What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-02-06 compared with 2023-11-07 · 844 added, 380 removed, 629 unchanged (66% of the section changed)

69 unchanged sentences

Recent Developments

continued improvement

financial performance

first quarter

operational momentum in both of our Merchant and Consumer divisions.

macroeconomic and socio-political conditions in South Africa.

Adjusted EBITDA,

a non-GAAP measure,

million ($8.7 million)

this quarter,

compared to Group

Adjusted EBITDA

million ($4.2

The continued

resilience of

our business model

in a challenging

environment for

our merchant and consumer customers demonstrates the value they place

on our services.

profitability improving in both Consumer and Merchant divisions.

Revenue of $143.9 million (ZAR 2.7 billion) was within our revenue guidance of ZAR 2.7 billion to ZAR 2.8 billion for second

quarter of fiscal 2024, despite prevailing negative macroeconomic

and socio-political conditions in South Africa.

Operating income of $2.3 million (ZAR 42.5 million) improved

211% in ZAR, compared with an operating loss of

(ZAR 38.4 million) during the second quarter of fiscal 2023.

We exceeded the upper end of guidance of ZAR 170.0 million to

ZAR 180.0 million for second quarter of

fiscal 2024, delivering

Group Adjusted EBITDA, a non-GAAP measure, of $9.6 million (ZAR180.5 million) this quarter, a 38% increase in ZAR, compared

challenging environment for our merchant and consumer customers demonstrates

the value they place on our services.

Our mission at Lesaka is

16 unchanged sentences

Merchant Division

The year-on-year

growth achieved

Merchant Division

robust secular

trends underpinning

inclusion, cash management

and digitalization for

and medium enterprises

(“MSMEs”), especially in

the informal markets

of South Africa, where we have a leading market position.

The year-on-year growth achieved by our Merchant Division

is supported by the robust secular trends underpinning financial

inclusion, cash management and digitalization for micro, small and medium

enterprises (“MSMEs”), especially in the informal

markets of South Africa, where we have a leading market position.

Performance in our Merchant division has been driven by:

4 unchanged sentences

sector, with a

year-on-year growth in the number of devices

We had approximately 77,000 devices deployed as of September

year-on-year and 3% quarter-on-quarter growth

in the number of devices deployed.

approximately

slight slowdown

during our current quarter, growing by

just over 2,000 devices.

slight slowdown

attributed to

selective device

placement strategy

informal merchants to support their supplier payments to three major FMCG companies in South Africa.

that accelerated roll out program we have prioritised deployment at merchants where we can sell more products and

services through

higher margins.

Therefore, during

first quarter of fiscal 2024 we focused on optimising this new fleet and removing sub-optimal

As communicated in the fourth quarter of fiscal 2023, our product mix for VAS

sales has changed with low-margin

significantly,

approximately

compared to approximately 30% a year ago.

The impact on overall profitability

has not been material.

provide card acquiring

solutions in the informal

sector via Kazang

the formal sector we

provide this service

POS devices increased

to approximately

September 30,

2023, compared

to approximately 27,700 a year ago, a growth of 68% in deployed devices;

Our Merchant Credit

offering includes Capital Connect

formal market and

Kazang Pay Advance

in the informal

devices one year ago, and approximately 77,000 devices at the end

of the first quarter.

Core to our device placement

strategy is the decision to focus on quality business and optimizing our existing fleet, which is reflected in a healthy

throughput and margin per device.

throughput increased

21% year-on-year

and 17% quarter-on-quarter.

The second quarter

of our fiscal

traditionally our strongest quarter due to higher activity over the year-end

festive season benefitting certain product

As communicated

fourth quarter

margin money transfers reducing significantly due to a change in the regulatory environment impacting the

Money transfers currently comprise approximately 5% of VAS

throughput, compared to approximately

profitability

We provide card acquiring solutions in the

informal sector via Kazang

Pay and in the

formal sector we through

Card Connect.

Card-enabled POS devices

increased to approximately

48,200 as of December

31, 2023, a year-on-year

growth of 40% and

quarter-on-quarter growth of 4%.

on deployed devices increased 31%

year-on-year and 15% quarter-on-quarter

to R4.1 billion.

Merchant Credit

sector remains

Capital Connect

disbursed ZAR

196 million during

this quarter,

compared to approximately

ZAR 226 million

in the comparable

last year, representing a 13% decrease.

In the formal market we continue to see demand for our

merchant credit offering but

as previously disclosed,

we experienced a

slight pullback in

credit extension in

this business

since March 2023

execute quickly

Advance credit product is not suitable to continue with, especially in the high interest rate environment,

and have suspended

generated positive returns despite recent losses incurred being greater

than expected.

A reduction in origination of

loan book and disbursements is primarily a result of the decision to

suspend Kazang Pay Advance during the period but was

also partially impacted by the slight pull back in credit

extension in Capital Connect.

quarter, compared to approximately ZAR 205 million in the comparable period last year, representing a 17% decrease.

deteriorating

strict application

credit criteria

quality of our book through this cycle.

