UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30,December 31, 2020

 

OR

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

For the transition period from

 

To

 

 

Commission file number: 000-31203

 

NET 1 UEPS TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

 

Florida

 

 

 

98-0171860

(State or other jurisdiction

 

(IRS Employer

of incorporation or organization)

 

 

 

Identification No.)

 

 

President Place, 4 Floor, Cnr. Jan Smuts Avenue and Bolton Road,

Rosebank, Johannesburg, 2196, South Africa

(Address of principal executive offices, including zip code)

 

Registrant’s telephone number, including area code: 27-11-343-2000

 

Not Applicable

(Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report)

 

 

Title of each class

Trading Symbol(s)

Name of each exchange

on which registered

Common stock, par value $0.001 per share

UEPS

NASDAQ Global Select Market

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ☒ NO ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). YES ☒ NO ☐

 

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one):

 

☐

Large accelerated filer

☒

Accelerated filer

 

 

 

 

☐

Non-accelerated filer

☒

Smaller reporting company

 

 

 

 

 

 

☐

Emerging growth company

 

 

 

 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ☐ NO ☒

 

As of November 3, 2020February 2, 2021 (the latest practicable date), 56,638,72556,614,559 shares of the registrant’s common stock, par value $0.001 per share, net of treasury shares, were outstanding.

 

 

Form 10-Q

NET 1 UEPS TECHNOLOGIES, INC

Table of Contents

Form 10-Q

NET 1 UEPS TECHNOLOGIES, INC

Table of Contents

 

 

Page No.

PART I. FINANCIAL INFORMATION

 

Item 1.

Financial Statements

 

 

Unaudited Condensed Consolidated Balance Sheets as of September 30,December 31, 2020 and June 30, 2020

2

 

Unaudited Condensed Consolidated Statements of Operations for the three and six months ended September 30,December 31, 2020 and 2019 (as restated)

3

 

Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income for the three and six months ended September 30,December 31, 2020 and 2019

4

 

Unaudited Condensed Consolidated Statement of Changes in Equity for the three and six months ended September 30,December 31, 2020 and 2019

5

 

Unaudited Condensed Consolidated Statements of Cash Flows for the three and six months ended September 30,December 31, 2020 and 2019

7

 

Notes to Unaudited Condensed Consolidated Financial Statements

8

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

3439

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

4557

Item 4.

Controls and Procedures

4557

Part II. OTHER INFORMATION

 

Item 1.

Legal Proceedings

4658

Item 6.

Exhibits

4658

Signatures

 

4658

EXHIBIT 10.28

EXHIBIT 10.2910.30

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1

Part I. Financial information

Item 1. Financial Statements

NET 1 UEPS TECHNOLOGIES, INC

Unaudited Condensed Consolidated Balance Sheets

 

 

 

 

 

September 30,

 

June 30,

 

 

 

 

 

 

2020

 

2020(A)

 

 

 

 

 

 

(In thousands, except share data)

 

 

 

 

 

ASSETS

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

$

209,185

 

$

217,671

 

Restricted cash related to ATM funding (Note 8)

 

6,726

 

 

14,814

 

Accounts receivable, net and other receivables (Note 2)

 

28,314

 

 

43,068

 

Finance loans receivable, net (Note 2)

 

20,508

 

 

15,879

 

Inventory (Note 3)

 

18,084

 

 

19,860

 

 

Total current assets before settlement assets

 

282,817

 

 

311,292

 

 

 

Settlement assets

 

3,993

 

 

8,014

 

 

 

 

Total current assets

 

286,810

 

 

319,306

PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of - September: $31,182 June: $29,524

 

6,286

 

 

6,656

OPERATING LEASE RIGHT-OF-USE (Note 16)

 

4,848

 

 

5,395

EQUITY-ACCOUNTED INVESTMENTS (Note 5)

 

50,367

 

 

65,836

GOODWILL (Note 6)

 

24,865

 

 

24,169

INTANGIBLE ASSETS, NET (Note 6)

 

548

 

 

612

DEFERRED INCOME TAXES

 

288

 

 

358

OTHER LONG-TERM ASSETS, including reinsurance assets (Note 5 and 7)

 

30,172

 

 

31,346

TOTAL ASSETS

 

404,184

 

 

453,678

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Short-term credit facilities for ATM funding (Note 8)

 

6,726

 

 

14,814

 

Accounts payable

 

5,213

 

 

6,287

 

Other payables (Note 9)

 

25,242

 

 

23,779

 

Operating lease liability - current (Note 16)

 

1,921

 

 

2,251

 

Income taxes payable

 

1,298

 

 

16,157

 

 

Total current liabilities before settlement obligations

 

40,400

 

 

63,288

 

 

 

Settlement obligations

 

3,993

 

 

8,015

 

 

 

 

Total current liabilities

 

44,393

 

 

71,303

DEFERRED INCOME TAXES

 

91

 

 

1,859

OPERATING LEASE LIABILITY - LONG TERM (Note 16)

 

3,105

 

 

3,312

OTHER LONG-TERM LIABILITIES, including insurance policy liabilities (Note 7)

 

2,074

 

 

2,012

TOTAL LIABILITIES

 

49,663

 

 

78,486

REDEEMABLE COMMON STOCK

 

84,979

 

 

84,979

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

COMMON STOCK (Note 10)

 

 

 

 

 

 

Authorized: 200,000,000 with $0.001 par value;

 

 

 

 

 

 

Issued and outstanding shares, net of treasury - September: 56,638,725 June: 57,118,925

 

80

 

 

80

 

 

 

 

 

 

 

 

 

 

 

PREFERRED STOCK

 

 

 

 

 

 

Authorized shares: 50,000,000 with $0.001 par value;

 

 

 

 

 

 

Issued and outstanding shares, net of treasury: September: 0 June: 0

 

-

 

 

-

ADDITIONAL PAID-IN-CAPITAL

 

301,946

 

 

301,489

TREASURY SHARES, AT COST: September: 24,891,292 June: 24,891,292

 

(286,951)

 

 

(286,951)

ACCUMULATED OTHER COMPREHENSIVE LOSS (Note 11)

 

(161,245)

 

 

(169,075)

RETAINED EARNINGS

 

415,712

 

 

444,670

TOTAL NET1 EQUITY

 

269,542

 

 

290,213

NON-CONTROLLING INTEREST

 

0

 

 

0

TOTAL EQUITY

 

269,542

 

 

290,213

 

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS’ EQUITY

$

404,184

 

$

453,678

 

 

 

 

 

 

 

 

 

 

 

 

(A) – Derived from audited financial statements

 

See Notes to Unaudited Condensed Consolidated Financial Statements

 

 

 

 

 

December 31,

 

June 30,

 

 

 

 

 

 

2020

 

2020(A)

 

 

 

 

 

 

(In thousands, except share data)

 

 

 

 

 

ASSETS

 

 

 

 

 

CURRENT ASSETS

 

 

 

 

 

 

Cash and cash equivalents

$

206,251

 

$

217,671

 

Restricted cash related to ATM funding (Note 9)

 

60,803

 

 

14,814

 

Accounts receivable, net and other receivables (Note 3)

 

24,447

 

 

43,068

 

Finance loans receivable, net (Note 3)

 

21,620

 

 

15,879

 

Inventory (Note 4)

 

20,939

 

 

19,860

 

 

Total current assets before settlement assets

 

334,060

 

 

311,292

 

 

 

Settlement assets

 

2,814

 

 

8,014

 

 

 

 

Total current assets

 

336,874

 

 

319,306

PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of - December: $35,954 June: $29,524

 

8,687

 

 

6,656

OPERATING LEASE RIGHT-OF-USE (Note 17)

 

5,112

 

 

5,395

EQUITY-ACCOUNTED INVESTMENTS (Note 6)

 

53,126

 

 

65,836

GOODWILL (Note 7)

 

28,455

 

 

24,169

INTANGIBLE ASSETS, NET (Note 7)

 

536

 

 

612

DEFERRED INCOME TAXES

 

281

 

 

358

OTHER LONG-TERM ASSETS, including reinsurance assets (Note 6 and 8)

 

43,907

 

 

31,346

TOTAL ASSETS

 

476,978

 

 

453,678

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

 

Short-term credit facilities for ATM funding (Note 9)

 

60,803

 

 

14,814

 

Accounts payable

 

6,109

 

 

6,287

 

Other payables (Note 10)

 

25,066

 

 

23,779

 

Operating lease liability - current (Note 17)

 

2,585

 

 

2,251

 

Income taxes payable

 

984

 

 

16,157

 

 

Total current liabilities before settlement obligations

 

95,547

 

 

63,288

 

 

 

Settlement obligations

 

2,814

 

 

8,015

 

 

 

 

Total current liabilities

 

98,361

 

 

71,303

DEFERRED INCOME TAXES

 

3,262

 

 

1,859

OPERATING LEASE LIABILITY - LONG TERM (Note 17)

 

2,715

 

 

3,312

OTHER LONG-TERM LIABILITIES, including insurance policy liabilities (Note 8)

 

2,400

 

 

2,012

TOTAL LIABILITIES

 

106,738

 

 

78,486

REDEEMABLE COMMON STOCK

 

84,979

 

 

84,979

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EQUITY

 

 

 

 

 

COMMON STOCK (Note 11)

 

 

 

 

 

 

Authorized: 200,000,000 with $0.001 par value;

 

 

 

 

 

 

Issued and outstanding shares, net of treasury - December: 56,614,559 June: 57,118,925

 

80

 

 

80

 

 

 

 

 

 

 

 

 

 

 

PREFERRED STOCK

 

 

 

 

 

 

Authorized shares: 50,000,000 with $0.001 par value;

 

 

 

 

 

 

Issued and outstanding shares, net of treasury: December: 0 June: 0

 

-

 

 

-

ADDITIONAL PAID-IN-CAPITAL

 

302,196

 

 

301,489

TREASURY SHARES, AT COST: December: 24,891,292 June: 24,891,292

 

(286,951)

 

 

(286,951)

ACCUMULATED OTHER COMPREHENSIVE LOSS (Note 12)

 

(141,242)

 

 

(169,075)

RETAINED EARNINGS

 

411,178

 

 

444,670

TOTAL NET1 EQUITY

 

285,261

 

 

290,213

NON-CONTROLLING INTEREST

 

0

 

 

0

TOTAL EQUITY

 

285,261

 

 

290,213

 

 

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS’ EQUITY

$

476,978

 

$

453,678

 

 

 

 

 

 

 

 

 

 

 

 

(A) – Derived from audited financial statements

 

See Notes to Unaudited Condensed Consolidated Financial Statements

 

2

 

 

NET 1 UEPS TECHNOLOGIES, INC

Unaudited Condensed Consolidated Statements of Operations

 

 

 

 

Three months ended

 

 

 

 

 

Three months ended

 

 

Six months ended

 

 

 

 

 

September 30,

 

 

 

 

 

 

December 31,

 

 

December 31,

 

 

 

 

 

2020

 

 

2019(A)

 

 

 

 

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

(In thousands, except per share data)

 

 

 

 

 

 

 

(as restated)(A)

 

 

 

(as restated)(A)

 

 

 

 

 

 

 

 

 

 

 

 

 

(In thousands, except per share data)

 

(In thousands, except per share data)

REVENUE (Note 15)

 

$

37,113

 

$

47,938

 

 

 

 

 

 

 

 

 

 

 

 

 

REVENUE (Note 16)

REVENUE (Note 16)

 

$

32,305

 

$

38,918

 

$

67,441

 

$

85,134

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EXPENSE

EXPENSE

 

 

 

 

 

EXPENSE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold, IT processing, servicing and support

 

 

28,437

 

32,428

Cost of goods sold, IT processing, servicing and support

 

 

24,339

 

26,746

 

50,799

 

57,452

Selling, general and administration

 

 

18,528

 

20,622

Selling, general and administration

 

 

22,097

 

21,418

 

40,625

 

42,040

Depreciation and amortization

 

 

923

 

1,324

Depreciation and amortization

 

 

1,074

 

1,174

 

1,997

 

2,498

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING LOSS

OPERATING LOSS

 

 

(10,775)

 

 

(6,436)

OPERATING LOSS

 

 

(15,205)

 

(10,420)

 

(25,980)

 

(16,856)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CHANGE IN FAIR VALUE OF EQUITY SECURITIES (Note 5 and 6)

CHANGE IN FAIR VALUE OF EQUITY SECURITIES (Note 5 and 6)

 

 

15,128

 

0

 

15,128

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GAIN ON DISPOSAL OF FIHRST (Note 2)

GAIN ON DISPOSAL OF FIHRST (Note 2)

 

 

0

 

9,743

 

0

 

9,743

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS ON DISPOSAL OF EQUITY-ACCOUNTED INVESTMENT (Note 6)

LOSS ON DISPOSAL OF EQUITY-ACCOUNTED INVESTMENT (Note 6)

 

 

13

 

0

 

13

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

INTEREST INCOME

INTEREST INCOME

 

 

611

 

363

INTEREST INCOME

 

 

717

 

1,082

 

1,328

 

1,445

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INTEREST EXPENSE

INTEREST EXPENSE

 

 

747

 

1,347

INTEREST EXPENSE

 

 

677

 

3,129

 

1,424

 

4,476

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS BEFORE INCOME TAX (BENEFIT) EXPENSE

 

 

(10,911)

 

 

(7,420)

INCOME (LOSS) BEFORE INCOME TAX EXPENSE

INCOME (LOSS) BEFORE INCOME TAX EXPENSE

 

 

(50)

 

(2,724)

 

(10,961)

 

(10,144)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME TAX (BENEFIT) EXPENSE (Note 18)

 

 

(1,090)

 

970

INCOME TAX EXPENSE (Note 19)

INCOME TAX EXPENSE (Note 19)

 

 

3,468

 

707

 

2,378

 

1,677

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS BEFORE (LOSS) EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS

 

 

(9,821)

 

 

(8,390)

NET LOSS BEFORE (LOSS) INCOME FROM EQUITY-ACCOUNTED INVESTMENTS

NET LOSS BEFORE (LOSS) INCOME FROM EQUITY-ACCOUNTED INVESTMENTS

 

 

(3,518)

 

(3,431)

 

(13,339)

 

(11,821)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(LOSS) EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS (Note 5)

 

 

(19,137)

 

1,063

(LOSS) INCOME FROM EQUITY-ACCOUNTED INVESTMENTS (Note 6)

(LOSS) INCOME FROM EQUITY-ACCOUNTED INVESTMENTS (Note 6)

 

 

(1,016)

 

506

 

(20,153)

 

1,569

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS FROM CONTINUING OPERATIONS

NET LOSS FROM CONTINUING OPERATIONS

 

 

(28,958)

 

 

(7,327)

NET LOSS FROM CONTINUING OPERATIONS

 

 

(4,534)

 

(2,925)

 

(33,492)

 

(10,252)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET INCOME FROM DISCONTINUED OPERATIONS (Note 20)

 

 

0

 

2,935

NET INCOME FROM DISCONTINUED OPERATIONS (Note 21)

NET INCOME FROM DISCONTINUED OPERATIONS (Note 21)

 

 

0

 

2,720

 

0

 

5,655

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

NET LOSS

 

 

(28,958)

 

 

(4,392)

NET LOSS

 

 

(4,534)

 

(205)

 

(33,492)

 

(4,597)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET (LOSS) INCOME ATTRIBUTABLE TO NET1

NET (LOSS) INCOME ATTRIBUTABLE TO NET1

 

 

(28,958)

 

 

(4,392)

NET (LOSS) INCOME ATTRIBUTABLE TO NET1

 

(4,534)

 

(205)

 

 

(33,492)

 

(4,597)

Continuing

 

 

(28,958)

 

 

(7,327)

Continuing

 

 

(4,534)

 

 

(2,925)

 

 

(33,492)

 

 

(10,252)

Discontinued

 

$

0

 

$

2,935

Discontinued

 

$

0

 

$

2,720

 

$

0

 

$

5,655

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net (loss) earnings per share, in United States dollars (Note 13):

 

 

 

 

 

Net (loss) earnings per share, in United States dollars (Note 14):

Net (loss) earnings per share, in United States dollars (Note 14):

 

 

 

 

 

 

 

 

 

Basic (loss) earnings attributable to Net1 shareholders

Basic (loss) earnings attributable to Net1 shareholders

 

$

(0.51)

 

$

(0.08)

Basic (loss) earnings attributable to Net1 shareholders

 

$

(0.08)

 

$

0

 

$

(0.59)

 

$

(0.08)

Continuing

 

$

(0.51)

 

$

(0.13)

Continuing

 

$

(0.08)

 

$

(0.05)

 

$

(0.59)

 

$

(0.18)

Discontinued

 

$

0

 

$

0.05

Discontinued

 

$

0

 

$

0.05

 

$

0

 

$

0.10

Diluted (loss) earnings attributable to Net1 shareholders

Diluted (loss) earnings attributable to Net1 shareholders

 

$

(0.51)

 

$

(0.08)

Diluted (loss) earnings attributable to Net1 shareholders

 

$

(0.08)

 

$

0

 

$

(0.59)

 

$

(0.08)

Continuing

 

$

(0.51)

 

$

(0.13)

Continuing

 

$

(0.08)

 

$

(0.05)

 

$

(0.59)

 

$

(0.18)

Discontinued

 

$

0

 

$

0.05

Discontinued

 

$

0

 

$

0.05

 

$

0

 

$

0.10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(A) Refer to Note 20 for discontinued operations disclosures

(A) Certain amounts have been restated to correct the misstatement discussed in Note 1.

(A) Certain amounts have been restated to correct the misstatement discussed in Note 1.

 

See Notes to Unaudited Condensed Consolidated Financial Statements

See Notes to Unaudited Condensed Consolidated Financial Statements

See Notes to Unaudited Condensed Consolidated Financial Statements

 

3

 

 

NET 1 UEPS TECHNOLOGIES, INC

Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income

 

 

 

Three months ended

 

 

 

 

Three months ended

 

 

Six months ended

 

 

 

September 30,

 

 

 

 

December 31,

 

 

December 31,

 

 

2020

 

2019

 

 

 

2020

 

2019

 

2020

 

2019

 

 

 

(In thousands)

 

 

 

 

(In thousands)

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

Net loss

$

(28,958)

 

$

(4,392)

Net loss

$

(4,534)

 

$

(205)

 

$

(33,492)

 

$

(4,597)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss), net of taxes

Other comprehensive income (loss), net of taxes

 

 

 

 

Other comprehensive income (loss), net of taxes

 

 

 

 

 

 

 

 

Movement in foreign currency translation reserve

 

6,142

 

(18,085)

Movement in foreign currency translation reserve

 

20,003

 

19,114

 

26,145

 

1,029

Movement in foreign currency translation reserve related to equity-accounted investments

 

1,688

 

 

2,718

Release of foreign currency translation reserve related to disposal of FIHRST

 

0

 

1,578

 

0

 

1,578

 

Total other comprehensive income (loss), net of taxes

 

7,830

 

 

(15,367)

Movement in foreign currency translation reserve related to equity-accounted investments

 

0

 

 

(491)

 

 

1,688

 

 

2,227

 

 

 

 

 

 

 

 

Total other comprehensive income, net of taxes

 

20,003

 

 

20,201

 

 

27,833

 

 

4,834

 

Comprehensive loss

 

(21,128)

 

(19,759)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Add comprehensive loss attributable to non-controlling interest

 

0

 

 

0

 

Comprehensive income (loss)

 

15,469

 

19,996

 

(5,659)

 

237

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive loss attributable to Net1

$

(21,128)

 

$

(19,759)

 

Comprehensive income (loss) attributable to Net1

$

15,469

 

$

19,996

 

$

(5,659)

 

$

237

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

See Notes to Unaudited Condensed Consolidated Financial Statements

 

See Notes to Unaudited Condensed Consolidated Financial Statements

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4

 

 

NET 1 UEPS TECHNOLOGIES, INC

Unaudited Condensed Consolidated Statements of Changes in Equity

 

 

Net 1 UEPS Technologies, Inc. Shareholders

 

 

 

 

 

 

 

 

Number of Shares

 

Amount

 

Number of Treasury Shares

 

Treasury Shares

 

Number of shares, net of treasury

 

Additional Paid-In Capital

 

Retained Earnings

 

Accumulated other comprehensive loss

 

Total Net1 Equity

 

Non-controlling Interest

 

Total

 

Redeemable common stock

 

 

For the three months ended September 30, 2019 (dollar amounts in thousands)

 

Balance – July 1, 2019

81,459,717

$

80

 

(24,891,292)

$

(286,951)

 

56,568,425

$

276,997

$

523,028

$

(195,812)

$

317,342

$

0

$

317,342

$

107,672

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation charge (Note 12)

 

 

 

 

 

 

 

 

 

 

387

 

 

 

 

 

387

 

 

 

387

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation charge related to equity accounted investment (Note 5)

 

 

 

 

 

 

 

 

 

 

71

 

 

 

 

 

71

 

 

 

71

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

(4,392)

 

 

 

(4,392)

 

0

 

(4,392)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss (Note 11)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(15,367)

 

(15,367)

 

0

 

(15,367)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – September 30, 2019

81,459,717

$

80

 

(24,891,292)

$

(286,951)

 

56,568,425

$

277,455

$

518,636

$

(211,179)

$

298,041

$

0

$

298,041

$

107,672

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net 1 UEPS Technologies, Inc. Shareholders

 

 

 

 

 

 

 

 

Number of Shares

 

Amount

 

Number of Treasury Shares

 

Treasury Shares

 

Number of shares, net of treasury

 

Additional Paid-In Capital

 

Retained Earnings

 

Accumulated other comprehensive loss

 

Total Net1 Equity

 

Non-controlling Interest

 

Total

 

Redeemable common stock

 

 

For the three months ended December 31, 2019 (dollar amounts in thousands)

 

Balance – October 1, 2019

81,459,717

$

80

 

(24,891,292)

$

(286,951)

 

56,568,425

$

277,455

$

518,636

$

(211,179)

$

298,041

$

0

$

298,041

$

107,672

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation charge (Note 13)

 

 

 

 

 

 

 

 

 

 

436

 

 

 

 

 

436

 

 

 

436

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

(205)

 

 

 

(205)

 

0

 

(205)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (Note 12)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,201

 

20,201

 

0

 

20,201

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – December 31, 2019

81,459,717

$

80

 

(24,891,292)

$

(286,951)

 

56,568,425

$

277,891

$

518,431

$

(190,978)

$

318,473

$

0

$

318,473

$

107,672

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the six months ended December 31, 2019 (dollar amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – July 1, 2019

81,459,717

$

80

 

(24,891,292)

$

(286,951)

 

56,568,425

$

276,997

$

523,028

$

(195,812)

$

317,342

$

0

$

317,342

$

107,672

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation charge (Note 13)

 

 

 

 

 

 

 

 

 

 

823

 

 

 

 

 

823

 

 

 

823

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation charge related to equity accounted investment

 

 

 

 

 

 

 

 

 

 

71

 

 

 

 

 

71

 

 

 

71

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

(4,597)

 

 

 

(4,597)

 

0

 

(4,597)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,834

 

4,834

 

0

 

4,834

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – December 31, 2019

81,459,717

$

80

 

(24,891,292)

$

(286,951)

 

56,568,425

$

277,891

$

518,431

$

(190,978)

$

318,473

$

0

$

318,473

$

107,672

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

5

 

 

NET 1 UEPS TECHNOLOGIES, INC

Unaudited Condensed Consolidated Statements of Changes in Equity

 

 

Net 1 UEPS Technologies, Inc. Shareholders

 

 

 

 

 

 

 

 

Number of Shares

 

Amount

 

Number of Treasury Shares

 

Treasury Shares

 

Number of shares, net of treasury

 

Additional Paid-In Capital

 

Retained Earnings

 

Accumulated other comprehensive loss

 

Total Net1 Equity

 

Non-controlling Interest

 

Total

 

Redeemable common stock

 

 

For the three months ended September 30, 2020 (dollar amounts in thousands)

 

Balance – July 1, 2020

82,010,217

$

80

 

(24,891,292)

$

(286,951)

 

57,118,925

$

301,489

$

444,670

$

(169,075)

$

290,213

$

-

$

290,213

$

84,979

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation charge (Note 12)

 

 

 

 

 

 

 

 

 

 

682

 

 

 

 

 

682

 

 

 

682

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reversal of stock-based compensation charge (Note 12)

(480,200)

 

 

 

 

 

 

 

(480,200)

 

(283)

 

 

 

 

 

(283)

 

 

 

(283)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation charge related to equity-accounted investment (Note 5)

 

 

 

 

 

 

 

 

 

 

(40)

 

 

 

 

 

(40)

 

 

 

(40)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from disgorgement of shareholders' short-swing profits (Note 21)

 

 

 

 

 

 

 

 

 

 

98

 

 

 

 

 

98

 

 

 

98

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

(28,958)

 

 

 

(28,958)

 

-

 

(28,958)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive loss (Note 11)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7,830

 

7,830

 

-

 

7,830

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – September 30, 2020

81,530,017

$

80

 

(24,891,292)

$

(286,951)

 

56,638,725

$

301,946

$

415,712

$

(161,245)

$

269,542

$

-

$

269,542

$

84,979

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

 

 

Net 1 UEPS Technologies, Inc. Shareholders

 

 

 

 

 

 

 

 

Number of Shares

 

Amount

 

Number of Treasury Shares

 

Treasury Shares

 

Number of shares, net of treasury

 

Additional Paid-In Capital

 

Retained Earnings

 

Accumulated other comprehensive loss

 

Total Net1 Equity

 

Non-controlling Interest

 

Total

 

Redeemable common stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended December 31, 2020 (dollar amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – October 1, 2020

81,530,017

$

80

 

(24,891,292)

$

(286,951)

 

56,638,725

$

301,946

$

415,712

$

(161,245)

$

269,542

$

0

$

269,542

$

84,979

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock option (Note 13)

5,834

 

0

 

 

 

 

 

5,834

 

18

 

 

 

 

 

18

 

 

 

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation charge (Note 13)

 

 

 

 

 

 

 

 

 

 

246

 

 

 

 

 

246

 

 

 

246

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reversal of stock-based compensation charge (Note 13)

(30,000)

 

 

 

 

 

 

 

(30,000)

 

(14)

 

 

 

 

 

(14)

 

 

 

(14)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

(4,534)

 

 

 

(4,534)

 

0

 

(4,534)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (Note 12)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20,003

 

20,003

 

0

 

20,003

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – December 31, 2020

81,505,851

$

80

 

(24,891,292)

$

(286,951)

 

