Fiscal Third Quarter 2023 Webcast and Conference Call. As a reminder, the webcast is being recorded, and the presentation can be accessed through the webcast link, as well as dialing in to the Zoom conference call dialing numbers provided. Management will address any questions you may have at the end of the presentation. For those joining us via webcast, you can ask your question by using the Raise Your Hand button in Zoom. For those joining via the Zoom conference line, you cannot ask your questions live today. The webcast link, Zoom conference call dial numbers, as well as our press release and supplementary investor presentation, are available on the investor relations website at ir.lesakatech.com. Additionally, Lesaka filed its Form 10-Q after the U.S. market closed yesterday, Tuesday, May 9th, 2023, which is also available on the investor relations website.
As a reminder, during this call, we will be making forward-looking statements. I ask you to look at the cautionary language contained in our Form 10-Q regarding the risks and uncertainties associated with forward-looking statements. As a domestic filer in the U.S., we report results in U.S. dollars under U.S. GAAP. It is important to note that our operational currency is South African rand, and as such, we analyze our performance in South African rand. In this presentation, we will discuss our results in South African rand, which is non-GAAP. This assists investors' understanding of the underlying trends in our business. As you know, the company's results can be significantly affected by currency fluctuations between the U.S. dollar and the South African rand.
Taking a quick look at today's agenda, Chris Meyer, Group CEO of Lesaka, will start with performance highlights of the third quarter of fiscal year 2023 and a review of Lesaka's progress against its key strategic objectives. Steve Heilbron, CEO of Connect and Head of Merchant Division, will provide an update on the merchant division which produced a stellar set of results. Lincoln Mali, CEO of Southern Africa, will provide an update on the consumer division which has passed another key milestone this quarter. Naeem Kola, Group CFO, will present an overview of our financial performance for the three months ended March 31st, 2023. Chris will then conclude the results presentation with a discussion on the outlook for Lesaka before the team opens up for Q&A, where we welcome any questions you may have. With that, Chris, the call is yours.
Good morning, good afternoon, and welcome to our Third Quarter Earnings Webcast and Conference Call. I am pleased to report that Q3 represents another excellent quarter. We are excited by the merchant division's outperformance, which is driven by the Connect Group, and another quarter of continued improvement and profitability in the consumer division, where we have delivered on our turnaround strategy and are moving strongly onto the front foot. Our mission at Lesaka is to enable small merchants to compete and grow and to improve the lives of South Africa's grant beneficiaries by providing access to innovative financial technology and value-creating solutions. We will achieve this through our vision to build and operate the leading full-service FinTech platform in Southern Africa, offering cash management, payment processing, value-added services, capital and financial services to small merchants and underserved consumers.
We have a comprehensive product and service offering tailored for the markets in which we operate. Lesaka's strategy is supported by the secular trends which support FinTech disruption. South Africa's economy is dominated by cash, especially in the informal MSMEs markets and the consumer space, where our operations are focused, with up to 90% of transactions still being cash-based. Globally, digitalization is advancing at a rapid pace, and South Africa is also experiencing this secular shift. The market opportunity to extend digitalization to the informal economy is exponential, as it is both underserviced and untapped, and Lesaka is uniquely positioned with our comprehensive product offering and deep national footprint, with over 80,000 points of presence across the consumer and merchant divisions. With our portfolio of cash and digital solutions serving both merchants and consumers, we believe Lesaka is well-positioned for significant growth.
In the merchant division or B2B sector, we offer innovative solutions to both informal and formal business owners to grow, manage, and digitize their operations. In the formal sector, operating as Cash Connect, we initially relied heavily on product innovation using technology to disrupt and secure our position in the market. When Connect moved into the informal sector through the acquisition of Kazang, it used this technology to quickly grow from a traditional VAS offering into merchant credit, card acquiring, cash digitalization, and supplier payments. We now have a network of over 70,000 merchants in the informal markets using our products and services.
The B2C or consumer division, our products and services are specifically designed to enable access to financial services and cash for individuals who receive government grants and social welfare support. Through EasyPay Everywhere or EPE, we are providing regulated and affordable banking, lending, and insurance products to 1.3 million active consumers each month. Across the merchant and consumer markets, our network and product relevance give us broad reach into what has traditionally been seen as difficult environments for the banks and financial services providers to operate in. It is the opportunity to continue expanding our reach and relevance into these environments that present us with exciting growth potential as we pursue our purpose of enabling small merchants to compete and grow and improving the lives of South Africa's grant beneficiaries.
As a management team, our journey of transforming the Lesaka into a leading Southern African FinTech began in mid-2021. Throughout this time, we have been clear and consistent around how we intend to build our merchant offering and transform the consumer division. The acquisition of the Connect Group first in April last year, and the rebranding of the combined business as Lesaka, was only announced in May of last year, almost 12 months ago to the day. We are tremendously proud of the progress made since then, and hugely appreciative for the unwavering dedication and resilience displayed by each one of our Lesaka colleagues who have made the journey thus far such a success. Returning to the progress made against our strategic objectives. In our B2B or merchant division, we said that we would expand our offering and complete the dual-sided platform through acquisitions.
The acquisition and integration of the Connect Group has been nothing short of transformational for Lesaka. Essentially, the growth trends underpinning the acquisition remain firmly intact, and the integration of the Connect Group into Lesaka and the performance delivered to date has exceeded the expectations at the time of the acquisition just over a year ago. In our consumer division, we committed to transforming the division from a significant loss-making business into a positive adjusted EBITDA contributor to the group. I am pleased to report a second consecutive quarter of segment- adjusted EBITDA profitability, which was sharply up on quarter two. The consumer division is now well positioned for growth, and Lincoln will go into more detail on this later, covering some of our specific initiatives and our consumer value proposition.