Our loan book as of December 31, 2023 was R253 million compared to R290 million

as of December 31, 2022.

cash management

17 unchanged sentences

Cash Connect proposition as an alternative to vaults for our merchant

Acquisition of Touchsides

announced the

acquisition of

(“Touchsides”),

data analytics

from Heineken

International B.V.

The Touchsides

businesses are

highly complementary,

and the acquisition

significantly expands

established solution

informal licensed tavern market.

Touchsides has an installed base of over 10,000 active POS terminals across South Africa’s informal

licensed taverns,

and processes

transactions per

provides platform-as-a-service

software-as-a-service (SaaS) solutions to licensed tavern outlets, enabling the measurement of sales activity in real-time, management

of stock levels and informing commercial decisions, such as pricing

and promotional offers.

The data and insights gathered from these terminals carries significant value and potential to be monetized through relationships

route-to-market

We anticipate the

acquisition to close in March 2024 and it is subject to satisfaction of customary

closing conditions.

Consumer Division

Over the past five quarters we have consistently referenced the three levers underpinning our strategy of returning the Consumer

Over the past six quarters we have

consistently referenced the three levers underpinning

our strategy of returning the Consumer

Division to profitability – (i) growing active EasyPay Everywhere (“EPE”) account numbers, (ii) increasing average revenue per

(“ARPU”) through cross-selling and (iii) cost optimization.

the progress made on these levers and the improved performance of

the Consumer division we are now focusing on enhancing our product and

service offering.

The progress on our three key initiatives is as follows:

Driving customer acquisition

transactional

September 2023,

Gross EPE account activations, for the permanent base, during our current quarter showed significant improvement

approximately

to approximately

After accounting

active account

was approximately

92,000 accounts,

to approximately

second quarter of fiscal 2023.

Our total active EPE transactional account base stood at approximately 1.4 million at the end of December 2023, of

which more than

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We do not offer the same breadth of service to the SRD grant

temporary nature

activations, for

the permanent

approximately

76,000 gross account activations in

the first quarter, compared

to approximately 45,000 in the first

quarter of fiscal

approximately

accounts, compared to approximately 2,700 in first quarter of fiscal 2023

base due to the temporary nature of the grant.

beneficiaries,

increasing grant

and financial

challenges during

two quarters,

grant beneficiaries migrating to alternative financial service providers.

The measures taken by EasyPay

products, sales,

onboarding and

customer service

capabilities put

good position to benefit from this migration.

Progress on cross

2 unchanged sentences

consumer loan

increasing 20% to

ZAR 423 million

as at September

increasing 26%

2023, compared

million as of

September 30,

amended our credit scoring or other lending criteria to grow our Consumer lending book.

amended our credit scoring or other lending criteria and the growth is reflective of the demand

tailored loan product for this market and growth in EPE bank account customer

implementation

5 unchanged sentences

of the total loan book,

remains flat at approximately 6% on an annualized basis, compared to the fourth

quarter of fiscal 2023.

remained at approximately 6% on an annualized basis, in line with the first quarter

of fiscal 2024.

EasyPay Insurance

Our insurance product sales continue to grow and

is a material contributor to the

improvement in our overall ARPU.

have been able

to improve customer penetration

to more than 30%

of our active permanent

grant account base

as of September

30, 2023, compared

to below 25% as

of September 30, 2022.

Approximately 37,500 new

insurance product continued

its strong growth

material contributor

to the improvement

overall ARPU.

We have been able to improve customer penetration to more than 30% of

our active permanent grant

account base as of December

31, 2023, compared to

approximately 25% as of December

Approximately

comparable period

number of active policies has

grown by 34% to approximately

359,000 policies as of September

30, 2023, compared

to September 30, 2022.

approximately ZAR 74 in the first quarter of fiscal 2023.

policies were

approximately

of active policies

31% to approximately

384,000 policies as

31, 2023, compared to December 31, 2022.

approximately ZAR 74 in the second quarter of fiscal 2023.

Economic Environment and Impact of loadshedding

4 unchanged sentences

The trading environment

compounded by daily power cuts (known as load-shedding

in South Africa), although we did see a reduction in load shedding

this quarter.

Power disruptions adversely impact our customers, especially in our Merchant Division, where they lose valuable trading

challenging in South Africa

with interest rates

and unemployment remaining at elevated

These factors

are compounded by daily

load-shedding in

South Africa),

although we have

seen a marginal

load shedding

two quarters.

Power disruptions

adversely impact our customers,

especially in our Merchant

Division, where they lose

valuable trading

hours if they

11 unchanged sentences

resilience of our business model, which is firmly underpinned by the relevance

and value of our offering to our target

and value of our offering to our target market.

Management changes

The Board has appointed Ali Mazanderani as Executive Chairman and Kuben Pillay as Lead Independent Director.

will conclude his

tenure as Group

CEO on February

his nearly three

years as Group

CEO, Chris has

led the successful

Ali Mazanderani

Executive Chairman

setting the vision to build

the leading fintech platform in

Southern Africa that set Lesaka

on its journey.

