LESAKA TECHNOLOGIES INC 10-K

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with Item 8—“Financial Statements and Supplementary Data.” In addition to historical consolidated financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. See Item 1A— “Risk Factors” and “Forward Looking Statements.” U.S. securities laws require that when we publish any non-GAAP measures, we disclose the reason for using these non-GAAP measures and provide reconciliations to the most directly comparable GAAP measures. We discuss why we consider it useful to present these non-GAAP measures and the material risks and limitations of these measures, as well as a reconciliation of these non- GAAP measures to the most directly comparable GAAP financial measure below at “—Results of Operations —Use of Non-GAAP Measures” below. Overview 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. Sources of Revenue We generate our revenues by charging transaction fees to merchants, financial service providers, utility providers, bill issuers and consumers; by selling airtime to merchants; by providing loans to merchants and consumers, and insurance products to consumers and by selling hardware, licensing software and providing related technology services to merchants. We act as a service provider whereby we own and operate the technology and apply it in a system ourselves, charging one-time and ongoing fees for the use of the system either on a fixed or ad valorem basis. For instance, through Connect, we provide cash management and payment services to merchant customers through a digital vault which is located at the customer’s premises and generate processing revenue from the provision of these services. We also offer merchant customers access to platforms through which we (a) generate revenue from the sale of prepaid airtime and (b) generate fees from distribution of VAS, including prepaid airtime, prepaid electricity, gaming voucher, and other services, to users of our platforms. We also generate fees from debit and credit card transaction processing and interest revenue from qualifying merchant customers who are able to access short-term loans. The revenue and costs associated with these services and sales are included in our merchant operating segment. We also generate fees from consumers utilizing our ATM network. We provide consumers with bank accounts from which we generate a monthly fee and also charge fees on an ad valorem basis for goods and services purchased. Usage of our bank accounts also provides our customers with access to short-term loans and life insurance products. The revenue and costs associated with this approach are reflected in our consumer operating segment. Developments during Fiscal 2024 This item generally discusses our 2024 results compared to our 2023 results. Discussions of our 2023 results compared to our 2022 results can be found within our Annual Report on Form 10-K for the year ended June 30, 2023. Fiscal 2024 represents a transformative year for Lesaka. The continuation of our strong and consistent performance delivered a robust improvement in profitability, and we believe the anticipated completion of the Adumo acquisition, announced in fiscal 2024, will facilitate an acceleration of our organic growth story and cement Lesaka’s position as Southern Africa’s leading Fintech. The consistent strengthening in our financial position enables us to continue pursuing our organic and inorganic growth strategies. Operating income of $3.6 million (ZAR 67.3 million) improved $18.9 million (ZAR 342.6 million) compared with an operating loss of $15.3 million (ZAR 275.3 million) during fiscal 2023. We reported a net loss attributable to the company of $17.4 million (ZAR 326.1 million) during fiscal 2024 compared with a net loss of $35.1 million (ZAR 629.2 million) during fiscal 2023. We achieved our Group Adjusted EBITDA guidance, a non-GAAP measure, delivering $36.9 million (ZAR 690.9 million) in fiscal 2024, a 55% increase in ZAR, compared to $24.8 million (ZAR 445.5 million) during fiscal 2023, demonstrating consistent execution against our growth strategy. Refer to reconciliation below at “—Results of Operations—Use of Non-GAAP Measures” for a reconciliation of Group Adjusted EBITDA. The continued resilience of our business model in a challenging environment for our merchant and consumer customers demonstrates the value our customers place on our services. 29 Our mission at Lesaka is to provide financial services, including software, to Southern Africa’s underserviced consumers and merchants, improving people’s lives and increasing financial inclusion in the markets in which we operate. We achieved this through our ability to efficiently digitalize commerce by providing a full-service fintech platform and facilitating the secular shift from cash to digital that is currently taking place. Merchant Division The year-on-year growth achieved by our Merchant Division (“Merchant”) is supported by the robust secular trends underpinning financial inclusion, cash management and digitalization to empower micro-merchants, merchants and enterprise clients to transact efficiently and fulfill their potential. Performance in Merchant has been driven by: ● Our VAS and supplier payments business continues to see adoption by micro-merchants. VAS and supplier payments Fiscal year ended June 30, 2024 2023 2022 2024 vs. 2023 2 year CAGR % Approximate number of devices in deployment 1 87,500 75,000 51,000 17% 31% Throughput for the year (ZAR billions) 33.0 27.6 20.6 20% 27% Throughput for the year excluding international money transfers (ZAR billions) 30.6 21.4 13.7 43% 49% 1. 2024 includes approximately 6,400 devices attributable to the acquisition of Touchsides, effective May 01, 2024, which are not enabled for VAS and supplier payments on the Kazang platform. o We had approximately 87,500 devices deployed at June 30, 2024, representing a 17% year-on-year growth compared to approximately 75,000 devices one year ago, and represents a 2-year CAGR of 31% compared to June 30, 2022. o The 87,500 devices includes approximately 2,300 Touchsides merchants with devices already enabled for VAS and supplier payments on the Kazang platform and an additional 6,400 Touchsides devices which are not enabled for VAS and supplier payments on the Kazang platform. These 6,400 sites present an immediate opportunity to deploy a Kazang device enabling VAS sales and supplier payments. o 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 growth and margin per device. o As previously communicated, our product mix for VAS and supplier payment sales has changed with low- margin money transfers reducing significantly due to a change in the regulatory environment impacting the industry as a whole. Money transfers comprised 7% of VAS and supplier payment throughput in fiscal 2024 compared to 22% in fiscal 2023. This change has had limited impact on profitability as money transfers are a very low margin product. o VAS and supplier payments throughput, excluding the low-margin money transfers, increased 43% year-on- year to ZAR 30.6 billion, and represents a 2-year CAGR of 49% compared to June 30, 2022. o Whilst we saw growth in our traditional VAS products of electricity, airtime and gaming, much of the growth has been driven by the uptake of our supplier payments platform by micro-merchants. As we bring more suppliers onto our platform, we anticipate these volumes will continue to grow. Supplier payment throughput volumes increased 124% in fiscal 2024 compared to fiscal 2023 and now accounts for approximately 35% of our VAS throughput volumes, compared to approximately 20% a year ago. o Touchsides was acquired at the end of April 2024 (refer below). ● Our card acceptance solutions to micro-merchants via Kazang Pay and to merchants through Card Connect. Card acceptance Fiscal year ended June, 30 2024 2023 2022 2024 vs. 2023 2 year CAGR % Approximate number of devices in deployment 1 51,850 44,900 22,650 15% 51% Throughput for the year (ZAR billions) 15.6 12.0 6.1 30% 60% 30 ● Our lending solutions offered to merchants through Capital Connect in the merchant market. Lending Fiscal year ended June, 30 2024 2023 2022 2024 vs. 2023 2 year CAGR % Capital Connect credit disbursed (ZAR millions) 716 769 601 (7)% 9% Capital Connect loan book size at period end (ZAR millions) 284 294 229 (4)% 11% o Capital Connect disbursed ZAR 716 million during fiscal 2024, compared to ZAR 769 million in the comparable period last year, representing a 7% decrease, reflective of challenging economic conditions, including higher interest rates, experienced by merchants in South Africa during fiscal 2024 o We continue to see demand for our merchant lending offering however the deteriorating performance and financial strength of many of our merchants means they do not meet our credit criteria, resulting in fewer and smaller extensions. Whilst strict application of our credit criteria has led to negative growth, it has protected and maintained the quality of our book through this cycle. Growth in credit disbursed and the Capital Connect loan book size at the end of the year represents a 2-year CAGR of 9% and 11% respectively. o Capital Connect’s lending proposition is an important component in enabling the merchants we serve to compete and grow. Since inception, Capital Connect has distributed more than ZAR 3 billion of funding to merchants and can provide funding of up to ZAR 5 million in under 24 hours. Quick access to affordable and flexible opportunity capital is vital in every stage of a merchants’ lifecycle, enabling them to never miss an opportunity. o In fiscal 2024 Capital Connect launched “Fuel Connect” , a tailored lending solution addressing complexities in fuel ordering, aimed at solving for merchants’ pain points. o Kazang Pay Advance, our lending offering in the micro -merchant sector, was suspended in early fiscal 2024 following the decision to discontinue the current product, especially in the high interest rate environment. We continued to explore other options with respect to this offering with it now in live pilot phase. We are monitoring payment behavior on a smaller loan book and applying stricter lending criteria before the official relaunch later in fiscal 2025. ● Our cash management and digitalization solutions effectively “puts the bank” in approximately 4,440 merchants’ stores. Cash management and digitalization Fiscal year ended June 30, 2024 2023 2022 2024 vs. 2023 2 year CAGR % Approximate number of devices in deployment 4,440 4,390 4,080 1% 4% Cash settlements (throughput) for the year (ZAR billions) 112.6 110.1 102.1 2% 5% o Our cash business remains a vital product in our merchant offering and is a key differentiator for us in the digitalization of cash. We provide robust cash vaults in the SME sector (Cash Connect) and are building a presence in the micro-merchant sector (Kazang Vaults), which enables our merchant customer base to significantly mitigate their operational risks pertaining to cash management and security. o Whilst there is trend towards digital payments, cash remains as the most significant portion of retail transactions especially in informal markets. This business is primarily exposed to the mid-market SMEs, a sector which has experienced challenges such as power outages, high price inflation and a slowdown in consumer spending, over the past 24 months. This impacted the merchants we serve in this sector and resulted in increased bankruptcies and vault upliftments which affected the net growth in the vault estate. o Our merchants deposited over ZAR 113 billion in cash into our vaults in fiscal 2024 evidencing the value they derive from our ability to digitalize this cash and immediately provide access to working capital. Acquisition of Touchsides In February 2024 we announced the acquisition of Touchsides (Pty) Ltd (“Touchsides”) and the deal closed on April 30, 2024. Touchsides is a leading data analytics and insights company, and highly complementary with our Kazang business. The acquisition significantly expands Kazang’s footprint in the informal market by adding an established solution that has a strong presence in the licensed tavern market. The business provides platform-as-a-service (“PaaS”) and 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. 