Item 1. Business
ITEM 1.
BUSINESS
Overview
At Lesaka, our
core purpose is
to improve people’s lives by
bringing financial inclusion to
South Africa’s underserved consumers
and merchants.
We
achieve
this through
our ability
to efficiently
digitize the
last mile
of financial
inclusion,
providing
a full-service
fintech
platform serving both cash and digital, and facilitating the secular shift from
cash to digital that is currently taking place.
Lesaka uses its proprietary banking and payment technologies
to distribute low-cost financial and value-added
services to small
businesses, primarily
in the
informal sector,
and to
consumers, the
majority of
whom are
grant beneficiaries,
both largely
excluded
from financial services.
Our vision
is to
build and
operate the
leading full-service
fintech platform
in Southern
Africa, offering
cash management
and
digitization, card acquiring and payment processing, Value
Added Services (“VAS”),
and growth capital to micro, small and medium
enterprises
(“MSME”)
merchants
and
financial
services
to
underserved
consumers.
Our
dual-sided
financial
ecosystem
has
two
overlapping divisions: Merchants and Consumers.
3
Customers
—
In
our
B2C
Consumer
Division
we
focus
specifically
on
South
Africa’s
social
grant
beneficiaries,
who
have
historically been
excluded from
traditional financial
services. Our
products are
designed for
consumers at
the lower
socioeconomic
end of the
market within Living
Standards Measures (“LSMs”) 1
to 6, which
comprises approximately 26 million
people. We currently
have approximately 1.3 million active consumers.
In our B2B Merchant Division we
focus on MSME operating in
the informal and formal sectors of
the South African economy.
The informal
sector merchants are
generally smaller
and operate
in rural
areas or in
informal urban
areas and do
not have
access to
traditional banking
products. The
formal merchants
are generally
in urban
areas, have
larger turnovers
and have
access to
multiple
service providers. We operate separate brands in these two sectors of the economy. The informal market consists of approximately 1.4
million
merchants
and
the
formal
market
approximately
700,000
merchants.
Our
Merchant
Division
currently
has
over
82,000
customers using our solutions.
Products
—We offer
a comprehensive set of products and services to our consumer and merchant
customers.
In our Consumer Division, our products include transactional banking, short-term loans, a digital wallet as well as insurance and
various VAS to underserved consumers in South
Africa, aligning with
our purpose of
improving people’s lives and increasing
financial
inclusion. Our value proposition and products are designed to be simple,
relevant and cost effective for our target market.
In our
Merchant Division,
to informal
and formal
MSME customers,
we offer
cash management
and digitization
through our
proprietary vault technology, card acquiring, innovative growth capital, bill and supplier payment solutions, and a wide range of VAS
products for
our merchants
to sell.
To
the larger
enterprise level
merchants, we
offer bill
and supplier
payments and
VAS
products
through our proprietary financial switch, as well as Ingenico point of sale device and maintenance, bank and SIM card production and
other specialized technology products.
4
Market Opportunity
There
are
real
challenges
to
delivering
financial
inclusion
and
digitization
in
the
South
African
market.
One
of
these
major
challenges is
the deep
distrust and
a lack
of understanding
of cash
alternatives, which
is driven
by low
levels of
financial literacy.
Adding to this
challenge are the
relatively high connectivity
costs and the
low smartphone penetration
in South Africa,
where many
South
Africans
still use
older style
feature phones.
Together,
this means
that although
almost 90%
of South
Africans have
a bank
account, a significant majority treat them as post boxes and withdraw all their money in one
transaction. This has real implications for
both merchants and consumers.
For merchants
this means less
than 8% have
access to formal
credit and
less than 4%
of informal
merchants are able
to accept
digital payments. For consumers, only
an estimated 20% of the approximately
26 million South African consumers in
LSM 1-6 have
access to
credit and
savings,
and a
significant majority
of the
12 million
permanent social
grant recipients
require immediate
cash
withdrawals of their grant.
These sources
of friction
and challenges present
a significant market
opportunity for
Lesaka to provide
innovative solutions
to
both merchants
and consumers,
and more
importantly,
to facilitate
wider financial
inclusion and
digitization. Lesaka
has for
a long
time been at the forefront of providing financial inclusion and digitization
for consumers and merchants in this space.
Consumer financial
services for
the unbanked:
Our focus
is on
the LSM
1 to
6 population
in South
Africa, which
represents
approximately
26
million
adults
in
the
country.
Within
that,
we
estimate
there
to
be
approximately
12
million
people
reliant
on
permanent grants.
South Africa is
primarily a
cash-based economy,
with approximately
60% of transactions
still conducted
in cash.