He presented this strategy to

the market at

Lesaka’s Q4 2020 earnings call

and has played

in Lesaka’s evolution, serving as

a board director and

of the Capital Allocation Committee.

entrepreneur.

companies, including StoneCo in Brazil and Network International

Improvement in our Broad Based Black Economic

Empowerment (“B-BBEE”) rating to level 4

strategic priority

Achievement of

B-BBEE objectives

scorecard which

establishes a

independently

certificate that presents

BEE Contributor Status

Level, with level 1

being the highest and

“no rating” (a level

independently

simultaneously setting out our aim to achieve a level 4

rating by the end of fiscal year 2024.

We achieved this target during the second

quarter of fiscal 2024 and have received an independently verified B-BBEE rating

Critical Accounting Policies

30 unchanged sentences

Recent accounting pronouncements not yet adopted

as of September 30, 2023

as of December 31, 2023

pronouncements

4 unchanged sentences

Three months ended

September 30,

Six months ended

$ average exchange rate

7 unchanged sentences

to translate our results of operations from ZAR to U.S.

dollars on a monthly basis.

dollars on a monthly

Thus, the average rates used

ended September

vary slightly

to translate this

the three and

six months ended

December 31, 2023

and 2022, vary

slightly from the

averages shown

described below,

the translation rates we

use in presenting our

results of operations are

the rates shown in

following table:

Three months ended

September 30,

Six months ended

Income and expense items:

Balance sheet items:

We have translated the results of operations

and operating segment information for the three months ended September 30, 2023,

provided in the

tables below using

have translated

of operations

and operating

segment information

ended December

31, 2023, provided

in the tables

the actual average

exchange rates per

2023, August 2023,

and September

2023) between the USD and ZAR in order to

reduce the reconciliation of information presented to our chief

operating decision maker.

compared with

significant, however,

presentation using

the average exchange

month compared

average exchange

quarter improves the accuracy of the information presented

in our external financial reporting and leads to fewer differences

our external reporting measures which are supplementally presented in ZAR, and our internal management information, which is also

presented in ZAR.

exchange rates

per month (i.e.

October 2023, November

2023, and December

second quarter of

to reduce the

reconciliation of

information presented to our chief operating

decision maker.

The impact of

using this method compared with the average rate for

quarter and year to date is not significant, however, it does result in minor differences.

We believe that presentation using the average

information presented in our

external financial reporting and

leads to fewer

differences between our external reporting

measures which

are supplementally presented in ZAR, and our internal management

information, which is also presented in ZAR.

Results of Operations

59 unchanged sentences

Operations—Use of Non-GAAP Measures” below.

and 2023 includes Connect for the entire quarter.

Connect is included for the entire year to date of fiscal 2024 and 2023.

We analyze our business and operations in terms of two

9 unchanged sentences

in Eliminations.

First quarter of fiscal 2024 compared to first quarter

Second quarter of fiscal 2024 compared to second quarter

of fiscal 2023

The following factors had a significant impact on

our results of operations during the first

quarter of fiscal 2024 as compared with

the same period in the prior year:

The following factors had

a significant impact on

our results of operations

during the second quarter

of fiscal 2024 as compared

with the same period in the prior year:

Higher revenue:

2 unchanged sentences

low margin prepaid airtime sales and

other value added services, as well as

higher transaction, insurance and lending revenues, which was partially offset by lower

other value-added services, as well

as higher transaction, insurance and lending revenues,

which was partially offset by lower

hardware sales revenue in our POS hardware distribution business given the

lumpy nature of bulk sales;

Operating income generated:

Operating income was

achieved following years

of operating losses as

a result of the

cost reduction initiatives in Consumer implemented in prior periods

as well as the contribution from Connect;

profitability

various cost reduction initiatives in Consumer implemented in prior periods as well as the

contribution from Connect;

interest charge:

2 unchanged sentences

70.0 million) primarily due to higher interest rates;

Foreign exchange

was 7% stronger

against the ZAR

during the second

quarter of fiscal

compared to the prior period, which adversely impacted our U.S.

2 unchanged sentences

This discussion is based on the amounts prepared in accordance with U.S.

The following tables show the changes in the items comprising our statements of operations,

The following tables show the changes in the items comprising our statements of

operations, both in U.S.

dollars and in ZAR:

In United States Dollars

Three months ended September 30,

Three months ended December 31,

Cost of goods sold, IT processing, servicing and support

2 unchanged sentences

Operating income (loss)

Reversal of allowance of EMI doubtful debt receivable

Net gain on disposal of equity-accounted investments

Loss on disposal of equity-accounted investments

Interest income

2 unchanged sentences

Income tax expense

Net loss before loss from equity-accounted investments

Loss from equity-accounted investments

Net loss before earnings from equity-accounted investments

Earnings from equity-accounted investments

Net loss attributable to us

In South African Rand

Three months ended September 30,

Three months ended December 31,

Cost of goods sold, IT processing, servicing and support

2 unchanged sentences

Operating income (loss)

Reversal of allowance of EMI doubtful debt receivable

Net gain on disposal of equity-accounted investments

Loss on disposal of equity-accounted investments

Interest income

2 unchanged sentences

Income tax expense

Net loss before loss from equity-accounted investments

Loss from equity-accounted investments

Net loss before earnings from equity-accounted investments

Earnings from equity-accounted investments

Net loss attributable to us

1 unchanged sentence

0.3 billion),

18.7%), primarily

primarily due

prepaid airtime sales

11 unchanged sentences

initiatives in Consumer and lower insurance-related claims.