Lesaka is well positioned to offer competitive, tailored, and cost-effective solutions to South African social grant recipients and improve the lives of South African grant beneficiaries and their families. Thirdly, with the outperformance of the merchant division and the greatly improved operating results from the consumer business, our liquidity and debt position have continued to improve as the group generates positive cash from operating activities, excluding the impact of bulk purchases of airtime in our Vaya and card divisions. Our lenders demonstrated a significant vote of confidence in Lesaka by increasing and extending our borrowing facilities and providing us with greater flexibility in managing cash balances and increasing our capacity for growth.
Turning to our performance for quarter three, I am pleased to report we achieved our profitability guidance with a group-adjusted EBITDA of ZAR 137 million for the quarter, which is an annualized increase of 22% over Q2 FY 2023. This was achieved despite lower contribution from parts of our pre-existing merchant division, which Steve will go into later, and represents a significant turnaround on the loss of ZAR 113 million recorded in Q3 FY 2022. Our guidance was for group revenue to be in the range of ZAR 2.5 billion-ZAR 2.8 billion for FY 2023 Q3. We reported group revenue of ZAR 2.4 billion, which is marginally lower than our guidance.
However, this is due to the mix of airtime products sold in the quarter, which Naeem will explain in more detail. The important point, however, is that both the gross profit contribution on airtime and the contribution of airtime to group-adjusted EBITDA was in line with guidance. Overall, I am very pleased to report yet another quarter of continued growth in group-adjusted EBITDA. Our business is on an exciting trajectory, supported by secular growth trends that remain firmly intact. As a management team, we remain laser-focused on delivering to our strategy and continuing to execute on the growth opportunity. With that, I will hand you over to Steve, who will provide an update on the performance of our merchant division.
Thanks, Chris. As Chris touched on in his opening remarks, South Africa's evolution from a cash- based to a digital payment economy is at a relatively early stage, and there is a significant growth opportunity as digitization gains momentum. This creates space for disruption, which Lesaka is well-placed to achieve. In our merchant division, we offer innovative solutions focused on formal and informal merchants, and we continue to build a leading position in a growing and underserved market. We often get asked how large do we think this opportunity is? The following high-level data points provide guidance in answer to this question. Like many developing economies, some 60% of total transactions in South Africa are cash-based. Less than 8% of merchants have access to formal credit, and less than 4% of informal merchants can accept digital payments. South Africa's future prosperity lies with small business.
Our focus is to resolve the pain points that both formal merchants and primarily informal merchants experience by using financial technology as an enabler. Experts agree that cash will remain a key component in the choice of payment in the South African economy, particularly in the informal sector. That's why it's important to have a holistic offering that spans across both cash and digital. Many players in this market are either focused on cash or digital, not both. In summary, the market opportunity attendant to the digitization of the South Africa's informal economy is significant and untapped. Made up of merchants and consumers underserved by incumbents and with limited access to traditional financial services, this sector is large with an estimated GDP of well above ZAR 300 billion. Within the informal sector, 90% of transactions are cash-based and only 10% of the informal sector flows are digital payments.
We are excited about our holistic offering positioned across cash and digital and suited to the transformation of commerce in the informal market, a market that is vibrant, untapped, and growing. This was another solid quarter for our merchant division, driven by the Connect Group. We reported revenue of ZAR 2.1 billion and ZAR 148 million of merchant segment-adjusted EBITDA, exceeding guidance during the third fiscal quarter. As evident on this slide, the relative contribution to revenue and EBITDA from our pre-existing merchant division comprising of Nurit, being our legacy terminal business, and EasyPay, our bill payments business, has declined as the Connect Group of businesses continue to grow at a quicker pace and ahead of expectations.
We are pleased that the Connect Group continues to outperform the acquisition business case despite macroeconomic and sociopolitical challenges, highlighting the resilience of our business model and value proposition to merchants. The Connect Group's revenue grew 25% year-on-year from FY22 Q3 to FY23 Q3. Revenue grew 4% compared to Q2, despite the seasonality of the prior quarter, which included the December holiday period, where trading activity is higher than in other months, and the fact that this current quarter included February, which is a 28-day month. We have included a graph that shows this quarterly seasonality over the past three years. We often get asked why we are not significantly impacted by the current levels of load shedding. Our client base is well-diversified across South Africa, making load shedding a localized phenomenon, and the period of downtime thus far has been manageable.
It's also important to stress that we have significantly grown our merchant base from approximately 35,000 merchants in February 2020 to approximately 44,000 by February 2022, and approximately 71,800 merchants at the end of March 2023, which represents a three-year compound annual growth rate of 27% per year and 63% growth rate over the past 12 months. As is evident, rapid growth in the national footprint of our merchant base, coupled with the continued broadening of our product offering, accounts for robust growth. I will now move to discussing our offering and revenue drivers in more detail. Our bouquet of products results in increased consumer adoption, driving higher volumes of sales for merchants. We utilize our proprietary infrastructure to offer our merchants and their customers what they need.
We provide merchants with a point-of-sale device linked to a digital wallet from which they can pay suppliers, sell many products like airtime, electricity, and bill payments, take customer payments via card swipes or tap and pay whilst providing instant settlement. Merchants are also able to access funding and a smart vault via the device. For us, the partnership with the merchants usually starts with a VAS device. This drives growth in all products. More merchants, more devices, more wallets, more product flow. By way of example, more than 60% of merchants that have our VAS device in-store convert to also utilizing our Kazang Pay offering, followed by Kazang Pay Advance. The Kazang VAS merchant estate closed Q3 at approximately 71,800 merchants, up 52% year-on-year from FY 2022 Q3 and up by approximately 7,300 merchants on Q2.
Kazang VAS throughput for the quarter was ZAR 7.3 billion, up 28% year-on-year and up 7.5% compared to Q2. Kazang VAS volumes are now consistently averaging close to ZAR 2.5 billion per month with a more diversified product range. Supplier payments in our Kazang VAS business continue to grow and are becoming a larger composition of the Kazang VAS throughput. This proposition supports customer acquisition as we expand our ecosystem and provide additional value to our merchants. Supplier payments is safer and more efficient for the suppliers and merchants who utilize this platform. This offering allows merchants to pay suppliers at their own convenience, reducing the need to hold cash, lowering transport costs, as well as the time taken to execute supplier payments. The combined Card Connect and Kazang Pay merchant estate closed Q3 at approximately 42,000 merchants.
