Lesaka posts first profit, but its biggest business is going backwards

Lesaka Technologies has finally moved into the black, but its biggest source of revenue is going the other way. The company made $2.8-million in profit for FY2026, a big change from the $91-million loss it reported a year earlier. Group revenue increased 20% and adjusted Ebitda was up 41%. The merchant business tells a different story. It produced $509.3-million of Lesaka's $721.6-million in revenue, yet revenue in the division dropped 10% over the year. In the fourth quarter, adjusted Ebitda fell 33% to $7.4-million. 

Lesaka is now restructuring the business after bringing together four acquisitions: Adumo, GAAP, Connect and Kazang. About 30 people have been affected by the restructuring so far. There could be more. Lesaka Southern Africa CEO Lincoln Mali said the company is still working through the changes and would not rule out further job losses. “It would be foolish to say there won’t be,” he said. The job cuts are part of a wider attempt to make four businesses, each with their own systems and ways of operating, work as one. That is proving to be a slower process than simply putting the businesses under the Lesaka name.

The merchant numbers are more complicated than they look

Lesaka is not losing merchants in large numbers. Its active merchant base grew 12% during the year. What has fallen is the amount of money Lesaka makes from each merchant. There are some good numbers underneath the headline decline. Payment acquiring revenue increased 21%, while software revenue climbed 34%. Then there are the products that have gone backwards. Revenue from airtime, data and other prepaid digital products fell about 25% after mobile network operators changed their commission structures.

Airtime is a relatively small part of Lesaka's overall business, making up roughly 5% of merchant division net revenue and less than 3% of group net revenue. Cash revenue also fell 10% as larger merchants moved towards digital payments. Lending revenue grew only 3%. Mali said Lesaka has been cautious about expanding lending. Supplier payments grew strongly, but it is a lower-margin business. So Lesaka has more merchants, but not all of those merchants are generating enough additional revenue to offset the decline in some of its older products.

The answer is sitting in Lesaka's existing customer base

Rather than trying to replace every rand lost from one product with another new customer, Lesaka wants its existing merchants to buy more from it. A restaurant using a GAAP point of sale system could also take Lesaka's card payment service and later use its lending products. A petrol station using Lesaka for cash management could add acquiring, lending and prepaid services. Mali refers to this as "layering".

It also explains why Lesaka is changing the incentives for its sales teams. Staff will be pushed to sell a second or third product instead of simply maintaining the product they inherited from one of the acquired companies. The company is also trying to improve its relationships with wholesalers and distributors. Mali acknowledged that competitors have done better in this area. There are cost cuts as well, as Lesaka works with the combined cost base of the four businesses. None of this is expected to turn the merchant division around overnight. Mali said the first quarter of FY2027 is unlikely to show much improvement. Some movement could come in the second quarter, with the company expecting clearer growth in the third and fourth quarters.

Then there is Bank Zero

Lesaka's other big move is its R1.1-billion acquisition of Bank Zero. The deal has taken longer than initially expected, but Mali now expects it to close by the end of December, provided the remaining approvals come through. Lesaka has already put Bank Zero into its FY2027 revenue guidance of R7-billion to R7.7-billion. Bank Zero has also continued to attract deposits while the transaction has been waiting for approval. Mali said the deposit base has grown from about R400-million when the deal was announced to around R700-million. He expects the bank to break even on its own by December.

For Lesaka, the attraction is not just another banking brand under the group. The company already lends to merchants and consumers, but it uses funding from banks to do so. Bank Zero gives Lesaka its own deposit base. That means some of the money sitting in customer accounts could eventually help fund lending inside the group. Mali said this would have a material effect on Lesaka's balance sheet.

The Bank Zero deal also changes the consumer business

Bank Zero is expected to replace African Bank as the sponsoring bank behind Lesaka's 2.1 million consumer customers. Under the current arrangement, Lesaka does not earn income from the money sitting in those accounts. Owning the bank gives it a chance to earn from that deposit base and reduce some of the money currently going to outside banking partners. It also opens the door to products Lesaka does not currently offer, including foreign exchange and cross-border payments.

The company has applied for licences covering lending, alliance banking and forex. Bank Zero itself will remain a separate retail proposition. Its existing low-cost banking model will continue, while Lesaka's consumer operation remains focused on lower-income customers reached through its own distribution network. The two businesses therefore serve different groups, even though they will sit under the same owner. Lesaka has plenty to point to in its latest results: its first profit, higher group revenue and stronger Ebitda. But the part of the business doing most of the earning still needs fixing. The next year will show whether Lesaka can get more revenue from the merchants it already has, finish integrating its acquisitions and get Bank Zero contributing to the group. For a company that has just reported its first profit, there is still quite a bit of work left.