Selling, general and administration expenses decreased by $0.4 million, or 1.8%,

and in ZAR increased by ZAR 27.0 million, or

In ZAR, the increase was primarily due

to higher employee-related expenses related to the expansion

of our senior management

year-over-year

employee-related

Connect’s operations, which were

partially offset by the benefits of various cost reduction initiatives in

Selling, general and administration expenses decreased by $2.0

million (ZAR 8.5 million), or 8.4%

(in ZAR 2.1%).

was primarily due to

the benefits of

various cost reduction initiatives

in Consumer and lower

stock-based compensation charges, which

were partially offset by higher employee-related expenses and the year-over-year impact of inflationary increases on certain expenses.

Depreciation and amortization expense

4 unchanged sentences

to additional POS devices deployed.

Our operating income (loss) margin for the first quarter of fiscal 2024 and 2023 was

Our operating income (loss)

margin for the second

quarter of fiscal

2024 and 2023 was

1.6% and(1.6)%, respectively.

1 unchanged sentence

by operating segment.”

We did not record any changes in the fair value of equity interests in MobiKwik and Cell C

during the first quarter of fiscal 2024

did not record

any changes in

the fair value

of equity interests

in MobiKwik and

Cell C during

the second quarter

2024 or 2023, respectively.

continue to carry our investment in Cell

C at $0 (zero).

Refer to Note

4 for the methodology and inputs used

in the fair value calculation for Cell C.

a gain of $0.3 million related to

the disposal of our entire interest

in Carbon during the first

quarter of fiscal 2023.

Refer to Note 5 to our unaudited condensed consolidated financial statements for

additional information regarding this disposal.

We continue to carry our investment in Cell C

at $0 (zero).

Note 4 for the methodology and

used in the fair value calculation for Cell C.

Interest on surplus cash increased

6 unchanged sentences

76.9 million),

higher overall interest rates and higher overall borrowings

during the first quarter of fiscal 2024 compared with comparable

the prior quarter, which was partially offset

by lower interest expense incurred on certain of our borrowing for which we were able to

negotiate lower rates of interest during the latter half of fiscal 2023.

Fiscal 2024 tax expense was $(0.3) million (ZAR (4.8) million) compared to $0.0

million (ZAR 0.5 million) in fiscal 2023.

higher overall interest rates and higher overall borrowings during the second quarter of fiscal 2024 compared with comparable period

in the prior quarter, which was partially offset

by lower interest expense incurred on certain of our borrowing for which we were able

to negotiate lower rates of interest during the latter half of fiscal 2023.

Fiscal 2024 tax expense was $(0.7) million

(ZAR (12.8) million) compared to $0.4 million

(ZAR 6.4 million) in fiscal 2023.

effective tax rate for fiscal 2024 was impacted

28 unchanged sentences

results during our fourth quarter.

The table below presents the relative (loss) earnings from our equity-accounted

Three months ended September 30,

Share of net loss

entire remaining interest in Finbond during the second quarter of fiscal 2024.

below presents the relative (loss) earnings from our equity-accounted investments:

Three months ended December 31,

loss from equity-accounted investments

3 unchanged sentences

In United States Dollars

Three months ended September 30,

Three months ended December 31,

Operating Segment

4 unchanged sentences

Group Adjusted EBITDA (non-GAAP)

(1) Segment Adjusted EBITDA for Merchant includes retrenchments costs of $0.2 million and Consumer includes retrenchment

costs of $0.1 million for the three months ended September 30, 2023.

(1) Segment Adjusted

EBITDA for Merchant includes

retrenchments costs of

$0.01 million and Consumer

includes retrenchment

costs of $0.1 million for the second quarter of fiscal 2024.

(2) Group Adjusted EBITDA

4 unchanged sentences

In South African Rand

Three months ended September 30,

Three months ended December 31,

Operating Segment

5 unchanged sentences

retrenchments

retrenchment costs of ZAR 1.5 million for the three months ended September 30,

retrenchment costs of ZAR 1.3 million for the second quarter of fiscal 2024.

(2) Group Adjusted EBITDA

10 unchanged sentences

value-added services,

partially offset by lower

hardware sales revenue given

the lumpy nature of bulk sales.

The increase in Segment Adjusted

primarily due to the higher sales activity, which was partially offset by lower hardware sales.

Connect records a significant proportion

of its airtime sales in revenue and cost of sales, while only earning a relatively small

This significantly depresses the Segment

partially offset

by lower hardware

sales revenue

given the lumpy

nature of bulk

sales as well

as lower revenue

from certain valued-

added services transactions

(such as international money

increase in Segment Adjusted

EBITDA is primarily

sales activity,

partially offset

hardware sales.