This is up 107% year-on-year and up by 22% on Q2. In our card acquiring business, Card Connect and Kazang Pay throughput for the quarter was ZAR 2.2 billion. Up 93% year-on-year from FY 2022 Q3. This performance is almost entirely attributable to the incredible growth achieved by our Kazang Pay solution. To provide some perspective, the average monthly throughput volumes for Q3 2023 were ZAR 770 million per month, compared to on average ZAR 72 million per month in Q3 2021. This represents a greater than 10-fold increase over the 24-month period. In our merchant credit business, Capital Connect and Kazang Pay Advance, credit disbursed for the quarter of ZAR 280 million is up 40% year-on-year.
We have become a key provider of capital to the vital MSMEs merchant segment, and have grown the receivables book from ZAR 238 million to ZAR 343 million, representing a 44% growth year-on-year. We are experiencing great momentum in the Kazang Pay Advance and Capital Connect businesses, evidenced by strong uptake from our merchants. To date, we have created value in advancing over ZAR 2.2 billion to merchants in support of their prosperity and growing their small businesses. We are uniquely positioned to serve these merchants given the data sets available to us. These merchants transact with consumers utilizing our holistic merchant offering, which provides us with a view into the flows and throughput of each of their businesses. Loss rates remain low, and we are conservatively provided in these businesses.
Our leading cash digitization offering, which is essentially placing the bank in the merchant store, means we are deeply embedded in their businesses and, as a result, are well-placed to grow our offering through innovating and solving pain points. An example of this is Capital Connect. The Cash Connect business throughput for the quarter of ZAR 26.2 billion is up 2% year-on-year, partially affected by load shedding and other seasonal implications. We believe the annual run rate trajectory for this business to be in the order of 8%-10% for the fiscal year ended June 2024. The merchant estate closed Q3 at circa 4,370 cash vaults. This is up 8% year-on-year. As previously discussed, we have integrated the ATM business into Cash Connect.
This has served to enhance our focus on the ATM offering as a standalone ATM acquiring business with a heightened focus on achieving scale and efficiencies. We continue innovating in the cash recycling space and launched our ATM Recycler in the third quarter and are progressing with expansion to our merchant clients. The ATM business has been transformed into a profit center. In servicing our consumer business, our strategy of moving ATMs away from branches and into retailers is proving to be successful. The focus for ATMs is profitability, not growth. We are downsizing the ATM network by removing unprofitable sites to drive incremental profitability into FY 2024. EasyPay is a strategic asset in our merchant offering. We have identified that this business requires some additional investment for growth over the near term, which will position it well for growth and profitability in years to come.
We are having success at signing up new billers and new collectors. We have added Kazang top-up to EasyPay. We have also transitioned our EasyPay Money Market from pilot phase to rollout phase in Q3 2023 and are optimistic about its prospects. In conclusion, this was an excellent quarter for the merchant business. We continue to grow across all products with standout performances in our Kazang VAS and Kazang Pay business units, as well as notable performances in both the merchant credit businesses, Capital Connect and Kazang Pay Advance. A key highlight of this quarter is that Kazang, across all products and services, delivered the best quarter in the business' history. The Kazang brand is increasingly recognized and respected across the South African economy.
We remain excited about the opportunities in the merchant division and are encouraged by our ability to scale our product sets within the respective target market. This is evident from our historical performance as reported over the past four quarters since the acquisition of Connect and our growth rate achieved pre-acquisition. We are focused on and are achieving our objective of providing a growing merchant base with relevant solutions. I would now like to hand over to Lincoln, CEO of Lesaka Southern Africa, to discuss the performance of the consumer division.
Thank you, Steve. Our Q2 2023, as reported in February 2023, marked a watershed moment for Lesaka. With the successful transformation of the consumer division into a positive segment-adjusted EBITDA contributor. This was through the efforts of our staff and leadership team's focus to deliver on our commitments. Today, I'm so proud to present a further improvement in segment-adjusted EBITDA from quarter three to ZAR 30 million. This represents a 192% improvement from the last quarter and a ZAR 167 million positive turnaround from last year. I'm hugely encouraged by the continued solid positive trend in segment-adjusted EBITDA performance and pleased that January, February, and March were all strongly positive. Our consumer division is starting to normalize. It's starting to be a positive contributor to the Lesaka Group. Importantly, there is an increasing consistency and predictability in the numbers being reported.
Our improved performance has been driven largely by our three-pronged strategy. Namely, one, the right sizing of the business. Two, increasing our pools through cross-selling. Three, growth in active EPE accounts, particularly in the permanent grant recipient space. I would like to address each of these levers. Firstly, on right sizing, we identified opportunities that would result in cost savings of approximately ZAR 350 million per annum for the financial year 2023. I'm pleased to say that we have completed about 90% of the work that will allow us to deliver on these savings. There are, however, some optimization initiatives where we have experienced delays, especially in the restructuring of the branch network through exiting some leases and the repositioning of our branch ATM estate.
These right sizing initiatives have been very difficult and delicate as we have had to sensitively balance the needs of our customers with the long-term sustainability of our business. We remain proud of the progress made so far and about what is possible going forward. Proud as I am about this turnaround, I recognize that it is slightly below guidance for the consumer business, primarily due to lower EPE account and low growth than expected. I will address how we want to focus on this when I speak about our growth strategy later. Secondly, I would like to focus on our cross-selling initiatives. We have managed to further improve our ARPU in quarter three, which has increased from approximately ZAR 70 to ZAR 78 a month over the last 12 months.