56,614,559

$

302,196

$

411,178

$

(141,242)

$

285,261

$

0

$

285,261

$

84,979

 

 

For the six months ended December 31, 2020 (dollar amounts in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – July 1, 2020

82,010,217

$

80

 

(24,891,292)

$

(286,951)

 

57,118,925

$

301,489

$

444,670

$

(169,075)

$

290,213

$

0

$

290,213

$

84,979

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercise of stock option (Note 13)

5,834

 

0

 

 

 

 

 

5,834

 

18

 

 

 

 

 

18

 

 

 

18

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation charge (Note 13)

 

 

 

 

 

 

 

 

 

 

928

 

 

 

 

 

928

 

 

 

928

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Reversal of stock-based compensation charge (Note 13)

(510,200)

 

 

 

 

 

 

 

(510,200)

 

(297)

 

 

 

 

 

(297)

 

 

 

(297)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation charge related to equity accounted investment (Note 6)

 

 

 

 

 

 

 

 

 

 

(40)

 

 

 

 

 

(40)

 

 

 

(40)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Proceeds from disgorgement of shareholders' short-swing profits (Note 22)

 

 

 

 

 

 

 

 

 

 

98

 

 

 

 

 

98

 

 

 

98

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

 

(33,492)

 

 

 

(33,492)

 

0

 

(33,492)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (Note 12)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

27,833

 

27,833

 

0

 

27,833

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance – December 31, 2020

81,505,851

$

80

 

(24,891,292)

$

(286,951)

 

56,614,559

$

302,196

$

411,178

$

(141,242)

$

285,261

$

0

$

285,261

$

84,979

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

See Notes to Unaudited Condensed Consolidated Financial Statements

 

6

 

 

NET 1 UEPS TECHNOLOGIES, INC

Unaudited Condensed Consolidated Statements of Cash Flows

 

 

 

Three months ended

 

 

 

Three months ended

 

 

Six months ended

 

 

 

September 30,

 

 

 

December 31,

 

 

December 31,

 

 

 

2020

 

 

2019(A)

 

 

2020

 

2019

 

2020

 

2019

 

 

 

(In thousands)

 

 

 

(In thousands)

 

 

(In thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from operating activities

Cash flows from operating activities

 

 

 

 

Cash flows from operating activities

 

 

 

 

 

 

 

 

Net loss

$

(28,958)

 

$

(4,392)

Net loss

$

(4,534)

 

$

(205)

 

$

(33,492)

 

$

(4,597)

Depreciation and amortization

 

923

 

4,765

Depreciation and amortization

 

1,074

 

4,381

 

1,997

 

9,146

Movement in allowance for doubtful accounts receivable

 

514

 

512

Movement in allowance for doubtful accounts receivable

 

100

 

(429)

 

614

 

83

Loss (Earnings) from equity-accounted investments (Note 5)

 

19,137

 

(1,063)

Loss from equity-accounted investments (Note 6)

 

1,016

 

(506)

 

20,153

 

(1,569)

Movement in allowance for doubtful loans to equity-accounted investments

 

78

 

0

Movement in allowance for doubtful loans to equity-accounted investments

 

661

 

620

 

739

 

620

Fair value adjustment related to financial liabilities

 

886

 

87

Change in fair value of equity securities (Note 5 and 6)

 

(15,128)

 

0

 

(15,128)

 

0

Interest payable

 

(63)

 

632

Fair value adjustment related to financial liabilities

 

790

 

147

 

1,676

 

234

Profit on disposal of property, plant and equipment

 

(10)

 

(154)

Interest payable

 

42

 

526

 

(21)

 

1,158

Stock-based compensation charge (Note 12)

 

399

 

387

Gain on disposal of FIHRST (Note 2)

 

0

 

(9,743)

 

0

 

(9,743)

Dividends received from equity accounted investments

 

57

 

 

1,068

Loss on disposal of equity-accounted investment (Note 2)

 

13

 

0

 

13

 

0

Increase in accounts receivable and finance loans receivable

 

(8,115)

 

 

(5,666)

Loss (Profit) on disposal of property, plant and equipment

 

752

 

(49)

 

742

 

(203)

Decrease (Increase) in inventory

 

2,359

 

(12,313)

Stock-based compensation charge (Note 13)

 

232

 

436

 

631

 

823

Decrease in accounts payable and other payables

 

(415)

 

(3,396)

Dividends received from equity accounted investments

 

68

 

 

380

 

 

125

 

 

1,448

(Decrease) Increase in taxes payable

 

(14,917)

 

1,288

Decrease (Increase) in accounts receivable and finance loans receivable

 

6,559

 

 

8,767

 

 

(1,556)

 

 

3,101

Decrease in deferred taxes

 

(1,755)

 

 

(88)

(Increase) Decrease in inventory

 

(145)

 

(682)

 

2,214

 

(12,995)

 

Net cash used in operating activities

 

(29,880)

 

 

(18,333)

(Decrease) Increase in accounts payable and other payables

 

(3,084)

 

3,132

 

(3,499)

 

(264)

 

 

 

 

 

 

 

(Decrease) Increase in taxes payable

 

(421)

 

(2,244)

 

(15,338)

 

(956)

Increase (Decrease) in deferred taxes

 

26

 

 

(117)

 

 

(1,729)

 

 

(205)

 

Net cash (used in) provided by operating activities

 

(11,979)

 

 

4,414

 

 

(41,859)

 

 

(13,919)

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

Cash flows from investing activities

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

 

 

Capital expenditures

Capital expenditures

 

(275)

 

(2,624)

Capital expenditures

 

(3,023)

 

(827)

 

(3,298)

 

(3,451)

Proceeds from disposal of property, plant and equipment

Proceeds from disposal of property, plant and equipment

 

16

 

213

Proceeds from disposal of property, plant and equipment

 

75

 

90

 

91

 

303

Proceeds from disposal of Net1 Korea (Note 2)

 

20,114

 

0

Proceeds from disposal of DNI as equity-accounted investment (Note 2)

 

329

 

0

Loan to equity-accounted investment (Note 5)

 

(78)

 

0

Investment in equity-accounted investments (Note 5)

 

0

 

(1,250)

Proceeds from disposal of DNI as equity-accounted investment (Note 3)

Proceeds from disposal of DNI as equity-accounted investment (Note 3)

 

5,815

 

0

 

6,144

 

0

Proceeds from disposal of Net1 Korea, net of cash disposed (Note 2)

Proceeds from disposal of Net1 Korea, net of cash disposed (Note 2)

 

0

 

0

 

20,114

 

0

Proceeds from disposal of FIHRST, net of cash disposed (Note 2)

Proceeds from disposal of FIHRST, net of cash disposed (Note 2)

 

0

 

10,895

 

0

 

10,895

Investment in equity-accounted investments (Note 6)

Investment in equity-accounted investments (Note 6)

 

0

 

0

 

0

 

(1,250)

Loan to equity-accounted investment (Note 6)

Loan to equity-accounted investment (Note 6)

 

(1,160)

 

(612)

 

(1,238)

 

(612)

Repayment of loans by equity-accounted investments

Repayment of loans by equity-accounted investments

 

0

 

4,268

Repayment of loans by equity-accounted investments

 

0

 

0

 

0

 

4,268

Net change in settlement assets

Net change in settlement assets

 

4,068

 

 

(13,509)

Net change in settlement assets

 

1,377

 

 

3,371

 

 

5,445

 

 

(10,138)

Net cash provided by (used in) investing activities

 

24,174

 

 

(12,902)

Net cash provided by investing activities

 

3,084

 

 

12,917

 

 

27,258

 

 

15

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities

Cash flows from financing activities

 

 

 

 

Cash flows from financing activities

 

 

 

 

 

 

 

 

Proceeds from bank overdraft (Note 8)

 

69,146

 

183,674

Repayment of bank overdraft (Note 8)

 

(76,850)

 

(184,829)

Long-term borrowings utilized (Note 8)

 

0

 

14,798

Proceeds from disgorgement of shareholders' short-swing profits (Note 21)

 

98

 

0

Proceeds from bank overdraft (Note 9)

Proceeds from bank overdraft (Note 9)

 

137,333

 

207,876

 

206,479

 

391,550

Repayment of bank overdraft (Note 9)

Repayment of bank overdraft (Note 9)

 

(88,258)

 

(193,725)

 

(165,108)

 

(378,554)

Proceeds from disgorgement of shareholders' short-swing profits (Note 22)

Proceeds from disgorgement of shareholders' short-swing profits (Note 22)

 

26

 

0

 

124

 

0

Proceeds from exercise of stock options

Proceeds from exercise of stock options

 

18

 

0

 

18

 

0

Long-term borrowings utilized (Note 9)

Long-term borrowings utilized (Note 9)

 

0

 

0

 

0

 

14,798

Repayment of long-term borrowings (Note 9)

Repayment of long-term borrowings (Note 9)

 

0

 

(11,313)

 

0

 

(11,313)

Guarantee fee

Guarantee fee

 

0

 

(148)

Guarantee fee

 

0

 

0

 

0

 

(148)

Finance lease capital repayments

Finance lease capital repayments

 

0

 

(26)

Finance lease capital repayments

 

0

 

(26)

 

0

 

(52)

Net change in settlement obligations

Net change in settlement obligations

 

(4,068)

 

 

13,509

Net change in settlement obligations

 

(1,377)

 

(3,371)

 

(5,445)

 

10,138

Net cash (used in) provided by financing activities

 

(11,674)

 

 

26,978

Net cash provided by (used in) financing activities

 

47,742

 

(559)

 

36,068

 

26,419

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Effect of exchange rate changes on cash

Effect of exchange rate changes on cash

 

806

 

 

(6,455)

Effect of exchange rate changes on cash

 

12,296

 

7,508

 

13,102

 

1,053

Net decrease in cash, cash equivalents and restricted cash

 

(16,574)

 

 

(10,712)

Net increase in cash, cash equivalents and restricted cash

Net increase in cash, cash equivalents and restricted cash

 

51,143

 

24,280

 

34,569

 

13,568

Cash, cash equivalents and restricted cash – beginning of period

Cash, cash equivalents and restricted cash – beginning of period

 

232,485

 

 

121,511

Cash, cash equivalents and restricted cash – beginning of period

 

215,911

 

 

110,799

 

 

232,485

 

 

121,511

Cash, cash equivalents and restricted cash – end of period (Note 14)

$

215,911

 

$

110,799

Cash, cash equivalents and restricted cash – end of period (Note 15)

Cash, cash equivalents and restricted cash – end of period (Note 15)

$

267,054

 

$

135,079

 

$

267,054

 

$

135,079

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(A) Refer to Note 20 for discontinued operations disclosures

See Notes to Unaudited Condensed Consolidated Financial Statements

See Notes to Unaudited Condensed Consolidated Financial Statements

See Notes to Unaudited Condensed Consolidated Financial Statements

 

7

 

NET 1 UEPS TECHNOLOGIES, INC

Notes to the Unaudited Condensed Consolidated Financial Statements

for the three and six months ended September 30,December 31, 2020 and 2019

(All amounts in tables stated in thousands or thousands of U.S. dollars, unless otherwise stated)

 

1. Basis of Presentation and Summary of Significant Accounting Policies

 

Unaudited Interim Financial Information

 

The accompanying unaudited condensed consolidated financial statements include all majority-owned subsidiaries over which the Company exercises control and have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) andthe rules and regulations of the United States Securities and Exchange Commission for Quarterly Reports on Form 10-Q and include all of the information and disclosures required for interim financial reporting. The results of operations for the three months ended September 30,December 31, 2020 and 2019, are not necessarily indicative of the results for the full year. The Company believes that the disclosures are adequate to make the information presented not misleading.

 

These financial statements should be read in conjunction with the financial statements, accounting policies and financial notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2020. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair representation of financial results for the interim periods presented.

 

References to “Net1” are references solely to Net 1 UEPS Technologies, Inc. References to the “Company” refer to Net1 and its consolidated subsidiaries, collectively, unless the context otherwise requires.

 

Impact of COVID-19 on the Company’s business

 

The COVID-19 pandemic did not impact the Company’s South African operations as severely during the three and six months ended September 30,December 31, 2020, compared to the last four months of the year ended June 30, 2020. Nevertheless,However, on December 28, 2020, the country moved back to Level 3 restrictions which remain in place as of the date of this report, South Africa remains under various lockdownreport. This level of restrictions is not as severe as that applied during April and May 2020 but is greater than was applied through most of the six months ended December 31, 2020. The increase in restrictions was in response to a second wave of infections, which has been more severe than the first wave. While all the Company’s businesses continue to affect the broader economyoperate, it has increased preventive measures and these affectit is unclear to what extent activity levels will be affected. The Company has experienced an increase in claims in its life insurance business, which the Company believes is linked to the extent they affect economic activity levels in South Africa.second wave.

 

The broader implications of COVID-19 on the Company’s results of operations and overall financial performance continue to remain uncertain. While the Company has not incurred significant disruptions thus far from the COVID-19 outbreak, apart from the two months in April and May 2020 when loan origination was curtailed, the Company is unable to accurately predict the impact that COVID-19 will have due to numerous uncertainties, including the severity and duration of the outbreak, actions that may be taken by governmental authorities, the impact on the Company’s customers and other factors. The Company will continue to evaluate the nature and extent of the impact on its business, consolidated results of operations, and financial condition.

condition.

 

Recent accounting pronouncements adopted

 

There were no new accounting pronouncements adopted by the Company during the three and six months ended September 30,December 31, 2020.

 

Recent accounting pronouncements not yet adopted as of September 30,December 31, 2020

 

In June 2016, the Financial Accounting Standards Board (“FASB”) issued guidance regarding Measurement of Credit Losses on Financial Instruments. The guidance replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For trade and other receivables, loans, and other financial instruments, an entity is required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses, which reflects losses that are probable. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. This guidance is effective for the Company beginning July 1, 2023. The Company is currently assessing the impact of this guidance on its financial statements and related disclosures, but does not expect the impact on its financial results to be material.

 

In August 2018, the FASB issued guidance regarding Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurement. The guidance modifies the disclosure requirements related to fair value measurement. This guidance is effective for the Company beginning July 1, 2021. Early adoption is permitted. The Company is currently assessing the impact of this guidance on its financial statement’s disclosure.


8

 

1. Basis of Presentation and Summary of Significant Accounting Policies (continued)

 

Recent accounting pronouncements not yet adopted as of September 30,December 31, 2020 (continued)

 

In November 2019, the FASB issued guidance regarding Financial Instruments—Credit Losses (Topic 326), Derivatives and Hedging(TopicHedging (Topic 815), and Leases (Topic 842). The guidance provides a framework to stagger effective dates for future major accounting standards and amends the effective dates for certain major new accounting standards to give implementation relief to certain types of entities, including Smaller Reporting Companies. The Company is a Smaller Reporting Company. Specifically, the guidance changes some effective dates for certain new standards on the following topics in the FASB Codification, namely Derivatives and Hedging (ASC 815); Leases (ASC 842); Financial Instruments — Credit Losses (ASC 326); and Intangibles — Goodwill and Other (ASC 350). The guidance defers the adoption date of guidance regarding Measurement of Credit Losses on Financial Instruments by the Company from July 1, 2020 to July 1, 2023, and defers the adoption guidance regarding Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurement by the Company from July 1, 2020 to July 1, 2021.

 

In January 2020, the FASB issued guidance regarding Clarifying the Interactions Between Topic 321, Topic 323, and Topic 815. The guidance clarifies that an entity should consider observable transactions that require an entity to either apply or discontinue the equity method of accounting for the purposes of applying the measurement alternative in accordance with U.S GAAP guidance immediately before applying or upon discontinuing the equity method. The guidance also clarifies that, when determining the accounting for certain forward contracts and purchased options an entity should not consider, whether upon settlement or exercise, if the underlying securities would be accounted for under the equity method or fair value option. This guidance is effective for the Company beginning July 1, 2021. Early adoption is permitted. The Company is currently assessing the impact of this guidance on its financial statement’s disclosure.

 

Restatement of financial statements

Related to overstatement of revenue and cost of goods sold, IT processing, servicing and support

In November 2020, the Company identified an error with respect to the recognition of certain revenue and related cost of goods sold, IT processing, servicing and support during its assessment and systems development of new products. The Company incorrectly duplicated the recognition of acquiring fees in revenue and recorded an equal and opposite entry in cost of goods sold, IT processing, servicing and support in its unaudited condensed consolidated statement of operations due to the misinterpretation of certain system reports. The error did not impact on the Company’s operating income (loss), net income, balance sheet or cash flows. The Company determined that the error impacted reported results for the period from July 1, 2018 to September 30, 2020. The error impacts the Company’s reported results and the Company has restated its unaudited condensed consolidated statement of operations and certain note presentation, primarily Note 16 (Revenue) and Note 18 (Operating segments) for the three and six months ended December 31, 2019, to correct for the error.

The tables below present the impact of the restatement on the Company’s unaudited condensed consolidated statement of operations for the three months ended September 30, 2020, and the three and six months ended December 31, 2019:

 

Unaudited condensed consolidated statement of operations

 

 

 

 

Three months ended September 30, 2020(1)

 

 

 

 

As reported

 

Correction

 

As restated

 

 

 

 

(in thousands)

 

 

Revenue

$

37,113

 

$

(1,977)

 

$

35,136

 

 

Cost of goods sold, IT processing, servicing and support

$

28,437

 

$

(1,977)

 

$

26,460

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended December 31, 2019

 

 

 

 

As reported

 

Correction

 

As restated

 

 

 

 

(in thousands)

 

 

Revenue

$

40,567

 

$

(1,649)

 

$

38,918

 

 

Cost of goods sold, IT processing, servicing and support

$

28,395

 

$

(1,649)

 

$

26,746

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended December 31, 2019

 

 

 

 

As reported

 

Correction

 

As restated

 

 

 

 

(in thousands)

 

 

Revenue

$

88,505

 

$

(3,371)

 

$

85,134

 

 

Cost of goods sold, IT processing, servicing and support

$

60,823

 

$

(3,371)

 

$

57,452

 

(1) The error for the three months ended December 31, 2020, also impacted the six months ended December 31, 2020, by the same amount and the therefore the amounts reported for the six months ended December 31, 2020, include the correction of the error.

9

1. Basis of Presentation and Summary of Significant Accounting Policies (continued)

Restatement of financial statements (continued)

Related to overstatement of revenue and cost of goods sold, IT processing, servicing and support (continued)

The table below presents the impact of the restatement on the affected lines in the Processing and Total columns included in the revenue note (Note 16) for the three months ended September 30, 2020, and the three and six months ended December 31, 2019:

 

 

 

 

Three months ended

 

Three months ended

 

Six months ended

 

 

 

 

September 30, 2020(1)

 

December 31, 2019

 

 

 

 

Processing

 

Total

 

Processing

 

Total

 

Processing

 

Total

 

Processing fees - as restated

$

16,330

 

$

16,929

 

$

14,938

 

$

16,236

 

$

29,132

 

$

31,679

 

 

As reported

 

18,307

 

 

18,906

 

 

16,587

 

 

17,885

 

 

32,503

 

 

35,050

 

 

Correction

 

(1,977)

 

 

(1,977)

 

 

(1,649)

 

 

(1,649)

 

 

(3,371)

 

 

(3,371)

 

 

South Africa - as restated

 

14,774

 

 

15,373

 

 

14,088

 

 

15,386

 

 

27,083

 

 

29,630

 

 

 

As reported

 

16,751

 

 

17,350

 

 

15,737

 

 

17,035

 

 

30,454

 

 

33,001

 

 

 

Correction

 

(1,977)

 

 

(1,977)

 

 

(1,649)

 

 

(1,649)

 

 

(3,371)

 

 

(3,371)

 

 

Rest of world

$

1,556

 

$

1,556

 

$

850

 

$

850

 

$

2,049

 

$

2,049

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue, derived from the following geographic locations - as restated

$

21,518

 

$

35,136

 

$

22,847

 

$

38,918

 

$

48,940

 

$

85,134

 

 

As reported

 

23,495

 

 

37,113

 

 

24,496

 

 

40,567

 

 

52,311

 

 

88,505

 

 

Correction

 

(1,977)

 

 

(1,977)

 

 

(1,649)

 

 

(1,649)

 

 

(3,371)

 

 

(3,371)

 

 

South Africa - as restated

 

19,962

 

 

33,580

 

 

21,997

 

 

38,068

 

 

46,891

 

 

83,085

 

 

 

As reported

 

21,939

 

 

35,557

 

 

23,646

 

 

39,717

 

 

50,262

 

 

86,456

 

 

 

Correction

 

(1,977)

 

 

(1,977)

 

 

(1,649)

 

 

(1,649)

 

 

(3,371)

 

 

(3,371)

 

 

Rest of world

$

1,556

 

$

1,556

 

$

850

 

$

850

 

$

2,049

 

$

2,049

(1) The error for the three months ended December 31, 2020, also impacted the six months ended December 31, 2020, by the same amount and the therefore the amount reported for the six months ended December 31, 2020, includes the correction of the error.

The table below presents the impact of the restatement to the Processing operating segment revenue included in the operating segment note (Note 18) for the three months ended September 30, 2020, and the three and six months ended December 31, 2019:

 

 

 

 

 

 

Revenue (as restated)

 

 

 

 

 

 

Reportable Segment

 

Inter-segment

 

From external customers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing - as restated(1)

$

22,506

 

$

988

 

$

21,518

 

 

As reported

 

24,483

 

 

988

 

 

23,495

 

 

Correction

 

(1,977)

 

 

0

 

 

(1,977)

 

Total for the three months ended September 30, 2020 - as restated

 

36,982

 

 

1,846

 

 

35,136

 

 

As reported

 

38,959

 

 

1,846

 

 

37,113

 

 

Correction

 

(1,977)

 

 

0

 

 

(1,977)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing - as restated

$

25,022

 

$

2,175

 

$

22,847

 

 

As reported

 

26,671

 

 

2,175

 

 

24,496

 

 

Correction

 

(1,649)

 

 

0

 

 

(1,649)

 

Total for the three months ended December 31, 2019 - as restated

 

42,180

 

 

3,262

 

 

38,918

 

 

As reported

 

43,829

 

 

3,262

 

 

40,567

 

 

Correction

 

(1,649)

 

 

0

 

 

(1,649)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing - as restated

$

53,317

 

$

4,377

 

$

48,940

 

 

As reported

 

56,688

 

 

4,377

 

 

52,311

 

 

Correction

 

(3,371)

 

 

0

 

 

(3,371)

 

Total for the six months ended December 31, 2019 - as restated

 

91,852

 

 

6,718

 

 

85,134

 

 

As reported

 

95,223

 

 

6,718

 

 

88,505

 

 

Correction

$

(3,371)

 

$

0

 

$

(3,371)

(1) The error for the three months ended December 31, 2020, also impacted the six months ended December 31, 2020, by the same amount and the therefore the amounts reported for the six months ended December 31, 2020, include the correction of the error.

10

2.Disposal of controlling interest in FIHRST

2020 Disposals

December 2019 disposal of FIHRST

In November 2019, the Company through its wholly owned subsidiary, Net1 Applied Technologies South Africa Proprietary Limited (“Net1 SA”), entered into an agreement with Transaction Capital Payment Solutions Proprietary Limited, or its nominee, a limited liability private company incorporated in the Republic of South Africa, pursuant to which Net1 SA agreed to sell its entire shareholding in Net1 FIHRST Holdings Proprietary Limited (“FIHRST”) for $11.7 million (ZAR 172.2 million). The transaction closed in December 2019. FIHRST was deconsolidated following the closing of the transaction. Net1 SA was obliged to utilize the full purchase price received from the sale of FIHRST to partially settle its obligations under its lending arrangements and applied the proceeds received against its outstanding borrowings.

The table below presents the impact of the deconsolidation of FIHRST and the calculation of the net gain recognized on deconsolidation:

 

FIHRST

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

2019

 

Fair value of consideration received

$

11,749

 

Less: carrying value of FIHRST, comprising

 

1,870

 

 

Cash and cash equivalents

 

854

 

 

Accounts receivable, net

 

367

 

 

Property, plant and equipment, net

 

64

 

 

Goodwill (Note 7)

 

599

 

 

Intangible assets, net

 

30

 

 

Deferred income taxes assets

 

42

 

 

Accounts payable

 

(7)

 

 

Other payables

 

(1,437)

 

 

Income taxes payable

 

(220)

 

 

Released from accumulated other comprehensive income – foreign currency translation reserve (Note 12)

 

1,578

 

 

Settlement assets

 

17,406

 

 

Settlement liabilities

 

(17,406)

 

 

 

Gain recognized on disposal, before tax

 

9,879

 

 

 

Taxes related to gain recognized on disposal, comprising:

 

0

 

 

 

 

Capital gains tax

 

2,418

 

 

 

 

Release of valuation allowance related to capital losses previously unutilized(1)

 

(2,418)

 

 

 

Transaction costs

 

136

 

 

 

 

 

Gain recognized on disposal, after tax

$

9,743

 

 

 

 

 

 

 

 

(1) Net1 SA recorded a valuation allowance related to capital losses previously generated but not utilized. A portion of these unutilized capital losses was utilized as a result of the disposal of FIHRST and, therefore, the equivalent portion of the valuation allowance created was released.