31 The data and insights gathered from these terminals carries significant value and potential to be monetized through relationships with a range of clients including fast-moving consumer goods companies, retailers, wholesalers, route-to-market suppliers, and financiers. Touchsides is managed as part of our micro-merchant business and has been allocated to our Merchant operating segment. Acquisition of Adumo In May 2024 we announced the acquisition of Adumo RF (Pty) Ltd (“Adumo”), which is subject to shareholder and regulatory approvals. Adumo is an independent payments and commerce enablement platform in Southern Africa, serving approximately 23,000 active merchants with operations across South Africa, Namibia, Botswana and Kenya. For more than two decades, Adumo has facilitated physical and online commerce between retail merchants and end-consumers by offering a unique combination of payment processing and integrated software solutions, which currently include embedded payments, integrated payments, reconciliation services, merchant lending, customer engagement tools, card issuing program management and data analytics. Adumo operates across three businesses, which provide payment processing and integrated software solutions to different end markets: ● The Adumo Payments business offers payment processing, integrated payments and reconciliation solutions to small- and-medium (“SME”) merchants in South Africa, Namibia and Botswana, and also provides card issuing program management to corporate clients such as Anglo American and Coca-Cola; ● The Adumo ISV business, also known as GAAP, has operations in South Africa, Botswana and Kenya, and clients in a further 21 countries, and is the leading provider of integrated point-of-sales software and hardware to the hospitality industry in Southern Africa, serving clients such as KFC, McDonald’s, Pizza Hut, Nando’s and Krispy Kreme; and, ● The Adumo Ventures business offers online commerce solutions (Adumo Online), cloud-based, multi-channel point- of-sales solutions (Humble) and an aggregated payment and credit platform for in-store and online commerce (SwitchPay) to SME merchants and corporate clients in South Africa and Namibia. Adumo generates the majority of its revenue from per transaction fees that are calculated as a percentage of transaction value, and software-as-a-service (“SaaS”) subscription fees charged to merchants. As of June 30, 2024, Adumo employed approximately 950 employees throughout Southern Africa. The acquisition continues Lesaka’s consolidation in the Southern African fintech sector. The Lesaka ecosystem will serve approximately 1.7 million active consumers, 120,200 merchants, and processes over ZAR 270 billion in throughput (cash, card and VAS) per year. The combined Group will have over 3,300 employees operating on the ground in five countries: South Africa, Namibia, Botswana, Zambia, and Kenya. The acquisition enhances Lesaka's strengths in both the consumer and merchant markets. The purchase consideration will be settled through the combination of an issuance of 17,279,803 shares of our common stock and a ZAR 232 million ($12.5 million, translated at the prevailing rate of $1: ZAR 18.5 as of May 6, 2024) payment in cash. The share issuance was based off of the Base Purchase Consideration, as defined in the transaction agreement, of ZAR 1.59 billion ($85.9 million), less the ZAR 232 million cash payment, implying a value per share of $4.25 ((ZAR 1.59 billion – ZAR 0.232 billion)/17,279,803 / ZAR 18.5). Adumo shareholders include Apis Growth Fund I, a private equity fund managed by Apis Partners LLP (“Apis”), African Rainbow Capital (“ARC”), the largest shareholder of Crossfin Holdings (RF) Pty Ltd (“Crossfin”), as well as the International Finance Corporation and Adumo management. As of September 11, 2024, the majority of shareholder and regulatory approvals required in finalizing this transaction have been satisfied. The transaction is expected to close by October 2024 (quarter two of fiscal 2025) once the remaining procedural customary closing conditions are satisfied. 32 Consumer Division In our Consumer Division we offer transactional accounts (banking), insurance, lending and payments solutions designed to improve the lives of historically underserviced consumers and continue to deliver against our strategic focus areas underpinning our growth strategy. Progress made on these levers: (i) growing active EasyPay Everywhere (“EPE”) account numbers, (ii) increasing average revenue per user (“ARPU”) through cross-selling and (iii) cost optimization, and (iv) enhancing our product and service offering, resulted in revenue and profitability growth in the Consumer Division in fiscal 2024. Consumer Fiscal year ended June 30, 2024 2023 2024 vs. 2023 Transactional accounts (banking) - EasyPay Everywhere ("EPE") Approximate Gross EPE account activations for the year - Permanent grant recipients (number) 326,000 186,000 75% Approximate Net EPE account activations for the year - Permanent grant recipients (number) 192,000 79,000 143% Total active EPE transactional account base at year end (millions) 1.51 1.28 19% Total active EPE transactional account base at year end - Permanent grant recipients (millions) 1.33 1.10 21% Lending - EasyPay Loans Approximate number of loans originated during the year (number) 1,061,000 850,000 24% Gross advances (ZAR billions) 1.7 1.3 29% Loan book size, before allowances, at year end 1 (ZAR millions) 548 415 32% Insurance - EasyPay Insurance Approximate number of insurance policies written in the year (number) 170,000 124,000 37% Total active insurance policies on book at year end (number) 439,000 335,000 31% Average revenue per customer per month, as of June 30, (permanent grant beneficiaries) (ZAR) 90 80 13% 1. Gross loan book, before provisions. The progress on our key initiatives is as follows: ● Driving customer acquisition o Gross EPE account activations, for the permanent base, during fiscal 2024 showed significant year-on-year improvement due to various strategic initiatives. We achieved approximately 326,000 gross account activations in the year, increasing 75% compared to approximately 186,000 in fiscal 2023. After accounting for churn, net active account growth for the year increased 143% to approximately 192,000 accounts, compared to approximately 79,000 in fiscal 2023. o Our total active EPE transactional account base stood at approximately 1.47 million at the end of June 2024, of which approximately 1.33 million (or approximately 87%) are permanent grant recipients. The balance comprises Social Relief of Distress (“SRD”) grant recipients, which was introduced during the COVID pandemic and extended in calendar year 2023. o Our priority is to grow our permanent grant recipient customers base, where we can build deeper relationships by offering other products such as insurance and lending. We do not offer the same breadth of service to the SRD grant base due to the temporary nature of the grant. ● Progress on cross selling EasyPay Loans o We originated approximately 1.06 million loans during the year with our consumer loan book, before allowances (“gross book”), increasing 32% to ZAR 548 million as of June 30, 2024, compared to ZAR 415 million as of June 30, 2023. o We have not amended our credit scoring or other lending criteria and the growth is reflective of the demand for our tailored loan product for this market, growth in EPE bank account customer base and improved cross-selling capabilities. o The loan conversion rate continues to improve following the implementation of a number of targeted Consumer lending campaigns and encouraging results from our digital channels during the year. o The portfolio loss ratio of approximately 6%, calculated as the loans written off during fiscal 2024 as a percentage of the total gross loan book at the end of the period, remained stable on an annualized basis, compared to fiscal 2023. 33 EasyPay Insurance o Our funeral insurance product continued its strong growth and is a material contributor to the improvement in our overall ARPU. We have been able to improve customer penetration to approximately 33% of our active permanent grant account base as of June 30, 2024, compared to approximately 31% as of June 30, 2023. Approximately 170,000 new policies were written during fiscal 2024, increasing 37%, compared to approximately 124,000 in fiscal 2023. The total number of active policies has grown by 31% to approximately 439,000 policies as of June 30, 2024, compared to June 30, 2023. ARPU o ARPU for our permanent client base has increased to approximately ZAR 90 as of June 30, 2024, from approximately ZAR 80 as of June 30, 2023. Economic Environment and Impact of loadshedding The economic environment in South Africa remains challenging for our consumer and merchant customers. Whilst inflation has come down into the top end of the Reserve Bank’s target range, the impact of the past two year’s high inflationary and interest rate environment has impacted consumers. Likewise, our merchant customers have operated in a challenging environment, especially in the formal SME segment where we have seen the impact in our cash and lending business. Notwithstanding the challenges, our business model has proved resilient, and we have managed to continue growing our consumer and merchant base whilst delivering improved Group Adjusted EBITDA. Recent developments have bolstered confidence in our economy. Whilst, as of the date of this Annual Report, the Reserve Bank has not reduced interest rates, there is a possibility that a downward cycle in interest rates will start soon. Power cuts, or loadshedding, has seen a marked improvement compared to last year. South Africa recently went through more than 100 days without loadshedding. The lead up to the national elections in May 2024 was a period of significant uncertainty for South Africa. The eventual outcome, with a Government of National Unity being formed, was positively received by the market, with the stock exchange reaching record highs and the bond market recording record inflows, reflecting renewed confidence. Overall, the South African economy remains challenging with high unemployment, high interest rates and low growth expectations. We do not foresee any major changes however anticipate that a lower interest rate environment would bring much needed relief to consumers and merchants in South Africa. Improvement in our Broad Based Black Economic Empowerment (“B-BBEE”) rating to level 4 B-BBEE is a key strategic priority for us. Achievement of B-BBEE objectives is measured by a scorecard which establishes a weighting for various elements. Scorecards are independently reviewed by accredited BEE verification agencies which issue a certificate that presents an entity’s BEE Contributor Status Level, with level 1 being the highest and “no rating” (a level below level 8) as the lowest. During fiscal 2023, we made significant progress in terms of improving our empowerment credentials and in September 2023 we reported that our independently verified B-BBEE rating improved to a level 5 rating from a level 8 rating, simultaneously setting out our aim to achieve a level 4 rating by the end of fiscal year 2024. Together with various B-BBEE initiatives and programmes being rolled out, including our Youth Employment Services (“YES”) programme, we achieved this target during the second quarter of fiscal 2024 and have received an independently verified B-BBEE rating of level 4. Leadership Changes in fiscal 2024 On February 29, 2024 Mr. Chris Meyer completed his tenure as Group CEO of Lesaka, a position he held since July 1, 2021. Mr. Ali Mazanderani took over the majority of Mr. Meyer’s responsibilities as Executive Chairman of Lesaka on March 1, 2024. Ali Mazanderani has been integral to the development of Lesaka’s strategy and has been a Non-Executive Director since 2020. As part of the change in leadership, Mr. Kuben Pillay, stepped down as our Chairman on January 31, 2024, and commenced his role as Lead Independent Director of Lesaka on February 1, 2024. 