In the Consumer Division, we currently have 1.3 million active account holders which represents approximately 4% share of our total
addressable market.
Our focus is
on South
African government
social grant
recipients the
majority of
whom are
being inadequately
served by the current system. Lesaka is well
placed to address the needs of these consumers with
its large informal market distribution
and affordable financial services.
Merchant payment
solutions and financial
services for MSMEs:
There are
approximately 2.1
million MSMEs in
South Africa,
of which
around 1.4
million operate
in the
informal market,
and it
is estimated
that only
4% of
these can
accept digital
payments.
Lesaka
has
a
comprehensive
product
suite
of
cash
and
digital
solutions
which
provide
a
significant
opportunity
to
assist
these
businesses to grow,
reduce cash related operating
risks and become more
efficient. This is an
underserved market and increasing
our
penetration is
more about
providing solutions
that encourage
the adoption
of more
formalized and
non-cash transacting
than about
taking market share from competitors.
While the informal market presents a major growth opportunity,
Lesaka also has a comprehensive offering to the formal MSME
and enterprise market.
5
Competition
With
our comprehensive
offering
to consumers
and merchants
we compete
with a
wide range
of service
providers. There
are
competitors for
individual products and
services, although
few with an
end-to-end offering,
particularly at
the lower
socioeconomic
end of the consumer market and the informal merchant market, where we
have a significant footprint and penetration.
In our
Consumer Division,
there are
a number
of traditional
and digital
providers of
low-cost transactional
bank accounts
and
micro financial services. These include South African banks such as
FNB, Standard Bank, Absa, Nedbank, African Bank and Capitec,
the South African
Post Bank, and digital
banks such as, Tyme
Bank and Bank
Zero. In the South
African ATM
network market, we
compete against the South African banks, ATM
Solutions and Spark ATM
Systems, which collectively have a market share in excess
of 90%.
In the informal merchant sector, there
are no competitors which offer a comprehensive product
set of cash, card, payment, VAS
and capital
solutions, such
as ours.
In the
formal merchant
sector there
is significantly
more competition,
with banks
and non-bank
fintech companies targeting these merchants.
In card acquiring, competitors include
Yoco,
iKhokha, Sureswipe and the South African
banks; in VAS
and bill payments, they
include Flash, Blue Label, Shop2Shop, Pay@ and Ukeshe; in lending, they
include Lulalend, Merchant Capital, Retail Capital and the
South African banks; and in cash management, they include Fidelity,
G4S, Cashnet and the South African banks.
At an enterprise level, our financial switch and VAS and bill payments business competes with BankservAfrica, Pay@, eCentric
and Transaction Junction.
Human Capital Resources
Over
the
last
two
years
we
have
built
a
diverse
team
of
high-caliber
individuals,
from
different
organizations,
to
form
our
leadership group. This
leadership group is
deeply committed to
building a high-performance
culture that is
based on our core
values
and a commitment to the care and development of our people.
Lesaka’s Core Values:
•
Entrepreneurial spirit;
•
Integrity;
•
Collective wisdom; and
•
A bias to action.
These are our
values that underpin
our mission
to enable
Merchants to compete
and grow,
and Grant
Beneficiaries to improve
their lives, by providing innovative financial technology and value
-creating solutions.
Employee training and skills development
We strongly believe that learning
is an ongoing process and that the majority of learning is in the doing. As such, while we offer
a range of formal
programs (as listed further
below), more importantly,
we continue to encourage
a culture of learning
in everything
that we do.
Sustainable
employee
training and
development
programs impact
employee
retention,
and
we believe
that our
willingness to
invest
in
employee
development
contributes
to
employee
satisfaction
and
belonging.
This
increases
loyalty,
which
will
in
turn
contribute
to employee retention. We
offer the following development programs to enhance employee
performance and skills:
•
unemployed and employed learnerships;
•
internships;
•
leadership development programs;
•
training programs;
•
other in-house and cross-functional training to aid with career advancement;
and
•
succession planning – training interventions.
Equal opportunity
Having an inclusive
and diverse workforce
which reflects our
economically active population
and society in
general, is crucial
for helping the organization attract and retain talent and is important for long-term organizational success. Our
human resources team
emphasizes recruiting
and retaining
a talented
and diverse
workforce with
special focus
on hiring
previously disadvantaged
groups
whenever possible. We
are committed to hiring qualified candidates without regard
to their personal status, while taking into account
the
unique
circumstances
affecting
our
operations
in
South
Africa
and
the
need
to
uplift
previously
disadvantaged
groups.