Connect records

a significant

proportion of

significantly

Adjusted EBITDA margins shown by the business.

Adjusted EBITDA margin

Our Segment Adjusted

EBITDA margin

(calculated as Segment

Adjusted EBITDA

divided by revenue)

for the first

fiscal 2024 and 2023 was

7.2%, respectively.

Adjusted EBITDA divided

by revenue) for

the second quarter

of fiscal 2024 and 2023 was 6.8% and 7.6%, respectively.

Segment revenue increased

16 unchanged sentences

Division and the realization of sustained positive Segment Adjusted EBITDA.

for four consecutive quarters.

Our Segment Adjusted EBITDA (loss) margin for the first quarter of fiscal 2024 and 2023

respectively.

Our Segment Adjusted EBITDA margin for the

second quarter of fiscal 2024 and 2023 was 17.6%

and 3.7%, respectively.

costs primarily

13 unchanged sentences

by higher employee costs.

First half of fiscal 2024 compared to first half of fiscal 2023

The following

factors had a

significant impact on

our results of

operations during

the first half

of fiscal 2024

as compared with

the same period in the prior year:

Higher revenue:

Our revenues increased 16% in

ZAR, primarily due to an increase

in low margin prepaid airtime

other value added services, as well as

higher transaction, insurance and lending revenues, which was partially offset by lower

hardware sales revenue in our POS hardware distribution business given the

lumpy nature of bulk sales;

profitability

various cost reduction initiatives in Consumer implemented in prior periods as well as the contribution

from Connect;

Higher net interest charge:

The net interest

charge increased to

$8.8 million (ZAR 164.3

million) from $7.6

131.5 million) primarily due to higher interest rates;

Foreign exchange movements:

stronger against the

ZAR during the

first half of

fiscal 2024 compared

to the prior period, which adversely impacted our U.S.

dollar reported

Consolidated overall results of operations

This discussion is based on the amounts prepared in accordance with U.S.

The following tables show the changes in the items comprising our statements of operations,

dollars and in ZAR:

In United States Dollars

Six months ended December 31,

Cost of goods sold, IT processing, servicing and support

Selling, general and administration

Depreciation and amortization

Operating income (loss)

Reversal of allowance for EMI doubtful debt receivable

Net gain on disposal of equity-accounted investments

Interest income

Interest expense

Loss before income tax expense

Income tax expense

Net loss before loss from equity-accounted investments

Loss from equity-accounted investments

Net loss attributable to us

In South African Rand

Six months ended December 31,

Cost of goods sold, IT processing, servicing and support

Selling, general and administration

Depreciation and amortization

Operating income (loss)

Reversal of allowance for EMI doubtful debt receivable

Net gain on disposal of equity-accounted investments

Interest income

Interest expense

Loss before income tax expense

Income tax expense

Net loss before loss from equity-accounted investments

Loss from equity-accounted investments

Net loss attributable to us

Revenue increased

0.7 billion),

16.3%), primarily

prepaid airtime sales

and other value-added

services, as well

as higher transaction, insurance

and lending revenues, which

was partially

offset by lower hardware sales revenue in our POS hardware distribution

business given the lumpy nature of bulk sales.

Cost of goods sold, IT processing, servicing and

support increased by $12.4 million (ZAR

0.5 billion), or 5.9% (in ZAR,

primarily due to the increase in low margin prepaid airtime sales, which were partially offset by the benefits of various

cost reduction

initiatives in Consumer and lower insurance-related claims.

Selling, general and administration expenses decreased by $2.4 million, or 5.1%, and in ZAR increased by ZAR 22.2 million, or

In ZAR, the increase was

primarily due to higher employee-related expenses related to the

expansion of our senior management

team and the year-over-year impact of inflationary increases

on employee-related expenses, which were partially

offset by the benefits

of various cost reduction initiatives in Consumer and lower stock-based

compensation charges.

Depreciation and amortization expense decreased by $0.2 million, or 2.1%, and in ZAR increased by ZAR 12.5 million or 6.1%.

In the ZAR, the increase was due to an increase in depreciation expense related to

additional POS devices deployed.

Our operating income (loss) margin for the first half of fiscal 2024 and 2023 was 0.9% and (2.6)%, respectively.

We discuss the

components of operating loss margin under “—Results of operations

by operating segment.”

We did not record any changes in the fair value of equity interests in MobiKwik and Cell C during the first half of fiscal 2024 or

2023, respectively.

During the first half of fiscal 2024,

we received an outstanding amount of

$0.3 million related to the sale Carbon

in fiscal 2023,

which resulted

loans receivable

million recorded

million related to the

disposal of our

entire interest in Carbon

during the first half

of fiscal 2023.

Refer to Note

unaudited condensed consolidated financial statements for additional

information regarding this disposal.

million) from

million), primarily

higher interest rates.