34 Critical Accounting Policies Our audited consolidated financial statements have been prepared in accordance with U.S. GAAP, which requires management to make estimates and assumptions about future events that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities. As future events and their effects cannot be determined with absolute certainty, the determination of estimates requires management’s judgment based on a variety of assumptions and other determinants such as historical experience, current and expected market conditions and certain scientific evaluation techniques. Management believes that the following accounting policies are critical due to the degree of estimation required and the impact of these policies on the understanding of the results of our operations and financial condition. Business Combinations and the Recoverability of Goodwill A significant component of our growth strategy is to acquire and integrate businesses that complement our existing operations. The purchase price of an acquired business is allocated to the tangible and intangible assets acquired and liabilities assumed based upon their estimated fair value at the date of purchase. The difference between the purchase price and the fair value of the net assets acquired is recorded as goodwill. In determining the fair value of assets acquired and liabilities assumed in a business combination, we use various recognized valuation methods, including present value modeling. Further, we make assumptions using certain valuation techniques, including discount rates and timing of future cash flows. We review the carrying value of goodwill annually or more frequently if circumstances indicating impairment have occurred. In performing this review, we are required to estimate the fair value of goodwill that is implied from a valuation of the reporting unit to which the goodwill has been allocated after deducting the fair values of all the identifiable assets and liabilities that form part of the reporting unit. The determination of the fair value of a reporting unit requires us to make significant judgments and estimates. In determining the fair value of reporting units for fiscal 2024, our key judgements related to reporting unit revenue growth rates and the weighted-average cost of capital applicable to peer and industry comparables of the reporting units. In determining the fair value of reporting units for fiscal 2023, we considered entity-specific growth rates, future expected cash flows to be used in our discounted cash flow model, and the weighted-average cost of capital applicable to peer and industry comparables of the reporting units. We base our estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. In addition, we make judgments and assumptions in allocating assets and liabilities to each of our reporting units. The results of our impairment tests during fiscal 2024 indicated that the fair value of our reporting units exceeded their carrying values and so did not require impairment. The results of our impairment tests during fiscal 2023 indicated that the fair value of our reporting units exceeded their carrying values, with the exception of the $7.0 million of goodwill impaired during fiscal 202 3, as discussed in Note 10 to our audited consolidated financial statements. Intangible Assets Acquired Through Acquisitions The fair values of the identifiable intangible assets acquired through acquisitions were determined by management using the purchase method of accounting. We did not identify any significant intangible assets related to the Touchsides acquisition in fiscal 2024. We completed the acquisition of Connect during fiscal 2022 where we identified and recognized intangible assets. We used the relief from royalty method to value identified brands and the multi-period excess earnings method to value the integrated platform and identified customer relationships. We have used the relief from royalty method, the multi-period excess earnings method, the income approach and the cost approach to value other historic acquisition-related intangible assets. In so doing, we made assumptions regarding expected future revenues and expenses to develop the underlying forecasts, applied contributory asset charges, discount rates, exchange rates, cash tax charges and useful lives. The valuations were based on information available at the time of the acquisition and the expectations and assumptions that were deemed reasonable by us. No assurance can be given, however, that the underlying assumptions or events associated with such assets will occur as projected. For these reasons, among others, the actual cash flows may vary from forecasts of future cash flows. To the extent actual cash flows vary, revisions to the useful life or impairment of intangible assets may be necessary. Management assess the useful life of the acquired intangible assets upon initial recognition and revisions to the useful life or impairment of these intangible assets may be necessary in the future. Revenue recognition – principal versus agent considerations We generate revenue from the provision of transaction-processing services through our various platforms and service offerings. We use these platforms to (a) sell prepaid airtime vouchers which was held as inventory and (b) distribute VAS, including prepaid airtime vouchers (which we do not hold as inventory), prepaid electricity, gaming voucher, and other services, to users of our platforms. The determination of whether we act as a principal or as an agent when providing these services requires a significant amount of judgement and is based on whether (i) we are primarily responsible for fulfilling the promise to provide the specified goods or service, (ii) we have inventory risk before the specified good or service has been transferred to a customer and (iii) we have discretion in establishing the price for the specified good or service. When we are the principal in a transaction, such as when we purchase (and thus control and assume inventory risk) prepaid airtime before selling it to customers utilizing our platform, revenue is reported on a gross basis. When we are an agent in a transaction, such as when we distribute VAS on behalf of our customers, and do not control the good or service to be provided, revenue is recognized based on the amount that we are contractually entitled to receive for performing the distribution service on behalf of our customers using our platform. 35 Valuation of investment in Cell C We have elected to measure our investment in Cell C, an unlisted equity security, at fair value using the fair value option. Changes in the fair value of this equity security are recognized in the caption “change in fair value of equity securities” in our audited consolidated statements of operations. The tax impact related to the change in fair value of equity securities is included in income tax expense in our audited consolidated statements of operation. The determination of the fair value of this equity security requires us to make significant judgments and estimates. We base our estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. Refer to Note 6 of our audited consolidated financial statements regarding the valuation inputs and sensitivity related to our investment in Cell C. We used a discounted cash flow model to determine the fair value of our investment in Cell C as of June 30, 2024 and 2023, and valued Cell C at $0.0 (zero) as of each of June 30, 2024 and 2023. We utilized the latest business plan provided by Cell C management for the period ended December 31, 2027, for the June 30, 2024 and 2023 valuations, and the following key valuation inputs were used: Weighted Average Cost of Capital: Between 21% and 26% over the period of the forecast Long-term growth rate: 4.5% (4.5% as of June 30, 2023) Marketability discount: 21% (20% as of June 30, 2023) Minority discount: 24% (24% as of June 30, 2023) Net adjusted external debt - June 30, 2024: (1) ZAR 8 billion ($0.4 billion), no lease liabilities included Net adjusted external debt - June 30, 2023: (2) ZAR 8.1 billion ($0.4 billion), no lease liabilities included (1) translated from ZAR to U.S. dollars at exchange rates applicable as of June 30, 2024. (2) translated from ZAR to U.S. dollars at exchange rates applicable as of June 30, 2023. We believe the Cell C business plan is reasonable based on the current performance and the expected changes in the business model. Refer to the sensitivity analysis included in Note 6 to our audited consolidated financial statements related to our valuation of Cell C as of June 30, 2024. Recoverability of equity securities and equity-accounted investments We review our equity securities and equity-accounted investments for impairment whenever events or circumstances indicate that the carrying amount of the investment may not be recoverable. In performing this review, we are required to estimate the fair value of our equity-accounted investments and other equity securities. The determination of the fair value of these investments requires us to make significant judgments and estimates. Other equity securities include our investments in MobiKwik and CPS. These equity securities do not have readily determinable fair values and therefore we have elected to measure these investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer. If we identify an impairment indicator related to these equity securities, we are required to assess the carrying value of these equity securities against their fair value. We did not identify any impairment indicators during each of fiscal 2024, 2023 and 2022, and therefore did not recognize any impairment losses related to these equity securities during those years. The determination of the fair value of an investment requires us to make significant judgments and estimates. We are required to base our estimates on assumptions which we believe to be reasonable, but these assumptions may be unpredictable and inherently uncertain. The Company did not identify any observable transactions during either of the years ended June 30, 2024, 2023 and 2022, and therefore there was no change in the fair value of MobiKwik during the year. During the year ended June 30, 2021, MobiKwik entered into a number of separate agreements with new shareholders to raise additional capital through the issuance of additional shares. Specifically, our current valuation is based on an observable price change in an orderly transaction for similar or identical equity securities issued by MobiKwik in a capital raise concluded in June 2021, of $245.50 per share. The carrying value of our investment in MobiKwik is $76.3 million as of June 30, 2024. Any change in the fair value of MobiKwik is included in the caption “Change in fair value of equity securities” in our audited consolidated statement of operations . We did not identify any impairment indicators during fiscal 2022 and therefore did not recognize any impairment losses related to our equity-accounted investments during that year. We performed impairment assessments during fiscal 2024 and 2023, for our investment in Finbond Group Limited “(Finbond”) following the identification of certain impairment indicators. The results of our impairment tests during fiscal 2024 and 2023, resulted in impairments of $1.2 million and $1.1 million, respectively, related to our equity-accounted investments. These impairments are discussed in Note 9 to our audited consolidated financial statements. On August 10, 2023, we, through our wholly owned subsidiary Net1 Finance Holdings (Pty) Ltd, entered into an agreement with Finbond to sell our remaining shareholding to Finbond for a cash consideration of ZAR 64.2 million ($3.5 million), or ZAR 0.2911 per share. 36 For fiscal 2024, in determining the fair value of Finbond, we used the price of ZAR 0.2911 referenced in the August 2023 agreement to calculate the determined fair value for Finbond. For fiscal 2023, in determining the fair value of Finbond, as it is listed on the Johannesburg Stock Exchange, its market price as of the impairment assessment dates, adjusted for a liquidity discount of 25%. We based our estimates on assumptions we believe to be reasonable but that are unpredictable and inherently uncertain. The fair value of our investment in Finbond was sensitive to movements in its market price, which is quoted in ZAR, because we used the market price as the basis of our valuation. Deferred Taxation We estimate our tax liability through the calculations done for the determination of our current tax liability, together with assessing temporary differences resulting from the different treatment of items for tax and accounting purposes. These differ ences result in deferred tax assets and liabilities which are disclosed on our balance sheet. Management then has to assess the likelihood that deferred tax assets are more likely than not to be realized in the foreseeable future. A valuation allowance is created if it is determined that a deferred tax asset will not be realized in the foreseeable future. Any change to the valuation allowance would be charged or credited to income in the period such determination is made. In assessing the need for a valuation allowance, historical levels of income, expectations and risks associated with estimates of future taxable income and ongoing prudent and practicable tax planning strategies are considered. During fiscal 2024, 2023, and 2022, respectively we recorded a net decrease of $5.6 million, $8.0 million and $1.7 million, to our valuation allowance. As of June 30, 2024 and 2023, the valuation allowance related to deferred tax assets was $114.7 million and $109.1 million, respectively. Stock-based Compensation Management is required to make estimates and assumptions related to our valuation and recording of stock-based compensation charges under current accounting standards. These standards require all share-based compensation to employees to be recognized in the statement of operations based on their respective grant date fair values over the requisite service periods and also requires an estimation of forfeitures when calculating compensation expense. We utilize the Cox Ross Rubinstein binomial model to measure the fair value of stock options granted to employees and directors. We have also utilized a bespoke adjusted Monte Carlo simulation discounted cash flow model to measure the fair value of restricted