitalisation of South Africa’s informal economy serves as a durable catalyst for our business, but ultimately, our success is built on the success of our customers,” added Meyer.