We achieved this through the restructuring of the sales force, sizable investment and focus on training, as well as disciplined performance management across our teams. We've also invested in our technology platform, which has enhanced the ease with which our teams can onboard customers using our digital tablet capability, as well as give them the opportunity to cross-sell other products like insurance and credit to our customer base. Our loan book is up 11% year-on-year to ZAR 397 million, and our loan loss ratio is also stable at below 4% per annum. Our insurance sales have been very encouraging, having exceeded our expectations this year. Our penetration into the EPE account holder base is now at 28%, up from 18% last year. We now have approximately 309,000 in force policies, which represents a 25% increase year-on-year.
We are very pleased with the quality of the insurance clients we're onboarding, and we have consistently been achieving collection rates at approximately 98% compared to industry averages for this market, which are at 60%. In the past 12 months, we have paid out more than ZAR 100 million in insurance claims to clients, with 90% of these claims being paid within 24 hours. We have always stressed that we see social grant recipients as viable and valuable customers. Our data is starting to show us the loyalty and stickiness of our customers.
Our high collection rates on insurance of approximately 98%, as mentioned earlier, our low loss ratio on loans below 4% per annum, as mentioned earlier, and the high number of repeat borrowers of more than 90% are starting to show that our customers truly appreciate the products and solutions we offer. These data points are direct evidence of the fact that our products are seen as essential by our customers, and as a result, we are truly committed to servicing their monthly repayments and premiums. We will also continue to enhance our proposition, looking to identify more products and services that are of relevance and benefit to our customers. This leads me to our active EPE growth strategy. We currently have approximately 1.3 million active EPE account holders, of which 85% are permanent grant recipients, or just over 1.1 million.
As at the end of March 2023, we increased our overall active EPE customer base by 16% year-on-year. Customer churn is a major focus in our business. Natural attrition, which is largely attributable to children turning 18 and mortality, averages around 10%-12% per annum in the overall grant beneficiary market. Our permanent grant account base grew by 3% on a net basis year-on-year. Temporary or SRD grants were introduced during the COVID pandemic in 2020. Our SRD customer base has grown 5-fold since last year. Looking forward, the consumer division will be targeting an increased growth rate in our permanent grant base, given the investment we have made in our sales team, technology platforms and relationships with SASSA at a local level.
Over the last few months, we've focused so much of our efforts on turning the business around in the fastest possible timeframe. Achieving that EBITDA profitability has allowed us to move onto the front foot and to position ourselves for future growth. I would like to highlight some of the salient aspects of our growth plan and the activities that will drive the growth in the coming quarter into financial year 2024. We've bolstered the management capability in the team by bringing on board George Roussos, a veteran of 24 years with African Bank, as Head of the Consumer Division. Working with George, we've streamlined the efforts of our team to move from a turnaround mode to a growth-focused mode as we shift from the sometimes difficult and delicate right-sizing initiatives towards growth and expansion.
I'm pleased with how George has integrated into the team and the energized focus that we have. Secondly, we remain focused on growing our permanent grant EPE base. In this regard, we've taken many actions, more specifically, but not limited to marketing initiatives, enhanced onboarding systems, incentives to promote customer switching, and continued engagement with SASSA and agile actions in response to SASSA's outreach programs. Thirdly, we want to focus on purpose-based lending. This means that we want to further align our lending products to the unique needs of social grant beneficiaries. We are investing in channels like USSD and voice branch or call center to make the lending process more convenient for our customers. We will also be entering into partnerships with other players who are also starting to see social grant beneficiaries as customers.
We think that this can unlock value for customers and enable us to offer even more competitive and relevant products. Fourthly, we want to reposition our distribution network for more accessibility and convenience. We are doing a lot of work on our physical infrastructure, call center functionality, and digital channels. Lastly, we want to focus on improving our operational efficiency by further developing our systems and introduce more technological interventions within our business and to propose other innovations to the industry and to SASSA. The current challenges facing the South African Post Office with regard to social grant payments as well as service is an opportunity for a creative partnership between the public and private sector. As many social grant beneficiary Postbank cards expire, these recipients are looking for alternative solutions and providers for assistance.
This has increased awareness and competition among banks, FinTechs, retailers, and telcos to try and attract this previously ignored customer segment. At EasyPay Everywhere, we've mobilized our staff and teams to be responsive to this challenge, and we stand ready to assist in any way we can. Our relationship with African Bank, which acquired 100% of Grindrod Bank in May 2022, remains strong, and we continue to interact on a regular basis. Lesaka is strategically important to African Bank. We have a full plate indeed, but I'm very excited by the prospect of the consumer business. We believe that we can achieve our growth ambitions this year and the years ahead through the initiatives we've spoken about and others we have in the pipeline. We have truly only just begun. Thank you. I'd like to hand over to my brother, Naeem, to take you through the detailed numbers.
Thank you, Lincoln. I'm very pleased with the strong financial performance achieved this quarter across group revenue, group-adjusted EBITDA, and the group debt restructure. Merchant division outperformed guidance, the consumer division continued an EBITDA positive trajectory. As a reminder, Lesaka is a domestic filer in the United States. We report results in U.S. dollars and the U.S. dollar. Our operational reporting currency is in South African rand, which is a non-GAAP measure. This assists investors' understanding of the underlying trends in our business. As you know, our results can be significantly affected by the currency fluctuation between the U.S. dollar and the South African rand. Q3-2023 includes pre-existing Lesaka and Connect Group for the full quarter. As was the case for Q2-2023.
Compared to Q3-2022, this quarter only includes the pre-existing Lesaka business, and thus the Q3-2023 versus Q3-2022 comparison is not meaningful, especially within our merchant division. We will provide sequential quarter comparisons, which we believe is a more accurate representation of growth and profitability. I will note that for next quarter, the first quarter of fiscal 2023, year-over-year comparability of results will be more meaningful, as the 2022 first quarter included Connect for most of that quarter. This slide illustrates a significant positive turnaround of revenue, group-adjusted EBITDA, and operating loss before PPA. Over the last four quarters, we have seen a ZAR 250 million improvement in our quarterly group-adjusted EBITDA, turning the business around from a group-adjusted EBITDA loss of ZAR 113 million in Q3-2022 to a group-adjusted EBITDA profit of ZAR 137 million this quarter.