11

3. Accounts receivable, net and other receivables and finance loans receivable, net

 

Accounts receivable, net and other receivables

 

The Company’s accounts receivable, net, and other receivables as of September 30,December 31, 2020, and June 30, 2020, are presented in the table below:

 

 

 

 

 

 

September 30,

 

June 30,

 

 

 

 

 

 

2020

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, trade, net

$

 

12,567

 

 

$

 

8,458

 

 

Accounts receivable, trade, gross

 

 

12,853

 

 

 

 

8,711

 

 

Allowance for doubtful accounts receivable, end of period

 

 

286

 

 

 

 

253

 

 

 

Beginning of period

 

 

253

 

 

 

 

661

 

 

 

Reversed to statement of operations

 

 

0

 

 

 

 

(155)

 

 

 

Charged to statement of operations

 

 

32

 

 

 

 

181

 

 

 

Utilized

 

 

(6)

 

 

 

 

(151)

 

 

 

Deconsolidation

 

 

0

 

 

 

 

(178)

 

 

 

Foreign currency adjustment

 

 

7

 

 

 

 

(105)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxes refundable related to sale of Net1 Korea

 

 

0

 

 

 

 

19,796

 

 

Loans provided to Carbon

 

 

3,000

 

 

 

 

3,000

 

 

Current portion of amount outstanding related to sale of remaining interest in DNI

 

 

3,916

 

 

 

 

2,756

 

 

Other receivables

 

 

8,831

 

 

 

 

9,058

 

 

 

Total accounts receivable, net and other receivables

$

 

28,314

 

 

$

 

43,068

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

June 30,

 

 

 

 

 

 

2020

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts receivable, trade, net

$

 

10,288

 

 

$

 

8,458

 

 

Accounts receivable, trade, gross

 

 

10,647

 

 

 

 

8,711

 

 

Allowance for doubtful accounts receivable, end of period

 

 

359

 

 

 

 

253

 

 

 

Beginning of period

 

 

253

 

 

 

 

661

 

 

 

Reversed to statement of operations

 

 

0

 

 

 

 

(155)

 

 

 

Charged to statement of operations

 

 

70

 

 

 

 

181

 

 

 

Utilized

 

 

(11)

 

 

 

 

(151)

 

 

 

Deconsolidation

 

 

0

 

 

 

 

(178)

 

 

 

Foreign currency adjustment

 

 

47

 

 

 

 

(105)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Taxes refundable related to sale of Net1 Korea

 

 

0

 

 

 

 

19,796

 

 

Loans provided to Carbon

 

 

3,000

 

 

 

 

3,000

 

 

Current portion of amount outstanding related to sale of remaining interest in DNI

 

 

0

 

 

 

 

2,756

 

 

Other receivables

 

 

11,159

 

 

 

 

9,058

 

 

 

Total accounts receivable, net and other receivables

$

 

24,447

 

 

$

 

43,068

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

In January 2020, the Company agreed that the purchaser of Net1 Korea would withhold potential capital gains taxes of approximately $19.8 million (KRW 23.8 billion) from the Net1 Korea transaction price and pay such amounts, on behalf of Net1 BV, to the South Korean tax authorities. Net1 BV commenced a process to claim a refund from the South Korean tax authorities of the potential amount withheld and received this amount of approximately $20.1 million (KRW 23.8 billion) in September 2020.

 

On October 26, 2020, DNI settled the full amount outstanding of $5.7 million related to sale of the remaining interest in DNI, including the $1.6 millionamounts included in other long-term assets, refer to Note 5.6. The Company received $0.3 million on September 30, 2020, for total receipts of $6.0 million.

 

Other receivables include prepayments, deposits and other receivables.

9

2.Accounts receivable, net and other receivables and finance loans receivable, net (continued)

 

Finance loans receivable, net

 

The Company’s finance loans receivable, net, as of September 30,December 31, 2020, and June 30, 2020, is presented in the table below:

 

 

 

 

 

 

September 30,

 

June 30,

 

 

 

 

 

 

2020

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Microlending finance loans receivable, net

$

 

20,508

 

 

$

 

15,879

 

 

Microlending finance loans receivable, gross

 

 

22,785

 

 

 

 

17,737

 

 

Allowance for doubtful finance loans receivable, end of period

 

 

2,277

 

 

 

 

1,858

 

 

 

Beginning of period

 

 

1,858

 

 

 

 

3,199

 

 

 

Reversed to statement of operations

 

 

0

 

 

 

 

(492)

 

 

 

Charged to statement of operations

 

 

486

 

 

 

 

1,211

 

 

 

Utilized

 

 

(119)

 

 

 

 

(1,451)

 

 

 

Foreign currency adjustment

 

 

52

 

 

 

 

(609)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Working capital finance loans receivable, gross

 

 

5,800

 

 

 

 

5,800

 

 

Allowance for doubtful finance loans receivable, end of period

 

 

5,800

 

 

 

 

5,800

 

 

 

Beginning of period

 

 

5,800

 

 

 

 

5,800

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total accounts receivable, net

$

 

20,508

 

 

$

 

15,879

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

June 30,

 

 

 

 

 

 

2020

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Microlending finance loans receivable, net

$

 

21,620

 

 

$

 

15,879

 

 

Microlending finance loans receivable, gross

 

 

24,017

 

 

 

 

17,737

 

 

Allowance for doubtful finance loans receivable, end of period

 

 

2,397

 

 

 

 

1,858

 

 

 

Beginning of period

 

 

1,858

 

 

 

 

3,199

 

 

 

Reversed to statement of operations

 

 

(557)

 

 

 

 

(492)

 

 

 

Charged to statement of operations

 

 

1,105

 

 

 

 

1,211

 

 

 

Utilized

 

 

(369)

 

 

 

 

(1,451)

 

 

 

Foreign currency adjustment

 

 

360

 

 

 

 

(609)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Working capital finance loans receivable, gross

 

 

0

 

 

 

 

5,800

 

 

Allowance for doubtful finance loans receivable, end of period

 

 

0

 

 

 

 

5,800

 

 

 

Beginning of period

 

 

5,800

 

 

 

 

5,800

 

 

 

Utilized

 

 

(5,800)

 

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total accounts receivable, net

$

 

21,620

 

 

$

 

15,879

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross microlending finance loans receivable as of September 30,December 31, 2020, increased compared to June 30, 2020, following subdued lending activity due to COVID-19 restrictions in April and early May 2020. The Company was unable to originate any significant loans in April and early May 2020.

12

3.Accounts receivable, net and other receivables and finance loans receivable, net (continued)

 

3.Finance loans receivable, net (continued)

The Company created an allowance for doubtful working capital finance receivables related to a receivable due from a customer based in the United States during the year ended June 30, 2018. The Company commenced legal proceedings against the customer in 2018. The customer is engaged in bankruptcy proceedings. In December 2020, the Company withdrew its claim lodged in the bankruptcy proceedings because it does not believe it will recover the receivable via these proceedings, or via any other process. In December 2020, the Company utilized the entire allowance for doubtful working capital finance receivables against the outstanding receivable.

4. Inventory

 

The Company’s inventory comprised the following categories as of September 30,December 31, 2020, and June 30, 2020:

 

 

 

September 30,

 

 

June 30,

 

 

 

 

2020

 

 

2020

 

 

 

 

 

 

 

 

 

 

Finished goods

$

13,716

 

$

15,618

 

 

Finished goods subject to sale restrictions

 

4,368

 

 

4,242

 

 

 

$

18,084

 

$

19,860

 

 

 

December 31,

 

 

June 30,

 

 

 

 

2020

 

 

2020

 

 

 

 

 

 

 

 

 

 

Finished goods

$

20,939

 

$

15,618

 

 

Finished goods subject to sale restrictions

 

0

 

 

4,242

 

 

 

$

20,939

 

$

19,860

 

 

Finished goods subject to sale restrictions represents airtime inventory purchased in March 2020, that maycould only be sold by the Company from October 1, 2020.2020.As of December 31, 2020, finished goods includes $16.4 million of airtime inventory that was previously classified as finished goods subject to sale restrictions.

 

4.

5. Fair value of financial instruments

 

Initial recognition and measurement

 

Financial instruments are recognized when the Company becomes a party to the transaction. Initial measurements are at cost, which includes transaction costs.

 

Risk management

 

The Company manages its exposure to currency exchange, translation, interest rate, customer concentration, credit and equity price and liquidity risks as discussed below.

 

Currency exchange risk

 

The Company is subject to currency exchange risk because it purchases inventories that it is required to settle in other currencies, primarily the euro and U.S. dollar. The Company has used forward contracts in order to limit its exposure in these transactions to fluctuations in exchange rates between the South African rand (“ZAR”), on the one hand, and the U.S. dollar and the euro, on the other hand.

 

10

4. Fair value of financial instruments (continued)

Risk management (continued)

Translation risk

 

Translation risk relates to the risk that the Company’s results of operations will vary significantly as the U.S. dollar is its reporting currency, but it earns a significant amount of its revenues and incurs a significant amount of its expenses in ZAR. The U.S. dollar has fluctuated significantly against the ZAR over the past three years. As exchange rates are outside the Company’s control, there can be no assurance that future fluctuations will not adversely affect the Company’s results of operations and financial condition.

 

Interest rate risk

 

As a result of its normal borrowing and lending activities, the Company’s operating results are exposed to fluctuations in interest rates, which it manages primarily through regular financing activities. The Company generally maintains investments in cash equivalents and held to maturity investments and has occasionally invested in marketable securities.

 

Microlending credit risk

The Company is exposed to credit risk in its microlending activities, which provide unsecured short-term loans to qualifying customers. The Company manages this risk by performing an affordability test for each prospective customer and assigning a “creditworthiness score”, which takes into account a variety of factors such as other debts and total expenditures on normal household and lifestyle expenses.

13

5. Fair value of financial instruments (continued)

Risk management (continued)

Credit risk

 

Credit risk relates to the risk of loss that the Company would incur as a result of non-performance by counterparties. The Company maintains credit risk policies with regard toin respect of its counterparties to minimize overall credit risk. These policies include an evaluation of a potential counterparty’s financial condition, credit rating, and other credit criteria and risk mitigation tools as the Company’s management deems appropriate. With respect to credit risk on financial instruments, the Company maintains a policy of entering into such transactions only with South African and European financial institutions that have a credit rating of “B” (or its equivalent) or better, as determined by credit rating agencies such as Standard & Poor’s, Moody’s and Fitch Ratings.

 

Microlending credit risk

The Company is exposed to credit risk in its microlending activities, which provide unsecured short-term loans to qualifying customers. The Company manages this risk by performing an affordability test for each prospective customer and assigning a “creditworthiness score”, which takes into account a variety of factors such as other debts and total expenditures on normal household and lifestyle expenses.

Equity price and liquidity risk

 

Equity price risk relates to the risk of loss that the Company would incur as a result of the volatility in the exchange-traded price of equity securities that it holds and the risk that it may not be able to liquidate these securities.holds. The market price of these securities may fluctuate for a variety of reasons and, consequently, the amount that the Company may obtain in a subsequent sale of these securities may significantly differ from the reported market value.

 

Equity liquidity risk relates to the risk of loss that the Company would incur as a result of the lack of liquidity on the exchange on which thesethose securities are listed. The Company may not be able to sell some or all of these securities at one time, or over an extended period of time without influencing the exchange traded price, or at all.

 

Financial instruments

 

The following section describes the valuation methodologies the Company uses to measure its significant financial assets and liabilities at fair value.

 

In general, and where applicable, the Company uses quoted prices in active markets for identical assets or liabilities to determine fair value. This pricing methodology would apply to Level 1 investments. If quoted prices in active markets for identical assets or liabilities are not available to determine fair value, then the Company uses quoted prices for similar assets and liabilities or inputs other than the quoted prices that are observable either directly or indirectly. These investments would be included in Level 2 investments. In circumstances in which inputs are generally unobservable, values typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option pricing models, discounted cash flow models, and similar techniques. Investments valued using such techniques are included in Level 3 investments.

 

11

4. Fair value of financial instruments (continued)

Financial instruments (continued)

Asset measured at fair value using significant unobservable inputs – investment in Cell C

 

The Company’s Level 3 asset represents an investment of 75,000,000 class “A” shares in Cell C, a significant mobile telecoms provider in South Africa. The Company used a discounted cash flow model developed by the Company to determine the fair value of its investment in Cell C as of September 30,December 31, 2020, and June 30, 2020, and valued Cell C at $0.0 (zero) at September 30,December 31, 2020, and June 30, 2020. The Company believes the Cell C business plan utilized in the Company’s valuation is reasonable based on the current performance and the expected changes in Cell C’s business model. The Company changed certain valuation assumptions when preparing the December 31, 2020, valuation compared with the June 30, 2020, valuation. For the December 31, 2020, valuation, the Company incorporated the payments under the lease liabilities into the cash flow forecasts instead of including the December 31, 2020, carrying value in net debt and assumed that the deferred tax asset would be utilized over the forecast period instead of including the fair value of the deferred tax asset as of December 31, 2020, in the valuation. For the June 30, 2020, valuation, the Company included the carrying value of the lease liabilities within net debt and included the June 30, 2020, fair value of the deferred tax asset in the valuation. The Company utilized the latest approved business plan provided by Cell C management for the period endingended December 31, 2025, for the December 31, 2020 valuation and the period ended December 31, 2024 for the June 30, 2020 valuation, and the following key valuation inputs were used as of September 30,December 31, 2020 and June 30, 2020:

 

 

Weighted Average Cost of Capital ("WACC"):

Between 16%17% and 21%22% over the period of the forecast

 

Long term growth rate:

3 %3% (3% as of June 30, 2020)

 

Marketability discount:

10%

 

Minority discount:

15%

 

Net adjusted external debt - September 30,December 31, 2020:(1)

ZAR 15.111.2 billion ($0.90.8 billion), includes R4.2 billion ofno lease liabilities

 

Net adjusted external debt - June 30, 2020:(2)

ZAR 15.8 billion ($0.9 billion), includes R4.4ZAR4.4 billion of lease liabilities

 

Deferred tax (incl, assessed tax losses) - September 30,December 31, 2020:(1)

ZAR 2.9 billion0 ($172.3 million)0)

 

Deferred tax (incl, assessed tax losses) - June 30, 2020:(2)

ZAR 2.9 billion ($167.3 million)

(1) translated from ZAR to U.S. dollars at exchange rates applicable as of September 30,December 31, 2020.

(2) translated from ZAR to U.S. dollars at exchange rates applicable as of June 30, 2020.

14

5. Fair value of financial instruments (continued)

Financial instruments (continued)

Asset measured at fair value using significant unobservable inputs – investment in Cell C (continued)

 

The following table presents the impact on the carrying value of the Company’s Cell C investment of a 2.0%1.0% increase and 2.0%1.0% decrease in the WACC rate and the EBITDA margins used in the Cell C valuation on September 30,December 31, 2020, all amounts translated at exchange rates applicable as of September 30,December 31, 2020:

 

 

Sensitivity for fair value of Cell C investment

 

2.0% increase(A)

 

2.0% decrease(A)

 

 

WACC rate

$

0

$

6,786

 

 

EBITDA margin

$

2,881

$

0

 

(A) the carrying value of the Cell C investment is not impacted by a 1.0% increase or a 1.0% decrease and therefore the impact of a 2.0% increase and a 2.0% decrease is presented.

 

Sensitivity for fair value of Cell C investment

 

1.0% increase

 

1.0% decrease

 

 

WACC rate

$

0

$

1,514

 

 

EBITDA margin

$

627

$

0

 

 

The fair value of the Cell C shares as of September 30,December 31, 2020, represented approximately 0% of the Company’s total assets, including these shares. The Company expects to hold these shares for an extended period of time and that there will be short-term equity price volatility with respect to these shares particularly given the current situation of Cell C’s business.

 

Derivative transactions - Foreign exchange contracts

 

As part of the Company’s risk management strategy, the Company enters into derivative transactions to mitigate exposures to foreign currencies using foreign exchange contracts. These foreign exchange contracts are over-the-counter derivative transactions. All of the Company’s derivative exposures are with counterparties that have long-term credit ratings of “B” (or equivalent) or better. The Company uses quoted prices in active markets for similar assets and liabilities to determine fair value (Level 2). The Company has no derivatives that are measured under Level 1 or 3 of the fair value hierarchy. The Company had 0 outstanding foreign exchange contracts as of September 30,December 31, 2020, or June 30, 2020.

 

12

4. Fair value of financial instruments (continued)

The following table presents the Company’s assets measured at fair value on a recurring basis as of September 30,December 31, 2020, according to the fair value hierarchy:

 

 

 

 

 

 

 

Quoted Price in Active Markets for Identical Assets

(Level 1)

 

 

Significant Other Observable Inputs

(Level 2)

 

 

Significant Unobservable Inputs

(Level 3)

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in Cell C

$

0

 

$

0

 

$

0

 

$

0

 

 

Related to insurance business:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash (included in other long-term assets)

 

510

 

 

0

 

 

0

 

 

510

 

 

 

Fixed maturity investments (included in cash and cash equivalents)

 

1,758

 

 

0

 

 

0

 

 

1,758

 

 

 

Total assets at fair value

$

2,268

 

$

0

 

$

0

 

$

2,268

 

 

 

 

 

 

 

Quoted Price in Active Markets for Identical Assets

(Level 1)

 

 

Significant Other Observable Inputs

(Level 2)

 

 

Significant Unobservable Inputs

(Level 3)

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in Cell C

$

0

 

$

0

 

$

0

 

$

0

 

 

Related to insurance business:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash, cash equivalents and restricted cash (included in other long-term assets)

 

593

 

 

0

 

 

0

 

 

593

 

 

 

Fixed maturity investments (included in cash and cash equivalents)

 

0

 

 

0

 

 

0

 

 

0

 

 

 

Total assets at fair value

$

593

 

$

0

 

$

0

 

$

593

 

 

The following table presents the Company’s assets measured at fair value on a recurring basis as of June 30, 2020, according to the fair value hierarchy:

 

 

 

 

 

 

 

Quoted Price in Active Markets for Identical Assets

(Level 1)

 

 

Significant Other Observable Inputs

(Level 2)

 

 

Significant Unobservable Inputs

(Level 3)

 

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in Cell C

$

0

 

$

0

 

$

0

 

$

0

 

 

Related to insurance business

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents (included in other long-term assets)

 

490

 

 

0

 

 

0

 

 

490

 

 

 

Fixed maturity investments (included in cash and cash equivalents)

 

4,198

 

 

0

 

 

0

 

 

4,198

 

 

 

 

Total assets at fair value

$

4,688

 

$

0

 

$

0

 

$

4,688

 

15

5. Fair value of financial instruments (continued)

There have been 0 transfers in or out of Level 3 during the three and six months ended September 30,December 31, 2020 and 2019, respectively.

 

There was 0 movement in the carrying value of assets measured at fair value on a recurring basis, and categorized within Level 3, during the three and six months ended September 30, 2020.

Summarized below is the movement in the carrying value of assetsDecember 31, 2020 and liabilities measured at fair value on a recurring basis, and categorized within Level 3, during thethree months ended September 30, 2020:

 

 

 

 

 

 

Carrying value

 

 

Assets

 

 

 

 

Balance as of June 30, 2020

$

0

 

 

 

Foreign currency adjustment(1)

 

0

 

 

 

 

Balance as of September 30, 2020

$

0

 

(1) The foreign currency adjustment represents the effects of the fluctuations between the ZAR, and the U.S. dollar on the carrying value.

13

4. Fair value of financial instruments (continued)2019.

 

Summarized below is the movement in the carrying value of assets and liabilities measured at fair value on a recurring basis, and categorized within Level 3, during the threesix months ended September 30, 2019:December 31, 2020:

 

 

 

 

 

 

Carrying value

 

 

Assets

 

 

 

 

Balance as at June 30, 2019

$

0

 

 

 

Foreign currency adjustment(1)

 

-

 

 

 

 

Balance as of September 30, 2019

$

0

 

 

 

 

 

 

 

 

Carrying value

 

 

Assets

 

 

 

 

Balance as of June 30, 2020

$

0

 

 

 

Foreign currency adjustment(1)

 

0

 

 

 

 

Balance as of December 31, 2020

$

0

 

(1) The foreign currency adjustment represents the effects of the fluctuations between the ZAR, and the U.S. dollar on the carrying value.

Summarized below is the movement in the carrying value of assets and liabilities measured at fair value on a recurring basis, and categorized within Level 3, during the six months ended December 31, 2019:

 

 

 

 

 

 

Carrying value

 

 

Assets

 

 

 

 

Balance as at June 30, 2019

$

0

 

 

 

Foreign currency adjustment(1)

 

0

 

 

 

 

Balance as of December 31, 2019

$

0

 

(1) The foreign currency adjustment represents the effects of the fluctuations between the ZAR, and the U.S. dollar on the carrying value.

 

Assets measured at fair value on a nonrecurring basis

 

The Company measures equity investments without readily determinable fair values at fair value on a nonrecurring basis. The fair values of these investments are determined based on valuation techniques using the best information available, and may include quoted market prices, market comparables, and discounted cash flow projections. An impairment charge is recorded when the cost of the asset exceeds its fair value and the excess is determined to be other-than-temporary. The Company has not recorded anyRefer to Note 6 for impairment charges recorded during the reporting periods presented herein. The Company has no liabilities that are measured at fair value on a nonrecurring basis.

 

5.

6.Equity-accounted investments and other long-term assets

 

Refer to Note 10 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2020, for additional information regarding its equity-accounted investments and other long-term assets.

 

Equity-accounted investments

 

The Company’s ownership percentage in its equity-accounted investments as of September 30,December 31, 2020, and June 30, 2020, was as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

2020

 

 

Bank Frick & Co AG (“Bank Frick”)

 

35

%

 

35

%

 

 

Finbond Group Limited (“Finbond”)

 

31

%

 

31

%

 

 

Carbon Tech Limited (“Carbon”)

 

25

%

 

25

%

 

 

Revix (“Revix”)

 

25

%

 

25

%

 

 

SmartSwitch Namibia (Pty) Ltd (“SmartSwitch Namibia”)

 

50

%

 

50

%

 

 

V2 Limited (“V2”)

 

50

%

 

50

%

 

 

Walletdoc Proprietary Limited (“Walletdoc”)

 

20

%

 

20

%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

2020

 

 

Bank Frick & Co AG (“Bank Frick”)

 

35

%

 

35

%

 

 

Finbond Group Limited (“Finbond”)

 

31

%

 

31

%

 

 

Carbon Tech Limited (“Carbon”)

 

25

%

 

25

%

 

 

Revix (“Revix”)

 

25

%

 

25

%

 

 

SmartSwitch Namibia (Pty) Ltd (“SmartSwitch Namibia”)

 

50

%

 

50

%

 

 

V2 Limited (“V2”)

 

50

%

 

50

%

 

 

Walletdoc Proprietary Limited (“Walletdoc”)

 

0

 

 

20

%

 

16

6.Equity-accounted investments and other long-term assets (continued)

Equity-accounted investments (continued)

 

Finbond

 

As of September 30,December 31, 2020, the Company owned 268,820,933 shares in Finbond representing approximately 31% of its issued and outstanding ordinary shares. Finbond is listed on the Johannesburg Stock Exchange (“JSE”) and its closing price on September 30,December 31, 2020, the last trading day of the month, was ZAR 1.040.99 per share. The market value, using the September 30,December 31, 2020, closing price, of the Company’s holding in Finbond on September 30,December 31, 2020, was ZAR 279.6266.1 million ($16.618.2 million translated at exchange rates applicable as of September 30,December 31, 2020).

 

Finbond recently published its half-year results to August 2020 in October 2020, which included the financial impact of the COVID-19 pandemic on its reported results during the reporting period. Finbond incurred losses during the six months to August 2020, and experienced a slow-down in its lending activities. Finbond reported that its lending activities have increased again since August 2020, albeit at a slower pace compared with the prior calendar period. Finbond’s share price declined substantially during the period from its fiscal year end (February 2020) to September 30, 2020, and the weakness in its traded share price continued post September 30, 2020. The Company considered the combination of the slow-down in business activity and the lower share price as impairment indicators. The Company performed an impairment assessment of its holding in Finbond as of September 30, 2020. The Company recorded an impairment loss of $16.8 million during the quarter ended September 30, 2020, related to the other-than-temporary decrease in Finbond’s value, which represented the difference between the determined fair value of the Company’s interest in Finbond and the Company’s carrying value (before the impairment). There is limited trading in Finbond shares on the JSE because it has 3 shareholders that own approximately 90% of its issued and outstanding shares between them. The Company calculated a fair value per share for Finbond by applying a liquidity discount of 15% to the September 30, 2020, Finbond closing price.

14

5.Equity-accounted investments and other long-term assets (continued)price of $1.04.

 

Equity-accounted investments (continued)The Company performed a further impairment assessment of its holding in Finbond as of December 31, 2020, following a modest decline in its market price during the quarter ended December 31, 2020. The Company recorded an impairment loss of $0.8 million during the quarter ended December 31, 2020, related to the other-than-temporary decrease in Finbond’s value, which represented the difference between the determined fair value of the Company’s interest in Finbond and the Company’s carrying value (before the impairment). The Company calculated a fair value per share for Finbond by applying a liquidity discount of 15% to the December 31, 2020, Finbond closing price. The total impairment charge for the six months ended December 31, 2020, was $17.6 million.

 

V2 Limited

 

In June 2020, V2 Limited drew down $0.5 million of the $5.0 million working capital facility granted by the Company to V2. In September 2020, the Company agreed to grant V2 an option to acquire the Company’s entire interest in V2 for an option price of $5.0 million plus the face value of the outstanding working capital facility. The option expiresexpired on December 31, 2020, and may be exercised at any time through the expiration date.2020. The Company and V2 also agreed to reduce the $5.0 million working capital facility to $1.5 million. In October 2020, V2 drew down the remaining available $1.0 million of the working capital facility. The Company does not expect to recover its carrying value in V2 and has impaired its remaining interest in V2, recording an impairment loss of $0.5 million during the three and six months ended December 31, 2020. The Company also created an allowance for doubtful loans receivable of $0.5 million during the three and six months ended December 31, 2020, related to a portion of the working capital facility outstanding as of December 31, 2020.

Other

In November 2020, the Company’s subsidiary, Net1 SA, signed an agreement with Walletdoc under which Walletdoc agreed to repay the loan due to Net1 SA in full and Net1 SA agreed to dispose of its entire interest in Walletdoc to Walletdoc.

