Item 1. Business
ITEM 1.
BUSINESS
Overview
Lesaka is
a South
African Fintech
company that
utilizes its
proprietary banking
and payment
technologies to
deliver financial
services solutions and software to consumers and merchants in Southern Africa.
Our vision is to build and operate the leading full-service fintech platform
in Southern Africa.
Our
core
purpose
is
to
provide
financial
services
to
Southern
Africa’s
underserviced
consumers
and
merchants,
improving
people’s lives and increasing financial inclusion in the markets in which we operate. We
achieve this through our ability to efficiently
digitalize the last mile
of financial inclusion,
providing a full-service
fintech platform
offering both cash
and digital, and
facilitating
the secular shift from cash to digital that is currently taking place.
We
offer a wide
range of solutions
including transactional
accounts (banking), lending,
insurance, cash management
solutions,
card acceptance, supplier payments, software services
and bill payments. By providing
a full-service fintech platform in
our connected
ecosystem, we facilitate the digitization of commerce in our markets.
In May 2024
we announced the
acquisition of Adumo
RF (Pty)
Ltd (“Adumo”), an
acquisition subject to
satisfaction of customary
closing
conditions,
expected
to
close
in
October
2024.
The
acquisition
continues
Lesaka’s
consolidation
in
the
Southern
African
fintech sector and enhances Lesaka's strengths in both the consumer and merchant
markets.
Reportable Segments
We
operate through
two divisions: Our
B2C Consumer Division
(“Consumer”) and
our B2B Merchant
Division (“Merchant”).
Within these two divisions, Lesaka has four
broad customer types: consumers, micro-merchants, merchants, and
enterprise clients.
While there are mutually
reinforcing dynamics and overlap
between our verticals,
within each vertical, we
offer distinct brands
with unique value propositions. Our platform addresses a wide range
of customers that are not generally serviced by our competitors,
an advantage that we use
to benefit from economies
of scale. We
believe that we deliver
high quality products that
provide excellent
value to our customers.
While we
operate in
competed markets,
we believe
that we
are unique
in offering
a comprehensive
product portfolio,
serving
both formal and informal consumers and merchants with omnichannel
financial services through physical and digital touchpoints.
3
Consumer (B2C)
Customers
Through Consumer we focus
on individuals 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 as
of 2023
(according to
a report
by Genesis
Analytics). As
of the
date of
this Annual
Report, we have approximately 1.5 million active consumer customers.
Products
We offer
consumers transactional accounts (banking),
insurance, lending (short-term loans),
payments solutions (digital wallet)
and various
value-added services
to underserved
consumers in
South Africa.
Our value proposition
and products
are designed
to be
simple, relevant and cost effective for our target
market.
4
Merchant (B2B)
Customers
Through Merchant, we focus on micro-merchants, merchants and enterprises operating
in the informal and formal sectors of the
Southern African economy.
Micro-merchants, or informal sector merchants,
are often sole
proprietors, usually with lower
revenues, that operate in
rural areas
or in informal urban areas and do not always have access to a full-suite of
traditional banking products.
Merchants, or
formal sector
merchants, are
generally in
urban areas,
have higher
revenues and
have access
to multiple
service
providers.
Enterprises are large-scale corporate and government
organizations, including but not limited
to banks, mobile network
operators
(“MNOs”) and municipalities.
Including
micro-merchants
and
merchants,
there
are
more
than
2.7
million
merchants
in
South
Africa,
of
which
more
than
890,000
merchants
are immediately
serviceable
merchants
for
Lesaka.
Merchant
currently
has over
96,600
customers
in
Southern
Africa, of
which more than
87,000 are in
South Africa (this
excludes the
impact of the
Adumo acquisition,
not effective
at June 30,
2024 and expected to close in October 2024).
Products
To
micro-merchant
and
merchant
customers
(B2B),
we
offer
cash
management
and
digitalization
solutions
through
our
proprietary vault
technology,
card acceptance,
supplier payments,
software services,
lending, prepaid
accounts and
bill payments
to
empower merchants to grow their businesses and transact more efficiently.
To
larger enterprise
customers (B2B), we offer
bill and supplier
payments and VAS
products through
our proprietary financial
switch, as well as point of sale device and maintenance, bank and SIM card production
and other specialized technology products.
Market Opportunity
Our primary
market is
currently South
Africa with
its approximately
62 million
population and
$381 billion
economy (GDP,
according to IMF World
Economic Outlook Database as
of October 2023). With
the acquisition of Adumo
(an acquisition subject to
regulatory approvals
and satisfaction of
customary closing conditions,
expected to close
in October 2024)
we augment our
presence
in South Africa,
Namibia, Botswana and
Zambia and expand
into Kenya. Together this represents
a 140 million
population addressable
market, larger than that of Mexico or Japan (GDP according to IMF
World Economic
Outlook Database as of October 2023).
5
Over
the
past
decade,
both
financial
inclusion
and
smartphone
penetration
throughout
the
region
have
grown
significantly.