We are very pleased with this achievement. Operating income loss before the acquired asset amortization, the purple block on the graph, has moved from a loss of ZAR 147 million in Q3-2022 to a profit of ZAR 34 million in the current quarter. As a reminder, acquired asset amortization reflects the accounting treatment of acquired assets, which is both a non-operational and a non-cash accounting charge, which we believe significantly skews our reported operating income. This result was driven by positive turnaround in the performance of the consumer division and the significant contribution in the merchant division coming from the Connect Group acquisition. Looking at the group income statement, we achieved a consolidated group revenue of ZAR 2.4 billion for the quarter, up 1% sequentially on Q2.
Noting that in the previous quarter, we included approximately $75 million of lumpy U.S. revenue, which related to the sale of hardware devices. Adjusted for this, group revenue grew by 4% quarter on quarter. Reported group revenue is marginally lower than our guidance range of ZAR 2.5 billion to ZAR 2.8 billion. As Chris mentioned earlier, this relates to an increased percentage of Pinless or direct top-up airtime and data bundles being sold versus PIN-based or voucher airtime. On Pinless airtime and data bundles, where we act in an agent capacity, only commission earned is reported as revenue. Whereas for PIN-based airtime, where we act as principal, we recognize the total face value of earned revenue. Our revenue is marginally lower as a mix of Pinless airtime was higher than PIN-based airtime when compared to the assumptions in the forecast.
At gross profit level, the merchant division exceeded forecast. Consolidated group revenue was $134 million for the quarter, compared to $136 million in Q2 2023, representing a decrease of 2%, which is due to ZAR weakness against the U.S. dollar. Operating loss for the quarter is ZAR 33 million, an improvement of ZAR 5 million or 13% as compared to Q2 2023. Looking at our segment financial performance, Q3 2023 reflected positive performance across both business divisions, validating our efforts to transform the business to deliver growth and strong profitability. Both divisions contributed positive adjusted EBITDA in the quarter. Merchant revenue increased nominally in ZAR to ZAR 2.1 billion. In U.S. dollar, merchant revenue decreased approximately 2% to $118 million due to the currency exchange fluctuations.
Excluding the effect of the lumpy U.S. revenue in Q2 2023, merchant revenue grew by 4% on a ZAR basis. Consumer revenue increased 5% to ZAR 284 million from ZAR 270 million in the second quarter, driven by strong growth in our insurance and consumer loan book product revenues. In USD, consumer revenue increased 3% to $15.99 million from $15.4 million. The merchant division delivered a segment-adjusted EBITDA of ZAR 148 million compared to ZAR 160 million in the second quarter. Excluding the effect of the lumpy U.S. business contribution of ZAR 22 million, segment-adjusted EBITDA would have grown 8% quarter-on-quarter. The merchant business outperformed the upper end of our guidance range provided for FY 2023 Q3, which was ZAR 145 million.
The consumer division delivered segment-adjusted EBITDA of ZAR 30 million compared to ZAR 10 million in Q2 2023. A ZAR 20 million improvement, with the business delivering a positive segment-adjusted EBITDA during each month of this fiscal quarter. In U.S. dollar terms, this represents $1.6 million compared to $578,000 in Q2, increasing by more than 100%. The consumer division performed lower than the bottom end of our guidance provided for FY 2023 Q3 of ZAR 40 million. We experienced positive revenue growth. We did not fully achieve the cost-saving benefits. Cost benefits not achieved approximating ZAR 12 million, mainly related to timing of executing on the drivers of these underlying savings.
We continue to see traction in the implementation of our right-sizing initiatives and are confident that the underlying savings will be reflected in our financial performance in quarters to follow. Group costs for the quarter were in line with expectations and closer to the lower end of guidance provided despite currency impacts. Stock-based compensation declined by 41% sequentially compared to Q2, as expected. Stock-based compensation charges decreased in the quarter compared to Q2 2023, mainly due to the one-off award of approximately ZAR 25 million issued to secure a longer-term contract with a key senior executive in Q2. Refer to slide 33 in appendix for more details.
Once-off items increased by ZAR 19 million in the quarter, predominantly driven by a ZAR 4.6 million increase in transaction-related expenditures and the recognition of other costs of ZAR 14.5 million incurred this quarter, which includes certain employee separation expenses and charges related to previous years. The stock-based compensation charge for Q3 2023 is normalized compared to Q2 2023, which included a one-off award. Operating income pre-interest and PPA improved by ZAR 34 million from ZAR 29 million. This has improved from a ZAR 13 million loss in Q1 2023 and a loss of ZAR 146 million in Q3 2022. Interest costs in the quarter increased predominantly due to higher interest rates and short-term funding of VAS of purchases. That will be explained on slide 23.
Fundamental loss per share, which excludes non-operating items of ZAR 0.35 per share, is ahead of market consensus, and in management's view, is the appropriate earnings per share measure given the adjustment for one-off items, non-repeatable items and PPA amortization, which is non-cash item. We generated ZAR 141 million of operating cash flow before interest paid, tax paid, working capital related items, and the movement in the loan book funding. We define this as cash generated from business operations. We consider it an appropriate indicator of our conversion of EBITDA to cash. In Q1 2023, we generated ZAR 73 million, an increase of approximately ZAR 70 million in six months. Looking further at how our net cash utilized in operating activities for cash flow statement compares to cash generated from business operations.