stock with market conditions granted to employees and directors. The stock-based compensation cost related to these valuations has been recognized on a straight-line basis. These valuation models require estimates of a number of key valuation inputs including expected volatility, expected dividend yield, expected term and risk-free interest rate. Our management has estimated forfeitures based on historic employee behavior under similar compensation plans. The fair value of stock options is affected by the assumptions selected. The fair value calculation is especially sensitive to our valuation assumption with respect to expected volatility. For instance, a 5% increase (to 53%) or 5% decrease (to 43%) in the expected volatility used (of 48%) to value stock options granted in June 2024, would result in a charge that was 11% higher (if 53% were used) or 11% lower (if 43% were used). Net stock-based compensation expense from continuing operations was $7.9 million, $7.3 million and $3.0 million for fiscal 2024, 2023 and 2022, respectively. Accounts Receivable and Allowance for Credit Losses We use a lifetime loss rate by expressing write-off experience as a percentage of corresponding invoice amounts (as opposed to outstanding balances). The allowance for credit losses related to these receivables has been calculated by multiplying the lifetime loss rate with recent invoice/origination amounts. Prior to July 1, 2023, a specific provision is established where it is considered likely that all or a portion of the amount due from customers renting safe assets, point of sale (“POS”) equipment, receiving support and maintenance or transaction services or purchasing licenses or SIM cards from us that will not be recovered. Non-recoverability is assessed based on a quarterly review by management of the ageing of outstanding amounts, the location and the payment history of the customer in relation to those specific amounts. We use historical default experience over the lifetime of loans in order to calculate a lifetime loss rate for our lending books. The allowance for credit losses related to Consumer finance loans receivables is calculated by multiplying the lifetime loss rate with the month-end outstanding lending book. Prior to July 1, 2023, we regularly reviewed the ageing of outstanding amounts due from borrowers and adjusted its allowance based on management’s estimate of the recoverability of the finance loans receivable. We write off microlending finance loans receivable and related service fees and interest if a borrower is in arrears with repayments for more than three months or is deceased. We write off merchant and working capital finance receivables and related fees when it is evident that reasonable recovery procedures, including where deemed necessary, formal legal action, have failed. 37 Lending Merchant lending The allowance for credit losses related to Merchant finance loans receivables is calculated by adding together actual receivables in default plus multiplying the lifetime loss rate with the month-end outstanding lending book. Our risk management procedures include adhering to our proprietary lending criteria which uses an online-system loan application process, obtaining necessary customer transaction-history data and credit bureau checks. We consider these procedures to be appropriate because it takes into account a variety of factors such as the customer’s credit capacity and customer-specific risk factors when originating a loan. We recently (in the past three years) commenced lending to merchant customers and uses historical default experience over the lifetime of loans generated thus far in order to calculate a lifetime loss rate for the lending book. The allowance for credit losses related to these merchant finance loans receivables is calculated by adding together actual receivables in default plus multiplying the lifetime loss rate with the month-end outstanding lending book. The lifetime loss rate as of each of July 1, 2023 and June 30, 2024, was approximately 1.18%. The performing component (that is, outstanding loan payments not in arrears), under-performing component (that is, outstanding loan payments that are in arrears) and non-performing component (that is, outstanding loans for which payments appeared to have ceased) of the book represents approximately 84%, 15% and 1%, respectively, of the outstanding lending book as of June 30, 2024. Prior to July 1, 2023, we maintained an allowance for credit losses - finance loans receivable related to our Merchant services segment with respect to short-term loans to qualifying merchant customers. Our policy was to regularly review the ageing of outstanding amounts due from these merchants and an allowance is created for the full amount outstanding if the customer was in arrears for more than 15 days. We wrote off loans and related interest and fees when it is evident that reasonable recovery procedures, including where deemed necessary, formal legal action, had failed. Consumer microlending The allowance for credit losses related to Consumer finance loans receivables is calculated by multiplying the lifetime loss rate with the month-end outstanding lending book. Loans to customers have a tenor of up to six months, with the majority of loans originated having a tenor of six months. Credit bureau checks as well as an affordability test are conducted as part of the origination process, both of which are in line with local regulations. We consider this policy to be appropriate because the affordability test it performs takes into account a variety of factors such as other debts and total expenditures on normal household and lifestyle expenses. Additional allowances may be required should the ability of its customers to make payments when due deteriorate in the future. A significant amount of judgment is required to assess the ultimate recoverability of these finance loan receivables, including ongoing evaluation of the creditworthiness of each customer. We have operated this lending book for more than five years and use historical default experience over the lifetime of loans in order to calculate a lifetime loss rate for the lending book. We analyze this lending book as a single portfolio because the loans within the portfolio have similar characteristics and management uses similar processes to monitor and assess the credit risk of the lending book. The allowance for credit losses related to these microlending finance loans receivables is calculated by multiplying the lifetime loss rate with the month end outstanding lending book. The lifetime loss rate as of each of July 1, 2023 and June 30, 2024, was 6.50%. The performing component (that is, outstanding loan payments not in arrears) of the book exceeds more than 98% of outstanding lending book as of June 30, 2024. Prior to July 1, 2023, we maintained an allowance for credit losses - finance loans receivable related to our Consumer services segment with respect to short-term loans to qualifying customers. Our policy was to regularly review the ageing of outstanding amounts due from borrowers and adjust the provision based on management’s estimate of the recoverability of finance loans receivable. We wrote off microlending loans and related service fees if a borrower is in arrears with repayments for more than three months or dies. Recent Accounting Pronouncements Recent accounting pronouncements adopted Refer to Note 2 of our audited consolidated financial statements for a full description of recent accounting pronouncements, including the dates of adoption and effects on financial condition, results of operations and cash flows. Recent accounting pronouncements not yet adopted as of June 30, 2024 Refer to Note 2 of our audited consolidated financial statements for a full description of recent accounting pronouncements not yet adopted as of June 30, 2024, including the expected dates of adoption and effects on financial condition, results of operations and cash flows. 38 Currency Exchange Rate Information Actual exchange rates The actual exchange rates for and at the end of the periods presented were as follows: Table 1 June 30, 2024 2023 2022 ZAR : $ average exchange rate 18.7070 17.7641 15.2154 Highest ZAR : $ rate during period 19.4568 19.7558 16.2968 Lowest ZAR : $ rate during period 17.6278 16.2034 14.1630 Rate at end of period 18.1808 18.8376 16.2903 Translation Exchange Rates We are required to translate our results of operations from ZAR to U.S. dollars on a monthly basis. Thus, the average rates used to translate this data for the years ended June 30, 2024, 2023 and 2022, vary slightly from the averages shown in the table above. The translation rates we use in presenting our results of operations are the rates shown in the following table: Table 2 June 30, 2024 2023 2022 Income and expense items: $1 = ZAR 18.6844 17.9400 15.1978 Balance sheet items: $1 = ZAR 18.1808 18.8376 16.2903 We have translated the results of operations and operating segment information for the year ended June 30, 2024, provided in the tables below using the actual average exchange rates per month between the USD and ZAR in order 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 the quarter and year to date is not significant, however, it does result in minor differences. We believe that presentation using the average exchange rates per month compared with the average exchange rate per quarter and for the year improves the accuracy of the 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. 39 Results of operations The discussion of our consolidated overall results of operations is based on amounts as reflected in our audited consolidated financial statements which are prepared in accordance with U.S. GAAP. We analyze our results of operations both in U.S. dollars, as presented in the audited consolidated financial statements, and supplementally in ZAR, because ZAR is the functional currency of the entities which contribute the majority of our results and is the currency in which the majority of our transactions are initially incurred and measured. Presentation of our reported results in ZAR is a non-GAAP measure. Due to the significant impact of currency fluctuations between the U.S. dollar and ZAR on our reported results and because we use the U.S. dollar as our reporting currency, we believe that the supplemental presentation of our results of operations in ZAR is useful to investors to understand the changes in the underlying trends of our business. Our operating segment revenue presented in “—Results of operations by operating segment” represents total revenue per operating segment before intercompany eliminations. A reconciliation between total operating segment revenue and revenue, as well as the reconciliation between our segment performance measure and net loss before tax (benefits) expense, is presented in our audited consolidated financial statements in Note 21 to those statements. Our chief operating decision maker was our Group Chief Executive Officer until February 29, 2024 and has been our Executive Chairman since March 1, 2024, and our Group Chief Executive Officer evaluated and our Executive Chairman evaluates, respectively, segment performance based on segment earnings before interest, tax, depreciation and amortization (“EBITDA”), adjusted for items mentioned in the next sentence (“Segment Adjusted EBITDA”) for each operating segment. We do not allocate once-off items (as defined below), stock-based compensation charges, depreciation and amortization, impairment of goodwill or other intangible assets, certain lease expenses (“Lease expenses”), other items (including gains or losses on disposal of investments, fair value adjustments to equity securities, fair value adjustments to currency options), interest income, interest expense, income tax expense or loss from equity-accounted investments to our reportable segments. Once-off items represents non-recurring expense items, including costs related to acquisitions and transactions consummated or ultimately not pursued. The Lease expenses reflect lease expenses (refer to Note 8 to our audited consolidated financial statements) and the Stock- based compensation adjustments reflect stock-based compensation expense and are both excluded from the calculation of Segment Adjusted EBITDA and are therefore reported as reconciling items to reconcile the reportable segments’ Segment Adjusted EBITDA to our loss before income tax expense. Group Adjusted EBITDA represents Segment Adjusted EBITDA after deducting Lease expenses and group costs. Refer also “Results of Operations—Use of Non-GAAP Measures” below. Fiscal 2024 and 2023 includes Connect for the entire fiscal year and fiscal 2022 includes consolidation of Connect from April 14, 2022. Refer also to Note 3 to the audited consolidated financial statements for additional information regarding this transaction. We analyze our business and operations in terms of two inter-related but independent operating segments: (1) Merchant Division and (2) Consumer Division. In addition, corporate activities that are impracticable to allocate directly to the operating segments, as well as any inter-segment eliminations, are included in Group costs. Inter-segment revenue eliminations are included in Eliminations. Fiscal 2024 Compared to Fiscal 2023 The following factors had a significant influence on our results of operations during fiscal 2024 as compared with the same period in the prior year: ● Higher revenue: Our revenues increased by 11.4% in ZAR, primarily due to an increase in 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 hardware sales revenue in our POS hardware distribution business given the lumpy nature of bulk sales; ● Operating income generated: Operating profitability was achieved following years of operating losses as a result of the 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 ZAR 311.2 million from ZAR 299.9 million primarily due to higher interest rates; ● Significant transaction costs: We expensed $2.3 million of transaction costs related to the Adumo transaction in fiscal 2024; and ● Foreign exchange movements: The U.S. dollar was 4.1% stronger against the ZAR during fiscal 2024 compared to the prior period, which adversely impacted our U.S. dollar reported results. 