17

6.Equity-accounted investments and other long-term assets (continued)

Equity-accounted investments (continued)

 

Summarized below is the movement in equity-accounted investments and loans provided to equity-accounted investments during the threesix months ended September 30,December 31, 2020:

 

 

 

 

 

 

 

 

 

Bank Frick

 

Finbond

 

Other(1)

 

Total

 

 

Investment in equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2020

$

29,739

 

$

30,876

 

$

4,601

 

$

65,216

 

 

 

 

Stock-based compensation

 

0

 

 

(40)

 

 

0

 

 

(40)

 

 

 

 

Comprehensive (loss) income:

 

481

 

 

(17,773)

 

 

(157)

 

 

(17,449)

 

 

 

 

 

Other comprehensive income

 

0

 

 

1,688

 

 

0

 

 

1,688

 

 

 

 

 

Equity accounted (loss) earnings

 

481

 

 

(19,461)

 

 

(157)

 

 

(19,137)

 

 

 

 

 

 

Share of net (loss) income

 

481

 

 

(2,617)

 

 

(157)

 

 

(2,293)

 

 

 

 

 

 

Impairment

 

0

 

 

(16,844)

 

 

0

 

 

(16,844)

 

 

 

 

Dividends received

 

-

 

 

0

 

 

(57)

 

 

(57)

 

 

 

 

Foreign currency adjustment(2)

 

925

 

 

1,091

 

 

57

 

 

2,073

 

 

 

Balance as of September 30, 2020

$

31,145

 

$

14,154

 

$

4,444

 

$

49,743

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2020

$

0

 

$

0

 

$

620

 

$

620

 

 

 

 

Loans granted

 

0

 

 

0

 

 

78

 

 

78

 

 

 

 

Allowance for doubtful loans

 

0

 

 

0

 

 

(78)

 

 

(78)

 

 

 

 

Foreign currency adjustment(2)

 

0

 

 

0

 

 

4

 

 

4

 

 

 

Balance as of September 30, 2020

$

0

 

$

0

 

$

624

 

$

624

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

Loans

 

Total

 

 

Carrying amount as of :

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2020

 

 

 

$

65,216

 

$

620

 

$

65,836

 

 

 

 

September 30, 2020

 

 

 

$

49,743

 

$

624

 

$

50,367

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bank Frick

 

Finbond

 

Other(1)

 

Total

 

 

Investment in equity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2020

$

29,739

 

$

30,876

 

$

4,601

 

$

65,216

 

 

 

 

Stock-based compensation

 

0

 

 

(40)

 

 

0

 

 

(40)

 

 

 

 

Comprehensive (loss) income:

 

979

 

 

(18,579)

 

 

(865)

 

 

(18,465)

 

 

 

 

 

Other comprehensive income

 

0

 

 

1,688

 

 

0

 

 

1,688

 

 

 

 

 

Equity accounted (loss) earnings

 

979

 

 

(20,267)

 

 

(865)

 

 

(20,153)

 

 

 

 

 

 

Share of net (loss) income

 

979

 

 

(2,617)

 

 

(317)

 

 

(1,955)

 

 

 

 

 

 

Impairment

 

0

 

 

(17,650)

 

 

(548)

 

 

(18,198)

 

 

 

 

Dividends received

 

0

 

 

0

 

 

(125)

 

 

(125)

 

 

 

 

Disposal of equity-accounted investment

 

0

 

 

0

 

 

(13)

 

 

(13)

 

 

 

 

Foreign currency adjustment(2)

 

2,301

 

 

3,178

 

 

74

 

 

5,553

 

 

 

Balance as of December 31, 2020

$

33,019

 

$

15,435

 

$

3,672

 

$

52,126

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2020

$

0

 

$

0

 

$

620

 

$

620

 

 

 

 

Loans granted

 

0

 

 

0

 

 

1,238

 

 

1,238

 

 

 

 

Allowance for doubtful loans

 

0

 

 

0

 

 

(738)

 

 

(738)

 

 

 

 

Loans repaid

 

0

 

 

0

 

 

(134)

 

 

(134)

 

 

 

 

Foreign currency adjustment(2)

 

0

 

 

0

 

 

14

 

 

14

 

 

 

Balance as of December 31, 2020

$

0

 

$

0

 

$

1,000

 

$

1,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity

 

Loans

 

Total

 

 

Carrying amount as of :

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

June 30, 2020

 

 

 

$

65,216

 

$

620

 

$

65,836

 

 

 

 

December 31, 2020

 

 

 

$

52,126

 

$

1,000

 

$

53,126

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Includes Carbon, SmartSwitch Namibia, V2 and Walletdoc;Walletdoc.

(2) The foreign currency adjustment represents the effects of the fluctuations of the Swiss franc, ZAR, Nigerian naira and Namibian dollar, against the U.S. dollar on the carrying value.

 

Other long-term assets

 

Summarized below is the breakdown of other long-term assets as ofSeptember 30,of December 31, 2020, and June 30, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total equity investments

$

26,993

 

$

26,993

 

 

 

Investment in 15% of Cell C, at fair value (Note 4)

 

0

 

 

0

 

 

 

Investment in 12% of MobiKwik

 

26,993

 

 

26,993

 

 

 

Investment in 87.5% of CPS(1)

 

0

 

 

0

 

Total held to maturity investments

 

-

 

 

-

 

 

 

Investment in 7.625% of Cedar Cellular Investment 1 (RF) (Pty) Ltd 8.625% notes

 

0

 

 

0

 

Long-term portion of amount due from DNI related to sale of remaining interest in DNI

 

1,635

 

 

2,857

 

Policy holder assets under investment contracts (Note 7)

 

511

 

 

490

 

Reinsurance assets under insurance contracts (Note 7)

 

1,033

 

 

1,006

 

 

 

Total other long-term assets

$

30,172

 

$

31,346

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

 

June 30,

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

 

 

2020

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total equity investments

$

42,121

 

$

26,993

 

 

 

Investment in 15% of Cell C, at fair value (Note 5)

 

0

 

 

0

 

 

 

Investment in 12% of MobiKwik

 

42,121

 

 

26,993

 

 

 

Investment in 87.5% of CPS(1)

 

0

 

 

0

 

Total held to maturity investments

 

-

 

 

-

 

 

 

Investment in 7.625% of Cedar Cellular Investment 1 (RF) (Pty) Ltd 8.625% notes

 

0

 

 

0

 

Long-term portion of amount due from DNI related to sale of remaining interest in DNI

 

0

 

 

2,857

 

Policy holder assets under investment contracts (Note 8)

 

593

 

 

490

 

Reinsurance assets under insurance contracts (Note 8)

 

1,193

 

 

1,006

 

 

 

Total other long-term assets

$

43,907

 

$

31,346

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) On October 16, 2020, the High Court of South Africa, Gauteng Division, Pretoria ordered that CPS be placed into liquidation.

 

1518

 

5.6.Equity-accounted investments and other long-term assets (continued)

 

Other long-term assets (continued)

MobiKwik

In early November 2020, MobiKwik entered into an agreement to raise additional capital through the issuance of additional shares to a new shareholder at a valuation of $135.54 per share. The Company considered this transaction to be an observable price change in an orderly transaction for similar or identical equity securities issued by MobiKwik. The Company used this valuation as the basis for its adjustment to increase the carrying value in its investment in MobiKwik by $15.1 million from $27.0 million to $42.1 million as of December 31, 2020. The change in the fair value of MobiKwik of $15.1 million is included in the caption “Change in fair value of equity securities” in the unaudited condensed consolidated statement of operations for the three and six months ended December 31, 2020.

 

Summarized below are the components of the Company’s equity securities without readily determinable fair value and held to maturity investments as of September 30,December 31, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

Cost basis

 

 

Unrealized holding

 

 

Unrealized holding

 

 

Carrying

 

 

 

 

 

 

 

 

 

 

 

 

 

 

gains

 

 

losses

 

 

value

 

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in MobiKwik

$

26,993

 

$

-

 

$

-

 

$

26,993

 

 

 

Investment in CPS

 

-

 

 

-

 

 

-

 

 

-

 

 

Held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in Cedar Cellular notes

 

0

 

 

-

 

 

-

 

 

0

 

 

 

 

 

Total

$

26,993

 

$

-

 

$

-

 

$

26,993

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost basis

 

 

Unrealized holding

 

 

Unrealized holding

 

 

Carrying

 

 

 

 

 

 

 

 

 

 

 

 

 

 

gains

 

 

losses

 

 

value

 

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in MobiKwik

$

26,993

 

$

15,128

 

$

0

 

$

42,121

 

 

 

Investment in CPS

 

0

 

 

0

 

 

0

 

 

0

 

 

Held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in Cedar Cellular notes

 

0

 

 

0

 

 

0

 

 

0

 

 

 

 

 

Total

$

26,993

 

$

15,128

 

$

0

 

$

42,121

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Summarized below are the components of the Company’s equity securities without readily determinable fair value and held to maturity investments as of June 30, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

Cost basis

 

 

Unrealized holding

 

 

Unrealized holding

 

 

Carrying

 

 

 

 

 

 

 

 

 

 

 

 

 

 

gains

 

 

losses

 

 

value

 

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in MobiKwik

$

26,993

 

$

-

 

$

-

 

$

26,993

 

 

 

Investment in CPS

 

-

 

 

-

 

 

-

 

 

-

 

 

Held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in Cedar Cellular notes

 

0

 

 

-

 

 

-

 

 

0

 

 

 

 

 

Total

$

26,993

 

$

-

 

$

-

 

$

26,993

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost basis

 

 

Unrealized holding

 

 

Unrealized holding

 

 

Carrying

 

 

 

 

 

 

 

 

 

 

 

 

 

 

gains

 

 

losses

 

 

value

 

 

Equity securities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in MobiKwik

$

26,993

 

$

0

 

$

0

 

$

26,993

 

 

 

Investment in CPS

 

0

 

 

0

 

 

0

 

 

0

 

 

Held to maturity:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment in Cedar Cellular notes

 

0

 

 

0

 

 

0

 

 

0

 

 

 

 

 

Total

$

26,993

 

$

0

 

$

0

 

$

26,993

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contractual maturities of held to maturity investments

 

Summarized below is the contractual maturity of the Company’s held to maturity investment as of September 30,December 31, 2020:

 

 

 

 

 

 

 

 

 

 

Cost basis

 

 

Estimated fair value(1)

 

 

Due in one year or less

$

0

 

$

0

 

 

Due in one year through five years(2)

 

0

 

 

0

 

 

Due in five years through ten years

 

0

 

 

0

 

 

Due after ten years

 

0

 

 

0

 

 

 

 

Total

$

0

 

$

0

 

 

(1) The estimated fair value of the Cedar Cellular note has been calculated utilizing the Company’s portion of the security provided to the Company by Cedar Cellular, namely, Cedar Cellular’s investment in Cell C.

(2) The cost basis is zero ($0.0 million).

19

 

6.

7.Goodwill and intangible assets, net

 

Goodwill

 

Summarized below is the movement in the carrying value of goodwill for the threesix months ended September 30,December 31, 2020:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross value

 

 

Accumulated impairment

 

 

Carrying value

 

 

 

Balance as of June 30, 2020

 

$

63,194

 

$

(39,025)

 

$

24,169

 

 

 

 

Foreign currency adjustment (1)

 

 

892

 

 

(196)

 

 

696

 

 

 

 

 

Balance as of September 30, 2020

 

$

64,086

 

$

(39,221)

 

$

24,865

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross value

 

 

Accumulated impairment

 

 

Carrying value

 

 

 

Balance as of June 30, 2020

 

$

63,194

 

$

(39,025)

 

$

24,169

 

 

 

 

Foreign currency adjustment (1)

 

 

5,490

 

 

(1,204)

 

 

4,286

 

 

 

 

 

Balance as of December 31, 2020

 

$

68,684

 

$

(40,229)

 

$

28,455

 

(1) The foreign currency adjustment represents the effects of the fluctuations between the ZAR and the euro, and the U.S. dollar on the carrying value.

 

16

6.Goodwill and intangible assets, net (continued)

Goodwill (continued)

Refer to Note 1718 for additional information regarding changes to the Company’s reportable segments during the threesix months ended September 30,December 31, 2020. Goodwill has been allocated to the Company’s reportable segments as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing

 

 

Financial services

 

 

Technology

 

 

Carrying value

 

 

Balance as of June 30, 2020

 

$

9,989

 

$

0

 

$

14,180

 

$

24,169

 

 

 

Foreign currency adjustment (1)

 

 

276

 

 

0

 

 

420

 

 

696

 

 

 

 

Balance as of September 30, 2020

 

$

10,265

 

$

0

 

$

14,600

 

$

24,865

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing

 

 

Financial services

 

 

Technology

 

 

Carrying value

 

 

Balance as of June 30, 2020

 

$

9,989

 

$

0

 

$

14,180

 

$

24,169

 

 

 

Foreign currency adjustment (1)

 

 

1,701

 

 

0

 

 

2,585

 

 

4,286

 

 

 

 

Balance as of December 31, 2020

 

$

11,690

 

$

0

 

$

16,765

 

$

28,455

(1) The foreign currency adjustment represents the effects of the fluctuations between the ZAR and the euro, and the U.S. dollar on the carrying value.

 

Intangible assets

 

Carrying value and amortization of intangible assets

 

Summarized below is the carrying value and accumulated amortization of the intangible assets as of September 30,December 31, 2020, and June 30, 2020:

 

 

 

 

 

 

As of September 30, 2020

 

As of June 30, 2020

 

 

 

 

 

 

 

Gross carrying value

 

 

Accumulated amortization

 

 

Net carrying value

 

 

Gross carrying value

 

 

Accumulated amortization

 

 

Net carrying value

 

 

Finite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

$

19,317

 

$

(19,118)

 

$

199

 

$

19,064

 

$

(18,806)

 

$

258

 

 

 

Software and unpatented

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

technology

 

3,973

 

 

(3,973)

 

 

0

 

 

3,931

 

 

(3,931)

 

 

0

 

 

 

FTS patent

 

2,276

 

 

(2,276)

 

 

0

 

 

2,211

 

 

(2,211)

 

 

0

 

 

 

Trademarks

 

2,780

 

 

(2,431)

 

 

349

 

 

2,731

 

 

(2,377)

 

 

354

 

 

 

Total finite-lived intangible assets

$

28,346

 

$

(27,798)

 

$

548

 

$

27,937

 

$

(27,325)

 

$

612

 

 

Infinite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial institution licenses

 

 

 

 

 

 

 

0

 

 

 

 

 

 

 

 

0

 

 

 

Total infinite-lived intangible assets

 

 

 

 

 

 

 

0

 

 

 

 

 

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total intangible assets

 

 

 

 

 

 

$

548

 

 

 

 

 

 

 

$

612

 

 

 

 

 

 

As of December 31, 2020

 

As of June 30, 2020

 

 

 

 

 

 

 

Gross carrying value

 

 

Accumulated amortization

 

 

Net carrying value

 

 

Gross carrying value

 

 

Accumulated amortization

 

 

Net carrying value

 

 

Finite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Customer relationships

$

20,620

 

$

(20,467)

 

$

153

 

$

19,064

 

$

(18,806)

 

$

258

 

 

 

Software and unpatented

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

technology

 

4,190

 

 

(4,190)

 

 

0

 

 

3,931

 

 

(3,931)

 

 

0

 

 

 

FTS patent

 

2,614

 

 

(2,614)

 

 

0

 

 

2,211

 

 

(2,211)

 

 

0

 

 

 

Trademarks

 

3,034

 

 

(2,651)

 

 

383

 

 

2,731

 

 

(2,377)

 

 

354

 

 

 

Total finite-lived intangible assets

$

30,458

 

$

(29,922)

 

$

536

 

$

27,937

 

$

(27,325)

 

$

612

 

 

Infinite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial institution licenses

 

 

 

 

 

 

 

0

 

 

 

 

 

 

 

 

0

 

 

 

Total infinite-lived intangible assets

 

 

 

 

 

 

 

0

 

 

 

 

 

 

 

 

0

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total intangible assets

 

 

 

 

 

 

$

536

 

 

 

 

 

 

 

$

612

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

20

7.Goodwill and intangible assets, net (continued)

Intangible assets (continued)

 

Aggregate amortization expense on the finite-lived intangible assets for the three months ended September 30,December 31, 2020 and 2019, was approximately $0.1 million and $0.1 million, respectively. Aggregate amortization expense on the finite-lived intangible assets for the six months ended December 31, 2020 and 2019, was approximately $0.2 million and $0.2 million, respectively.

 

Future estimated annual amortization expense for the next five fiscal years and thereafter, assuming exchange rates that prevailed on September 30,December 31, 2020, is presented in the table below. Actual amortization expense in future periods could differ from this estimate as a result of acquisitions, changes in useful lives, exchange rate fluctuations and other relevant factors.

 

 

Fiscal 2021

 

$

327

 

 

Fiscal 2022

 

 

61

 

 

Fiscal 2023

 

 

61

 

 

Fiscal 2024

 

 

61

 

 

Fiscal 2025

 

 

60

 

 

Thereafter

 

 

61

 

 

 

Total future estimated annual amortization expense

 

 

 

 

 

 

 

 

$

631

 

17

 

Fiscal 2021

 

$

376

 

 

Fiscal 2022

 

 

70

 

 

Fiscal 2023

 

 

70

 

 

Fiscal 2024

 

 

70

 

 

Fiscal 2025

 

 

69

 

 

Thereafter

 

 

70

 

 

 

Total future estimated annual amortization expense

 

 

 

 

 

 

 

 

$

725

 

 

7.8.Assets and policyholder liabilities under insurance and investment contracts

 

Reinsurance assets and policyholder liabilities under insurance contracts

 

Summarized below is the movement in reinsurance assets and policyholder liabilities under insurance contracts during the threesix months ended September 30,December 31, 2020:

 

 

 

 

 

 

Reinsurance Assets(1)

 

 

Insurance contracts(2)

 

 

Balance as of June 30, 2020

$

1,006

 

$

(1,370)

 

 

 

Increase in policy holder benefits under insurance contracts

 

126

 

 

1,788

 

 

 

Claims and policyholders’ benefits under insurance contracts

 

(128)

 

 

(1,785)

 

 

 

Foreign currency adjustment(3)

 

29

 

 

(40)

 

 

 

 

Balance as of September 30, 2020

$

1,033

 

$

(1,407)

 

 

 

 

 

 

 

Reinsurance Assets(1)

 

 

Insurance contracts(2)

 

 

Balance as of June 30, 2020

$

1,006

 

$

(1,370)

 

 

 

Increase in policy holder benefits under insurance contracts

 

220

 

 

3,721

 

 

 

Claims and policyholders’ benefits under insurance contracts

 

(216)

 

 

(3,729)

 

 

 

Foreign currency adjustment(3)

 

183

 

 

(249)

 

 

 

 

Balance as of December 31, 2020

$

1,193

 

$

(1,627)

 

(1) Included in other long-term assets (refer to Note 5)6);

(2) Included in other long-term liabilities;

(3) Represents the effects of the fluctuations of the ZAR against the U.S. dollar.

 

The Company has agreements with reinsurance companies in order to limit its losses from various insurance contracts, however, if the reinsurer is unable to meet its obligations, the Company retains the liability. The value of insurance contract liabilities is based on the best estimate assumptions of future experience plus prescribed margins, as required in the markets in which these products are offered, namely South Africa. The process of deriving the best estimates assumptions plus prescribed margins includes assumptions related to claim reporting delays (based on average industry experience).

 

Assets and policyholder liabilities under investment contracts

 

Summarized below is the movement in assets and policyholder liabilities under investment contracts during the threesix months ended September 30,December 31, 2020:

 

 

 

 

 

Assets(1)

 

Investment contracts(2)

 

 

Balance as of June 30, 2020

$

490

 

$

(490)

 

 

 

Increase in policy holder benefits under investment contracts

 

6

 

 

(6)

 

 

 

Foreign currency adjustment (3)

 

15

 

 

(15)

 

 

 

 

Balance as of September 30, 2020

$

511

 

$

(511)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets(1)

 

Investment contracts(2)

 

 

Balance as of June 30, 2020

$

490

 

$

(490)

 

 

 

Increase in policy holder benefits under investment contracts

 

13

 

 

(13)

 

 

 

Foreign currency adjustment (3)

 

90

 

 

(90)

 

 

 

 

Balance as of December 31, 2020

$

593

 

$

(593)

 

 

 

 

 

 

 

 

 

 

 

 

(1) Included in other long-term assets (refer to Note 5)6);

(2) Included in other long-term liabilities;

(3) Represents the effects of the fluctuations of the ZAR against the U.S. dollar.

 

The Company does not offer any investment products with guarantees related to capital or returns.

1821

 

8.

9.Borrowings

 

Refer to Note 13 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2020, for additional information regarding its borrowings.

 

South Africa

Nedbank facility, comprising short-term facilities

On November 2, 2020, the Company amended its short-term South African credit facility with Nedbank Limited to increase the indirect and derivative facilities component of the facility from ZAR 150.0 million to ZAR 159.0 million. As of December 31, 2020, the aggregate amount of the Company’s short-term South African credit facility with Nedbank Limited was ZAR 459.0 million ($31.3 million). The credit facility comprises an overdraft facility of (i) up to ZAR 300.0 million ($20.5 million), which is further split into (a) a ZAR 250.0 million ($17.1 million) overdraft facility which may only be used to fund mobile ATMs and (b) a ZAR 50.0 million ($3.4 million) general banking facility and (ii) indirect and derivative facilities of up to ZAR 159.0 million ($10.8 million), which include guarantees, letters of credit and forward exchange contracts.

 

Movement in short-term credit facilities

 

Summarized below are the Company’s short-term facilities as of September 30,December 31, 2020, and the movement in the Company’s short-term facilities from as of June 30, 2020 to as of September 30,December 31, 2020, as well as the respective interest rates applied to the borrowings as of September 30,December 31, 2020:

 

 

 

 

 

 

 

 

South Africa

 

 

Total

 

 

 

 

 

 

 

RMB

 

Nedbank

 

 

 

 

 

Short-term facilities available as of

 

 

 

 

 

 

 

 

 

 

September 30, 2020

$

71,283

 

$

26,731

 

$

98,014

 

 

 

Overdraft

 

0

 

 

2,970

 

 

2,970

 

 

 

Overdraft restricted as to use for ATM funding only

 

71,283

 

 

14,851

 

 

86,134

 

 

 

Indirect and derivative facilities

 

0

 

 

8,910

 

 

8,910

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate, based on South African prime rate (%)

 

7.00

 

 

 

 

 

 

 

 

Interest rate, based on South African prime rate less 1.15%&"(%)

 

 

 

 

5.85

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Movement in utilized overdraft facilities:

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2020

 

14,756

 

 

58

 

 

14,814

 

 

 

 

Utilized

 

60,117

 

 

9,029

 

 

69,146

 

 

 

 

Repaid

 

(68,039)

 

 

(8,811)

 

 

(76,850)

 

 

 

 

Foreign currency adjustment(1)

 

(153)

 

 

(231)

 

 

(384)

 

 

 

 

 

Balance as of September 30, 2020

 

6,681

 

 

45

 

 

6,726

 

 

 

 

 

 

Restricted as to use for ATM funding only

 

6,681

 

 

45

 

 

6,726

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Movement in utilized indirect and derivative

 

 

 

 

 

 

 

 

 

 

facilities:

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2020(2)

 

0

 

 

5,398

 

 

5,398

 

 

 

 

Foreign currency adjustment(1)

 

0

 

 

159

 

 

159

 

 

 

 

 

Balance as of September 30, 2020(2)

$

0

 

$

5,557

 

$

5,557

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

South Africa

 

 

Total

 

 

 

 

 

 

 

RMB

 

Nedbank

 

 

 

 

 

Short-term facilities available as of December 31, 2020

$

81,852

 

$

31,310

 

$

113,162

 

 

 

Overdraft

 

0

 

 

3,410

 

 

3,410

 

 

 

Overdraft restricted as to use for ATM funding only

 

81,852

 

 

17,052

 

 

98,904

 

 

 

Indirect and derivative facilities

 

0

 

 

10,848

 

 

10,848

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest rate (%), based on South African prime rate

 

7.00

 

 

 

 

 

 

 

 

Interest rate (%), based on South African prime rate less 1.15%

 

 

 

 

5.85

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Movement in utilized overdraft facilities:

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2020

 

14,756

 

 

58

 

 

14,814

 

 

 

 

Utilized

 

189,928

 

 

16,551

 

 

206,479

 

 

 

 

Repaid

 

(155,670)

 

 

(9,438)

 

 

(165,108)

 

 

 

 

Foreign currency adjustment(1)

 

4,720

 

 

(102)

 

 

4,618

 

 

 

 

 

Balance as of December 31, 2020

 

53,734

 

 

7,069

 

 

60,803

 

 

 

 

 

 

Restricted as to use for ATM funding only

 

53,734

 

 

7,069

 

 

60,803

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Movement in utilized indirect and derivative

 

 

 

 

 

 

 

 

 

 

facilities:

 

 

 

 

 

 

 

 

 

 

 

Balance as of June 30, 2020(2)

 

0

 

 

5,398

 

 

5,398

 

 

 

 

Utilized

 

0

 

 

3,826

 

 

3,826

 

 

 

 

Foreign currency adjustment(1)

 

0

 

 

1,455

 

 

1,455

 

 

 

 

 

Balance as of December 31, 2020(2)

$

0

 

$

10,679

 

$

10,679

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(1) Represents the effects of the fluctuations between the ZAR and the U.S. dollar.

(2) As of September 30,December 31, 2020 and June 30, 2020, the Company had utilized approximately ZAR 93.6156.6 million ($5.610.7 million) and ZAR 93.6 million ($5.4 million), respectively, of its indirect and derivative facilities of ZAR 159.0 million (June 30, 2020: ZAR 150 millionmillion) to enable the bank to issue guarantees, letters of credit and forward exchange contracts, in order for the Company to honor its obligations to third parties requiring such guarantees (refer to Note 19)20).

22

 

9.10.Other payables

 

Summarized below is the breakdown of other payables as of September 30,December 31, 2020, and June 30, 2020:

 

 

 

 

 

September 30,

 

June 30,

 

 

 

 

 

 

2020

 

 

2020

 

 

Accruals

 

$

7,191

 

$

6,045

 

 

Provisions

 

 

5,224

 

 

4,926

 

 

Other

 

 

10,759

 

 

11,329

 

 

Value-added tax payable

 

 

241

 

 

129

 

 

Payroll-related payables

 

 

1,343

 

 

887

 

 

Participating merchants' settlement obligation

 

 

484

 

 

463

 

 

 

 

$

25,242

 

$

23,779

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31,

 

June 30,

 

 

 

 

 

 

2020

 

 

2020

 

 

Accruals

 

$

7,073

 

$

6,045

 

 

Provisions

 

 

3,048

 

 

4,926

 

 

Other

 

 

13,140

 

 

11,329

 

 

Value-added tax payable

 

 

215

 

 

129

 

 

Payroll-related payables

 

 

1,039

 

 

887

 

 

Participating merchants' settlement obligation

 

 

551

 

 

463

 

 

 

 

$

25,066

 

$

23,779

 

 

 

 

 

 

 

 

 

 

 

 

Other includes transactions-switching funds payable, deferred income, client deposits and other payables.