Our net cash utilized in operating activities is predominantly impacted by $135 million of bulk airtime purchases, as well as the impact of interest payments and loan book funding. Bulk VAS purchases are short-term investments usually realized within three-six months and funded through short-term funding arrangements. For us, this is opportunistic in nature and driven by the benefits of scale, adding further profitability in our VAS business. On the whole, taking this all into account, the business generates positive working capital. This is most notable in our merchant VAS business, where working capital is mainly funded from advanced purchases by customers. In our merchant card business, working capital requirements are relatively small. We estimate that approximately every $100 million in throughput growth requires $3 million in additional working capital.
Our net debt adjusted for short-term funding of bulk VAS purchases to EBITDA ratio, calculated on annualizing the relevant quarter's group adjusted EBITDA, has improved to 3.5 x as compared to 3.6 x in Q2 2023. Applying the same basis of calculation for comparative quarter Q2 2023. Capital expenditure in Q3 FY23 amounted to ZAR 85 million. We previously highlighted, this remains mainly closely linked in the merchant division. Set out on the slide, we believe our growth capacity delivers a strong IRR on our amount invested. In conclusion, our performance in Q3 2023 is evidence of the efforts in fiscal 2022 and the continuation thereof. The corresponding positive financial performance thereof is reflected in this quarter's results.
We are very pleased with the conclusion of our new funding arrangement, which is testament to the continued execution of our strategy, which has resulted in an extended borrowing term to December 2025, and an increase in our borrowing with additional funding of ZAR 200 million secured. This provides adequate security and time to focus on growing our consumer loan book and other organic growth opportunities within the group. Lesaka is now profitable in terms of adjusted EBITDA in both divisions on a sustainable basis and well-positioned for growth. Our continued focus on strategic initiatives is progressing well. We are optimistic about delivering on positive performance for the remainder of the year.
In line with South African mandatory audit firm rotation rules, we have appointed KPMG as our principal accountant, effective from July 1, 2023 for our fiscal 2024 year, and Deloitte's services will terminate on completion of the audit of our fiscal 2023 results. The change in our auditor is solely as a result of our compliance with South Africa's mandatory audit firm rotation requirements. I would now like to hand over back to Chris, who will address the group's outlook.
Before I turn to our full year outlook, I'd like to provide a brief update on our progress towards establishing an employee share ownership plan or ESOP. You will recall that as part of the Competition Commission's approval of the Connect Group acquisition, we committed to establishing an ESOP of up to 5% of issued share capital within two years of the Connect transaction closing. The ESOP will be a qualifying transaction under South Africa's Broad-Based Black Economic Empowerment Act and is a key strategic imperative for Lesaka as a company. I am pleased to report that we are progressing well on this initiative and are confident that we will achieve this condition of the Connect acquisition within the timeframe agreed. Turning to our Q4 and full-year outlook for the Lesaka group to 30 June 2023.
Our guidance for revenue and adjusted EBITDA at a group level remains unchanged for the 12 months ending 30 June 2023. We expect revenue to come in between ZAR 8.7 billion and ZAR 9.3 billion, and group adjusted EBITDA of between ZAR 480 million and ZAR 525 million. Specifically, with three fiscal quarters under our belt and visibility into our fourth fiscal quarter, we believe our group-adjusted EBITDA will likely be at the midpoint of this range. At a divisional level, we are raising our FY23 merchant segment- adjusted EBITDA range to between ZAR 580 million and ZAR 595 million from our previous guidance of between ZAR 550 million and ZAR 565 million as a result of the continued outperformance of the Connect Group.
We are lowering our consumer segment-adjusted EBITDA range to between ZAR 65 million and ZAR 80 million, primarily due to the lower-than-expected EPE accounts and loan growth in the last two quarters. In line with market practice, we will provide our guidance for FY 2024 in September when we report our results for the year ended 30 June 2023. Suffice to say that we believe our monthly net loss before tax will turn positive in the 1st quarter of FY 2024, excluding PPA amortization and the impact of any changes in our non-core investments. This would mark another important milestone in the growth trajectory of Lesaka. In conclusion, the results for the fiscal year to date are evidence of the turnaround in our consumer division and continued growth in our merchant division, and are testament to the strategy we put in place just over a year ago.
We will continue building on the momentum created across the business, delivering on our unique position to drive growth. With that, we'd like to open up the Q&A session and take your questions.
Thanks, Chris. We're now gonna open up the Q&A session. From Zoom, there are two ways you can participate. The first is to use the Raise Your Hand icon, which is at the bottom of your screen. Clicking this will alert the operator that you wanna be called on to ask a live question. You'll be placed in a queue and called on. Just note, you're gonna be on mute until you are called on. The second way to participate in Q&A is to use the Q&A widget, which will allow you to type in and text a question in. We will take questions from there as well. Just note, if we run into a time constraint, someone from the IR team will get back to you if your question is not asked on today's call.
Let's open the session and build the queue. While we wait for our first live question, I'm gonna read a question that was submitted by Theodore O'Neill from Litchfield Hills Research. Excuse me, from David Garrity. Looking at Q4 and backing out the first three quarters of the year from your annual guidance, David backed into a revenue range of ZAR 1.83 billion-ZAR 2.43 billion, an EBITDA of ZAR 140.6-ZAR 185.6. He wants to know, given the mid points of those ranges, how you think about the dynamics of revenue going down and EBITDA going up. Can you explain that?
I'll take to the question. Naeem, do you wanna pick that up, or would you like me to?
Yeah, of course. I'll touch on that and then hand over to you as well. I think as we highlighted in the consumer performance, the major reason for the miss in the guidance was related to cost saving benefits coming through. We envisage that some of those cost initiatives that we have undertaken will come through in the fourth quarter. That is the uplift that comes through in our consumer business. In terms of revenue, our revenue uplift for the Q4 would be towards the upper end of the guidance limits which you have indicated in your calculation. Yes, we are expecting our overall EBITDA margins to improve.
There is those cost saving benefits on which we've already, actioned on, would come through in the fourth quarter, mainly on the ATM business as well as on the, on branch network costs that will be reduced. Do you wanna add anything on that, Chris?