Interest expense increased

to $9.7 million (ZAR

181.8 million) from

$8.4 million (ZAR

145.3 million), primarily

as a result of

higher overall interest rates and higher overall borrowings during the first half of fiscal 2024 compared with comparable period in the

prior year to

date, which was

partially offset

by lower interest

expense incurred

on certain of our

borrowing for which

to negotiate lower rates of interest during the latter half of fiscal 2023.

Fiscal 2024 tax expense was $(1.0) million

(ZAR (17.7) million) compared to $0.4 million

(ZAR 6.8 million) in fiscal 2023.

effective tax rate for fiscal 2024 was impacted

by the tax expense recorded by our profitable South

African operations, a deferred tax

benefit related

to acquisition-related

intangible asset

amortization, non-deductible

expenses, the

on-going losses

of our South African businesses

and the associated valuation allowances

created related to the deferred

tax assets recognized regarding

net operating losses incurred by these entities.

Our effective

expense recorded

profitable South

African operations,

deferred tax benefit related to acquisition-related intangible asset amortization, non-deductible expenses, the on-going losses incurred

by certain of our

South African businesses and

the associated valuation allowances

created related to the

deferred tax assets

regarding net operating losses incurred by these entities.

Finbond is listed on the Johannesburg Stock

Exchange and reports its six-month results during

our first half and its

annual results

during our fourth quarter.

below presents the relative (loss) earnings from our equity-accounted

Six months ended December 31,

Share of net loss

Results of operations by operating segment

The composition of revenue and the contributions of our business activities to operating

loss are illustrated below:

In United States Dollars

Six months ended December 31,

Operating Segment

Consolidated revenue:

Operating segments

consolidated revenue

Segment Adjusted EBITDA:

Group Adjusted EBITDA (non-GAAP)

(1) Segment Adjusted

EBITDA for Merchant includes

retrenchments costs of

$0.01 million and

Consumer includes retrenchment

costs of $0.1 million for first half of fiscal 2024.

(2) Group Adjusted EBITDA

is a non-GAAP measure, refer

to reconciliation below at

“—Results of Operations—Use of

GAAP Measures”.

In South African Rand

Six months ended December 31,

Operating Segment

Consolidated revenue:

Operating segments

consolidated revenue

Segment Adjusted EBITDA:

Group Adjusted EBITDA (non-GAAP)

retrenchments

retrenchment costs of ZAR 1.3 million for first half of fiscal 2024.

(2) Group Adjusted EBITDA

is a non-GAAP measure, refer

to reconciliation below at

“—Results of Operations—Use of

GAAP Measures”.

Segment revenue

increased due

to the increase

in low margin

prepaid airtime

sales and other

value-added services,

partially offset by lower

hardware sales revenue given

the lumpy nature of bulk sales.

The increase in Segment Adjusted

primarily due to the higher sales activity,

which was partially offset by lower hardware sales.

Our Segment Adjusted EBITDA margin for the first half

of fiscal 2024 and 2023 was 6.7% and 7.4%, respectively.

Segment revenue increased

primarily due to

more transaction fees

generated from the

higher EPE account

holders base, higher

insurance revenues, and an increase

in lending revenue as

a result of an

increase in loan originations.

This increase in revenue,

with the cost reduction

initiatives initiated in fiscal

2022 and through

fiscal 2023, have

translated into a turnaround

in the Consumer

Division and the

realization of sustained

positive Segment Adjusted

EBITDA in year

to date fiscal 2024

compared with year to

Our Segment Adjusted EBITDA margin for the first half of fiscal 2024

and 2023 was 16.8% and (2.7)%, respectively.

Our group costs for

fiscal 2024 decreased compared

with the prior period

due to lower external

audit, legal and consulting

and lower provision for executive bonuses, which was partially offset

by higher employee costs.

Use of Non-GAAP Measures

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fair value adjustments to currency

options), (earnings) loss from

equity-accounted investments, stock-based compensation charges, lease

adjustments and once-off items.

options), (earnings)

loss from equity-accounted investments,

stock-based compensation charges, lease adjustments

and once-off items.

non-recurring

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Three months ended

September 30,

Six months ended

Loss attributable to Lesaka - GAAP

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Once-off items

Unrealized Loss FV for currency adjustments

Unrealized gain FV for currency adjustments

Group Adjusted EBITDA - Non-GAAP

2 unchanged sentences

Three months ended

September 30,

Six months ended

Transaction costs

Expenses incurred related to closure of legacy businesses

(Income recognized) Expenses incurred related to closure of legacy

Total once-off

9 unchanged sentences

number of quarters, and the transactions are generally non-recurring.

process of deregistering/ liquidation and therefore we consider these costs non

-operational and ad hoc in nature.

currency translation

deconsolidation of

a subsidiaries

costs incurred

which we are in the process of deregistering/ liquidation and therefore

we consider these costs non-operational and ad hoc in nature.

Liquidity and Capital Resources

As of September 30, 2023, our

cash and cash equivalents were $35.1

million and comprised of U.S.