According to a report
by Genesis Analytics, between 2015
and 2023, the proportion
of low-income workers in South
Africa that had
used a debit
card to transact
rose from 17%
to 50%. According
to the same
report, between 2015
and 2021, the
proportion of
South
Africans accessing online
banking services increased
from 31%
to 55%, and
between 2018 and
2024, smartphone penetration
increased
from 55% to 76%.
These favorable tailwinds
have helped position
Africa as the fastest-growing
Fintech market globally,
according to a
report by
Boston Consulting Group that projects growth in the African Fintech revenue pool
to grow by 13 times between 2021 and 2030.
Given
the
significant
challenges
in
delivering
financial
services
in
Southern
Africa;
however,
many
service
providers
in
our
markets continue to rely on expensive and unreliable legacy systems and focus on narrow customer segments with mono-line (single-
line) products.
We
believe that this
presents a significant
opportunity for Lesaka
to build and
operate the leading
full-service Fintech platform
in Southern Africa, empowering underserviced consumers and merchants by delivering
innovative financial services focused on their
specific needs.
6
Competition
With our comprehensive offerings to
both consumers and merchants, we compete with a wide range of service providers. While
there are
competitors for
specific products
and services,
few offer
end-to-end solutions,
particularly in
the lower-income
consumer
market and the informal merchant market, where we have a significant footprint
and strong 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.
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;
•
Ownership; 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;
•
financial assistance to pursue further studies and obtain formal qualifications;
•
other in-house and cross-functional training to aid with career advancement;
and
•
succession planning – training interventions to address scarce and critical skills.
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.
7
As of June 30, 2024, the composition of our workforce was:
•
55% female and 45% male;
•
40% between 18 and 34 years old, 55% between 35 and 54 years old, and 5% over
55 years old; and
•
69% Black, 11% two or more races, 8% Indian and 12%
White.
We have no
female named executive officer.
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 pay for
work of equal value.
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;
•
Financial aid to fund tertiary education for children of employees;
•
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 remuneration review process.
Our number
of employees
allocated
on a
segmental
and
group
basis as
of the
years ended
June 30,
2024,
2023 and
2022,
is
presented in the table below:
Number of employees
2024
2023
2022
Consumer
(1)
1,333
1,306
1,826
Merchant
(1)
1,189
990
824
Total segments
2,522
2,296
2,650
Group
(1)
9
7
7
Total
2,531
2,303
2,657
(1) Consumer includes one executive officer for each of fiscal 2024, 2023 and 2022. Merchant includes one executive officer
for
each of fiscal 2024, 2023 and 2022. Group includes two executive officers
for fiscal 2024 and 2023 and three for fiscal 2022.
On a functional basis, four of our employees are our named
executive officers, 1,350 were employed in sales and marketing, 500
were employed in finance and administration, 266 were employed in information
technology and 411 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.
8
Our Executive Officers
The table below presents our executive officers, their
ages and their titles:
Name
Age
Title
Ali Mazanderani
42
Executive Chairman and Director
Naeem E. Kola
51
Group Chief Financial Officer and Director
Lincoln C. Mali
56
Chief Executive Officer: Southern Africa and Director
Steven J. Heilbron
59
Executive and Director
Ali Mazanderani
has been our Executive
Chairman since February
1, 2024. He is
a fintech investor and
entrepreneur. He
is the
co-founder
and
chairman
of Teya,
a pan-European
fintech. He
is also
a non-executive
director
on the
board of
several companies
including Thunes (Singapore based
private fintech), Kushki (Latin
American payments company) and
is the president
of The European
Digital Payments Industry Alliance
(EDPIA). He was previously
on the board of
several other leading payments
companies globally
including
StoneCo
(Nasdaq:
STNE)
in
Brazil
and
Network
International
Holdings
Plc
(LSE:NETW)
in
the
Middle
East.
He
was
formerly a Partner at Actis, a London-based emerging market private equity firm, where
he led multiple landmark fintech investments
globally. Prior to his career at Actis, Mr.
Mazanderani advised private equity and corporate clients for OC&C Strategy Consultants in
London
and
served
as
lead
strategy
consultant
for
First
National
Bank
based
in
Johannesburg.
He
holds
postgraduate
degrees
in
Economics from
the University of
Pretoria, Oxford University
and the London
School of Economics,
an MBA from
INSEAD and a
Masters in Business Law from the University of St Gallen.
Naeem E. Kol
a has been our Group Chief Financial Officer since March 1, 2022. Mr. Kola has progressively held 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
Mr. Kola’s
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,
having
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 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
Bank plc. 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 Group, 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.
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 2024, 2023 and 2022. 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
2024
2023
2022
2024
2023
2022
$'000
$'000
$'000
$'000
$'000
$'000
South Africa
537,594
505,558
215,046
286,700
300,104
359,725
India (MobiKwik)
-
-
-
76,297
76,297
76,297
Rest of the world
26,628
22,413
7,563
2,548
2,197
2,811
Total
564,222
527,971
222,609
365,545
378,598
438,833
(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 2024, 2023
and 2022.
9
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, 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.
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.
10