No, that's right. I think as you said, our outlook for revenue would be at the top end of that range, and EBITDA in the middle.
Great. Thanks, Chris. Next we're gonna take a live question, from James Stark of Morgan Stanley. Operator, please, unmute James' line.
Hi. Good afternoon, guys. Can you hear me? Yeah. Hi, Chris, Lincoln, and team. Thank you very much for the opportunity. Two questions from me. Firstly, if you could just tell us a bit more about your money market offering and what sort of revenue expectations you're expecting for that. Just give us some color on how it's gonna roll out or what you're kinda thinking it will serve, and how you're going to take that to market. The second sort of question really relates to PayShap. I mean, obviously you are quite involved in the informal market, so I know PayShap is a relatively new innovation out of the bigger banks. I mean, are you seeing or detecting any kind of impact, anecdotal or otherwise, around the progress this is having on decashing the informal sector? Thank you.
I think so there are two questions. The question around the money market offering in our merchant business and then PayShap. Steve, do you wanna pick up the question on our money market offering? If you wish to comment on PayShap, I'll also come in at the end, but I'll pass it on to you.
Perfect. Perfect. Just at the outset, let me say that the Money Market product was launched Q3. It's very much at its nascent phases. If I can say, you know, historically, we never, we didn't participate in the formal market, in the money market space. While our entire VAS and cash digitization offering was more focused on the informal markets, we're very excited about our ability to bring that VAS offering more holistically, together with an ecosystem of supplier payment into the formal market. So far, you know, prospects look good, and we've had some really good traction. We have a fairly significant formal merchant base, well over 1,000 fore courts, et cetera. This product, this offering is testing well in the formal space. Chris, with regard to PayShap, do you want to deal with that or would you want some comments from me?
Well, if you got any comments, just go for it. I'll pick up if there's anything else you need to add.
Sit around that table and innovate, in relation to what this new technology brings. We see it as both a challenge to some revenue, revenues that we have, but we also see a real opportunity from a product development perspective. At this particular point, as you know, this is only available to the banks in the country and has not been available to the FinTech community.
I believe Steve, the first part of your question, was lost. Apologies for the technical glitch there. Steve, if you wouldn't mind just repeating the answer on your comment on PayShap. Apologies.
I'm Sorry, Chris. On PayShap or in relation to money market funds?
PayShap. Your money market question was heard. It was fine. It's just the PayShap comments, unfortunately, we lost the first half of what you were saying.
Okay. I think the first point I was making is that it's very early days from an RPP perspective and PayShap. We're still, you know, the early adoption rates are - haven't been publicized as yet. We at Lesaka are quite excited about getting a seat at the table and our ability to participate. I did make a point that at this particular stage, FinTechs have don't actually have a seat at the table. The ability to participate at this point has been limited to the banking community. This is something that we would like to see change very quickly. We see opportunities to reduce our cost base. We see opportunity to create new revenue streams. Of course, we also anticipate that some of our revenue streams may come under pressure, but this will be offset by abilities to reduce costs and create new revenue lines.
Thanks, Steve.
This is a piece of technology that we are quite excited about and we'll look to use both on the revenue and cost side in other groups.
Thanks. Thanks, Steve. Jan, I think that's the important thing. At the moment, there are really four banks. Only four of the banks are, you know, involved in PayShap, as I'm sure you're aware. We are in very close and regular conversation with banks. You know, as a leading FinTech in South Africa, we are tremendously excited about, you know, the introduction of PayShap and our potential involvement in it as soon as it opens up a little wider. We stand ready for that.
Thanks. Thanks, Chris. Our next question coming in is from Raj Sharma of B. Riley and Company.
Hello. I just wanted to ask you about could you tie in your operating profit before the PPA time to the U.S., the GAAP loss reported? How should we think about this going forward?
Raj, Naeem, did you get that? It was just to tie in the operating profit number to the net loss number.
Before the PPA.
Thank you. Hi, Raj. Hope you're doing well. Raj, I think the operating profit number tie in, if, you know, as we presented on the slide, after we, you know, we've adjusted for PPA and interest, we get to a rand amount in the quarter of about ZAR 114 million. If you adjust for the net loss of gain on equity investment of 5.9, you get to the income or loss before taxes of ZAR 120 million, which is a rand amount that ties back into the dollar amount of $6.7 million loss.
Got it. Then could you talk about the prepaid airtime how it impacted the revenue? 'Cause it seems like the revenue that came in was a little bit lower than expected. Was that because of the airtime sales? How do you classify them and how do we think about them going forward?
Yeah. Chris, you want me to take that one?
Yes, sorry. Go for it, Naeem.
Yeah. Raj, as I mentioned in the presentation, you know, with the airtime, you have the PIN-based airtime and the Pinless airtime. The difference with the two is that, you know, the voucher-based airtime, we actually carry that as inventory. Per accounting rules and standards, where we then have to show the face value of that as revenue. Pinless airtime, because we only act as an agent on behalf of the providers, that is not considered as we don't have to carry that as inventory, and therefore we only show the commission. If you look at how the market is changing, you know, the Pinless airtime is what customers prefer because it's more efficient and easier than getting a voucher and using a voucher.
What we are seeing is a much more higher volume of Pinless airtime, so we're only bringing the commission amount versus bringing the face value. From a GP basis and from a margin basis, we earn a very similar. GPN margin on both the products. It's just really the product mix that impacted the revenue. That's why we said this was more a forecasting change in the mix of Pinless and PIN-based rather than revenue declining.
Got it. Thank you for that. Then I have one more follow-up.
Think about it is the voucher-based airtime, we're recognizing on a gross basis, where we are principal, and where we are purely acting as an agent, we're recognizing it on a net basis. That's literally the difference between gross and net. The bottom line, in terms of margin, gross profit is unchanged.
Got it. Thank you. Can I ask you another follow-on question? Could you talk about how severe the impact is of load shedding on your merchant South Africa?