40 Consolidated overall results of operations This discussion is based on the amounts prepared in accordance with U.S. GAAP. The following tables show the changes in the items comprising our statements of operations, both in U.S. dollars and in ZAR: Table 3 In U.S. Dollars Year ended June 30, 2024 2023 $ % $ ’000 $ ’000 change Revenue 564,222 527,971 7% Cost of goods sold, IT processing, servicing and support 442,673 417,544 6% Selling, general and administration 92,001 95,050 (3%) Depreciation and amortization 23,665 23,685 (0%) Impairment loss - 7,039 nm Transaction costs related to Adumo transaction 2,293 - nm Operating income (loss) 3,590 (15,347) nm Reversal of allowance for EMI doubtful debt receivable 250 - nm Loss on disposal of equity-accounted investment - 205 nm Interest income 2,294 1,853 24% Interest expense 18,932 18,567 2% Loss before income tax expense (benefit) (12,798) (32,266) (60%) Income tax expense (benefit) 3,363 (2,309) nm Net loss before loss from equity-accounted investments (16,161) (29,957) (46%) Loss from equity-accounted investments (1,279) (5,117) (75%) Net loss attributable to us (17,440) (35,074) (50%) Table 4 In South African Rand Year ended June 30, 2024 2023 ZAR % ZAR ’000 ZAR ’000 change Revenue 10,553,233 9,471,800 11% Cost of goods sold, IT processing, servicing and support 8,280,262 7,490,739 11% Selling, general and administration 1,720,585 1,705,196 1% Depreciation and amortization 442,570 424,909 4% Impairment loss - 126,280 nm Transaction costs related to Adumo transaction 42,561 - nm Operating income (loss) 67,255 (275,324) nm Reversal of allowance for EMI doubtful debt receivable 4,741 - nm Loss on disposal of equity-accounted investment - 3,678 nm Interest income 42,896 33,243 29% Interest expense 354,048 333,092 6% Loss before income tax expense (benefit) (239,156) (578,851) (59%) Income tax expense (benefit) 62,616 (41,423) nm Net loss before loss from equity-accounted investments (301,772) (537,428) (44%) Loss from equity-accounted investments (24,298) (91,799) (74%) Net loss attributable to us (326,070) (629,227) (48%) Revenue increased by $36.3 million (ZAR 1.1 billion), or 6.9% (in ZAR, 11.4%), primarily due to the increase in the number of low-margin prepaid airtime vouchers sold and an increase in volume of other value-added services provided, as well as higher transaction volumes processed, insurance premiums collected and lending revenues following an increase in loan originations, which was partially offset by a lower number of hardware sales in our POS hardware distribution business given the lumpy nature of bulk sales. Refer to discussion above at “—Recent Developments” for a description of key trends impacting our revenue this fiscal year. 41 Cost of goods sold, IT processing, servicing and support increased by $25.1 million (ZAR 0.8 billion), or 6.0% (in ZAR, 10.5%), primarily due to the increase in low margin prepaid airtime sales, which were partially offset by the lower cost of goods sold related to fewer hardware sales. Selling, general and administration expenses decreased by $3.0 million (in USD 3.2%), and increased by ZAR 15.4 million (in ZAR, 0.9%) . In ZAR, the modest 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 . Depreciation and amortization expense decreased by $0.02 million (in USD, 0.1%), and increased by ZAR 17.7 million (in ZAR, 4.2%). In ZAR, the increase was due to an increase in depreciation expense related to additional POS devices deployed. During fiscal 2023, we recorded an impairment loss of $7.0 million related to the impairment of our hardware/ software supply business unit’s allocated goodwill. Refer to Note 10 of our audited consolidated financial statements for additional information regarding these impairment losses. Transaction costs related to Adumo acquisition includes fees paid to external service providers associated with legal, commercial, financial and tax due diligence activities performed, fees paid to legal advisors to draft the purchase agreement as well as other legal and advisory services procured related to the transaction. Our operating income (loss) margin in fiscal 2024 and 2023 was 0.6% and (2.9%), 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 fiscal 2024 and 2023, respectively. We continue to carry our investment in Cell C at $0 (zero). Refer to Note 9 to our consolidated financial statements for the methodology and inputs used in the fair value calculation for MobiKwik and Note 6 for the methodology and inputs used in the fair value calculation for Cell C. During fiscal 2024, we received an outstanding amount of $0.3 million related to the sale of Carbon in fiscal 2023, which resulted in the reversal of an allowance for doubtful loans receivable of $0.3 million recorded in fiscal 2023. We recorded a net loss of $0.2 million comprising a loss of $0.4 million related to the disposal of a minor portion of our investment in Finbond and a $0.25 million gain related to the disposal of our entire interest in Carbon during fiscal 2023. Refer to Note 9 to our consolidated financial statements for additional information regarding these disposals. Interest on surplus cash increased to $2.3 million (ZAR 42.9 million) from $1.9 million (ZAR 33.2 million), primarily due to higher interest rates. Interest expense increased to $18.9 million (ZAR 354.0 million) from $18.6 million (ZAR 333.1 million), primarily as a result of higher overall interest rates and higher overall borrowings during fiscal 2024 compared with comparable period in the prior year, which was partially offset by lower interest expense incurred on certain of our borrowings for which we were able to negotiate lower rates of interest during the latter half of fiscal 2023 and again towards the end of calendar 2023. Fiscal 2024 tax expense was $3.4 million (ZAR 62.6 million) compared to a tax benefit of $(2.3) million (ZAR (41.4) million) in fiscal 2023. Our 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 incurred by certain 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 tax rate for fiscal 2024 was impacted by a reduction in the enacted South African corporate income tax rate from 28% to 27% from January 2023 (but backdated to July 1, 2022), the tax expense recorded by our profitable South African operations, a deferred tax benefit related to acquisition-related intangible asset amortization, non-deductible expenses, a deferred tax benefit related to an expense paid by Connect before we acquired the business and which subsequently has been determined to be deductible for tax purposes, the on-going losses incurred by certain 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. 42 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. We sold our entire remaining interest in Finbond during the second quarter of fiscal 2024. We recorded an impairment loss related to our investment in Finbond in fiscal 2024 as the carrying value of Finbond exceeded the fair value of holding in Finbond using the price of ZAR 0.2911 per share referenced in the August 2023 agreement with Finbond. We also recorded an impairment loss in fiscal 202 3 following on-going losses reported by Finbond and its lower listed share price. Refer to Note 9 to our consolidated financial statements for additional information regarding the impairments. The table below presents the relative loss from our equity accounted investments: Table 5 Year ended June 30, 2024 2023 $ % $ ’000 $ ’000 change Finbond (1,445) (5,206) (72%) Share of net (loss) income (278) (4,096) (93%) Impairment (1,167) (1,110) 5% Other 166 89 87% Share of net income (loss) 166 89 87% Total loss from equity-accounted investment (1,279) (5,117) (75%) Results of operations by operating segment The composition of revenue and the contributions of our business activities to operating (loss) income are illustrated below: Table 6 In U.S. Dollars Year ended June 30, 2024 % of 2023 % of % Operating Segment $ ’000 total $ ’000 total change Consolidated revenue: Merchant 498,314 89% 463,701 88% 7% Consumer 69,211 12% 62,801 12% 10% Subtotal: Operating segments 567,525 101% 526,502 100% 8% Not allocated to operating segments - - 1,469 - nm Corporate/Eliminations (3,303) (1%) - - nm Total consolidated revenue 564,222 100% 527,971 100% 7% Group Adjusted EBITDA: Merchant (1) 33,368 90% 33,531 135% (0%) Consumer (1) 14,650 40% 3,314 13% 342% Lease expenses (2) (3,238) (9%) (2,906) (11%) 11% Group costs (7,844) (21%) (9,109) (37%) (14%) Group Adjusted EBITDA (non-GAAP) (3) 36,936 100% 24,830 100% 49% (1) Segment Adjusted EBITDA for Merchant includes retrenchments costs of $0.3 million and Consumer includes retrenchment costs of $0.2 million for fiscal 2024. (2) Lease expenses which were previously excluded from the calculation of Group Adjusted EBITDA have now been included in the calculation. This change is in response to comments received from the staff of the SEC in March 2024 regarding our non-GAAP financial reporting. Comparative information has been adjusted to conform with the updated presentation. (3) Group Adjusted EBITDA is a non-GAAP measure, refer to reconciliation below at “—Results of Operations—Use of Non- GAAP Measures”. 43 Table 7 In South African Rand Year ended June 30, 2024 % of 2023 % of % Operating Segment ZAR ’000 total ZAR ’000 total change Consolidated revenue: Merchant 9,320,468 89% 8,318,796 88% 12% Consumer 1,294,632 12% 1,126,650 12% 15% Subtotal: Operating segments 10,615,100 101% 9,445,446 100% 12% Not allocated to operating segments - - 26,354 - nm Corporate/Eliminations (61,867) (1%) - - nm Total consolidated revenue 10,553,233 100% 9,471,800 100% 11% Group Adjusted EBITDA: Merchant (1) 624,111 90% 601,546 135% 4% Consumer (1) 274,190 40% 59,453 13% 361% Lease expenses (2) (60,543) (9%) (52,134) (11%) 16% Group costs (146,815) (21%) (163,415) (37%) (10%) Group Adjusted EBITDA (non-GAAP) (3) 690,943 100% 445,450 100% 55% (1) Segment Adjusted EBITDA for Merchant includes retrenchments costs of ZAR 4.9 million and Consumer includes retrenchment costs of ZAR 3.5 million for fiscal 2024. (2) Lease expenses which were previously excluded from the calculation of Group Adjusted EBITDA have now been included in the calculation. This change is in response to comments received from the staff of the SEC in March 2024 regarding our non-GAAP financial reporting. Comparative information has been adjusted to conform with the updated presentation. (3) Group Adjusted EBITDA is a non-GAAP measure, refer to reconciliation below at “—Results of Operations—Use of Non- GAAP Measures”. Merchant Segment revenue increased due to the increase in prepaid airtime vouchers sold and other value-added services provided, which was partially offset by a lower number of hardware sales in our POS hardware distribution business given the lumpy nature of bulk sales as well as lower revenue generated from a decrease in certain valued-added services transaction volumes processed (such as international money transfers). In ZAR, the increase in Segment Adjusted EBITDA is primarily due to the higher sales activity, which was partially offset by lower hardware sales Prepaid airtime sales In South Africa and other countries, mobile network operators (“MNOs”) offer prepaid or contract (or postpaid) services to their customers to telephony services using a mobile telephony network or networks. MNOs also offer similar products (prepaid or postpaid) for mobile data which uses other wireless network protocols such as wireless fidelity (“wifi”). We use the term “prepaid airtime” to include both of these prepaid products. Generally speaking, the difference between the two models is that prepaid is paid for upfront by the customer and contract is paid in arrears. MNOs sell prepaid products directly to their customers and also indirectly to their customers through distribution channels (which include wholesalers, retailers and other parties, including ourselves). We sell a variety of products through our distribution channels, including prepaid airtime, prepaid electricity, gaming vouchers. We refer to these products collectively as VAS. In order to “load” airtime onto a mobile device an MNOs customer requires a prepaid airtime voucher. A unique code is assigned to each prepaid airtime voucher and is required to activate the prepaid airtime on a mobile device. Like certain tangible goods, once sold, our customers cannot return prepaid airtime vouchers to us (except of course if there is a defect in the service provided by us, which rarely occurs). We can either purchase an agreed quantity of prepaid airtime vouchers upfront directly from wholesalers or other parties (so called “Pinned airtime” - these electronic vouchers are stored on a server owned and maintained by us and we treat these vouchers as inventory) or we can “interface” directly into a wholesaler and deliver the airtime voucher directly to our customers (typically merchants) as the airtime is sold by the merchant to MNOs customers (so called Pinless airtime). 