As of December 31, 2023, our cash and cash

equivalents were $44.3 million and comprised of U.S.

dollar-denominated balances

5 unchanged sentences

primarily Botswana

pula, of $1.9

million, all amounts

translated at exchange

rates applicable as

of September 30,

$2.2 million,

translated at

exchange rates

applicable as

in our unrestricted

cash balances from

June 30, 2023,

was primarily due

to a positive contribution

from our Merchant

and Consumer operations,

was partially offset

by the utilization

of cash reserves

to fund certain

scheduled repayments of

was primarily

utilization of

our borrowings

purchase ATMs

safe assets, and to make an investment in working capital.

facilities to

components of

our operations,

partially offset

by the utilization

cash reserves to

fund certain scheduled

repayments of our

borrowings, purchase ATMs and vaults,

an investment

in working capital.

invest any surplus cash held by our

25 unchanged sentences

the acquisition

consolidated financial

statements for

for additional

information related to our borrowings.

1 unchanged sentence

Summarized below are our short-term facilities available and utilized as of

September 30, 2023:

December 31, 2023:

RMB Facility E

16 unchanged sentences

Long-term borrowings

September 30, 2023)

December 31, 2023)

as described in Note

These borrowings

include outstanding long-term

borrowings obtained by Lesaka

include outstanding

long-term borrowings obtained

by Lesaka SA of

ZAR 1.0 billion,

4 unchanged sentences

credit facility.

facility during

September 30,

remaining balance available for utilization in the future.

In contemplation of the Connect transaction, Connect obtained

total facilities

of approximately

ZAR 1.3 billion,

utilized to repay

its existing borrowings,

its capital expenditures

and to settle

obligations under the

In contemplation of the Connect transaction, Connect obtained total facilities

existing borrowings,

capital expenditures

transaction documents,

and which has

subsequently been

upsized for its

has subsequently

operational requirements

and has an outstanding balance as of September 30,

2023, of ZAR 1.2 billion, We

also have a revolving credit facility,

million which is utilized to fund a portion of our merchant finance loans receivable

credit facility,

which is utilized to fund a portion of our merchant finance loans receivable

Restricted cash

4 unchanged sentences

equivalents and

approximately

cash withdrawn

debt facility

and is considered restricted as to use and therefore is classified as restricted cash on

our consolidated balance sheet.

restricted cash presented in

our consolidated statement

of cash flows

as of December

31, 2023, includes

restricted cash of

$23.5 million

related to cash withdrawn from our debt facility to

This cash may only be used to fund ATMs and is considered restricted

as to use and therefore is classified as restricted cash on our consolidated

balance sheet.

also entered into cession and pledge

10 unchanged sentences

cash presented in our consolidated

September 30,

2023, includes

approximately

statement of cash flows as of December 31, 2023, includes restricted cash of

$0.1 million that has been ceded and pledged.

Cash flows from operating activities

First quarter

Second quarter

Net cash provided by operating

activities during the second quarter of

fiscal 2024 was $0.6

million (ZAR 10.9 million) compared

to $3.4 million (ZAR 59.9 million) during the second quarter of fiscal 2023.

Excluding the impact of income taxes, our cash provided

Consumer, which was partially offset by growth in

our consumer and merchant finance loans

receivable books and temporary working

capital movements within

our merchant business

of quarter-end

transaction processing activities

settled in the following week.

During the second quarter of fiscal 2024, we

paid first provisional South African tax payments

of $0.1 million (ZAR 1.3 million)

related to our 2023

South African tax payments

related to prior years

of $0.1 million

(ZAR 1.3 million).

During the second

first provisional

South African

of $2.5 million

million) related

and additional

second provisional

South African

Taxes paid during

the second quarter of fiscal 2024 and 2023 were as follows:

Three months ended December 31,

First provisional payments

Taxation paid related

to prior years

Tax refund received

Total South African

Foreign taxes paid

Net cash provided

by operating activities

during the first

quarter of fiscal

2024 was $3.4

million (ZAR 63.1

first half of

was $4.0 million

million) compared

to net cash used

in operating activities of

net cash used

activities of $4.2

million (ZAR 73.1

million) during the first

quarter of fiscal 2023.

Excluding the impact

processing activities closing on a Saturday and settled in the following week.

During the first quarter of fiscal

2024, we paid first provisional South

African tax payments of $0.6 million

million) during

the first half

the impact of

income taxes, our cash provided by operating activities during the first half of fiscal 2024 was positively impacted by the contribution

from Merchant

and Consumer,

partially offset

merchant finance

loans receivable

and temporary

working capital

movements within

of quarter-end

transaction processing

closing on a Sunday and settled in the following week.

provisional South

related to our 2023 tax year and South African tax payments related to prior years

of $0.6 million (ZAR 12.2 million).