Well, the impact on load shedding of load shedding on our merchant business has not had a material impact. You know, the load shedding is a localized phenomenon. In other words, parts of the country, you know, experience load shedding in concentrated areas while the rest of the country remains open and on. You know, our wide, diverse customer base across the country, you know, that impact is therefore localized and not, you know, a national impact all at once. It also means load shedding is done in stages through the day. It means that our merchants often have the opportunity to catch up and make up some of the volume loss through the course of the day.
I would add, though, that. You know, we haven't seen the material impact of load shedding to date, albeit we've seen some within our cash business, as Steve mentioned earlier. What I would add is, my comments are, I suppose, mainly in relation to what we've seen over the last quarter, which is probably an average of around load shedding level 5, level 5 and below level 4 even. What that means is you've probably been experiencing something like 6 to 7.5 hours of load shedding in a 24-hour cycle. More recently in the last month, let's say, load shedding is averaging higher than that.
It's probably averaging closer to what we call level 8, which means you could be up, you know, up to even 12 hours of load shedding in a 24-hour period. There, you know, there might be different challenges that come through with, you know, things like connectivity, in terms of the cell towers for the telcos and sometimes battery life as well. You know, if load shedding materially worsens from what we saw in this quarter, there may be different sectors at play that may impact.
I think on the whole, you know, what we're very happy with is that, you know, in a tough rather, operating environment, where our merchants and our consumers, you know, are enduring a lot of inconvenience, through load shedding, our business has proven to be resilient. You're seeing this growth, you're seeing this performance, you know, despite the factors that we face and our customers face in the South African economy.
Yeah. Thank you. Just one last question is on the Connect acquisition. It continues to perform really strongly. Could you mention, could you talk about the competition in the merchant space? How is it that you continue to grow and such, you know, resilience and strength?
Steve, I'm gonna offer that to you if you'd like to start.
Again, you know, we have tremendous respect for the competitors that play in the merchant space. We are well diversified between the formal and the informal market, which makes us a little bit different to the majority of the competitors. Together with the fact that we have a very comprehensive offering in that we play in digital and cash, and we also play in card and card acquiring. We play in the value-added services, airtime, electricity, prepayment business. We're also in the credit space and in the digitization of cash, which means we play right across the spectrum. Many of our competitors play in one or two of these particular areas. Let me also say that the informal market is relatively nascent and the fact that there's competition is healthy and good.
That this is a big market, it's untapped, and there's plenty opportunity for growth for a variety of different players. In the formal market, the Kazang Connect brand has developed real strength. You know, as we've mentioned before, Capital Connect won Retail Funder of the Year in past days. We're starting to get traction in that business. We are moving through. As we touched on earlier, we're launching our VAS or prepaid business through the money market into the formal markets. Because we're so deeply embedded in the formal market merchant payment business, the ability to scale is a competitive advantage that we have.
Great. Thank you. I'll get offline. Thank you for my question.
Thanks, Raj. Again, if you wanna ask a live question on today's call, you can just use the Raise Your Hand button to express your interest. While we call for additional questions, we're gonna take a question from Sven Thordsen, [Bank of Securities]. Given the environment, has lending criteria in consumer been amended? What is happening with loan decline rates? Are you increasing provision coverage?
On the whole, we apply quite strict lending and affordability criteria in our consumer business and in our merchant business. You know, we don't believe we've had to adjust our criteria. As I said, we've applied very strict criteria across both businesses. In terms of loan loss provisions, we haven't seen any material change in terms of credit performance in our consumer business. We've slightly increased our provision on our merchant business, but nothing material there at all. Just to, you know, again, to reflect, you know, the tougher interest rate environment in that space. I think on the whole, we're comfortable with credit. We're comfortable with our approach to lending. We feel that our book is performing well.
Great. Thank you. We have one final question from Theo O'Neill, Litchfield Hills Research. In your prepared remarks, you said you were active in moving unprofitable ATMs into other areas. How do you evaluate whether to move an ATM or find a way to increase usage? Second question: Is there a limit to the number of ATMs you can manage or acquire?
Dr. Kola.
Yes. I think what we want to look at is volume. The number of customers that are patronizing that ATM from across the spectrum, the proximity of that ATM to the transport nodes that are there. If we feel that that ATM is performing below the thresholds that we put, we have discussions with the merchant that's there. If there are ways to up the volumes, we will keep that ATM. If the merchant is not prepared to do that, we would ask them to pay a rental for that. If the merchant is not willing to do so, then it's the call that will now reside in Steve's team for the ATM business to withdraw that ATM and put that ATM in an environment where there's higher growth, better transaction, and better service to customers.
This has allowed us to look at every ATM and see whether that ATM is providing value, providing service, and is giving us the right GP. That analysis has been done across the country, and it's been done also in consultation with the consumer team to make sure that it makes sense from the customer point of view, but it also makes sense from a business point of view.
Thanks, Naeem. I think it's about a very commercial lens, and understanding our customer behavior. Ultimately, it's driving our strategy around ATM.
There are no further questions here. That is gonna conclude the call. Chris, do you have a closing statement or a final thought?
Actually, I just, you know, just on behalf of the team, and everyone at Lesaka, I just thank you to everybody for taking the time to be on the call with us today to dialing in and listening to our update. You know, as we've said, and I hope it's come across, we're tremendously proud of the results that we presented here today. We feel that this is a testament to both the turnaround in the consumer business and the excellent growth that we've seen in our merchant business. You know, the consumer business, as we said, is now consistently, if it's profitable. The merchant business is growing with the Connect, exceeding our initial expectations.
Importantly, as we said, at a business operational level, we are producing a positive cash flow. On the whole, you know, we're very excited on where we are and we look forward to again giving further update in September when we'll give you the full year to June numbers. As part of that, we'd like to give you an outlook, as we said, around the full year to 2024, which for us holds a lot of excitement, a lot of potential. Thank you very much for joining us today. I wish you all well. Thank you.