44 Our Segment Adjusted EBITDA (loss) margin (calculated as Segment Adjusted EBITDA (loss) divided by revenue) in fiscal 2024 and 2023 was 6.7% and 7.2%, respectively. Consumer 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, together 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 fiscal 2024 compared with fiscal 2023. Consumer Segment Adjusted EBITDA during fiscal 2024 was also impacted by higher credit losses (as a result of an increase in originations) and higher insurance-related claims (as a result of a higher number of insurance policies) compared with fiscal 2023. Our Segment Adjusted EBITDA margin in fiscal 2024 and 2023 was 21.2% and 5.3%, respectively. Group costs Our group costs primarily include employee related costs in relation to employees specifically hired for group roles and costs related directly to managing the US-listed entity; expenditures related to compliance with the Sarbanes-Oxley Act of 2002; non- employee directors’ fees; legal fees; group and US-listed related audit fees; and directors’ and officers’ insurance premiums. Our group costs for fiscal 2024 decreased compared with the prior period due to lower external audit, legal and consulting fees and lower provision for executive bonuses, which was partially offset by higher employee costs and travel expenses. Fiscal 2023 Compared to Fiscal 2022 The following factors had a significant influence on our results of operations during fiscal 2023 as compared with the same period in the prior year: ● Higher revenue: Our revenues increased by 180.0% in ZAR, primarily due to the contribution from Connect in Merchant and an increase in account fees and insurance revenues in Consumer; ● Lower operating losses: Operating losses decreased, delivering an improvement of 55% in ZAR compared with the prior period primarily due to the contribution from Connect, strong hardware sales, and the implementation of various cost reduction initiatives in Consumer, which was partially offset by an increase in acquisition related intangible asset amortization; ● Higher net interest charge: The net interest charge increased to ZAR 299.9 million from ZAR 56.9 million due to the additional borrowings incurred in order to fund the acquisition of Connect as well as the debt acquired within the Connect business itself; ● Significant transaction costs: We expensed $6.0 million of transaction costs related to the Connect acquisition in fiscal 2022; and ● Foreign exchange movements: The U.S. dollar was 18.0% stronger against the ZAR during fiscal 2023, which impacted our reported results. 45 The following tables show the changes in the items comprising our statements of operations, both in U.S. dollars and in ZAR: Table 8 In U.S. Dollars Year ended June 30, 2023 2022 $ % $ ’000 $ ’000 change Revenue 527,971 222,609 137% Cost of goods sold, IT processing, servicing and support 417,544 168,317 148% Selling, general and administration 95,050 74,993 27% Depreciation and amortization 23,685 7,575 213% Impairment loss 7,039 - nm Reorganization costs - 5,894 nm Transaction costs related to Connect acquisition - 6,025 nm Operating loss (15,347) (40,195) (62%) Gain related to fair value adjustment to currency options - 3,691 nm Loss on disposal of equity-accounted investment 205 376 (45%) Gain on disposal of equity securities - 720 nm Interest income 1,853 2,089 (11%) Interest expense 18,567 5,829 219% Loss before income tax (benefit) expense (32,266) (39,900) (19%) Income tax (benefit) expense (2,309) 327 nm Net loss before loss from equity-accounted investments (29,957) (40,227) (26%) Loss from equity-accounted investments (5,117) (3,649) 40% Net loss attributable to us (35,074) (43,876) (20%) Table 9 In South African Rand (US GAAP) Year ended June 30, 2023 2022 ZAR % ZAR ’000 ZAR ’000 change Revenue 9,471,800 3,383,166 180% Cost of goods sold, IT processing, servicing and support 7,490,739 2,558,047 193% Selling, general and administration 1,705,196 1,139,728 50% Depreciation and amortization 424,909 115,123 269% Impairment loss 126,280 - nm Reorganization costs - 89,576 nm Transaction costs related to Connect acquisition - 91,567 nm Operating loss (275,324) (610,875) (55%) Gain related to fair value adjustment to currency options - 56,095 nm Loss on disposal of equity-accounted investment 3,678 5,714 (36%) Gain on disposal of equity securities - 10,942 nm Interest income 33,243 31,748 5% Interest expense 333,092 88,587 276% Loss before income tax (benefit) expense (578,851) (606,391) (5%) Income tax (benefit) expense (41,423) 4,970 nm Net loss before loss from equity-accounted investments (537,428) (611,361) (12%) Loss from equity-accounted investments (91,799) (55,457) 66% Net loss attributable to us (629,227) (666,818) (6%) Revenue increased by $305.4 million (ZAR 6.1 billion), or 137.2% (in ZAR, 180.0%), primarily due to the inclusion of Connect for the entire fiscal year, which has substantial low margin prepaid airtime sales in addition to its core processing revenue and an increase in account fees and insurance revenues. 46 Cost of goods sold, IT processing, servicing and support increased by $249.2 million (ZAR 4.9 billion), or 148.1% (in ZAR, 192.8%), primarily due to the inclusion of Connect, which were partially offset by the benefits of various cost reduction initiatives in Consumer and lower insurance-related claims. Selling, general and administration expenses increased by $20.1 million (ZAR 0.6 billion), or 26.7% (in ZAR, 49.6%), primarily due to higher employee-related expenses related to the expansion of our senior management team, the year-over-year impact of inflationary increases on employee-related expenses and the inclusion of expenses related to Connect’s operations, which were partially offset by the benefits of various cost reduction initiatives in Consumer. Depreciation and amortization expense increased by $16.1 million (ZAR 309.8 million), or 212.7% (in ZAR, 269.1%), due to the inclusion of acquisition-related intangible asset amortization related to intangible assets identified pursuant to the Connect acquisition, as well as the inclusion of depreciation expense related to Connect’s property, plant and equipment. During fiscal 2023, we recorded an impairment loss of $7.0 million related to the impairment of our hardware/ software supply business unit’s allocated goodwill. Refer to Note 10 of our audited consolidated financial statements for additional information regarding these impairment losses. We embarked on a retrenchment process on January 10, 2022, and incurred reorganization expenses of $5.9 million during fiscal 2022. Transaction costs related to Connect acquisition in fiscal 2022 includes fees paid to external service providers associated with the contract drafting and negotiations; corporate finance advisory services; legal, financial and tax due diligence activities performed; warranty and indemnity insurance related to the transaction; and other advisory services procured; as well as our portion of the fees paid to competition authorities related to the regulatory filings made in various jurisdictions. Our operating loss margin in fiscal 2023 and 2022 was (2.9%) and (18.1%), 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 fiscal 2023 and 2022, respectively. We continue to carry our investment in Cell C at $0 (zero). Refer to Note 9 to our consolidated financial statements for the methodology and inputs used in the fair value calculation for MobiKwik and Note 6 for the methodology and inputs used in the fair value calculation for Cell C. Gain related to fair value adjustment to currency options represents the realized gain related to foreign exchange option contracts entered into in November 2021 in order to manage the risk of currency volatility and to fix the USD amount to be utilized for part of the Connect purchase consideration settlement. The foreign exchange option contracts matured on February 24, 2022. Refer to Note 6 to our consolidated financial statements for additional information related to these currency options. We recorded a net loss of $0.2 million comprising a loss of $0.4 million related to the disposal of a minor portion of our investment in Finbond and a $0.25 million gain related to the disposal of our entire interest in Carbon during fiscal 2023. We recorded a loss of $0.4 million related to the disposal of a minor portion of our investment in Finbond during fiscal 2022. Refer to Note 9 to our consolidated financial statements for additional information regarding these disposals. We recorded a gain of $0.7 million related to the disposal of our entire interest in an equity security during fiscal 2022. Refer to Note 9 to our consolidated financial statements for additional information regarding this gain. Interest on surplus cash decreased to $1.9 million (ZAR 33.2 million) from $2.1 million (ZAR 31.7 million), primarily due to the inclusion of Connect, which was partially offset by lower overall surplus cash balances following the acquisition of Connect. Interest expense increased to $18.6 million (ZAR 333.1 million) from $5.8 million (ZAR 88.6 million), primarily as a result of additional interest expense incurred related to borrowings obtained to partially fund the acquisition of Connect, interest expenses incurred in Connect to fund our cash management, digitization and VAS offerings, and a higher utilization of our facilities to fund our ATMs, which was also coupled with an increase in base interest rates. Fiscal 2023 tax benefit was $(2.3) million (ZAR (41.4) million) compared to a tax expense of $0.3 million (ZAR 5.0 million) in fiscal 2022. Our effective tax rate for fiscal 2023 was impacted by a reduction in the enacted South African corporate income tax rate from 28% to 27% from January 2023 (but backdated to July 1, 2022), the tax expense recorded by our profitable South African operations, a deferred tax benefit related to acquisition-related intangible asset amortization, non-deductible expenses, a deferred tax benefit related to an expense paid by Connect before we acquired the business and which subsequently has been determined to be deductible for tax purposes, the on-going losses incurred by certain 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. 47 Our effective tax rate for fiscal 2022 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 (including transaction expenses related to the acquisition of Connect), the on-going losses incurred by certain 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. 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. We recorded impairment losses related to our investment in Finbond in fiscal 2023 following on-going losses reported by Finbond and its lower listed share price. Refer to Note 9 to our consolidated financial statements for additional information regarding the impairments. The table below presents the relative loss from our equity accounted investments: Table 10 Year ended June 30, 2023 2022 $ ’000 $ ’000 $ % change Finbond (5,206) (3,665) 42% Share of net (loss) income (4,096) (3,665) 12% Impairment (1,110) - nm Other 89 16 456% Share of net loss 89 16 456% Total loss from equity-accounted investments (5,117) (3,649) 40% Results of operations by operating segment The composition of revenue and the contributions of our business activities to operating (loss) income are illustrated below: Table 11 In U.S. Dollars Year ended June 30, 2023 % of 2022 % of % Operating Segment $ ’000 total $ ’000 total change Consolidated revenue: Merchant 463,701 88% 156,689 70% 196% Consumer 62,801 12% 65,932 30% (5%) Subtotal: Operating segments 526,502 100% 222,621 100% 137% Not allocated to operating segments 1,469 - - - nm Corporate/Eliminations - - (12) - nm Total consolidated revenue 527,971 100% 222,609 100% 137% Group Adjusted EBITDA: Merchant 33,531 135% 12,646 (59%) 165% Consumer (1) 3,314 13% (21,674) 100% nm Lease expenses (2) (2,906) (11%) (3,955) 19% (27%) Group costs (9,109) (37%) (8,587) 40% 6% Group Adjusted EBITDA (non-GAAP) (3) 24,830 100% (21,570) 100% nm (1) Consumer Segment Adjustment EBITDA for fiscal 2022 includes reorganization cost of $5.9 million. (2) Lease expenses which were previously excluded from the calculation of Group Adjusted EBITDA have now been included in the calculation. This change is in response to comments received from the staff of the SEC in March 2024 regarding our non-GAAP financial reporting. Comparative information has been adjusted to conform with the updated presentation. (3) Group Adjusted EBITDA is a non-GAAP measure, refer to reconciliation below at “—Results of Operations—Use of Non- GAAP Measures”. 