During the first

half of fiscal

2023, we paid

first provisional South

African tax payments

of $3.0 million

(ZAR 50.8 million)

first provisional

million (ZAR 8.2 million) related to our 2023 tax year, and additional

second provisional South African tax payments of $0.2 million

(ZAR 3.4 million) related to our 2022 tax year.

related to our

year, and additional second provisional South

African tax payments of $0.2 million (ZAR 3.4 million) related to our 2022 tax

Taxes paid during

the first quarter of fiscal 2024 and 2023 were as follows:

Three months ended September 30,

the first half of fiscal 2024 and 2023 were as follows:

Six months ended December 31,

First provisional payments

6 unchanged sentences

Cash flows from investing activities

First quarter

million), primarily due to the acquisition of safe assets and POS devices.

million), primarily due to the acquisition of safe assets, POS devices and computer equipment.

During the first quarter of fiscal 2023,

we received proceeds $0.25 million related

to the first tranche (of two) from

the disposal of our entire interest

tranche, of $0.25 million, was received in October 2023.

Cash flows from financing activities

First quarter

first quarter

approximately $59.6

African overdraft

facilities to

approximately $2.5 million of our long-term borrowings to fund

the acquisition of certain capital expenditures and for working

requirements.

repaid approximately

$2.6 million of

long-term borrowings in

accordance with our

repayment schedule as

to settle a portion of our revolving credit facility utilized.

first quarter

Second quarter

investing activities

second quarter

of fiscal 2024

we utilized approximately

$146.1 million

from our South

African overdraft

facilities to

approximately

capital expenditures of

million), primarily due

to the acquisition of

vaults and POS devices

During the second

quarter of fiscal

2024, we received proceeds

of $3.5 million related to the sale of remaining interest in Finbond and $0.25 million related to the second (and final) tranche from the

disposal of our entire equity interest in Carbon.

investing activities

second quarter

of fiscal 2023

capital expenditures

repaid approximately

in accordance

repayment schedule.

We paid $0.2 million to repurchase shares from an employee in order for the employee to settle taxes due related

to the vesting of shares of restricted stock.

million (ZAR 69.9

million), due to the acquisition of vaults and POS devices.

Cash used in investing activities for the

first half of fiscal 2024 included capital

expenditures of $5.0 million (ZAR 93.7 million),

primarily due to

the acquisition of vaults

and POS devices.

the first half of fiscal

2024, we received proceeds

of $3.5 million

related to the sale of remaining interest in Finbond and $0.25 million related to the second (and final) tranche from the disposal of our

entire equity interest in Carbon.

investing activities for

the first half

2023 included capital

expenditures of $8.5

million (ZAR 146.5 million),

the acquisition

proceeds of $0.25 million related to the first tranche from the disposal of our

entire equity interest in Carbon.

Cash flows from financing activities

Second quarter

During the second quarter of fiscal 2024, we utilized $69.0 million from our South

African overdraft facilities to fund our ATMs

and our cash management business through Connect, and repaid

$66.0 million of those facilities.

We utilized $8.6 million of our long-

term borrowings to fund

the acquisition of certain

capital expenditures and for

working capital requirements.

also paid $0.2

million to repurchase

shares from employees

the employees to

settle taxes due

related to the

vesting of shares of restricted stock.

During the second quarter

of fiscal 2023,

we utilized $167.2

million from our South

African overdraft facilities

cash management

business through

repaid $175.4

those facilities.

utilized $9.1

expenditures.

repaid $1.7 million of long-term borrowings in accordance

with our repayment schedule.

received $0.3 million

from the exercise of stock options.

We also paid $0.1 million to repurchase shares from employees in order for the

employees to settle

taxes due related to the vesting of shares of restricted stock.

During the first half of fiscal 2024, we utilized $128.6 million from our South African overdraft facilities to fund our ATMs

our cash management business through

Connect, and repaid $128.8 million

of those facilities.

utilized $11.0 million

term borrowings to fund

the acquisition of certain

capital expenditures and for

working capital requirements.

repaid $5.8 million

also paid $0.2

million to repurchase

shares from employees

the employees to

settle taxes due

related to the

vesting of shares of restricted stock.

During the first half of fiscal 2023, we utilized $313.3 million from our South African overdraft facilities to fund our ATMs

our cash management business through

Connect, and repaid $312.3 million

of those facilities.

utilized $10.1 million of our

term borrowings

finance loans

receivable business

acquisition of

certain capital

expenditures.

stock options.

to repurchase

the employees

to settle taxes

due related to the vesting of shares of restricted stock.

Off-Balance Sheet Arrangements

2 unchanged sentences

Capital Expenditures

expect capital

spending for the

second quarter of

to primarily include

spending for acquisition

of POS devices,

computer software,

office equipment,

infrastructure and

branch network

Our capital expenditures

for the first

quarter of fiscal 2024

discussed under “—Liquidity and

Capital Resources—

capital spending

third quarter

include spending

for acquisition

computer software, computer and office equipment, as well as for

our ATM infrastructure and branch network in South Africa.

expenditures for

are discussed

under “—Liquidity

from investing

2 unchanged sentences

through internally

commitments as of September 30, 2023, of $0.7 million.

We expect to fund these expenditures through internally generated funds and

commitments as of December 31, 2023, of $0.1 million.

to fund these expenditures through internally generated funds and

available facilities.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis