Connect Group lifts Lesaka in fiscal 2022

Samuel Mungadze
By Samuel Mungadze, Africa editor
Johannesburg, 12 Sept 2022

Lifted by the addition of the Connect Group, fintech firm Lesaka Technologies today reported a surge in group revenue for fiscal year 2022, while losses narrowed slightly.

Lesaka, previously Net1, today released results for the fourth fiscal quarter and year ended June, saying the inclusion of Connect from 14 April added $86.2 million to the group’s revenue and 23% growth in revenue in the existing merchant business.

The dual-listed Lesaka took control of one of SA’s biggest fintech firms, Connect Group, in November for R3.7 billion.

Connect Group, founded in 2006, is one of the leading providers of fintech solutions in the country and services nearly 44 000 small, micro and medium enterprises in Southern Africa.

The company is highly-profitable, with strong unit economics – marked by a historic three-year compound annual growth rate in earnings before interest, taxes, depreciation and amortisation (EBITDA) in excess of 40% for its fiscal 2021 year.

Today, Lesaka notified shareholders of the value accrued from the deal, saying on a constant currency basis, the existing merchant business grew revenue 35% in the fourth quarter (Q4) 2022 to R304 million.

The Johannesburg Stock Exchange- and Nasdaq-listed Lesaka says the Connect business delivered strong growth during the quarter, slightly ahead of expectations.

“Our revenue increased 288% in rands, primarily due to the contribution from Connect, which contributed R1.3 billion in Q4 2022 compared to nil in Q4 2021, with the Connect Group acquired on 14 April 2022.

“On a constant currency basis, the existing merchant business grew revenue 35% in Q4 22 to R304 million. Group revenue drivers in the quarter included an increase in hardware sales, an increase in merchant transaction processing fees, and a moderate increase in lending and insurance revenues.”

The group’s operating loss of $10.1 million in Q4 2022 improved from an operating loss of $13.6 million in the previous comparable period.

It adds: “Segment adjusted EBITDA (before corporate/eliminations) for Q4 2022 improved to a profit of $6.1 million compared to a loss of $6.7 million in Q4 2021, demonstrating progress made on the transformative journey to build the leading South African fintech platform, bringing financial inclusion and digitisation.”

Chris Meyer, Lesaka Group CEO, says the company is delighted with the group’s achievements over the past year.

“The strategy set by our new board in 2020 and communicated to the market over the past 12 months is being effectively executed. With the Connect acquisition, Lesaka now has a complete product offering to the underserved consumers and merchants in Southern Africa, which advances our vision to build the leading South African full-service fintech platform.”

Meyer adds: “What has been most encouraging is the way the Lesaka and Connect teams are working together to explore and execute opportunities to increase revenues, improve performance and deliver better value to our customers through our unique dual-sided ecosystem.

“Great progress has also been made in the consumer segment turnaround, which is now very close to breakeven. We will continue to focus on optimising cost structures, as well as account growth and cross-selling opportunities, to increase average revenue per unit.

“After a year of tremendous change and transformation, the group is well-positioned to take advantage of the high growth opportunities our market presents."

Lesaka says the integration of Lesaka and Connect has been very encouraging, with tangible results already achieved.