This
commitment extends to all levels of our organization,
including within senior management and our board of directors.
6
As of June 30, 2023, the composition of our workforce was:
•
55% female and 45% male;
•
35% between 18 and 34 years old, 60% between 35 and 54 years old, and 5% over
55 years old; and
•
67% Black, 11% two or more races, 7% Indian and 15%
White.
We have no
female named executive officers.
We
continue
to strive
to build
a more
inclusive workforce
and to
enhance our
pay structures
by taking
measures to
eliminate
potential remuneration discrimination
and to help close gender pay gaps
to progress towards gender equality
at work. We
have taken
positive strides towards a rewards philosophy that rewards
high performance,
is externally benchmarked and focuses on equal people
for equal work.
Employee compensation programs
We
are committed
to
ensuring
that
all
our
employees
are
paid
fair
and
competitive
remuneration. To
that
end,
we
offer the
following to our employees:
•
Access to a comprehensive medical, dental, and vision plan that our employees
have the option to join;
•
Access to a defined contribution retirement plan that our employees have
the option to join;
•
Paid sick, study, annual
and family responsibility leave;
•
Maternity benefits;
•
Life and disability insurance coverage;
•
Employee assistance programs; and
•
Product discounts.
Annual
increases
and
incentive
compensation
are
based
on
merit,
which
is
communicated
to
employees
at
onboarding
and
documented as part of our annual performance review process.
Our number
of employees
allocated
on a
segmental
and
group
basis as
of the
years ended
June 30,
2023,
2022 and
2021,
is
presented in the table below:
Number of employees
2023
2022
2021
Consumer
(1)
1,306
1,826
2,920
Merchant
(1)
990
824
155
Total segments
2,296
2,650
3,075
Group
(1)
7
7
4
Total
2,303
2,657
3,079
(1) Consumer includes one executive officer for each of fiscal 2023,
2022 and 2021. Merchant includes one executive officer for
each of
fiscal 2023
and 2022
and none
for fiscal
2021.
Group includes
two executive
officers for
fiscal 2023
and three
for each
of
fiscal 2022 and 2021.
On a functional basis,
four of our employees
are our named executive
officers,
332 were employed in
sales and marketing, 253
were employed in finance and administration, 221 were employed in information technology and 1,493 were employed in operations.
Health and safety laws and regulations
We
are
subject
to various
South
African
laws and
regulations
that
regulate
the health
and
safety of
our
South
African-based
workforce, including
those laws monitored
by the
South African
Department of
Employment and
Labour which
stipulates the
legal
framework within
which we
need to
function. This
framework comprises
the Occupational
Health and
Safety Act,
Act 85
of 1993
(“OHSA”),
the
Compensation
for
Occupational
Injuries
and
Diseases
Act,
Act
130
of
1993
(“COIDA”),
the
Basic
Conditions
of
Employment Act,
Act 75
of 1997
(“BCEA”) and
the Labour
Relations Act,
Act 66
of 1995
(“LRA”). Compliance
with COVID-19
regulations remains
regulated by the
National Institute of
Occupational Health (“NIOH”),
and the Occupational
Health Surveillance
System
(“OHSS”),
the
Centre
for
Scientific
Industrial
Research
(“CSIR”)
and
the
National
Institute
for
Communicable
Diseases
(“NICD”).
We
have
implemented
and regularly
update human
capital-related
policies that
are designed
to ensure compliance
with
applicable South African laws and regulations.
7
Our Executive Officers
The table below presents our executive officers, their
ages and their titles:
Name
Age
Title
Chris Meyer
52
Group Chief Executive Officer and Director
Naeem E. Kola
50
Group Chief Financial Officer, Treasurer,
Secretary, and Director
Lincoln C. Mali
55
Chief Executive Officer: Southern Africa, and Director
Steven J. Heilbron
58
Executive, and Director
Christopher
Meyer
has
been
our
Group
Chief Executive
Officer
since July
1, 2021.
Prior to
joining
Lesaka,
Mr.
Meyer
was
the Head of Corporate & Investment Banking and Joint Managing Director at Investec Bank Plc (“Investec”), an LSE-listed specialist
bank
and wealth
manager,
having
served
in many
different
roles
within
the Investec
Group
since 2001.
He was
also
an executive
director for various international and regional subsidiaries of Investec Bank Plc. Mr. Meyer is a member of the
South African Institute
of Chartered Accountants, holds an MSc Finance from the London
Business School and a Post Graduate Diploma in Accounting from
the University of Cape Town.
Naeem E.
Kol
a has
been our
Group Chief
Financial Officer,
Treasurer
and Secretary
since March
1, 2022.