48 Table 12 In South African Rand Year ended June 30, 2023 % of 2022 % of % Operating Segment ZAR ’000 total ZAR ’000 total change Consolidated revenue: Merchant 8,318,796 88% 2,381,323 70% 249% Consumer 1,126,650 12% 1,002,021 30% 12% Subtotal: Operating segments 9,445,446 100% 3,383,344 100% 179% Not allocated to operating segments 26,354 - - - nm Corporate/Eliminations - - (178) - nm Total consolidated revenue 9,471,800 100% 3,383,166 100% 180% Group Adjusted EBITDA: Merchant 601,546 135% 192,197 (59%) 213% Consumer (1) 59,453 13% (329,403) 100% nm Lease expenses (2) (52,134) (11%) (60,107) 19% (13%) Group costs (163,415) (37%) (130,503) 40% 25% Group Adjusted EBITDA (non-GAAP) (3) 445,450 100% (327,816) 100% nm (1) Consumer Segment Adjustment EBITDA for fiscal 2022 includes reorganization cost of ZAR 89.6 million. (2) Lease expenses which were previously excluded from the calculation of Group Adjusted EBITDA have now been included in the calculation. This change is in response to comments received from the staff of the SEC in March 2024 regarding our non-GAAP financial reporting. Comparative information has been adjusted to conform with the updated presentation. (3) Group Adjusted EBITDA is a non-GAAP measure, refer to reconciliation below at “—Results of Operations—Use of Non- GAAP Measures”. Merchant Segment revenue increased due to the contribution from Connect for the full fiscal year compared with only two and a half months in fiscal 2022. This increase was partially offset by lower hardware sales revenue given the lumpy nature of bulk sales. The increase in Segment Adjusted EBITDA is also due to the inclusion of Connect, 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 margin. This significantly depresses the Segment Adjusted EBITDA margins shown by the business. Our Segment Adjusted EBITDA (loss) margin (calculated as Segment Adjusted EBITDA (loss) divided by revenue) in fiscal 2023 and 2022 was 7.2% and 8.1%, respectively. Consumer Segment revenue increased primarily due to higher insurance revenues and higher account holder fees, though this was partially offset by lower ATM transaction fees. We embarked on a retrenchment process during the third quarter of fiscal 2022 and recorded an expense of $5.9 million which is included in Segment Adjusted EBITDA loss. The cost reduction initiatives we initiated in fiscal 2022 delivered a significant reduction in Consumer’s operating expenses which resulted in a significantly lower Segment Adjusted EBITDA loss compared with fiscal 2022. Specifically, expenses associated with operating a mobile distribution network were discontinued in early fiscal 2022, and we have streamlined our fixed distribution network through reductions in certain expenses including employee-related costs, security, guarding and premises costs. In June 2022 we recalibrated our allowance for doubtful microlending finance loans receivable from 10% of the lending book outstanding to 6.5% of the lending book, which resulted in a release from the allowance in fiscal 2022. Our Segment Adjusted EBITDA loss margin in fiscal 2023 and 2022 was 5.3% and (32.9%), respectively. After adjusting for the reorganization charge our fiscal 2022 Segment Adjusted EBITDA loss margin was (23.9%). Segment Adjusted EBITDA loss margin before the reorganization charge is a non-GAAP measure. We believe that the presentation of our Segment Adjusted EBITDA loss margin before the reorganization charge is useful to investors to understand the improvement in the operating performance in Consumer, before the reorganization charge, in fiscal 2023 compared with fiscal 2022. Group costs Our group costs for fiscal 2023 increased compared with the prior period due to higher employee costs and an increase in directors’ and officers’ insurance premiums. 49 Use of Non-GAAP Measures U.S. securities laws require that when we publish any non-GAAP measures, we disclose the reason for using these non-GAAP measures and provide reconciliations to the most directly comparable GAAP measures. The presentation of Group Adjusted EBITDA is a non-GAAP measure. We provide this non-GAAP measure to enhance our evaluation and understanding of our financial performance and trends. We believe that this measure is helpful to users of our financial information understand key operating performance and trends in our business because it excludes certain non-cash expenses (including depreciation and amortization and stock-based compensation charges) and income and expenses that we consider once-off in nature. Non-GAAP Measures Group Adjusted EBITDA is earnings before interest, tax, depreciation and amortization (“EBITDA”), adjusted for non- operational transactions (including loss on disposal of equity-accounted investments, gain related to fair value adjustments to currency options), (earnings) loss from equity-accounted investments, stock-based compensation charges and once-off items. Once-off items represents non-recurring income and expense items, including costs related to acquisitions and transactions consummated or ultimately not pursued. Lease expenses which were previously excluded from the calculation of Group Adjusted EBITDA have now been included in the calculation. This change is in response to comments received from the staff of the SEC in March 2024 regarding our non-GAAP financial reporting. Comparative information has been adjusted to conform with the updated presentation. The table below presents the reconciliation between GAAP net loss attributable to Lesaka to Group Adjusted EBITDA: Table 13 Years ended June 30, 2024 2023 2022 $ ’000 $ ’000 $ ’000 Loss attributable to Lesaka - GAAP (17,440) (35,074) (43,876) Loss from equity accounted investments 1,279 5,117 3,649 Net loss before loss from equity-accounted investments (16,161) (29,957) (40,227) Income tax expense (benefit) 3,363 (2,309) 327 Loss before income tax expense (12,798) (32,266) (39,900) Interest expense 18,932 18,567 5,829 Interest income (2,294) (1,853) (2,089) Reversal of allowance for doubtful EMI loan receivable (250) - - Gain on disposal of equity securities - - (720) Net loss on disposal of equity-accounted investment - 205 376 Gain related to fair value adjustment to currency options - - (3,691) Operating loss 3,590 (15,347) (40,195) Impairment loss - 7,039 - PPA amortization (amortization of acquired intangible assets) 14,419 15,149 3,826 Depreciation 9,246 8,536 3,749 Stock-based compensation charges 7,911 7,309 2,962 Once-off items (1) 1,853 1,922 8,088 Unrealized Loss FV for currency adjustments (83) 222 - Group Adjusted EBITDA - Non-GAAP (A) 36,936 24,830 (21,570) (A) As noted in footnote (3) to table 11 and 12, Lease expenses which were previously excluded from the calculation of Group Adjusted EBITDA have now been included in the calculation. (1) The table below presents the components of once-off items for the periods presented: 50 Table 14 Years ended June 30, 2024 2023 2022 $ ’000 $ ’000 $ ’000 Transaction costs related to Adumo transaction 2,293 - - Transaction costs 512 850 6,460 (Income recognized) Expenses incurred related to closure of legacy businesses (952) 639 - Non-recurring revenue not allocated to segments - (1,469) - Employee misappropriation of company funds - 1,202 - Indirect taxes provision - 438 - Separation of employee expense - 262 - Legacy processing adjustments - - 1,628 Total once-off items 1,853 1,922 8,088 Once-off items are non-recurring in nature, however, certain items may be reported in multiple quarters. For instance, transaction costs include costs incurred related to acquisitions and transactions consummated or ultimately not pursued. The transactions can span multiple quarters, for instance in fiscal 2024 we incurred significant transaction costs related to the acquisition of Adumo over a number of quarters, and the transactions are generally non-recurring. (Income recognized) Expenses incurred related to closure of legacy businesses represents (i) gains recognized related to the release of the foreign currency translation reserve on deconsolidation of a subsidiary and (ii) costs incurred related to subsidiaries which we are in the process of deregistering/ liquidation and therefore we consider these costs non-operational and ad hoc in nature. Non-recurring revenue not allocated to segments includes once off revenue recognized that we believe does not relate to either our Merchant or Consumer divisions. Employee misappropriation of company funds represents a once-off loss incurred. Indirect tax provision includes non-recurring indirect taxes which have been provided related to prior periods following an on-going investigation from a tax authority. We incurred separation costs related to the termination of certain senior-level employees, including an executive officer and senior managers, during the fiscal year and we consider these specific terminations to be of a non-recurring nature. The legacy processing adjustments represents amounts we identified during fiscal 2022 related to prior periods that are payable to third parties. Liquidity and Capital Resources At June 30, 2024, our unrestricted cash and cash equivalents were $59.1 million and comprised of ZAR-denominated balances of ZAR 961.6 million ($52.9 million), U.S. dollar-denominated balances of $4.5 million, and other currency deposits, primarily Botswana pula, of $1.7 million, all amounts translated at exchange rates applicable as of June 30, 2024. The increase in our unrestricted cash balances from June 30, 2023, was primarily due to a positive contribution from our Merchant and Consumer operations, the sale of certain Cell C prepaid inventory held, higher year end clearing accounts and vendor wallet balances, and utilization of our borrowings facilities to fund certain components of our operations, which was partially offset by the utilization of cash reserves to fund certain scheduled and other repayments of our borrowings, pay transaction related expenses, purchase ATMs and vaults, and to make an investment in working capital. We generally invest any surplus cash held by our South African operations in overnight call accounts that we maintain at South African banking institutions, and any surplus cash held by our non-South African companies in U.S. dollar-denominated money market accounts. Historically, we have financed most of our operations, research and development, working capital, and capital expenditures, as well as acquisitions and strategic investments, through internally generated cash and our financing facilities. When considering whether to borrow under our financing facilities, we consider the cost of capital, cost of financing, opportunity cost of utilizing surplus cash and availability of tax efficient structures to moderate financing costs. For instance, in fiscal 2022, we obtained loan facilities from RMB to fund a portion of our acquisition of Connect. Following the acquisition of Connect, we now utilize a combination of short and long-term facilities to fund our operating activities and a long-term asset-backed facility to fund the acquisition of POS devices and safe assets. Refer to Note 12 to our consolidated financial statements for the year ended June 30, 2024, for additional information related to our borrowings. 