19

 

10.11.Capital structure

 

The following table presents a reconciliation between the number of shares, net of treasury, presented in the unaudited condensed consolidated statement of changes in equity asduring the six months ended December 31, 2020 and 2019, respectively, and the number of September 30,shares, net of treasury, excluding non-vested equity shares that have not vested during the six months ended December 31, 2020 and 2019, respectively:

 

 

 

 

September 30,

 

September 30,

 

 

 

 

2020

 

2019

 

 

 

 

 

 

 

 

 

Number of shares, net of treasury:

 

 

 

 

 

 

Statement of changes in equity

56,638,725

 

56,568,425

 

 

 

Non-vested equity shares that have not vested as of end of period

324,000

 

583,908

 

 

Number of shares, net of treasury, excluding non-vested equity shares that have not vested

56,314,725

 

55,984,517

 

 

 

 

December 31,

 

December 31,

 

 

 

 

2020

 

2019

 

 

 

 

 

 

 

 

 

Number of shares, net of treasury:

 

 

 

 

 

 

Statement of changes in equity

56,614,559

 

56,568,425

 

 

 

Non-vested equity shares that have not vested as of end of period

294,000

 

583,908

 

 

Number of shares, net of treasury, excluding non-vested equity shares that have not vested

56,320,559

 

55,984,517

 

 

11.12.Accumulated other comprehensive loss

 

The table below presents the change in accumulated other comprehensive (loss) income per component during the three months ended September 30,December 31, 2020:

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

 

 

 

September 30, 2020

 

 

 

 

 

 

 

 

 

 

Accumulated foreign currency translation reserve

 

 

Total

 

 

Balance as of July 1, 2020

 

 

 

 

$

(169,075)

 

$

(169,075)

 

 

 

Movement in foreign currency translation reserve related to equity-accounted investment

 

 

1,688

 

 

1,688

 

 

 

Movement in foreign currency translation reserve

 

 

6,142

 

 

6,142

 

 

 

 

Balance as of September 30, 2020

 

 

 

 

$

(161,245)

 

$

(161,245)

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

Accumulated foreign currency translation reserve

 

 

Total

 

 

Balance as of October 1, 2020

 

 

 

 

$

(161,245)

 

$

(161,245)

 

 

 

Movement in foreign currency translation reserve

 

 

20,003

 

 

20,003

 

 

 

 

Balance as of December 31, 2020

 

 

 

 

$

(141,242)

 

$

(141,242)

 

23

 

12.Accumulated other comprehensive loss (continued)

The table below presents the change in accumulated other comprehensive (loss) income per component during the three months ended September 30,December 31, 2019:

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

September 30, 2019

 

 

 

 

 

 

 

Accumulated foreign currency translation reserve

 

 

Total

 

 

Balance as of July 1, 2019

 

$

(195,812)

 

$

(195,812)

 

 

 

Movement in foreign currency translation reserve related to equity-accounted investment

 

 

2,718

 

 

2,718

 

 

 

Movement in foreign currency translation reserve

 

 

(18,085)

 

 

(18,085)

 

 

 

 

Balance as of September 30, 2019

 

$

(211,179)

 

$

(211,179)

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

Accumulated foreign currency translation reserve

 

 

Total

 

 

Balance as of October 1, 2019

 

$

(211,179)

 

$

(211,179)

 

 

 

Release of foreign currency translation reserve related to FIHRST disposal (Note 2)

 

 

1,578

 

 

1,578

 

 

 

Movement in foreign currency translation reserve related to equity-accounted investment

 

 

(491)

 

 

(491)

 

 

 

Movement in foreign currency translation reserve

 

 

19,114

 

 

19,114

 

 

 

 

Balance as of December 31, 2019

 

$

(190,978)

 

$

(190,978)

 

The table below presents the change in accumulated other comprehensive (loss) income per component during the six months ended December 31, 2020:

 

 

 

 

 

 

 

 

Six months ended

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

 

 

 

 

 

 

 

 

Accumulated foreign currency translation reserve

 

 

Total

 

 

Balance as of July 1, 2020 (as restated, Note 1)

 

 

 

 

$

(169,075)

 

$

(169,075)

 

 

 

Movement in foreign currency translation reserve related to equity-accounted investment

 

 

1,688

 

 

1,688

 

 

 

Movement in foreign currency translation reserve

 

 

26,145

 

 

26,145

 

 

 

 

Balance as of December 31, 2020

 

 

 

 

$

(141,242)

 

$

(141,242)

 

The table below presents the change in accumulated other comprehensive (loss) income per component during the six months ended December 31, 2019:

 

 

 

 

 

Six months ended

 

 

 

 

 

 

December 31, 2019

 

 

 

 

 

 

 

Accumulated foreign currency translation reserve

 

 

Total

 

 

Balance as of July 1, 2019

 

$

(195,812)

 

$

(195,812)

 

 

 

Release of foreign currency translation reserve related to FIHRST disposal (Note 2)

 

 

1,578

 

 

1,578

 

 

 

Movement in foreign currency translation reserve related to equity-accounted investment

 

 

2,227

 

 

2,227

 

 

 

Movement in foreign currency translation reserve

 

 

1,029

 

 

1,029

 

 

 

 

Balance as of December 31, 2019

 

$

(190,978)

 

$

(190,978)

 

There were 0 reclassifications from accumulated other comprehensive loss to net (loss) income during the three and six months ended September 30, 2020December 31, 2020. During the three and 2019.six months ended December 31, 2019, the Company reclassified $1.6 million from accumulated other comprehensive loss (accumulated foreign currency translation reserve) to net loss related to the FIHRST disposal (refer to Note 2).

24

 

12.13.Stock-based compensation

 

The Company’s Amended and Restated 2015 Stock Incentive Plan and the vesting terms of certain stock-based awards granted are described in Note 18 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2020.

 

20

12.Stock-based compensation (continued)

Stock option and restricted stock activity

 

Options

 

The following table summarizes stock option activity for the threesix months ended September 30,December 31, 2020 and 2019:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares

 

 

Weighted average exercise price

($)

 

 

Weighted average remaining contractual term

(in years)

 

 

Aggregate intrinsic value

($'000)

 

Weighted average grant date fair value

($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding - June 30, 2020

 

1,331,651

 

 

5.83

 

 

7.56

 

 

0

 

2.01

 

 

 

Granted - August 2020

 

150,000

 

 

3.50

 

 

3.00

 

 

166

 

1.11

 

 

 

Forfeited

 

(250,034)

 

 

8.79

 

 

 

 

 

-

 

2.71

 

 

 

 

Outstanding - September 30, 2020

 

1,231,617

 

 

4.97

 

 

7.56

 

 

163

 

1.76

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding - June 30, 2019

 

864,579

 

 

7.81

 

 

7.05

 

 

-

 

2.62

 

 

 

 

Outstanding - September 30, 2019

 

864,579

 

 

7.81

 

 

6.81

 

 

0

 

2.62

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Number of shares

 

 

Weighted average exercise price

($)

 

 

Weighted average remaining contractual term

(in years)

 

 

Aggregate intrinsic value

($'000)

 

Weighted average grant date fair value

($)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding - June 30, 2020

 

1,331,651

 

 

5.83

 

 

7.56

 

 

0

 

2.01

 

 

Granted - August 2020

 

150,000

 

 

3.50

 

 

3.00

 

 

166

 

1.11

 

 

Granted - November 2020

 

560,000

 

 

3.01

 

 

10.00

 

 

691

 

1.23

 

 

Exercised

 

(5,834)

 

 

3.07

 

 

-

 

 

21

 

0

 

 

Forfeited

 

(456,033)

 

 

7.03

 

 

-

 

 

-

 

2.26

 

 

 

Outstanding - December 31, 2020

 

1,579,784

 

 

4.28

 

 

8.04

 

 

2,104

 

1.59

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding - June 30, 2019

 

864,579

 

 

7.81

 

 

7.05

 

 

-

 

2.62

 

 

Granted – October 2019

 

561,000

 

 

3.07

 

 

10.00

 

 

676

 

1.20

 

 

 

Outstanding - December 31, 2019

 

1,425,579

 

 

5.94

 

 

7.81

 

 

365

 

2.07

 

On August 5, 2020, the Company granted one of its non-employee directors, Mr. Ali Mazanderani, in his capacity as a consultant to the Company, 150,000 stock options with an exercise price of $3.50. These stock options are subject to the non-employee director’s continuous service through the applicable vesting date, and half of the options vest on each of the first and second anniversaries of the grant date. NaNThe Company awarded 560,000 and 561,000 stock options were awardedto employees during the three and six months ended September 30, 2019.December 31, 2020 and 2019, respectively. During the threesix months ended September 30,December 31, 2020, the Company’s former chief executive officer forfeited 250,034 stock options with strike prices ranging from $6.20 to $11.23 per share following his separation from the Company. Employees forfeited 205,999 stock options during the three and six months ended December 31, 2020. NaN stock options were forfeited during the three and six months ended December 31, 2019.

 

The fair value of each option is estimated on the date of grant using the Cox Ross Rubinstein binomial model that uses the assumptions noted in the following table. The estimated expected volatility is calculated based on the Company’s 750-day volatility. The estimated expected life of the option was determined based on historical behavior of employees who were granted options with similar terms.

 

The table below presents the range of assumptions used to value stock options granted during the threesix months ended September 30, 2020:December 31, 2020 and 2019:

 

Three months ended

September 30,

2020

Expected volatility

62

%

Expected dividends

0

%

Expected life (in years)

2

Risk-free rate

0.11

%

 

 

 

 

 

Six months ended

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

 

2020

 

 

 

2019

 

 

Expected volatility

 

62

%

 

 

57

%

 

Expected dividends

 

0

%

 

 

0

%

 

Expected life (in years)

 

3

 

 

 

3

 

 

Risk-free rate

 

0.19

%

 

 

1.57

%

2125

 

12.13.Stock-based compensation (continued)

 

Stock option and restricted stock activity (continued)

 

Options (continued)

 

The following table presents stock options vested and expected to vest as of September 30,December 31, 2020:

 

 

 

 

 

 

 

 

Number of

shares

 

 

Weighted average exercise price

($)

 

 

Weighted average remaining contractual term

(in years)

 

 

Aggregate intrinsic value

($’000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested and expecting to vest - September 30, 2020

 

 

1,231,617

 

 

4.97

 

 

7.56

 

 

163

 

 

 

 

 

 

 

 

Number of

shares

 

 

Weighted average exercise price

($)

 

 

Weighted average remaining contractual term

(in years)

 

 

Aggregate intrinsic value

($’000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Vested and expecting to vest - December 31, 2020

 

 

1,579,784

 

 

4.28

 

 

8.04

 

 

2,104

 

 

 

These options have an exercise price range of $3.07$3.01 to $11.23.

 

The following table presents stock options that are exercisable as of September 30,December 31, 2020:

 

 

 

 

 

 

 

 

Number of

shares

 

 

Weighted average exercise price

($)

 

 

Weighted average remaining contractual term

(in years)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable - September 30, 2020

 

 

400,617

 

 

7.64

 

 

6.84

 

 

 

 

 

 

 

 

 

 

Number of

shares

 

 

Weighted average exercise price

($)

 

 

Weighted average remaining contractual term

(in years)

 

 

Aggregate intrinsic value

($’000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable - December 31, 2020

 

 

472,299

 

 

6.37

 

 

7.17

 

 

274

 

 

During the three months ended September 30,December 31, 2020, ,181333 stock options became exercisable. NaN stock options became exercisable during the three months ended December 31, 2019. During the six months ended December 31, 2020 and 2019, respectively, 156,333337,666 and 170,335 stock options became exercisable. The Company issues new shares to satisfy stock option exercises.

 

Restricted stock

 

The following table summarizes restricted stock activity for the threesix months ended September 30,December 31, 2020 and 2019:

 

 

 

 

 

 

 

 

Number of shares of restricted stock

 

 

 

Weighted average grant date fair value

($’000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-vested – June 30, 2020

 

 

1,115,500

 

 

 

5,354

 

 

 

 

Total vested

 

 

(311,300)

 

 

 

(1,037)

 

 

 

 

 

Vested – August 2020

 

 

(244,500)

 

 

 

(812)

 

 

 

 

 

Vested – September 2020 - accelerated vesting

 

 

(66,800)

 

 

 

(225)

 

 

 

Forfeitures

 

 

(480,200)

 

 

 

(1,618)

 

 

 

 

 

Non-vested – September 30, 2020

 

 

324,000

 

 

 

1,102

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-vested – June 30, 2019

 

 

583,908

 

 

 

3,410

 

 

 

 

 

 

Non-vested – September 30, 2019

 

 

583,908

 

 

 

3,410

 

 

 

 

 

 

 

 

 

Number of shares of restricted stock

 

 

 

Weighted average grant date fair value

($’000)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-vested – June 30, 2020

 

 

1,115,500

 

 

 

5,354

 

 

 

 

Total vested

 

 

(311,300)

 

 

 

(1,037)

 

 

 

 

 

Vested – August 2020

 

 

(244,500)

 

 

 

(812)

 

 

 

 

 

Vested – September 2020 - accelerated vesting

 

 

(66,800)

 

 

 

(225)

 

 

 

Forfeitures

 

 

(510,200)

 

 

 

(1,766)

 

 

 

 

 

Non-vested – December 31, 2020

 

 

294,000

 

 

 

994

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-vested – June 30, 2019

 

 

583,908

 

 

 

3,410

 

 

 

 

 

 

Non-vested – December 31, 2019

 

 

583,908

 

 

 

3,410

 

 

 

During the threesix months ended September 30,December 31, 2020, 244,500 shares of restricted stock with time-based vesting conditions vested. In connection with the Company’s former chief executive officer’s separation, the Company agreed to accelerate the vesting of 66,800 shares of restricted stock which were granted in February 2020, and which were subject to time-based vesting. These shares of restricted stock vested on September 30, 2020. The 480,200,510200 shares of restricted stock that were forfeited during the threesix months ended September 30,December 31, 2020, includes 375,200 shares of restricted stock forfeited by the Company’s former chief executive officer upon his separation from the Company.Company and 30,000 shares of restricted stock forfeited by an executive officer as the market condition (related to share price performance) was not achieved.

 

 

2226

 

12.13.Stock-based compensation (continued)

 

Stock-based compensation charge and unrecognized compensation cost

 

The Company recorded a stock-based compensation charge, net during each of the three months ended September 30,December 31, 2020 and 2019, of $0.2 million and $0.4 million, respectively, which comprised:

 

 

 

 

 

 

 

 

 

 

 

Allocated to cost of goods sold,

 

 

Allocated to

 

 

 

 

 

 

 

 

 

 

 

IT processing,

 

 

selling, general

 

 

 

 

 

 

 

 

Total

 

 

servicing and

 

 

and

 

 

 

 

 

 

 

 

charge

 

 

support

 

 

administration

 

 

Three months ended September 30, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation charge

 

$

682

 

$

-

 

$

682

 

 

 

 

Reversal of stock compensation charge related to stock options and restricted stock forfeited

 

 

(283)

 

 

-

 

 

(283)

 

 

 

 

 

Total - three months ended September 30, 2020

 

$

399

 

$

-

 

$

399

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended September 30, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation charge

 

$

387

 

$

-

 

$

387

 

 

 

 

 

Total - three months ended September 30, 2019

 

$

387

 

$

-

 

$

387

 

 

 

 

 

 

 

Total charge

 

Allocated to cost of goods sold, IT processing, servicing and support

 

Allocated to selling, general and administration

 

 

Three months ended December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation charge

 

$

246

 

$

-

 

$

246

 

 

 

 

Reversal of stock compensation charge related to stock options and restricted stock forfeited

 

 

(14)

 

 

-

 

 

(14)

 

 

 

 

 

Total - three months ended December 31, 2020

 

$

232

 

$

0

 

$

232

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation charge

 

$

436

 

$

-

 

$

436

 

 

 

 

 

Total - three months ended December 31, 2019

 

$

436

 

$

0

 

$

436

 

The Company recorded a stock-based compensation charge, net during the six months ended December 31, 2020 and 2019, of $0.6 million and $0.8 million respectively, which comprised:

 

 

 

 

 

 

 

Total charge

 

Allocated to cost of goods sold, IT processing, servicing and support

 

Allocated to selling, general and administration

 

 

Six months ended December 31, 2020

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation charge

 

$

928

 

$

0

 

$

928

 

 

 

 

Reversal of stock compensation charge related to stock options and restricted stock forfeited

 

$

(297)

 

$

0

 

$

(297)

 

 

 

 

 

Total - six months ended December 31, 2020

 

$

631

 

$

0

 

$

631

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six months ended December 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Stock-based compensation charge

 

$

823

 

$

-

 

$

823

 

 

 

 

 

Total - six months ended December 31, 2019

 

$

823

 

$

0

 

$

823

 

The stock-based compensation charges have been allocated to selling, general and administration based on the allocation of the cash compensation paid to the relevant employees.

 

As of September 30,December 31, 2020, the total unrecognized compensation cost related to stock options was approximately $0.9$1.3 million, which the Company expects to recognize over approximately three years. As of September 30,December 31, 2020, the total unrecognized compensation cost related to restricted stock awards was approximately $0.9$0.7 million, which the Company expects to recognize over approximately threetwo years.

 

As of September 30,December 31, 2020, and June 30, 2020, respectively, the Company recorded a deferred tax asset of approximately $0.03$0.04 million and $0.4 million, related to the stock-based compensation charge recognized related to employees of Net1. As of September 30,December 31, 2020, and June 30, 2020, respectively, the Company recorded a valuation allowance of approximately $0.03$0.04 million and $0.4 million, related to the deferred tax asset because it does not believe that the stock-based compensation deduction would be utilized as it does not anticipate generating sufficient taxable income in the United States. The Company deducts the difference between the market value on the date of exercise by the option recipient and the exercise price from income subject to taxation in the United States.

27

 

13.14.(Loss) Earnings per share

 

The Company has issued redeemable common stock which is redeemable at an amount other than fair value. Redemption of a class of common stock at other than fair value increases or decreases the carrying amount of the redeemable common stock and is reflected in basic earnings per share using the two-class method. There were no redemptions of common stock, or adjustments to the carrying value of the redeemable common stock during the three months ended September 30,December 31, 2020 and 2019. Accordingly, the two-class method presented below does not include the impact of any redemption. The Company’s redeemable common stock is described in Note 15 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2020.

Basic (loss) earnings per share includes shares of restricted stock that meet the definition of a participating security because these shares are eligible to receive non-forfeitable dividend equivalents at the same rate as common stock. Basic (loss) earnings per share has been calculated using the two-class method and basic (loss) earnings per share for the three months ended September 30,December 31, 2020 and 2019, reflects only undistributed earnings. The computation below of basic (loss) earnings per share excludes the net loss attributable to shares of unvested restricted stock (participating non-vested restricted stock) from the numerator and excludes the dilutive impact of these unvested shares of restricted stock from the denominator.

 

Diluted (loss) earnings per share has been calculated to give effect to the number of shares of additional common stock that would have been outstanding if the potential dilutive instruments had been issued in each period. Stock options are included in the calculation of diluted (loss) earnings per share utilizing the treasury stock method and are not considered to be participating securities, as the stock options do not contain non-forfeitable dividend rights.

 

23

13.(Loss) Earnings per share (continued)

The calculation of diluted (loss) earnings per share includes the dilutive effect of a portion of the restricted stock granted to employees in August 2017, March 2018, May 2018, September 2018 and February 2020, as these shares of restricted stock are considered contingently returnable shares for the purposes of the diluted (loss) earnings per share calculation and the vesting conditions in respect of a portion of the restricted stock had been satisfied. The vesting conditions for all awards made are discussed in Note 18 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2020.

28

14.(Loss) Earnings per share (continued)

 

The following table presents net loss attributable to Net1 and the share data used in the basic and diluted (loss) earnings per share computations using the two-class method:

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

 

 

2020

 

 

 

2019

 

 

 

 

 

 

 

 

 

(in thousands except

 

 

 

 

 

 

 

 

 

percent and

 

 

 

 

 

 

 

 

 

per share data)

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

Net loss attributable to Net1

 

$

(28,958)

 

 

$

(4,392)

 

 

 

Undistributed (loss) earnings

 

 

(28,958)

 

 

 

(4,392)

 

 

 

 

 

Continuing

 

 

(28,958)

 

 

 

(7,327)

 

 

 

 

 

Discontinued

 

$

0

 

 

$

2,935

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Percent allocated to common shareholders (Calculation 1)

 

 

98

 

 

 

99

 

 

 

Numerator for (loss) earnings per share: basic and diluted

 

 

(28,443)

 

 

 

(4,346)

 

 

 

 

 

Continuing

 

 

(28,443)

 

 

 

(7,251)

 

 

 

 

 

Discontinued

 

 

0

 

 

 

2,905

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator

 

 

 

 

 

 

 

 

 

 

Denominator for basic (loss) earnings per share:

 

 

 

 

 

 

 

 

 

 

weighted-average common shares outstanding

 

 

56,104

 

 

 

55,985

 

 

 

 

 

Denominator for diluted (loss) earnings per share: adjusted weighted average common shares outstanding and assuming conversion

 

 

56,104

 

 

 

55,985

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) Earnings per share:

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.51)

 

 

$

(0.08)

 

 

 

 

 

Continuing

 

$

(0.51)

 

 

$

(0.13)

 

 

 

 

 

Discontinued

 

$

0

 

 

$

0.05

 

 

 

Diluted

 

$

(0.51)

 

 

$

(0.08)

 

 

 

 

 

Continuing

 

$

(0.51)

 

 

$

(0.13)

 

 

 

 

 

Discontinued

 

$

0

 

 

$

0.05

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Calculation 1)

 

 

 

 

 

 

 

 

 

 

Basic weighted-average common shares outstanding (A)

 

 

56,104

 

 

 

55,985

 

 

 

Basic weighted-average common shares outstanding and unvested restricted shares expected to vest (B)

 

 

57,119

 

 

 

56,568

 

 

 

Percent allocated to common shareholders (A) / (B)

 

 

98

 

 

 

99

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

 

 

 

 

 

 

December 31,

 

December 31,

 

 

 

 

 

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

(in thousands except

 

 

 

(in thousands except

 

 

 

 

 

 

 

 

 

 

percent and

 

 

 

percent and

 

 

 

 

 

 

 

 

 

 

per share data)

 

 

 

per share data)

 

 

 

Numerator:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss attributable to Net1

 

$

(4,534)

 

 

$

(205)

 

 

$

(33,492)

 

 

$

(4,597)

 

 

 

 

Undistributed (loss) earnings

 

 

(4,534)

 

 

 

(205)

 

 

 

(33,492)

 

 

 

(4,597)

 

 

 

 

 

 

Continuing

 

 

(4,534)

 

 

 

(2,925)

 

 

 

(33,492)

 

 

 

(10,252)

 

 

 

 

 

 

Discontinued

 

$

0

 

 

$

2,720

 

 

$

0

 

 

$

5,655

 

 

 

 

Percent allocated to common shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Calculation 1)

 

 

99%

 

 

 

99%

 

 

 

99%

 

 

 

99%

 

 

 

 

Numerator for (loss) earnings per share: basic and diluted

 

 

(4,508)

 

 

 

(202)

 

 

 

(33,098)

 

 

 

(4,549)

 

 

 

 

 

 

Continuing

 

 

(4,508)

 

 

 

(2,894)

 

 

 

(33,098)

 

 

 

(10,146)

 

 

 

 

 

 

Discontinued

 

 

0

 

 

 

2,692

 

 

 

0

 

 

 

5,597

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Denominator for basic (loss) earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

weighted-average common shares outstanding

 

 

56,317

 

 

 

55,985

 

 

 

56,211

 

 

 

55,985

 

 

 

 

 

 

Denominator for diluted (loss) earnings per share: adjusted weighted average common shares outstanding and assuming conversion

 

 

56,317

 

 

 

55,985

 

 

 

56,211

 

 

 

55,985

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Loss) Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

(0.08)

 

 

$

0

 

 

$

(0.59)

 

 

$

(0.08)

 

 

 

 

 

 

Continuing

 

$

(0.08)

 

 

$

(0.05)

 

 

$

(0.59)

 

 

$

(0.18)

 

 

 

 

 

 

Discontinued

 

$

0

 

 

$

0.05

 

 

$

0

 

 

$

0.10

 

 

 

 

Diluted

 

$

(0.08)

 

 

$

0

 

 

$

(0.59)

 

 

$

(0.08)

 

 

 

 

 

 

Continuing

 

$

(0.08)

 

 

$

(0.05)

 

 

$

(0.59)

 

 

$

(0.18)

 

 

 

 

 

 

Discontinued

 

$

0

 

 

$

0.05

 

 

$

0

 

 

$

0.10

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(Calculation 1)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted-average common shares outstanding (A)

 

 

56,317

 

 

 

55,985

 

 

 

56,211

 

 

 

55,985

 

 

 

 

Basic weighted-average common shares outstanding and unvested restricted shares expected to vest (B)

 

 

56,641

 

 

 

56,568

 

 

 

56,880

 

 

 

56,568

 

 

 

 

Percent allocated to common shareholders

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(A) / (B)

 

 

99%

 

 

 

99%

 

 

 

99%

 

 

 

99%

 

 

29

14.(Loss) Earnings per share (continued)

 

Options to purchase 1,231,6171,579,784 shares of the Company’s common stock at prices ranging from $3.07$3.01 to $11.23 per share were outstanding during the three and six months ended September 30,December 31, 2020, respectively, but were not included in the computation of diluted (loss) earnings per share because the options’ exercise price was greater than the average market price of the Company’s common stock. Options to purchase 864,5791,425,579 shares of the Company’s common stock at prices ranging from $6.20$3.07 to $11.23 per share were outstanding during the three and six months ended September 30,December 31, 2019, respectively, but were not included in the computation of diluted (loss) earnings per share because the options’ exercise price was greater than the average market price of the Company’s common stock. The options, which expire at various dates through August 5,November 4, 2030, were still outstanding as of September 30,December 31, 2020.