Mr.
Kola has
held
progressively
senior
finance
roles
in
Dubai,
most
notably
as
Chief
Financial
Officer
of
the
Emerging
Markets
Payments
Group
(“EMP”), a high-growth
fintech business that grew
materially and successfully
concluded and integrated
five acquisitions during his
six-year
tenure
as
Chief
Financial
Officer.
Prior
to
becoming
Chief
Financial
Officer,
Mr.
Kola
was
Senior
Vice
President
for
Investments, Strategy and
Business Planning at
EMP.
Since the acquisition
of EMP by Network
International in 2017,
Mr. Kola
has
been an Operations Director
and Strategic Advisor to
the emerging market private equity
firm Actis, where he
again focused on fintech
businesses.
Lincoln
C.
Mali
has
been
our
Chief
Executive
Officer:
Southern
Africa
since
May
1,
2021.
Mr.
Mali
is
a
financial
services
executive with over 25 years in the
industry. Until April 2021, he was the Head of Group
Card and Payments at Standard Bank
Group,
and previously served
in many different
roles within that
organization since
2001. Mr.
Mali chaired the
board of directors
of Diners
Club South Africa until
April 2021, and was
a member of the Central
and Eastern Europe, Middle
East and Africa Business
Council
for Visa. Mr.
Mali holds Bachelor of Arts (BA) and Bachelor of Laws (LLB) degrees from Rhodes University,
an MBA from Henley
Management College, various diplomas and attended an Advanced
Management Program at Harvard Business School.
Steven J. Heilbron
has been the Chief
Executive Officer of the Connect Group since
2013 and joined us
following the acquisition
of Connect in April 2022
in the same capacity.
Mr. Heilbron has two
decades of financial services experience,
having spent 19 years
working
for
Investec in
South
Africa
and
the
UK,
where
he served
as Global
Head
of
Private Banking
and
Joint
Chief
Executive
Officer of Investec. He led a private consortium that acquired Cash Connect
Management Solutions (Pty) Ltd (“CCMS”) in 2013. Mr.
Heilbron has
presided over
significant organic
growth in
the rebranded Connect,
as well
as spearheading
the successful
acquisition
and
integration
of Kazang
and
EFTpos acquired
from
the Paycorp
Group in
February
2020.
He
is a
member
of
the South
African
Institute of Chartered Accountants.
8
Financial Information about Geographical Areas and Operating Segments
Refer
to
Note
21
to
our
audited
consolidated
financial
statements
included
in
this
annual
report
contains
detailed
financial
information about our operating segments for fiscal 2023, 2022 and 2021. Revenues based on the geographic location from which the
sale originated and geographic location where long-lived assets are held for the years ended June 30, are presented in the table below:
Revenue
(1)
Long lived assets
2023
2022
2021
2023
2022
2021
$'000
$'000
$'000
$'000
$'000
$'000
South Africa
505,558
215,046
127,468
300,104
359,725
50,754
India (MobiKwik)
-
-
-
76,297
76,297
76,297
Rest of the world
22,413
7,563
3,318
2,197
2,811
6,962
Total
527,971
222,609
130,786
378,598
438,833
134,013
(1)
Refer
to
Note
16
to
our
audited
consolidated
financial
statements
included
in
this
annual
report
which
contains
detailed
financial information about our revenue for fiscal 2023, 2022
and 2021.
Corporate history
Lesaka was incorporated
in Florida in
May 1997 as
Net 1
UEPS Technologies, Inc. and
changed its name
to Lesaka Technologies,
Inc. on May 12, 2022. In 2004, Lesaka acquired Net1 Applied Technology
Holdings Limited (“Aplitec”), a public company listed on
the Johannesburg
Stock Exchange
(“JSE”). In
2005, Lesaka
completed an
initial public
offering
and listed
on the
NASDAQ Stock
Market. In
2008, Lesaka
listed on
the JSE
in a
secondary listing,
which enabled
the former
Aplitec shareholders
(as well
as South
African residents generally) to hold Lesaka common stock directly.
Available information
We maintain a website at
www.lesakatech.com. Our annual report on Form
10-K, quarterly reports on
Form 10-Q, current
reports
on Form 8-K, and amendments to those
reports,
as well as our proxy statements,
are available free of charge through the
“SEC filings”
portion of our website, as soon
as reasonably practicable after they are filed
with the SEC. The information contained
on, or accessible
through, our website is not incorporated into this Annual Report on Form 10-K.
The SEC
maintains a
website at
www.sec.gov
that contains
reports, proxy
and information
statements, and
other information
regarding issuers that file electronically with the SEC.
9