51 Available short-term borrowings Summarized below are our short-term facilities available and utilized as of June 30, 2024: Table 15 RMB Facility E RMB Indirect RMB Connect Nedbank $ ’000 ZAR ’000 $ ’000 ZAR ’000 $ ’000 ZAR ’000 $ ’000 ZAR ’000 Total short-term facilities available, comprising: Overdraft - - - - 11,276 205,014 - - Overdraft restricted as to use (1) 49,503 899,996 - - - - - - Total overdraft 49,503 899,996 - - 11,276 205,014 - - Indirect and derivative facilities (2) - - 7,425 134,991 - - 8,611 156,553 Total short-term facilities available 49,503 899,996 7,425 134,991 11,276 205,014 8,611 156,553 Utilized short-term facilities: Overdraft - - - - 9,351 170,011 - - Overdraft restricted as to use (1) 6,737 122,480 - - - - - - Indirect and derivative facilities (2) - - 1,821 33,106 - - 116 2,105 Total short-term facilities available 6,737 122,480 1,821 33,106 9,351 170,011 116 2,105 Interest rate, based on South African prime rate 11.75% 11.65% (1) Overdraft may only be used to fund ATMs and upon utilization is considered restricted cash. (2) Indirect and derivative facilities may only be used for guarantees, letters of credit and forward exchange contracts to support guarantees issued by RMB and Nedbank to various third parties on our behalf. Long-term borrowings We have aggregate long-term borrowings outstanding of ZAR 2.6 billion ($143.2 million translated at exchange rates as of June 30, 2024) as described in Note 12. These borrowings include outstanding long-term borrowings obtained by Lesaka SA of ZAR 1.0 billion, including accrued interest, which was used to partially fund the acquisition of Connect. The Lesaka SA borrowing arrangements were amended in March 2023 to include a ZAR 200 million revolving credit facility. We used this revolving credit facility during the year ended June 30, 2024, and ZAR 70.0 million was drawn as of June 30, 2024, with the remaining balance available for utilization in the future. In contemplation of the Connect transaction, Connect obtained total facilities of ZAR 1.3 billion, which were utilized to repay its existing borrowings, to fund a portion of its capital expenditures and to settle obligations under the transaction documents, and which has subsequently been upsized for its operational requirements and has an outstanding balance as of June 30, 2024, of ZAR 1.2 billion, We also have a revolving credit facility, of ZAR 300.0 million which is utilized to fund a portion of our merchant finance loans receivable book. Restricted cash We have credit facilities with RMB in order to access cash to fund our ATMs in South Africa. Our cash, cash equivalents and restricted cash presented in our consolidated statement of cash flows as of June 30, 2024, includes restricted cash of approximately $6.7 million related to cash withdrawn from our debt facility to fund ATMs. 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. We have also entered into cession and pledge agreements with Nedbank related to our Nedbank credit facilities and we have ceded and pledged certain bank accounts to Nedbank. The funds included in these bank accounts are restricted as they may not be withdrawn without the express permission of Nedbank. Our cash, cash equivalents and restricted cash presented in our consolidated statement of cash flows as of June 30, 2024, includes restricted cash of approximately $0.1 million that has been ceded and pledged. 52 Cash flows from operating activities Net cash provided by operating activities during fiscal 2024 was $28.8 million (ZAR 537.9 million) compared to $0.4 million (ZAR 7.4 million) during fiscal 2023. Excluding the impact of income taxes, our cash provided by operating activities during the fiscal 2024 was positively impacted by the contribution from Merchant and Consumer, the sale of Cell C inventory and temporary working capital movements within our merchant business as a result of quarter-end transaction processing activities closing on a Sunday and which were settled in the following week, which was partially offset by growth in our consumer finance loans receivable book. Net cash provided by operating activities during fiscal 2023 was $0.4 million (ZAR 7.4 million) compared to net cash utilized by operating activities of $37.2 million (ZAR 565.3 million) during fiscal 2022. Excluding the impact of income taxes, our cash provided by operating activities during fiscal 2023 was impacted by the positive contribution from Connect and certain business within our consumer business, which was partially offset by growth in our consumer and merchant finance loans receivable books. During fiscal 2023, we observed fluctuations in our working capital, primarily within our merchant business, as a result of monthly changes in our inventory and prepayment account balances as a result of payments made to secure prepaid airtime inventory. Certain of these purchases were funded from our borrowing arrangements and the impact of the funding is included in financing activities. During fiscal 2024, we paid our first provisional South African tax payments of $2.7 million (ZAR 49.5 million) related to our 2024 tax year. During fiscal 2024, we also made our second provisional South African tax payments of $2.9 million (ZAR 52.7 million related to our 2024 tax year and received tax refunds of $0.04 million (ZAR 0.8 million). We also paid taxes totaling $0.4 million in other tax jurisdictions, primarily in the Botswana. During fiscal 2023, we paid our first provisional South African tax payments of $3.0 million (ZAR 50.8 million) related to our 2023 tax year. During fiscal 2023, we also made our second provisional South African tax payments of $4.1 million (ZAR 76.1 million related to our 2023 tax year and received tax refunds of $0.2 million (ZAR 3.8 million). We also paid taxes totaling $0.4 million in other tax jurisdictions, primarily in the Botswana. During fiscal 2022, we made our first provisional South African tax payments of $0.6 million (ZAR 9.1 million) related to our 2022 tax year. During fiscal 2022, we also made our second provisional South African tax payments of $0.7 million (ZAR 10.9 million related to our 2022 tax year and made an additional tax payment of $0.001 million (ZAR 0.02 million) related to our 2021 tax year. Taxes paid during fiscal 2024, 2023 and 2022 were as follows: Table 16 Year ended June 30, 2024 2023 2022 2024 2023 2022 $ $ $ ZAR ZAR ZAR ‘000 ‘000 ‘000 ‘000 ‘000 ‘000 First provisional payments 2,663 2,955 585 49,534 50,798 9,142 Second provisional payments 2,861 4,079 691 52,721 76,089 10,929 Taxation paid related to prior years 641 15 1 12,187 273 19 Tax refund received (38) (210) (300) (768) (3,756) (4,542) Total South African taxes paid 6,127 6,839 977 113,674 123,404 15,548 Foreign taxes paid 379 361 161 7,063 6,482 2,482 Total tax paid 6,506 7,200 1,138 120,737 129,886 18,030 We expect to make additional provisional income tax payments in South Africa related to our 2024 tax year in the first quarter of fiscal 2025, however, the amount was not quantifiable as of the date of the filing of this Annual Report. Cash flows from investing activities Cash used in investing activities for fiscal 2024 included capital expenditures of $12.7 million (ZAR 236.6 million), primarily due to the acquisition of vaults and POS devices. During 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. Cash used in investing activities for fiscal 2023 included capital expenditures of $16.2 million (ZAR 289.8 million), primarily due to the acquisition of ATMs . During fiscal 2023, we received proceeds of $0.25 million related to the first tranche (of two) from the disposal of our entire equity interest in Carbon and $0.4 million related to the sale of minor positions in Finbond. 53 During fiscal 2022, we paid approximately $4.6 million (ZAR 69.3 million), primarily due to the roll out of our new express branches, acquisitions of ATMs and the acquisition of computer equipment. During fiscal 2022, we paid approximately $202.2 million (ZAR 2.9 billion), net of cash acquired, for 100% of Connect. We also received funds totaling approximately $11.4 million related to the sale of Bank Frick in fiscal 2021, proceeds from sale of property, plant and equipment of $4.2 million, and proceeds of $0.9 million and $0.7 million, respectively, related to the sale of minor positions in Finbond and from the disposal of our entire interest in Revix in fiscal 2022. Cash flows from financing activities During fiscal 2024, we utilized approximately $183.0 million from our South African overdraft facilities to fund our ATMs and repaid $199.6 million of these facilities. We utilized approximately $23.7 million of our long-term borrowings to fund the acquisition of certain capital expenditures and for working capital requirements. We repaid approximately $20.1 million of these long-term in accordance with our repayment schedule as well as to settle a portion of our revolving credit facility utilized. We received $0.1 million from the exercise of stock options. We also paid $1.5 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 fiscal 2023, we utilized approximately $520.1 million from our South African overdraft facilities to fund our ATMs and our cash management business through Connect and repaid $547.3 million of these facilities. We utilized approximately $24.4 million of our long-term borrowings to settle approximately $10.5 million of our revolving credit facilities, fund our merchant finance loans receivable business, and to fund the acquisition of certain capital expenditures. We repaid approximately $17.5 million of these long- term, including approximately $10.5 million to settle our revolving credit balance in full. We received $0.5 million from the exercise of stock options. We also paid $1.3 million to repurchase shares from employees in order for the employees to settle taxes due related to the vesting of shares of restricted stock and to settle the strike price due and taxes due related to the exercise of stock options. During fiscal 2022, we utilized approximately $570.9 million from our South African overdraft facilities to fund our ATMs and our cash management business through Connect and repaid $525.5 million of these facilities. We utilized approximately $78.9 million of our long-term borrowings to fund a portion of the acquisition of Connect, to fund our merchant finance loans receivable business, and to fund the acquisition of certain capital expenditures. We repaid approximately $5.6 million of these long-term borrowings. We also received $0.8 million from the exercise of stock options. Contractual Obligations The following table sets forth our contractual obligations as of June 30, 2024: Table 17 Payments due by Period, as of June 30, 2024 (in $ ’000s) Total Less than 1 year 2-3 years 3-5 years Thereafter Short-term credit facilities (A) 16,088 16,088 - - - Long-term borrowings Principal repayments (A)(B) 143,186 3,878 83,404 55,904 - Interest payments (A)(B) 34,010 10,136 18,291 5,583 - Operating lease liabilities, including imputed interest (C) 8,831 3,143 4,306 1,382 - Purchase obligations 2,478 2,478 - - - Capital commitments 329 329 - - - Other long-term obligations reflected on our balance sheet (D)(E) 2,595 - - - 2,595 Total 207,517 36,052 106,001 62,869 2,595 (A) – Refer to Note 12 to our audited consolidated financial statements. (B) – Long-term borrowings principal repayments for the 3-5 year period includes all unamortized fees as of June 30, 2024. Interest payments based on applicable interest rates as of June 30, 2024, and expected outstanding long-term borrowings over the period. All amounts converted from ZAR to USD using the June 30, 2024, USD/ ZAR exchange rate. (C) – Refer to Note 8 to our audited consolidated financial statements. (D) – Includes policyholder liabilities of $2.6 million related to our insurance business. All amounts are translated at exchange rates applicable as of June 30, 2024. (E) – We have excluded cross-guarantees in the aggregate amount of $0.1 million issued as of June 30, 2024, to RMB and Nedbank to secure guarantees it has issued to third parties on our behalf as the amounts that will be settled in cash are not known and the timing of any payments is uncertain. 54 Off-Balance Sheet Arrangements We have no off -balance sheet arrangements. Capital Expenditures Capital expenditures for the years ended June 30, 2024, 2023 and 2022 were as follows: Table 18 2024 2023 2022 2024 2023 2022 $ $ $ ZAR ZAR ZAR ‘000 ‘000 ‘000 ‘000 ‘000 ‘000 Consumer 1,317 3,170 1,712 24,607 56,870 26,019 Merchant 11,348 12,986 2,846 212,030 232,969 43,253 Total 12,665 16,156 4,558 236,637 289,839 69,272 Our capital expenditures for fiscal 2024, 2023 and 2022, are discussed under “—Liquidity and Capital Resources—Cash flows from investing activities.” All of our capital expenditures for the past three fiscal years were funded through internally-generated funds, except for certain capital expenditures of POS devices and safe assets, made by Connect which were funded through the utilization of asset-backed borrowings. We had outstanding capital commitments as of June 30, 2024, of $0.3 million. We expect to fund these expenditures through internally-generated funds. In addition to these capital expenditures, we expect that capital spending for fiscal 2025 will include acquisition of POS devices, safe assets, vehicles, computer and office equipment, as well as for our ATM infrastructure and branch network in South Africa. These assets will be funded through the use of internally-generated funds and our asset-backed borrowing arrangement. 55