 

24

 

14.15.Supplemental cash flow information

The following table presents supplemental cash flow disclosures for the three and six months ended September 30,December 31, 2020 and 2019:

 

 

 

 

 

 

Three months ended

 

 

 

 

 

September 30,

 

 

 

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

Cash received from interest

 

$

495

 

$

737

 

 

Cash paid for interest

 

$

908

 

$

813

 

 

Cash paid for income taxes

 

$

15,406

 

$

1,883

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

 

 

 

 

December 31,

 

 

December 31,

 

 

 

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash received from interest

 

$

714

 

$

1,042

 

$

1,209

 

$

1,779

 

 

 

Cash paid for interest

 

$

636

 

$

2,293

 

$

1,544

 

$

3,107

 

 

 

Cash paid for income taxes

 

$

765

 

$

2,004

 

$

16,171

 

$

3,887

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LeasesDisaggregation of cash, cash equivalents and restricted cash

 

Cash, cash equivalents and restricted cash included on the Company’s unaudited condensed consolidated statement of cash flows includes restricted cash related to cash withdrawn from the Company’s various debt facilities 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. Refer to Note 9 for additional information regarding the Company’s facilities. The following table presents the disaggregation of cash, cash equivalents and restricted cash as of December 31, 2020 and 2019, and June 30, 2020:

 

 

 

 

 

 

 

 

 

 

December 31, 2020

 

 

December 31, 2019

 

 

June 30, 2020

 

 

Continuing

 

$

206,251

 

$

19,390

 

$

217,671

 

 

Discontinued

 

 

0

 

 

31,329

 

 

0

 

 

 

Cash and cash equivalents

 

 

206,251

 

 

50,719

 

 

217,671

 

 

 

Restricted cash

 

 

60,803

 

 

84,360

 

 

14,814

 

 

 

 

Cash, cash equivalents and restricted cash

 

$

267,054

 

$

135,079

 

$

232,485

 

Leases

The following table presents supplemental cash flow disclosure related to leases for the three and six months ended September 30,December 31, 2020 and 2019:

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

 

 

 

 

 

2020

 

2019

 

 

 

Cash paid for amounts included in the measurement of lease liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

 

 

 

 

 

 

$

872

 

$

920

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Right-of-use assets obtained in exchange for lease obligations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating leases

 

 

 

 

 

 

 

$

90

 

$

230

 

 

 

 

 

 

Three months ended December 31,

 

 

Six months ended December 31,

 

 

 

 

 

 

2020

 

 

2019

 

 

2020

 

 

2019

 

 

 

Cash paid for amounts included in the measurement of lease liabilities

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating cash flows from operating leases

 

$

1,007

 

$

1,108

 

$

1,879

 

$

2,028

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Right-of-use assets obtained in exchange for lease obligations

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating leases

 

$

1,611

 

$

2,260

 

$

1,701

 

$

2,490

 

 

15.

30

16.Revenue recognition

 

Disaggregation of revenue

 

The following table presents our revenue disaggregated by major revenue streams, including a reconciliation to operating segments for the three months ended September 30,December 31, 2020:

 

 

 

 

 

Processing

 

Financial services

 

Technology

 

Total

 

Processing fees

$

18,307

 

$

599

 

$

0

 

$

18,906

 

 

South Africa

 

16,751

 

 

599

 

 

0

 

 

17,350

 

 

Rest of world

 

1,556

 

 

0

 

 

0

 

 

1,556

 

Technology products

 

460

 

 

 

 

 

6,074

 

 

6,534

 

Telecom products and services

 

4,422

 

 

 

 

 

0

 

 

4,422

 

Lending revenue

 

0

 

 

4,200

 

 

0

 

 

4,200

 

Insurance revenue

 

0

 

 

1,457

 

 

0

 

 

1,457

 

Account holder fees

 

0

 

 

1,183

 

 

0

 

 

1,183

 

Other

 

306

 

 

81

 

 

24

 

 

411

 

 

Total revenue, derived from the following geographic locations

 

23,495

 

 

7,520

 

 

6,098

 

 

37,113

 

 

 

South Africa

 

21,939

 

 

7,520

 

 

6,098

 

 

35,557

 

 

 

Rest of world

$

1,556

 

$

0

 

$

0

 

$

1,556

 

 

 

 

Processing

 

Financial services

 

Technology

 

Total

 

Processing fees

$

14,755

 

$

575

 

$

0

 

$

15,330

 

 

South Africa

 

13,877

 

 

575

 

 

0

 

 

14,452

 

 

Rest of world

 

878

 

 

0

 

 

0

 

 

878

 

Technology products

 

665

 

 

70

 

 

4,346

 

 

5,081

 

Telecom products and services

 

3,148

 

 

0

 

 

0

 

 

3,148

 

Lending revenue

 

0

 

 

5,288

 

 

0

 

 

5,288

 

Insurance revenue

 

0

 

 

1,613

 

 

0

 

 

1,613

 

Account holder fees

 

0

 

 

1,273

 

 

0

 

 

1,273

 

Other

 

244

 

 

76

 

 

252

 

 

572

 

 

Total revenue, derived from the following geographic locations

 

18,812

 

 

8,895

 

 

4,598

 

 

32,305

 

 

 

South Africa

 

17,934

 

 

8,895

 

 

4,598

 

 

31,427

 

 

 

Rest of world

$

878

 

$

0

 

$

0

 

$

878

 

As discussed in Note 17,18, the Company’s chief operating decision maker changed the Company’s operating and internal reporting structures during the three months ended September 30, 2020. Previously reported information has been restated.

The following table presents our revenue disaggregated by major revenue streams, including a reconciliation to operating segments for the three months ended December 31, 2019:

 

 

 

 

Processing

 

Financial services

 

Technology

 

Total

 

 

 

 

(as restated)

 

 

 

 

 

(as restated)(1)

 

Processing fees

$

14,938

 

$

1,298

 

$

0

 

$

16,236

 

 

South Africa(1)

 

14,088

 

 

1,298

 

 

0

 

 

15,386

 

 

Rest of world

 

850

 

 

0

 

 

0

 

 

850

 

Technology products

 

303

 

 

0

 

 

4,739

 

 

5,042

 

Telecom products and services

 

6,639

 

 

0

 

 

0

 

 

6,639

 

Lending revenue

 

0

 

 

5,384

 

 

0

 

 

5,384

 

Insurance revenue

 

0

 

 

1,372

 

 

0

 

 

1,372

 

Account holder fees

 

0

 

 

3,103

 

 

0

 

 

3,103

 

Other

 

967

 

 

160

 

 

15

 

 

1,142

 

 

Total revenue, derived from the following geographic locations

 

22,847

 

 

11,317

 

 

4,754

 

 

38,918

 

 

 

South Africa

 

21,997

 

 

11,317

 

 

4,754

 

 

38,068

 

 

 

Rest of world

$

850

 

$

0

 

$

0

 

$

850

(1) Processing fees South Africa and Total column has been restated for the error described in Note 1.

2531

 

15.16.Revenue recognition (continued)

 

Disaggregation of revenue (continued)

 

The following table presents our revenue disaggregated by major revenue streams, including a reconciliation to operating segments for the threesix months ended September 30,December 31, 2020:

 

 

 

 

Processing

 

Financial services

 

Technology

 

Total

 

Processing fees

$

31,085

 

$

1,174

 

$

0

 

$

32,259

 

 

South Africa

 

28,651

 

 

1,174

 

 

0

 

 

29,825

 

 

Rest of world

 

2,434

 

 

0

 

 

0

 

 

2,434

 

Technology products

 

1,125

 

 

70

 

 

10,420

 

 

11,615

 

Telecom products and services

 

7,570

 

 

0

 

 

0

 

 

7,570

 

Lending revenue

 

0

 

 

9,488

 

 

0

 

 

9,488

 

Insurance revenue

 

0

 

 

3,070

 

 

0

 

 

3,070

 

Account holder fees

 

0

 

 

2,456

 

 

0

 

 

2,456

 

Other

 

550

 

 

157

 

 

276

 

 

983

 

 

Total revenue, derived from the following geographic locations

 

40,330

 

 

16,415

 

 

10,696

 

 

67,441

 

 

 

South Africa

 

37,896

 

 

16,415

 

 

10,696

 

 

65,007

 

 

 

Rest of world

$

2,434

 

$

-

 

$

-

 

$

2,434

The following table presents our revenue disaggregated by major revenue streams, including a reconciliation to operating segments for the six months ended December 31, 2019:

 

 

 

 

 

Processing

 

Financial services

 

Technology

 

Total

 

Processing fees

$

15,916

 

$

1,249

 

$

0

 

$

17,165

 

 

South Africa

 

14,717

 

 

1,249

 

 

0

 

 

15,966

 

 

Rest of world

 

1,199

 

 

0

 

 

0

 

 

1,199

 

Technology products

 

240

 

 

0

 

 

6,894

 

 

7,134

 

Telecom products and services

 

9,294

 

 

0

 

 

0

 

 

9,294

 

Lending revenue

 

0

 

 

5,154

 

 

0

 

 

5,154

 

Insurance revenue

 

0

 

 

1,386

 

 

0

 

 

1,386

 

Account holder fees

 

0

 

 

5,260

 

 

0

 

 

5,260

 

Other

 

2,365

 

 

166

 

 

14

 

 

2,545

 

 

Total revenue, derived from the following geographic locations

 

27,815

 

 

13,215

 

 

6,908

 

 

47,938

 

 

 

South Africa

 

26,616

 

 

13,215

 

 

6,908

 

 

46,739

 

 

 

Rest of world

$

1,199

 

$

0

 

$

0

 

$

1,199

 

 

 

 

Processing

 

Financial services

 

Technology

 

Total

 

 

 

 

(as restated)

 

 

 

 

 

(as restated)(1)

 

Processing fees

$

29,132

 

$

2,547

 

$

0

 

$

31,679

 

 

South Africa(1)

 

27,083

 

 

2,547

 

 

0

 

 

29,630

 

 

Rest of world

 

2,049

 

 

0

 

 

0

 

 

2,049

 

Technology products

 

543

 

 

0

 

 

11,633

 

 

12,176

 

Telecom products and services

 

15,933

 

 

0

 

 

0

 

 

15,933

 

Lending revenue

 

0

 

 

10,538

 

 

0

 

 

10,538

 

Insurance revenue

 

0

 

 

2,758

 

 

0

 

 

2,758

 

Account holder fees

 

0

 

 

8,363

 

 

0

 

 

8,363

 

Other

 

3,332

 

 

326

 

 

29

 

 

3,687

 

 

Total revenue, derived from the following geographic locations

 

48,940

 

 

24,532

 

 

11,662

 

 

85,134

 

 

 

South Africa

 

46,891

 

 

24,532

 

 

11,662

 

 

83,085

 

 

 

Rest of world

$

2,049

 

$

0

 

$

0

 

$

2,049

(1) Processing fees South Africa and Total column has been restated for the error described in Note 1.

 

16.17.Leases

 

The Company has entered into leasing arrangements classified as operating leases under accounting guidance. These leasing arrangements relate primarily to the lease of its corporate head office, administration offices and branch locations through which the Company operates its financial services business in South Africa. The Company’s operating leases have remaining lease terms of between one and five years. The Company also operates parts of its financial services business from locations which it leases for a period of less than one year. The Company’s operating lease expense during each of the three months ended September 30,December 31, 2020 and 2019 was $0.9 million, respectively. The Company does not have any significant leases that have not commenced as of September 30,December 31, 2020.

 

The Company has also entered into short-term leasing arrangements, primarily for the lease of branch locations and other locations to operate its financial services business in South Africa. The Company’s short-term lease expense during the three months ended September 30,December 31, 2020 and 2019, was $1.1$ 0.9 million and $1.5$ 1.3 million, respectively. The Company’s short-term lease expense during the six months ended December 31, 2020 and 2019, was $ 2.0 million and $ 2.7 million, respectively.

32

17.Leases (continued)

 

The following table presents supplemental balance sheet disclosure related to the Company’s right-of-use assets and its operating lease liabilities as of September 30,December 31, 2020 and June 30, 2020:

 

 

 

 

 

September 30,

 

June 30,

 

 

 

 

 

2020

 

2020

 

 

 

Operating leases:

 

 

 

 

 

 

 

 

 

Operating lease right-of-use asset

 

$

4,848

 

$

5,395

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average remaining lease term (years)

 

 

3.88

 

 

3.94

 

 

 

Weighted average discount rate (percent)

 

 

9

 

 

9

 

 

 

 

 

December 31,

��

June 30,

 

 

 

 

 

2020

 

2020

 

 

 

Operating leases:

 

 

 

 

 

 

 

 

 

Operating lease right-of-use asset

 

$

5,112

 

$

5,395

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average remaining lease term (years)

 

 

2.83

 

 

3.94

 

 

 

Weighted average discount rate (percent)

 

 

10

 

 

9

 

 

The maturities of the Company’s operating lease liabilities as of September 30,December 31, 2020, are presented below:

26

 

 

 

 

 

September 30,

 

 

 

 

 

2020

 

 

Maturities of operating lease liabilities

 

 

 

 

 

2021 (for September 30, 2020 excluding three months to September 30, 2020)

 

$

1,825

 

 

2022

 

 

1,617

 

 

2023

 

 

995

 

 

2024

 

 

660

 

 

2025

 

 

331

 

 

Thereafter

 

 

336

 

 

Total undiscounted operating lease liabilities

 

 

5,764

 

 

Less imputed interest

 

 

738

 

 

Total operating lease liabilities, included in

 

 

5,026

 

 

Operating lease liability - current

 

 

1,921

 

 

Operating lease liability - long-term

 

$

3,105

27

 

 

 

 

 

December 31,

 

 

 

 

 

2020

 

 

Maturities of operating lease liabilities

 

 

 

 

 

2021 (for December 31, 2020 excluding six months to December 31, 2020)

 

$

1,719

 

 

2022

 

 

2,401

 

 

2023

 

 

1,071

 

 

2024

 

 

573

 

 

2025

 

 

195

 

 

Thereafter

 

 

0

 

 

Total undiscounted operating lease liabilities

 

 

5,959

 

 

Less imputed interest

 

 

659

 

 

Total operating lease liabilities, included in

 

 

5,300

 

 

Operating lease liability - current

 

 

2,585

 

 

Operating lease liability - long-term

 

$

2,715

17.18.Operating segments

 

Change to internal reporting structure and restatement of previously reported information

 

During September 2020, the Company’s chief operating decision maker changed the Company’s operating and internal reporting structures following the Company’s decisions to focus primarily on the South African market and to exit its operating activities performed through IPG. The chief operating decision maker has decided to analyze the Company’s operating performance primarily based on reported information for statutory entity,entities, statutory groups, clustered statutory entities or clustered statutory groups, with certain reallocations, based on the activity of the reporting unit. Previously reported information has been restated.

 

Reallocation of certain activities among operating segments

 

During the first quarter of fiscal 2021, the Company reorganized its operating segments by combining what were previously the South African transaction processing segment and the International transaction processing segment into what is now the Processing segment and bifurcating what was previously the Financial inclusion and applied technologies segment into what are now the Financial services segment and the Technology segment. Segment results for the three and six months ended September 30,December 31, 2020 reflect these changes to the operating segments.

 

Operating segments

 

The Company discloses segment information as reflected in the management information systems reports that its chief operating decision maker uses in making decisions and to report certain entity-wide disclosures about products and services, and the countries in which the entity holds material assets or reports material revenues.

 

The Company currently has three reportable segments: Processing, Financial services and Technology. All three segments operate mainly within South Africa and certain of our activities outside of South Africa have been allocated to Processing. The Company’s reportable segments offer different products and services and require different resources and marketing strategies andbut share the Company’s assets.

33

18.Operating segments (continued)

Operating segments (continued)

 

The Processing segment includes fees earned by the Company from processing activities performed for its customers and revenue generated from the distribution of prepaid airtime. The Company provides its customers with transaction processing services that involve the collection, transmittal and retrieval of all transaction data. Customers that have a bank account managed by the Company are issued cards that can be utilized to withdraw funds at an ATM or to transact at a merchant point of sale device (“POS”). The Company earns processing fees from transactions processed for these customers. The Company also earns fees on transactions performed by other banks’ customers utilizing its ATM, POS or bill payment infrastructure. The Processing segment includes IPG’s processing activities.

 

The Financial services segment includes activities related to the provision of financial services to customers, including a bank account, loans and insurance products. The Company charges monthly administration fees for all bank accounts. The Company provides short-term loans to customers in South Africa for which it earns initiation and monthly service fees. The Company writes life insurance contracts, primarily funeral-benefit policies, and policy holders pay the Company a monthly insurance premium.

 

The Technology segment includes sale of hardware and licenses to customers. Hardware includes the sale of POS devices, SIM cards and other consumables which can occur on an ad hoc basis. Licenses include the right to use certain technology developed by the Company.

 

Corporate/Eliminations includes the Company’s head office cost center and the amortization of acquisition-related intangible assets.

28

17.Operating segments (continued)The reconciliation of the reportable segment’s revenue to revenue from external customers for the three months ended December 31, 2020 and 2019, is as follows:

 

 

 

 

 

 

 

Revenue (as restated)(1)

 

 

 

 

 

 

Reportable Segment

 

 

Inter-segment

 

 

From external customers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing

$

19,990

 

$

1,178

 

$

18,812

 

Financial services

 

9,709

 

 

814

 

 

8,895

 

Technology

 

4,609

 

 

11

 

 

4,598

 

 

Total for the three months ended December 31, 2020

$

34,308

 

$

2,003

 

$

32,305

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing(1)

$

25,022

 

$

2,175

 

$

22,847

 

Financial services

 

12,268

 

 

951

 

 

11,317

 

Technology

 

4,890

 

 

136

 

 

4,754

 

 

 

Total for the three months ended December 31, 2019

$

42,180

 

$

3,262

 

$

38,918

Operating segments (continued)(1) Processing for the three months ended December 31, 2019 has been restated for the error described in Note 1.

 

The reconciliation of the reportable segment’s revenue to revenue from external customers for the threesix months ended September 30,December 31, 2020 and 2019, is as follows:

 

 

 

 

 

 

Revenue

 

 

 

 

 

 

Reportable Segment

 

 

Inter-segment

 

 

From external customers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing

$

24,483

 

$

988

 

$

23,495

 

Financial services

 

8,265

 

 

745

 

 

7,520

 

Technology

 

6,211

 

 

113

 

 

6,098

 

 

Total for the three months ended September 30, 2020

$

38,959

 

$

1,846

 

$

37,113

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing

$

30,017

 

$

2,202

 

$

27,815

 

Financial services

 

14,168

 

 

953

 

 

13,215

 

Technology

 

7,209

 

 

301

 

 

6,908

 

 

 

Total for the three months ended September 30, 2019

$

51,394

 

$

3,456

 

$

47,938

 

 

 

 

 

 

Revenue (as restated)(1)

 

 

 

 

 

 

Reportable Segment

 

 

Inter-segment

 

 

From external customers

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing

$

42,496

 

$

2,166

 

$

40,330

 

Financial services

 

17,974

 

 

1,559

 

 

16,415

 

Technology

 

10,820

 

 

124

 

 

10,696

 

 

Total for the six months ended December 31, 2020

$

71,290

 

$

3,849

 

$

67,441

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing(1)

$

53,317

 

$

4,377

 

$

48,940

 

Financial services

 

26,436

 

 

1,904

 

 

24,532

 

Technology

 

12,099

 

 

437

 

 

11,662

 

 

 

Total for the six months ended December 31, 2019

$

91,852

 

$

6,718

 

$

85,134

(1) Processing for the six months ended December 31, 2019 has been restated for the error described in Note 1.

 

The Company does not allocate interest income, interest expense or income tax expense to its reportable segments. The Company evaluates segment performance based on segment operating income before acquisition-related intangible asset amortization which represents operating income before acquisition-related intangible asset amortization and expenses allocated to Corporate/Eliminations, all under GAAP.

The reconciliation of the reportable segments measures of profit or loss to loss before income tax (benefit) expense for the three months ended September 30, 2020 and 2019, is as follows:

 

 

 

 

 

Three months ended

 

 

 

 

 

September 30,

 

 

 

 

2020

 

2019

 

 

 

 

 

 

 

 

 

 

Reportable segments measure of profit or loss

$

(7,898)

 

$

(4,015)

 

 

Operating income: Corporate/Eliminations

 

(2,877)

 

 

(2,421)

 

 

Interest income

 

611

 

 

363

 

 

Interest expense

 

(747)

 

 

(1,347)

 

 

 

Loss before income tax (benefit) expense

$

(10,911)

 

$

(7,420)

2934

 

17.18.Operating segments (continued)

 

Operating segments (continued)

 

The reconciliation of the reportable segments measures of profit or loss to income before income taxes for the three and six months ended December 31, 2020 and 2019, is as follows:

 

 

 

 

 

Three months ended

 

 

Six months ended

 

 

 

 

 

December 31,

 

 

December 31,

 

 

 

 

2020

 

2019

 

2020

 

2019

 

Reportable segments measure of profit or loss

$

(10,374)

 

$

(6,508)

 

$

(18,272)

 

$

(10,523)

 

 

Operating loss: Corporate/Eliminations

 

(4,831)

 

 

(3,912)

 

 

(7,708)

 

 

(6,333)

 

 

Change in fair value of equity securities

 

15,128

 

 

0

 

 

15,128

 

 

0

 

 

Gain on disposal of FIHRST

 

0

 

 

9,743

 

 

0

 

 

9,743

 

 

Loss on disposal of equity-accounted investment

 

(13)

 

 

0

 

 

(13)

 

 

0

 

 

Interest income

 

717

 

 

1,082

 

 

1,328

 

 

1,445

 

 

Interest expense

 

(677)

 

 

(3,129)

 

 

(1,424)

 

 

(4,476)

 

 

 

Income (Loss) before income taxes

$

(50)

 

$

(2,724)

 

$

(10,961)

 

$

(10,144)

The following tables summarize segment information that is prepared in accordance with GAAP for the three and six months ended September 30,December 31, 2020 and 2019:

 

 

 

 

 

 

 

 

 

 

Three months ended

 

 

 

 

 

 

 

 

 

 

September 30,

 

 

 

 

 

 

 

 

 

 

2020

 

 

2019

 

Revenues

 

 

 

 

 

 

 

Processing

$

24,483

 

$

30,017

 

 

 

IPG

 

1,209

 

 

793

 

 

 

All others

 

23,274

 

 

29,224

 

 

Financial services

 

8,265

 

 

14,168

 

 

Technology

 

6,211

 

 

7,209

 

 

 

Total

 

38,959

 

 

51,394

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (loss) income

 

 

 

 

 

 

 

Processing

 

(7,301)

 

 

(5,505)

 

 

 

IPG

 

(2,772)

 

 

(1,973)

 

 

 

All others

 

(4,529)

 

 

(3,532)

 

 

Financial services

 

(2,372)

 

 

345

 

 

Technology

 

1,775

 

 

1,145

 

 

 

Subtotal: Operating segments

 

(7,898)

 

 

(4,015)

 

 

 

Corporate/Eliminations

 

(2,877)

 

 

(2,421)

 

 

 

 

Total

 

(10,775)

 

 

(6,436)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

 

 

Processing

 

704

 

 

823

 

 

Financial services

 

136

 

 

218

 

 

Technology

 

2

 

 

166

 

 

 

Subtotal: Operating segments

 

842

 

 

1,207

 

 

 

Corporate/Eliminations

 

81

 

 

117

 

 

 

 

Total

 

923

 

 

1,324

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenditures for long-lived assets

 

 

 

 

 

 

 

Processing

 

246

 

 

2,068

 

 

Financial services

 

28

 

 

79

 

 

Technology

 

1

 

 

2

 

 

 

Subtotal: Operating segments

 

275

 

 

2,149

 

 

 

Corporate/Eliminations

 

0

 

 

0

 

 

 

 

Total

$

275

 

$

2,149

 

 

 

 

 

 

 

 

 

Three months ended

 

Six months ended

 

 

 

 

 

 

 

 

 

December 31,

 

December 31,

 

 

 

 

 

 

 

 

 

2020

 

2019

 

2020

 

2019

 

 

 

 

 

 

 

 

 

 

 

(as restated)(1)

 

 

 

(as restated)(1)

 

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing

$

19,990

 

$

25,022

 

$

42,496

 

$

53,317

 

 

 

All others

 

19,512

 

 

24,590

 

 

40,809

 

 

52,092

 

 

 

IPG

 

478

 

 

432

 

 

1,687

 

 

1,225

 

 

Financial services

 

9,709

 

 

12,268

 

 

17,974

 

 

26,436

 

 

Technology

 

4,609

 

 

4,890

 

 

10,820

 

 

12,099

 

 

 

Total

 

34,308

 

 

42,180

 

 

71,290

 

 

91,852

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (loss) income

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing

 

(10,381)

 

 

(5,848)

 

 

(17,682)

 

 

(11,353)

 

 

 

IPG

 

(4,647)

 

 

(2,920)

 

 

(7,419)

 

 

(4,893)

 

 

 

All others

 

(5,734)

 

 

(2,928)

 

 

(10,263)

 

 

(6,460)

 

 

Financial services

 

(1,071)

 

 

(1,249)

 

 

(3,443)

 

 

(904)

 

 

Technology

 

1,078

 

 

589

 

 

2,853

 

 

1,734

 

 

 

Subtotal: Operating segments

 

(10,374)

 

 

(6,508)

 

 

(18,272)

 

 

(10,523)

 

 

 

Corporate/Eliminations

 

(4,831)

 

 

(3,912)

 

 

(7,708)

 

 

(6,333)

 

 

 

 

Total

 

(15,205)

 

 

(10,420)

 

 

(25,980)

 

 

(16,856)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing

 

707

 

 

847

 

 

1,411

 

 

1,670

 

 

Financial services

 

116

 

 

216

 

 

252

 

 

434

 

 

Technology

 

163

 

 

2

 

 

165

 

 

168

 

 

 

Subtotal: Operating segments

 

986

 

 

1,065

 

 

1,828

 

 

2,272

 

 

 

Corporate/Eliminations

 

88

 

 

109

 

 

169

 

 

226

 

 

 

 

Total

 

1,074

 

 

1,174

 

 

1,997

 

 

2,498

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenditures for long-lived assets

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing

 

106

 

 

246

 

 

352

 

 

2,314

 

 

Financial services

 

23

 

 

52

 

 

51

 

 

131

 

 

Technology

 

2,894

 

 

(2)

 

 

2,895

 

 

0

 

 

 

Subtotal: Operating segments

 

3,023

 

 

296

 

 

3,298

 

 

2,445

 

 

 

Corporate/Eliminations

 

0

 

 

0

 

 

0

 

 

0

 

 

 

 

Total

$

3,023

 

$

296

 

$

3,298

 

$

2,445

(1) Revenues-Processing-All others for the three and six months ended December 31, 2019 have been restated for the error described in Note 1.

35

18.Operating segments (continued)

Operating segments (continued)

 

The segment information as reviewed by the chief operating decision maker does not include a measure of segment assets per segment as all of the significant assets are used in the operations of all, rather than any one, of the segments. The Company does not have dedicated assets assigned to a particular operating segment. Accordingly, it is not meaningful to attempt an arbitrary allocation and segment asset allocation is therefore not presented.

 

18.

19.Income tax

 

Income tax in interim periods

 

For the purposes of interim financial reporting, the Company determines the appropriate income tax provision by first applying the effective tax rate expected to be applicable for the full fiscal year to ordinary income. This amount is then adjusted for the tax effect of significant unusual items, for instance, changes in tax law, valuation allowances and non-deductible transaction-related expenses that are reported separately, and have an impact on the tax charge. The cumulative effect of any change in the enacted tax rate, if and when applicable, on the opening balance of deferred tax assets and liabilities is also included in the tax charge as a discrete event in the interim period in which the enactment date occurs.

