Release Date: September 12, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Group adjusted EBITDA increased by 55% to ZAR691 million, aligning with the company's guidance.
- Operating income turned positive, from a ZAR275 million loss in FY2023 to a ZAR67 million profit in FY2024.
- Fundamental earnings per share improved significantly, turning positive to ZAR1.06, an increase of ZAR3.72 per share.
- Net debt to group adjusted EBITDA ratio improved from 4.5 times to 2.5 times year-over-year.
- The company successfully executed two acquisitions, Touchsides and Adumo, enhancing their market position and growth opportunities.
Negative Points
- The company faced challenges in execution, with areas identified for improvement in efficiency and speed.
- The operating environment for the SME sector remains challenging due to high interest rates, inflation, and load shedding.
- The credit business was impacted by economic headwinds, leading to lower advances and book size.
- Revenue growth was negatively impacted by the change in sales mix of airtime revenue recognized as principal versus agent.
- The company incurred ZAR43 million in one-off transaction costs related to the Adumo acquisition.
Q & A Highlights
Q: You alluded to further bolt-on and transformative M&A, can you elaborate on the Group’s M&A strategy and how you are thinking around the funding of these opportunities and any potential dilution?
A: (Steven Heilbron, CEO of Merchant Division and Head of Corporate Development) From a funding perspective, we are very cognizant of the debt ratios that we've put forward. We remain incredibly disciplined in that respect, maintaining our debt ratios in the region of two times in terms of debt to EBITDA. Everything we do is accretive, and we have a very supportive shareholder base. Funding is not an issue for targeted transactions. For example, the Adumo transaction was funded with ZAR230 million cash and 17.3 million shares.
Q: You indicated that you'll be updating your medium-term financial objectives in Q2 of '25. Can you provide some color on what metrics you will cover?
A: (Ali Mazanderani, Executive Chairman of the Board) The Adumo transaction is expected to complete in October, so we will update the medium-term objectives subsequent to that. We will provide GAAP guidance from Q1 and include gross profit (GP) in the medium-term update. The underlying growth of Lesaka business, excluding the Adumo transaction, is 30% year-on-year, which is more than the medium-term guidance previously provided.
Q: In the full year '24 Merchant Division results included quite a few moving parts. Is it fair to conclude that the core Kazang offering in the informal market and the Connect in the context of the persistent challenging operating environment for these merchants delivered strong growth?
A: (Steven Heilbron, CEO of Merchant Division and Head of Corporate Development) The normalized growth rate in the Merchant Division is 15% for FY 2024, off significant growth in the prior year. VAS throughput increased by 43% and card throughput was up by 30%. We had relatively muted growth in cash and credit, but strong growth rates supported the underlying 15% organic growth. We are comfortable with this as a sustainable growth rate going forward.
Q: How should we think about the future growth of the consumer segment, which seems finite if you are just servicing grant recipients?
A: (Lincoln Mali, CEO of Southern Africa) Our current market share is 11%, with 1.3 million active permanent grant recipients out of a 12 million base. The post office has about 28% market share and is shedding customers. We see significant room to grow in this space. Additionally, our cross-sell opportunities in lending and insurance, new VAS products, and the Adumo Payouts business provide new growth avenues beyond grant recipients.
Q: Could you give us some comments on CapEx plans for 2025?
A: (Naeem Kola, Chief Financial Officer) Our CapEx plans for 2025 will remain focused on growth CapEx, similar to FY 2024. This will mainly be spent within the merchant business, specifically on POS investments and cash business infrastructure. We are investing in growth areas to support our expanding merchant base and improving economic conditions.
Q: How are you thinking about the Group's debt levels? Will the further improvement in net debt to EBITDA be driven mainly by EBITDA growth, or can we expect some debt reduction at a group level?
A: (Ali Mazanderani, Executive Chairman of the Board) We intend to manage the business at a two times debt to EBITDA ratio. The consequence of our existing debt position and the Adumo transaction will result in a materially lower net debt to EBITDA ratio. (Naeem Kola, CFO) We have made significant progress in reducing our leverage ratio from 4.5 times to just under 2.5 times. With the restructuring of our consumer loan book and achieving the midpoint of our guidance, we should reach a leverage ratio below two times.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