 

For the three months ended September 30,December 31, 2020, the Company’s effective tax rate was impacted by the reversaltax effect of the deferred tax liability related to onechange in the fair value of the Company’s equity-accounted investments following its impairmentour equity securities (refer to Note 5)6), which is at a lower tax rate than the South African statutory rate, which was partially offset by the tax expense recorded by the Company’s profitable South African operations, non-deductible expenses, the on-going losses incurred by IPG and certain of the Company’s South African businesses and the associated valuation allowances created related to the deferred tax assets recognized regarding net operating losses incurred by these entities.

30

18.IncomeFor the six months ended December 31, 2020, the Company’s effective tax (continued)

Incomerate was impacted by the tax effect of the change in interim periods (continued)fair value referred to above, tax expense recorded by the Company’s profitable South African operations, non-deductible expenses, the on-going losses incurred by IPG and certain of the Company’s South African businesses and the associated valuation allowances created related to the deferred tax assets recognized regarding net operating losses incurred by these entities, which was partially offset by the reversal of the deferred tax liability related to one of the Company’s equity-accounted investments following its impairment (refer to Note 6).

 

For the three and six months ended September 30,December 31, 2019, the Company’s effective tax rate was impacted by the on-going losses incurred by IPG and certain of its South African businesses and the associated valuation allowances created related to the deferred tax assets recognized regarding net operating losses incurred by thesethe Company’s South African businesses and non-deductible expenses, andincluding transaction-related expenditure, which was partially offset by tax expense recorded by the Company’s profitable businesses primarily in South Africa.

 

Uncertain tax positions

 

The Company had no significant uncertain tax positions during the three months ended September 30,December 31, 2020, and therefore, the Company had 0no accrued interest related to uncertain tax positions on its balance sheet.

The Company does not expect changes related to its unrecognized tax benefits will have a significant impact on its results of operations or financial position in the next 12 months.

 

The Company has 0no unrecognized tax benefits. The Company files income tax returns mainly in South Africa, Germany, Hong Kong, India, the United Kingdom, Botswana and in the U.S. federal jurisdiction. As of September 30,December 31, 2020, the Company’s South African subsidiaries are no longer subject to income tax examination by the South African Revenue Service for periods before June 30, 2016. The Company is subject to income tax in other jurisdictions outside South Africa, none of which are individually material to its financial position, statement of cash flows, or results of operations.

 

19.

20.Commitments and contingencies

 

Guarantees

 

The South African Revenue Service and certain of the Company’s customers, suppliers and other business partners have asked the Company to provide them with guarantees, including standby letters of credit, issued by a South African bank. The Company is required to procure these guarantees for these third parties to operate its business.

 

Nedbank has issued guarantees to these third parties amounting to ZAR 93.6156.6 million ($5.610.7 million, translated at exchange rates applicable as of September 30,December 31, 2020) thereby utilizing part of the Company’s short-term facilities. The Company pays commission of between 0.4% per annum to 1.94% per annum of the face value of these guarantees and does not recover any of the commission from third parties.

 

36

20.Commitments and contingencies (continued)

The Company has not recognized any obligation related to these guarantees in its consolidated balance sheet as of September 30,December 31, 2020. The maximum potential amount that the Company could pay under these guarantees is ZAR 93.6156.6 million ($5.610.7 million, translated at exchange rates applicable as of September 30,December 31, 2020). The guarantees have reduced the amount available for borrowings under the Company’s short-term credit facility described in Note 8.9.

 

Contingencies

 

The Company is subject to a variety of other insignificant claims and suits that arise from time to time in the ordinary course of business. Management currently believes that the resolution of these other matters, individually or in the aggregate, will not have a material adverse impact on the Company’s financial position, results of operations or cash flows.

 

20.21.Discontinued operations

 

FollowingThe Company determined that, following the disposal of its controlling interest, in Net1 Korea (in fiscal 2020) and DNI (in fiscal 2019), the Company determined that Net1 Korea and DNI should be classified as discontinued operations because the disposalsdisposal of these businesses represented a strategic shift that would have a major effect on the Company’s operations and financial results. Refer to Note 3 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2020, for additional information regarding the deconsolidation of Net1 Korea and DNI.

 

31

20.Discontinued operations (continued)

The table below presents certain major captions to the Company’s unaudited condensed consolidated statement of operations and unaudited condensed consolidated statement of cash flows for three and six months ended September 30,December 31, 2019, that have not been separately presented on those statements related to the presentation of Net1 Korea as a discontinued operation:

 

 

 

Net1 Korea

 

 

 

Three months ended

 

Six months ended

 

 

 

December 31, 2019

 

December 31, 2019

 

 

Unaudited condensed consolidated statement of operations

 

 

 

 

 

 

 

Discontinued:

 

 

 

 

 

 

 

Revenue

$

33,513

 

$

66,331

 

 

Cost of goods sold, IT processing, servicing and support

 

14,765

 

 

29,131

 

 

Selling, general and administration

 

11,975

 

 

23,284

 

 

Depreciation and amortization

 

3,207

 

 

6,648

 

 

Operating income

 

3,566

 

 

7,268

 

 

Interest income

 

261

 

 

549

 

 

Interest expense

 

92

 

 

100

 

 

Net income before tax

 

3,735

 

 

7,717

 

 

Income tax expense

 

1,015

 

 

2,062

 

 

Net income from discontinued operations

$

2,720

 

$

5,655

 

 

Unaudited condensed consolidated statement of cash flows

 

 

 

 

 

 

 

Discontinued:

 

 

 

 

 

 

 

Total net cash provided by operating activities

$

4,371

 

$

14,565

 

 

Total net cash used in investing activities

$

(12,893)

 

$

(9,805)

 

 

 

Net1 Korea

 

 

 

 

Three months ended

 

 

 

 

September 30, 2019

 

 

Unaudited condensed consolidated statement of operations

 

 

 

 

 

Discontinued:

 

 

 

 

 

Revenue

 

$

32,818

 

 

Cost of goods sold, IT processing, servicing and support

 

 

14,366

 

 

Selling, general and administration

 

 

11,309

 

 

Depreciation and amortization

 

 

3,441

 

 

Operating income

 

 

3,702

 

 

Interest income

 

 

288

 

 

Interest expense

 

 

8

 

 

Net income before tax

 

 

3,982

 

 

Income tax expense

 

 

1,047

 

 

Net income from discontinued operations

 

$

2,935

 

 

Unaudited condensed consolidated statement of cash flows

 

 

 

 

 

Discontinued:

 

 

 

 

 

Total net cash provided by operating activities

 

$

10,194

 

 

Total net cash provided by investing activities

 

$

3,088

The Company retained a continuing involvement in DNI following the disposal of the Company’s controlling interest during the year ended June 30, 2019. The Company recorded earnings under the equity method related to its retained investment in DNI during the threesix months ended September 30,December 31, 2019. The table below presents revenues and expenses between the Company and DNI, after the DNI disposal transaction, during the threesix months ended September 30, 2019December 31, 2019:

 

 

 

DNI

 

 

 

Three months ended

 

 

 

September 30, 2019

 

 

Revenue generated from transactions with DNI

$

0

 

 

Expenses incurred related to transactions with DNI

$

2,274

 

 

DNI

 

 

 

Three months ended

 

Six months ended

 

 

 

December 31, 2019

 

December 31, 2019

 

 

Revenue generated from transactions with DNI

$

0

 

$

0

 

 

Expenses incurred related to transactions with DNI

$

333

 

$

2,607

 

The Company received dividends of $0.7$0.4 million and $1.1 million from DNI during the three and six months ended September 30, 2019.December 31, 2019, respectively.

37

 

21.22.Related party transactions

 

Disgorgement proceeds from VCP

 

In late September 2020, Value Capital Partners (Pty) Ltd (“VCP”), a significant shareholder, notified the Company that it would make payment to the Company related to the disgorgement of short-swing profits from the purchase of common stock by VCP pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended and the Company’s insider trading policy. The Company recognizes these proceeds as a capital contribution from shareholders and recorded an increase of $0.1 million, net of taxes of $0.02 million, to additional paid-in capital in its unaudited condensed consolidated statement of changes in equity for the three months ended September 30, 2020. As the purchase transactions occurred in late September 2020, $0.02 million of the $0.12 million proceeds were received in early October 2020 and are included in accounts receivable, net and other receivables in the Company’s unaudited condensed consolidated balance sheet as of September 30, 2020. The Company received $0.1 million of the $0.12 million gross proceeds in September 30, 2020, and recorded these amounts were recorded within cash flows from financing activities in itsthe Company’s unaudited condensed consolidated statement of cash flow for the three months ended September 30,December 31, 2020. The Company expects to pay the taxes due of $0.02 million in calendar 2021.

 

32

 

22.23. Subsequent events

 

PurchaseDisposal of vehicles from CPSentire 35% interest in Bank Frick

 

On October 15, 2020,February 3, 2021, the Company purchased bespoke vehicles from CPS for an arms-length price of ZAR 50.0 million (approximately $3.0 million, translated at exchange rates applicable as of September 30, 2020) to use in its mobile ATM business. These vehicles largely comprise the fleet of customized mobile ATMs used to deliver a service to rural communities and were previously leased from CPS.

Additional capital raise by MobiKwik in November 2020

In early November 2020, MobiKwik entered into ana share sales agreement with the Frick Family Foundation (“KFS”) to raise additional capital throughsell its entire interest, or 35%, in Bank Frick to KFS for $30 million. The parties also agreed that the issuanceCompany will pay $3.6 million to KFS to terminate all existing arrangements with Bank Frick and settle all liabilities related to IPG’s activities with Bank Frick, and this amount will be set off against the first payment made by KFS in February 2021. KFS will pay $15.0 million within two days from signing, which comprises $18.6 million less the $3.6 million referred to earlier, $7.5 million on October 30, 2021, and the remaining amount, of additional$3.9 million on July 15, 2022. The parties entered into a security and pledge agreement under which KFS pledged the Bank Frick shares to a new shareholderpurchased as security for a 1.6% interest in the company for approximately $5.6 million, implying a valuation of MobiKwik as ofamounts outstanding under the closing date of approximately $375.0 million.

share sales agreement.

3338

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion should be read in conjunction with our Annual Report on Form 10-K for the year ended June 30, 2020, and the unaudited condensed consolidated financial statements and the accompanying notes included in this Form 10-Q.

 

Forward-looking statements

 

Some of the statements in this Form 10-Q constitute forward-looking statements. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, implied or inferred by these forward-looking statements. Such factors include, among other things, those listed under Item 1A.—“Risk Factors” in this report and in our Annual Report on Form 10-K for the year ended June 30, 2020. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “could,” “would,” “expects,” “plans,” “intends,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of such terms and other comparable terminology.

 

Although we believe that the expectations reflected in the forward-looking statements are reasonable, we do not know whether we can achieve positive future results, levels of activity, performance, or goals. Actual events or results may differ materially. We undertake no obligation to update any of the forward-looking statements after the date of this Form 10-Q to conform those statements to reflect the occurrence of unanticipated events, except as required by applicable law.

 

You should read this Form 10-Q and the documents that we reference herein and the documents we have filed as exhibits hereto and thereto and which we have filed with the United States Securities and Exchange Commission completely and with the understanding that our actual future results, levels of activity, performance and achievements may be materially different from what we expect. We qualify all of our forward-looking statements by these cautionary statements.

 

Recent Developments

 

Impact of COVID-19

 

The COVID-19 pandemic did not impact our South African operations as severely during the three and six months ended September 30,December 31, 2020, compared to the last four months of the year ended June 30, 2020. Nevertheless, asHowever, on December 28, 2020, the country moved back to Level 3 restrictions which remain in place at the date of this report,report. South Africa remains under variousoperates with a five-level COVID-19 alert system, with Level 1 being the least restrictive and Level 5 being the most restrictive. The country went into lockdown (Level 5) towards the end of March 2020 and gradually eased restrictions for the remainder of the 2020 calendar year (to Level 4 from May 1, to Level 3 from June 1, to Level 2 from August 18 and to Level 1 from September 21). The increase at the end of December 2020 back to Level 3 was in response to a second wave of infections, which has been more severe than the first wave. While all our businesses continue to affect the broader economyoperate, we have increased preventive measures and these affect usit is unclear to what extent business activity levels will be affected. We have already seen an increase in claims in our life insurance business, which we believe is linked to the extent they affect economic activity levelssecond wave and there is a risk of increased credit losses in South Africa. South Africa was in lockdown Level 3 up until August 18, 2020, and in Level 2 up until September 20, 2020. At the dateour micro lending business as a result of this report, South Africa remains in Level 1 lockdown which is the lowest form of lockdown.increased mortality rates. Over the course of the pandemic to date, it is estimated that 2.2 million jobs have been lost.lost in South Africa.

 

Business and operations

 

During the second quarter of fiscal 2021, our operations have largely operated as normal, with all practical restrictions having been lifted before the start of the quarter. Some movement restrictions were in place under Level 3 but these had a limited impact on the operations.normal. Most of the impact of the pandemic on our operations would be as a result ofresulted from the indirect effect of lower economic activity in the country’sSouth African economy.

 

Our loan business has been able to originate loans normally and we have not seen any deterioration in collection levels over the period. Our insurance business did seehas seen a higher level of benefit claims during the quarter, though somesix months ended December 31, 2020, with a marked increase in December, which appears to be directly linked to the second wave of this is normal seasonality, but we are unable to identify how much of this was caused by the pandemic.

 

We continue to incur direct expenditure on the purchase of sanitizers, masks and gloves for our employees and for the use of customers in our branches, but this is not significant in the context of our cost base.

 

Employees

 

Where possible, we have continued to provide the necessary facilities (computer equipment, data cards, etc.) for our employees to operate remotely and continue to encourage them to do so where this is practical and effective. We continue to provide the necessary protective equipment and sanitization facilities for those employees that operate within our offices and operating locations. Regrettably, three of our employees passed away during the second quarter of fiscal 2021 due to COVID-19.

 

Cash resources and liquidity

 

We believe we have sufficient cash reserves to support us through the next twelve months. Together with our existing cash reserves, we also believe that our credit facilities are sufficient to fund our ATM network.

39

 

We do not believe there will be any further significant adverse effects on our liquidity from the pandemic, unless there is a resumption of the higher level of restrictions seen in April and May 2020 in South Africa in the event of an increase in the level of infections, as currently experienced in Europe and the United States following the second wave of the pandemic in those territories.Africa.

34

 

We believe that our South African insurance business is adequately capitalized and do not expect to have to provide additional funding to the business in the foreseeable future.

 

Financial position and impairments

 

Except for the impact on Finbond’s business, we do not believe that the pandemic has significantly impacted the carrying value of long-lived assets and equity method investments to date.

 

Control environment

 

We do not expect the pandemic to have a significant impact on our internal control environment.

 

While we have not incurred significant disruptions thus far from the COVID-19 outbreak, we are unable to accurately predict the impact that COVID-19 will have due to numerous uncertainties, including the severity of the disease, the duration of the outbreak, actions that may be taken by governmental authorities, the impact on our customers and other factors identified in Part I, Item 1A. “Risk Factors— The COVID-19 pandemic has disrupted our business. We are unable to ascertain the impact the pandemic will have on our future financial position, operations, cash flows and stock price” in our Annual Report on Form 10-K for the year ended June 30, 2020. We will continue to evaluate the nature and extent of the impact to our business, consolidated results of operations, and financial condition.

 

Financial Services Activities in South Africa

 

We continue to focus on transitioning our South African financial inclusion activities towards a business-to-consumer, or B2C, model. We believe our EPE bank account, known in the communities it serves as ‘the green card’, has a strong brand position in our target market and attachesbenefits from significant loyalty. We have been working on enhancing its presence through localized marketing which, when combined with some of the challenges of other service providers into this market, we expect to result in a return to growing customer numbers. While relatively small

The first signs of progress in number,this regard were evident in the most recent quarter, as we saw increased demand forachieved gross customer additions of approximately 62,000. Net additions were approximately 44,000 customers though not all of these are income generating as yet due to delays in processing the accounts in September and this has grown further in October.transfer of grant income. Our focus is now on accelerating the rate of customer acquisition to build critical mass. These customers, many of whichwhom are returning customers, will then have access to theour suite of associated financial services products, which willwe expect to lift activity levels across many of our operations.

 

Processing Activities in South Africa

 

Our processing activities in South Africa are focused around our ATM network, which largely services a consumer base, and our transaction processing for businesses, anchored around our EasyPay offering. As articulated in respect of our revised strategy, we aim to grow this business to business, or B2B, operation through the servicing of small and micro enterprises. We have seen encouragingongoing increases in the utilization of our ATM infrastructure over the last quarter, while our B2B operations have also performed well.in line with expectations. Planning around the expansion of the processing business into the small and micro enterprises space is underway.ongoing.

 

International Activities

IPG – After pursuing opportunities to dispose of the IPG operations, the board subsequently decided to close down these operations. This process is well underway and should be largely complete, from a cost perspective, by the end of the second quarter of fiscal 2021.

 

Bank Frick – Bank Frick exceeded expectations and performed well during the quarter. While they have increased provisioning against some of their loan portfolio, the performance of the bank in other areas has been strong. Nevertheless, with Europe in the grip of a second wave of infections, under the pandemic and some countries reintroducing restrictions, could have a negative impact onperformance of the bank is likely to face headwinds in the second half of fiscal 2021. The recent performance of cryptocurrencies has assisted the bank’s results going forward.performance as it benefits from higher transaction volumes in those markets. In line with our new strategic direction, on February 3, 2021, we entered into a share sales agreement with the Frick Family Foundation, or KFS, to sell our entire interest, or 35%, in Bank Frick to KFS for $30 million. Refer to Note 23 for additional information related to this transaction.

 

Carbon – Carbon has startedcontinues to see somethe normalization of their lending business as the effects of the pandemic and the associated restrictions in Nigeria have reduced. While revenue remains below the levels seen before the start of the pandemic, this is primarily due to lower disbursements on tighter lending criteria. Disbursements are recovering, but the focus is on improved credit quality. They are also benefiting from increased funding in the Nigerian market, resulting in lower cost of funding and less currency risk. This should further be aided by the recent award of a micro-finance banking license, which will facilitate deposit taking that should further lower their proactive tighteningcost of credit criteria and improvements in risk management have resulted in a marked reduction in provisioning requirements which is reducing their monthly losses more quickly than expected.funding.

 

40

India –MobiKwik started to see– MobiKwik reported a strong sequential recovery in revenue during the December quarter driven by a confluence of strong festive spending and is expectinga robust secular adoption of electronic transactions following the impacts of Covid-19. They continue to return to pre-pandemic levels of revenue by the end of the calendar year. They have managedmanage costs effectively holdingand held the cash EBITDA loss under $1.0 million for the quarter butonce again. We expect them to return towards breakeven as we believe that there should beproceed through calendar year 2021. During the quarter, MobiKwik also raised approximately $7 million from new external shareholders at a quick recovery as conditions normalize. In particular, therevaluation of approximately $375 million. We have been a numberincreased the carrying value of industryour investment in MobiKwik following this transaction, refer to Note 6 to our unaudited condensed consolidated financial statements for the methodology and secular developments duringinputs used in the pandemic that we believe should be very positivefair value calculation for MobiKwik’s longer-term growth prospects.MobiKwik.

 

35
Wind-down of IPG and status of Cell C recapitalization

 

Progress on corporateIPG – The process to close our IPG business is well-advanced, with most employees leaving the organization during the second quarter of fiscal 2021. Most processing activities also ceased and we expect to end all activities early in the third quarter of fiscal 2021 and should be largely complete with closure, from a cost perspective, by the end of fiscal 2021.

 

Cell C – We continued to carry the value of our Cell C investment at $0 (zero) as of September 30,December 31, 2020. Cell C is focused on its recapitalization and its operational reorganization given its revised commercial model. While it remains in default on its various lending arrangements, Cell C and its lenders are working constructively and continue to make good progress towards a recapitalization intended to ensure its long-term sustainability and allow Cell C to focus on its core business.

 

Succession plan for CEO

 

There were no substantial developments during the second quarter of fiscal 2021. Mr. Alex M.R. Smith assumed the role of interim CEO on October 1, 2020, following the departure of Mr. Herman G. Kotzé on September 30, 2020. Mr. Smith will serve in this role until our board of directors finalizes the appointment of a permanent CEO. In order to ensure a smooth transition, Mr. Kotzé agreed to provide consulting services to us through May 31, 2021.

 

ReallocationRestatement of certain activities among operating segmentsrevenue and cost of goods sold, IT processing, servicing and support

 

ReferIn November 2020, we identified an error with respect to the recognition of certain revenue and related cost of goods sold, IT processing, servicing and support during our assessment and systems development of new products. The error did not impact our operating income (loss), net income, balance sheet or cash flows. We determined that the error impacted reported results for the period from July 1, 2018 to November 30, 2020. The error impacted our reported results and we have restated our unaudited condensed consolidated statement of operations and certain note presentation for the three and six months ended December 31, 2019, refer to Note 171 to our unaudited condensed consolidated financial statements for information regarding changes to the Company’s reportable segments during the three months ended September 30, 2020.additional information.

 

The table presents the unaudited impact of the restatement on our revenue and related cost of goods sold, IT processing, servicing and support for the first quarter of fiscal 2021, fiscal 2020 and 2019, including each fiscal quarter within those fiscal years:

Table 1

Revenue (unaudited)

 

Cost of goods sold, IT processing, servicing and support (unaudited)

 

As reported

 

Correction

 

As restated

 

As reported

 

Correction

 

As restated

 

$ ’000

 

$ ’000

 

$ ’000

 

$ ’000

 

$ ’000

$ ’000

Fiscal 2021:

 

 

 

 

 

 

 

 

 

 

 

Q1 2021

37,113

 

(1,977)

 

35,136

 

28,437

 

(1,977)

 

26,460

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal 2020:

 

 

 

 

 

 

 

 

 

 

 

Year ended 2020

150,997

 

(6,698)

 

144,299

 

109,006

 

(6,698)

 

102,308

Q4 2020

25,978

 

(1,427)

 

24,551

 

22,400

 

(1,427)

 

20,973

Q3 2020

36,514

 

(1,900)

 

34,614

 

25,783

 

(1,900)

 

23,883

Q2 2020

40,567

 

(1,649)

 

38,918

 

28,395

 

(1,649)

 

26,746

Q1 2020

47,938

 

(1,722)

 

46,216

 

32,428

 

(1,722)

 

30,706

 

 

 

 

 

 

 

 

 

 

 

 

Fiscal 2019

 

 

 

 

 

 

 

 

 

 

 

Year ended 2019

166,227

 

(5,592)

 

160,635

 

129,696

 

(5,592)

 

124,104

Q4 2019

17,053

 

(1,692)

 

15,361

 

26,225

 

(1,692)

 

24,533

Q3 2019

36,586

 

(1,371)

 

35,215

 

29,423

 

(1,371)

 

28,052

Q2 2019

42,042

 

(1,948)

 

40,094

 

27,291

 

(1,948)

 

25,343

Q1 2019

70,546

 

(581)

 

69,965

 

46,757

 

(581)

 

46,176

The restatement only impacted revenue allocated to our Processing operating segment. Refer to “Presentation of quarterly revenue and operating (loss) income by segment for fiscal 2020 and 2019” below for additional information regarding our restated operating segments for fiscal 2020 and 2019, including each fiscal quarter within those fiscal years.

41

Critical Accounting Policies

 

Our unaudited condensed 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, including the ongoing uncertainty in the current economic environment due to the outbreak of COVID-19. 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.

 

Critical accounting policies are those that reflect significant judgments or uncertainties and may potentially result in materially different results under different assumptions and conditions. We have identified the following critical accounting policies that are described in more detail in our Annual Report on Form 10-K for the year ended June 30, 2020:

 

Valuation of investment in Cell C;

Recoverability of equity-accounted investments and other equity securities;

Business combinations and the recoverability of goodwill;

Intangible assets acquired through acquisitions;

Deferred taxation;

Stock-based compensation;

Accounts receivable and allowance for doubtful accounts receivable; and

Revenue – variation in transaction price following September 2019 Supreme Court ruling.

 

Recent accounting pronouncements adopted

 

We did not adopt any new accounting pronouncement during the firstsecond quarter of fiscal 2021.

 

Recent accounting pronouncements not yet adopted as of September 30,December 31, 2020

 

Refer to Note 1 to our unaudited condensed consolidated financial statements for a full description of recent accounting pronouncements not yet adopted as of September 30,December 31, 2020, including the expected dates of adoption and effects on our financial condition, results of operations and cash flows.

 

36

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

Three months ended

 

Year ended

Table 2

Three months ended

 

Six months ended

 

Year ended

September 30,

 

June 30,

December 31,

 

December 31,

 

June 30,

2020

 

2019

 

2020

2020

 

2019

 

2020

 

2019

 

2020

ZAR : $ average exchange rate

16.9080

 

14.6924

 

15.6775

15.6252

 

14.6969

 

16.2666

 

14.6947

 

15.6775

Highest ZAR : $ rate during period

17.6866

 

15.3860

 

19.0569

16.6447

 

15.3017

 

17.6866

 

15.3860

 

19.0569

Lowest ZAR : $ rate during period

16.2165

 

13.8973

 

13.8973

14.5456

 

14.0304

 

14.5456

 

13.8973

 

13.8973

Rate at end of period

16.8344

 

15.1619

 

17.3326

14.6606

 

14.0483

 

14.6606

 

14.0483

 

17.3326

 

Picture 142

Picture 2

 

Translation exchange rates for financial reporting purposes

 

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 three months ended September 30,December 31, 2020 and 2019, 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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three months ended

 

Year ended

Three months ended

 

Six months ended

 

Year ended

Table 2

September 30,

 

June 30,

Table 3

December 31,

 

December 31,

 

June 30,

2020

 

2019

 

2020

2020

 

2019

 

2020

 

2019

 

2020

Income and expense items: $1 = ZAR

16.7738

 

14.7520

 

17.5686

15.4653

 

14.6022

 

16.4675

 

14.4023

 

17.5686

Balance sheet items: $1 = ZAR

16.8344

 

15.1619

 

17.3326

14.6606

 

14.0483

 

14.6606

 

14.0483

 

17.3326

 

37

Results of Operations

 

The discussion of our consolidated overall results of operations is based on amounts as reflected in our unaudited condensed 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 unaudited condensed consolidated financial statements, and supplementally in ZAR, because ZAR is the functional currency of the entities which contribute the majority of our revenue and is the currency in which the majority of our transactions are initially incurred and measured. Due to the significant impact of currency fluctuations between the U.S. dollar and the 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 presented in our unaudited condensed consolidated financial statements is included in Note 1718 to those statements.

 

We disposed of our Korean operation in the third quarter of fiscal 2020 and therefore it has been presented as a discontinued operation for fiscal 2021 and 2020. We disposed of FIHRST during the second quarter of fiscal 2020, and deconsolidated CPS in the fourth quarter of fiscal 2020, and therefore their contributions to our reported results are not included in the first quarter of fiscal 2021.three and six months ended December 31, 2020.

 

We analyze our business and operations in terms of three inter-related but independent operating segments: (1) Processing, (2) Financial services and (3) Technology. In addition, corporate and corporate office activities that are impracticable to ascribe directly to any of the other operating segments, as well as any inter-segment eliminations, are included in Corporate/Eliminations.

43

 

FirstSecond quarter of fiscal 2021 compared to firstsecond quarter of fiscal 2020

 

The following factors had a significant impact on our results of operations during the firstsecond quarter of fiscal 2021 as compared with the same period in the prior year:

 

Lower revenue: Our revenues decreased 12% in ZAR primarily due to fewer prepaid airtime sales and lower account fee revenue;

Ongoing operating losses: Operating costs are largely in line with the prior period in ZAR due to the largely fixed cost nature of the costs base. As a result, we continue to experience operating losses as a result of depressed revenues; and

Adverse foreign exchange movements: The U.S. dollar was 6% stronger against the ZARduring the second quarter of fiscal 2021, which adversely impacted our reported results.

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 4

In United States Dollars

 

Three months ended December 31,

 

2020

 

2019(A)

 

 

 

 

 

(as restated)(B)

 

 

$ ’000

 

$ ’000

change

Revenue

32,305

 

38,918

 

(17%)

Cost of goods sold, IT processing, servicing and support

24,339

 

26,746

 

(9%)

Selling, general and administration

22,097

 

21,418

 

3%

Depreciation and amortization

1,074

 

1,174

 

(9%)

Operating loss

(15,205)

 

(10,420)

 

46%

Change in fair value of equity securities

15,128

 

-

 

nm

Gain on disposal of FIHRST

-

 

9,743

 

nm

Loss on disposal of equity-accounted investment

13

 

-

 

nm

Interest income

717

 

1,082

 

(34%)

Interest expense

677

 

3,129

 

(78%)

Income (Loss) before income tax (benefit) expense

(50)

 

(2,724)

 

(98%)

Income tax expense

3,468

 

707

 

391%

Net loss before (loss) earnings from equity-accounted investments

(3,518)

 

(3,431)

 

3%

(Loss) earnings from equity-accounted investments

(1,016)

 

506

 

nm

Net loss from continuing operations

(4,534)

 

(2,925)

 

55%

Net income from discontinued operations

-

 

2,720

 

nm

Net loss

(4,534)

 

(205)

 

2,112%

Net (loss) income attributable to us

(4,534)

 

(205)

 

2,112%

Continuing

(4,534)

 

(2,925)

 

55%

Discontinued

-

 

2,720

 

nm

(A) Refer to Note 21 to the unaudited condensed consolidated financial statements for discontinued operations disclosures.

(B) Revenue and cost of goods sold, IT processing, servicing and support have been restated for the error described in Note 1 to the unaudited condensed consolidated financial statements. There was no impact on operating loss as a result of the restatement.

44

Table 5

In South African Rand

 

Three months ended December 31,

 

2020

 

2019(A)

 

 

 

 

 

(as restated)(B)

 

 

ZAR ’000

 

ZAR ’000

change

Revenue

499,607

 

568,289

 

(12%)

Cost of goods sold, IT processing, servicing and support

376,410

 

390,551

 

(4%)

Selling, general and administration

341,736

 

312,750

 

9%

Depreciation and amortization

16,610

 

17,143

 

(3%)

Operating loss

(235,149)

 

(152,155)

 

55%

Change in fair value of equity securities

233,959

 

-

 

nm

Gain on disposal of FIHRST

-

 

142,269

 

nm

Loss on disposal of equity-accounted investment

201

 

-

 

nm

Interest income

11,089

 

15,800

 

(30%)

Interest expense

10,470

 

45,690

 

(77%)

Income (Loss) before income tax (benefit) expense

(772)

 

(39,776)

 

(98%)

Income tax expense

53,634

 

10,324

 

420%

Net loss before (loss) earnings from equity-accounted investments

(54,406)

 

(50,100)

 

9%

(Loss) earnings from equity-accounted investments

(15,713)

 

7,389

 

nm

Net loss from continuing operations

(70,119)

 

(42,711)

 

64%

Net income from discontinued operations

-

 

39,718

 

nm

Net loss

(70,119)

 

(2,993)

 

2,243%

Net (loss) income attributable to us

(70,119)

 

(2,993)

 

2,243%

Continuing

(70,119)

 

(42,711)

 

64%

Discontinued

-

 

39,718

 

nm

(A) Refer to Note 21 to the unaudited condensed consolidated financial statements for discontinued operations disclosures.

(B) Revenue and cost of goods sold, IT processing, servicing and support have been restated for the error described in Note 1 to the unaudited condensed consolidated financial statements. There was no impact on operating loss as a result of the restatement.

The decrease in revenue was primarily due to fewer prepaid airtime sales and lower account fee revenue.

The decrease in cost of goods sold, IT processing, servicing and support was primarily due to lower cost of prepaid airtime sales, which was partially offset by higher costs related to transaction fees.

In ZAR, the increase in selling, general and administration expense was primarily due to the year-over-year impact of inflationary increases on employee-related expenses and consulting fees.

Depreciation and amortization decreased primarily due to lower overall depreciation related to tangible assets that were fully depreciated during the second quarter of fiscal 2020.

Our operating loss margin for the second quarter of fiscal 2021 and 2020 was (47.1%) and (26.8%), respectively. We discuss the components of operating loss margin under “—Results of operations by operating segment.”

The change in fair value of equity securities during the second quarter of fiscal 2021 represents a non-cash fair value adjustment gain related to MobiKwik. There was no change in the fair value of equity securities during the second quarter of fiscal 2020. We continue to carry our investment in Cell C at $0 (zero). Refer to Note 6 to our unaudited condensed consolidated financial statements for the methodology and inputs used in the fair value calculation for MobiKwik and Note 5 for the methodology and inputs used in the fair value calculation for Cell C.

We recorded a gain of $9.7 million related to the disposal of FIHRST during the second quarter of fiscal 2020.

Interest on surplus cash decreased to $0.7 million (ZAR 11.1 million) from $1.1 million (ZAR 15.8 million), primarily due to lower rates of interest earned on surplus cash, which was partially offset by higher average daily cash balances following the increase in our cash reserves as a result of the disposal of certain business in fiscal 2020.

Interest expense decreased to $0.7 million (ZAR 10.5 million) from $3.1 million (ZAR 45.7 million), primarily as a result of lower borrowings, a reduction in South African interest rates and lower interest expense as a result of lower utilization of our ATM facilities because we used our cash reserves to fund our ATMs.

Fiscal 2021 tax expense was $3.5 million (ZAR 53.6 million) compared to $0.7 million (ZAR 10.3 million) in fiscal 2020. Our effective tax rate for fiscal 2021 was impacted by the tax effect on the change in the fair value of our equity securities, which is at a lower tax rate than the South African statutory rate, the tax charge related to our profitable South African operations, 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.

45

Our effective tax rate for fiscal 2020 was impacted by 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 South African businesses and non-deductible expenses. The charge represents the tax expense recorded by our profitable businesses in South Africa.

DNI was sold in the fourth quarter of fiscal 2020 and was accounted for using the equity method during the second quarter of fiscal 2020. Finbond is listed on the Johannesburg Stock Exchange and reports its six-month results during our first quarter and its annual results during our fourth quarter. The table below presents the relative (loss) earnings from our equity accounted investments:

Table 6

Three months ended December 31,

 

2020

 

2019

$ %

 

$ ’000

 

$ ’000

change

Bank Frick

498

 

494

1%

Share of net income

498

 

636

(22%)

Amortization of intangible assets, net of deferred tax

-

 

(142)

nm

DNI

-

 

380

nm

Share of net income

-

 

1,650

nm

Amortization of intangible assets, net of deferred tax

-

 

(465)

nm

Impairment

-

 

(805)

nm

Finbond

(806)

 

-

nm

Impairment

(806)

 

-

nm

Other

(708)

 

(368)

92%

Share of net loss

(160)

 

(368)

(57%)

Impairment

(548)

 

-

nm

 

(1,016)

 

506

nm

Refer to Note 6 to our unaudited condensed consolidated financial statements for additional information related to the impairment of Finbond and our other equity-accounted investments.

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 7

 

In United States Dollars(1)

 

 

 

 

 

Three months ended December 31,

 

 

2020

 

% of

 

2019

 

% of

 

% change

 

 

 

(as restated)

 

Operating Segment

$ ’000

total

$ ’000

total

Consolidated revenue:

 

 

 

 

 

 

 

 

 

 

Processing

 

19,990

 

62%

 

25,022

 

64%

 

(20%)

IPG

 

478

 

1%

 

432

 

1%

 

11%

All others

 

19,512

 

60%

 

24,590

 

63%

 

(21%)

Financial services

 

9,709

 

30%

 

12,268

 

32%

 

(21%)

Technology

 

4,609

 

14%

 

4,890

 

13%

 

(6%)

Subtotal: Operating segments

 

34,308

 

167%

 

42,180

 

173%

 

(19%)

Corporate/Eliminations

 

(2,003)

 

(67%)

 

(3,262)

 

(73%)

 

(39%)

Total consolidated revenue

 

32,305

 

100%

 

38,918

 

100%

 

(17%)

Consolidated operating (loss) income:

 

 

 

 

 

 

 

 

 

 

Processing

 

(10,381)

 

68%

 

(5,848)

 

56%

 

78%

IPG

 

(4,647)

 

31%

 

(2,920)

 

28%

 

59%

All others

 

(5,734)

 

38%

 

(2,928)

 

28%

 

96%

Financial services

 

(1,071)

 

7%

 

(1,249)

 

12%

 

(14%)

Technology

 

1,078

 

(7%)

 

589

 

(6%)

 

83%

Subtotal: Operating segments

 

(10,374)

 

137%

 

(6,508)

 

118%

 

59%

Corporate/eliminations

 

(4,831)

 

(37%)

 

(3,912)

 

(18%)

 

23%

Total consolidated operating loss

 

(15,205)

 

100%

 

(10,420)

 

100%

 

46%

(1) Consolidated revenue-Processing-All others for the six months ended December 31, 2019 has been restated for the error described in Note 1 to the unaudited condensed consolidated financial statements. There was no impact on operating loss as a result of the restatement.

46

Table 8

 

In South African Rand(1)

 

 

 

 

 

Three months ended December 31,

 

 

2020

 

% of

 

2019

 

% of

 

% change

 

 

 

(as restated)

 

Operating Segment

ZAR ’000

total

ZAR ’000

total

Consolidated revenue:

 

 

 

 

 

 

 

 

 

 

Processing

 

309,151

 

62%

 

365,376

 

64%

 

(15%)

IPG

 

7,392

 

1%

 

6,308

 

1%

 

17%

All others

 

301,759

 

60%

 

359,068

 

63%

 

(16%)

Financial services

 

150,153

 

30%

 

179,140

 

32%

 

(16%)

Technology

 

71,280

 

14%

 

71,405

 

13%

 

(0%)

Subtotal: Operating segments

 

530,584

 

167%

 

615,921

 

173%

 

(14%)

Corporate/Eliminations

 

(30,977)

 

(67%)

 

(47,632)

 

(73%)

 

(35%)

Total consolidated revenue

 

499,607

 

100%

 

568,289

 

100%

 

(12%)

Consolidated operating (loss) income:

 

 

 

 

 

 

 

 

 

 

Processing

 

(160,545)

 

68%

 

(85,394)

 

56%

 

88%

IPG

 

(71,867)

 

31%

 

(42,639)

 

28%

 

69%

All others

 

(88,678)

 

38%

 

(42,755)

 

28%

 

107%

Financial services

 

(16,563)

 

7%

 

(18,238)

 

12%

 

(9%)

Technology

 

16,672

 

(7%)

 

8,601

 

(6%)

 

94%

Subtotal: Operating segments

 

(160,436)

 

137%

 

(95,031)

 

118%

 

69%

Corporate/eliminations

 

(74,713)

 

(37%)

 

(57,124)

 

(18%)

 

31%

Total consolidated operating loss

 

(235,149)

 

100%

 

(152,155)

 

100%

 

55%

(1) Consolidated revenue-Processing-All others for the six months ended December 31, 2019 has been restated for the error described in Note 1 to the unaudited condensed consolidated financial statements. There was no impact on operating loss as a result of the restatement.

Processing

Excluding IPG, segment revenue decreased primarily due to fewer prepaid airtime sales and a modest reduction in volume-driven transaction fees. Excluding IPG, Processing operating loss has been impacted by lower revenue and by an increase in transaction-based costs. IPG incurred an operating loss but is in the process of being closed down.

Our operating loss margin (calculated as operating (loss) income divided by revenue) for the second quarter of fiscal 2021 and 2020 was (51.9%) and (23.4%), respectively. Excluding IPG, our operating loss margin for the Processing segment was (29.4%) and (11.9%) during the second quarter of fiscal 2021 and 2020, respectively.

Financial services

Segment revenue decreased due to lower account fee revenue whilst lending and insurance revenues increased modestly, in ZAR, compared to the prior period. The reduction in operating loss is primarily due to an improvement of operating margin on certain products offered.

Our operating loss margin for the second quarter of fiscal 2021 and 2020 was (11.0%) and (10.2%), respectively.

Technology

Segment revenue was in line with 2020. Operating income for the second quarter of fiscal 2021 improved compared with fiscal 2020 due to improved margins on various product lines within the segment.

Our operating income margin for the Technology segment was 23.4% and 12.0% during the second quarter of fiscal 2021 and 2020, respectively.

Corporate/Eliminations

Our corporate expenses generally include acquisition-related intangible asset amortization; expenses incurred related to corporate actions; expenditure related to compliance with the Sarbanes-Oxley Act of 2002; non-employee directors’ fees; employee and executive bonuses; stock-based compensation; legal fees; audit fees; directors and officer’s insurance premiums; telecommunications expenses; and elimination entries.

Our corporate expenses increased primarily due to an allowance on doubtful loans receivable from equity-accounted investments created during the second quarter of fiscal 2021, and higher legal and consulting fees, which were partially offset by lower audit fees.

47

First half of fiscal 2021 compared to first half of fiscal 2020

The following factors had a significant impact on our results of operations during the first half of fiscal 2021 as compared with the same period in the prior year:

Lower revenue: Our revenues decreased 9% in ZAR primarily due to fewer prepaid airtime sales and lower account fee revenue, which was partially offset by higher transaction fees;

Ongoing operating losses: Operating costs are largely in line with the prior period in ZAR due to the largely fixed cost nature of the costs base. As a result, we continue to experience operating losses as a result of depressed revenues; and

Adverse foreign exchange movements: The U.S. dollar was 14% stronger against the ZAR during the first quarterhalf of fiscal 2021, which adversely impacted our reported results.

 

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 United States Dollars

Table 9

In United States Dollars

Six months ended December 31,

Three months ended September 30,

2020

 

2019(A)

 

 

2020

 

2019(A)

 

 

 

 

(as restated)(B)

 

$ ’000

 

$ ’000

change

$ ’000

 

$ ’000

change

Revenue

37,113

 

47,938

 

(23%)

67,441

 

85,134

 

(21%)

Cost of goods sold, IT processing, servicing and support

28,437

 

32,428

 

(12%)

50,799

 

57,452

 

(12%)

Selling, general and administration

18,528

 

20,622

 

(10%)

40,625

 

42,040

 

(3%)

Depreciation and amortization

923

 

1,324

 

(30%)

1,997

 

2,498

 

(20%)

Operating loss

(10,775)

 

(6,436)

 

67%

(25,980)

 

(16,856)

 

54%

Change in fair value of equity securities

15,128

 

-

 

nm

Gain on disposal of FIHRST

-

 

9,743

 

nm

Loss on disposal of equity-accounted investment

13

 

-

 

nm

Interest income

611

 

363

 

68%

1,328

 

1,445

 

(8%)

Interest expense

747

 

1,347

 

(45%)

1,424

 

4,476

 

(68%)

Loss before income tax (benefit) expense

(10,911)

 

(7,420)

 

47%

Income tax (benefit) expense

(1,090)

 

970

 

nm

Loss before income tax expense

(10,961)

 

(10,144)

 

8%

Income tax expense

2,378

 

1,677

 

42%

Net loss before (loss) earnings from equity-accounted investments

(9,821)

 

(8,390)

 

17%

(13,339)

 

(11,821)

 

13%

(Loss) earnings from equity-accounted investments

(19,137)

 

1,063

 

nm

(20,153)

 

1,569

 

nm

Net loss from continuing operations

(28,958)

 

(7,327)

 

295%

(33,492)

 

(10,252)

 

227%

Net income from discontinued operations

-

 

2,935

 

nm

-

 

5,655

 

nm

Net loss

(28,958)

 

(4,392)

 

559%

(33,492)

 

(4,597)

 

629%

Net (loss) income attributable to us

(28,958)

 

(4,392)

 

559%

(33,492)

 

(4,597)

 

629%

Continuing

(28,958)

 

(7,327)

 

295%

(33,492)

 

(10,252)

 

227%

Discontinued

-

 

2,935

 

nm

-

 

5,655

 

nm

(A) Refer to Note 2021 to the unaudited condensed consolidated financial statements for discontinued operations disclosures.

(B) Revenue and cost of goods sold, IT processing, servicing and support have been restated for the error described in Note 1 to the unaudited condensed consolidated financial statements. There was no impact on operating loss as a result of the restatement.

3848

 

Table 4

In South African Rand

Table 10

In South African Rand

Six months ended December 31,

Three months ended September 30,

2020

 

2019(A)

 

 

2020

 

2019(A)

 

 

 

 

(as restated)(B)

 

ZAR ’000

 

ZAR ’000

change

ZAR ’000

 

ZAR ’000

change

Revenue

622,526

 

707,181

 

(12%)

1,110,585

 

1,226,124

 

(9%)

Cost of goods sold, IT processing, servicing and support

476,997

 

478,378

 

(0%)

836,532

 

827,440

 

1%

Selling, general and administration

310,785

 

304,216

 

2%

668,992

 

605,472

 

10%

Depreciation and amortization

15,482

 

19,532

 

(21%)

32,886

 

35,977

 

(9%)

Operating loss

(180,738)

 

(94,945)

 

90%

(427,825)

 

(242,765)

 

76%

Change in fair value of equity securities

249,120

 

-

 

nm

Gain on disposal of FIHRST

-

 

140,322

 

nm

Loss on disposal of equity-accounted investment

214

 

-

 

nm

Interest income

10,249

 

5,355

 

91%

21,869

 

20,812

 

5%

Interest expense

12,530

 

19,870

 

(37%)

23,450

 

64,464

 

(64%)

Loss before income tax (benefit) expense

(183,019)

 

(109,460)

 

67%

Income tax (benefit) expense

(18,284)

 

14,309

 

nm

Loss before income tax expense

(180,500)

 

(146,095)

 

24%

Income tax expense

39,160

 

24,153

 

62%

Net loss before (loss) earnings from equity-accounted investments

(164,735)

 

(123,769)

 

33%

(219,660)

 

(170,248)

 

29%

(Loss) earnings from equity-accounted investments

(321,000)

 

15,681

 

nm

(331,870)

 

22,597

 

nm

Net loss from continuing operations

(485,735)

 

(108,088)

 

349%

(551,530)

 

(147,651)

 

274%

Net income from discontinued operations

-

 

43,297

 

nm

-

 

81,445

 

nm

Net loss

(485,735)

 

(64,791)

 

650%

(551,530)

 

(66,206)

 

733%

Net (loss) income attributable to us

(485,735)

 

(64,791)

 

650%

(551,530)

 

(66,206)

 

733%

Continuing

(485,735)

 

(108,088)

 

349%

(551,530)

 

(147,651)

 

274%

Discontinued

-

 

43,297

 

nm

-

 

81,445

 

nm

(A) Refer to Note 2021 to the unaudited condensed consolidated financial statements for discontinued operations disclosures.

(B) Revenue and cost of goods sold, IT processing, servicing and support have been restated for the error described in Note 1 to the unaudited condensed consolidated financial statements. There was no impact on operating loss as a result of the restatement.

 

The decrease in revenue was primarily due to fewer prepaid airtime sales and lower account fee revenue, which was partially offset by higher transaction fees.

 

The decrease in cost of goods sold, IT processing, servicing and support was primarily due to lower cost of prepaid airtime sales, which was partially offset by higher costs related to transaction fees.

 

In ZAR, the increase in selling, general and administration expense was primarily due to an allowance on doubtful loans receivable from equity-accounted investments created during the year-over-year impactsecond quarter of inflationary increases on employee-related expenses.fiscal 2021 and an increase in consulting fees.

 

Depreciation and amortization decreased primarily due to lower overall depreciation related to tangible assets that were fully depreciated during the first quarterhalf of fiscal 2020.

 

Our operating loss margin for the first quarterhalf of fiscal 2021 and 2020 was (29.0%(38.5%) and (13.4%(19.8%), respectively. We discuss the components of operating incomeloss margin under “—Results of operations by operating segment.”

 

The change in fair value of equity securities during the first half of fiscal 2021 represents a non-cash fair value adjustment gain related to MobiKwik. There was no change in the fair value of equity securities during the first quarterhalf of fiscal 2021 and 2020. We continue to carry our investment in Cell C at $0 (zero). Refer to Note 46 to our unaudited condensed consolidated financial statements for the methodology and inputs used in the fair value calculation.calculation for MobiKwik and Note 5 for the methodology and inputs used in the fair value calculation for Cell C.

We recorded a gain of $9.7 million related to the disposal of FIHRST during the first half of fiscal 2020.

 

Interest on surplus cash increased to $0.6was $1.3 million (ZAR 10.221.9 million) from $0.4compared to $1.4 million (ZAR 5.420.8 million), in the prior period, due primarily to the higher average daily cash balances following the increase in our cash reserves as a result of the disposal of certain business in fiscal 2020.2020, which was partially offset by lower rates of interest earned on surplus cash.

 

Interest expense decreased to $0.7$1.4 million (ZAR 12.523.5 million) from $1.3$4.5 million (ZAR 19.964.5 million), primarily as a result of lower borrowings, a reduction in the South African interest rates and lower interest expense as a result of lower utilization of our ATM facilities because we used our cash reserves to fund our ATMs.

49

 

Fiscal 2021 tax benefitexpense was $(1.1)$2.4 million (ZAR (18.3)39.2 million) compared to an income tax expense of $1.0$1.7 million (ZAR 14.324.2 million) in fiscal 2020. Our effective tax rate for fiscal 2021 was impacted by the reversal oftax effect on the deferred tax liability related to onechange in the fair value of our equity-accounted investments following its impairment,equity securities, which was partially offset byis at a lower tax rate than the South African statutory rate, the tax charge related to our profitable South African operations, 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.entities, which was partially offset by the reversal of the deferred tax liability related to one of our equity-accounted investments following its impairment.

 

Our effective tax rate for fiscal 2020 was impacted by 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 South African businesses and non-deductible expenses. The charge represents the tax expense recorded by our profitable businesses in South Africa.

 

39

DNI was sold in the fourth quarter of fiscal 2020 and was accounted for using the equity method during the first quarterhalf of fiscal 2020. Finbond is listed on the Johannesburg Stock Exchange and reports its six-month results during our first quarter and its annual results during our fourth quarter. The table below presents the relative (loss) earnings from our equity accounted investments:

 

Table 5

Three months ended September 30,

Table 11

Six months ended December 31,

2020

 

2019

$ %

2020

 

2019

$ %

$ ’000

 

$ ’000

change

$ ’000

 

$ ’000

change

Bank Frick

481

 

(25)

nm

979

 

469

109%

Share of net income

481

 

119

304%

979

 

755

30%

Amortization of intangible assets, net of deferred tax

-

 

(144)

nm

-

 

(286)

nm

DNI

-

 

728

nm

-

 

1,108

nm

Share of net income

-

 

1,463

nm

-

 

3,113

nm

Amortization of intangible assets, net of deferred tax

-

 

(466)

nm

-

 

(931)

nm

Impairment

-

 

(269)

nm

-

 

(1,074)

nm

Finbond

(19,461)

 

491

nm

(20,267)

 

491

nm

Share of net (loss) income

(2,617)

 

491

nm

(2,617)

 

491

nm

Impairment

(16,844)

 

-

nm

(17,650)

 

-

nm

Other

(157)

 

(131)

20%

(865)

 

(499)

73%

Share of net loss

(317)

 

(499)

(36%)

Impairment

(548)

 

-

nm

(19,137)

 

1,063

nm

(20,153)

 

1,569

nm

 

Refer to Note 56 to our unaudited condensed consolidated financial statements for additional information related to the impairment of Finbond.Finbond and our other equity-accounted investments.

50

 

Results of operations by operating segment

 

The composition of revenue and the contributions of our business activities to operating incomeloss are illustrated below:

 

Table 6

 

In United States Dollars

Table 12

 

In United States Dollars(1)

 

 

 

 

 

Six months ended December 31,

 

Three months ended September 30,

 

2020

 

% of

 

2019

 

% of

 

% change

 

2020

 

% of

 

2019

 

% of

 

% change

 

 

(as restated)

 

Operating Segment

$ ’000

total

$ ’000

total

$ ’000

total

$ ’000

total

Consolidated revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing

 

24,483

 

66%

 

30,017

 

63%

 

(18%)

 

42,496

 

63%

 

53,317

 

63%

 

(20%)

IPG

 

1,209

 

3%

 

793

 

2%

 

52%

 

1,687

 

3%

 

1,225

 

1%

 

38%

All others

 

23,274

 

63%

 

29,224

 

61%

 

(20%)

 

40,809

 

61%

 

52,092

 

61%

 

(22%)

Financial services

 

8,265

 

22%

 

14,168

 

30%

 

(42%)

 

17,974

 

27%

 

26,436

 

31%

 

(32%)

Technology

 

6,211

 

17%

 

7,209

 

15%

 

(14%)

 

10,820

 

16%

 

12,099

 

14%

 

(11%)

Subtotal: Operating segments

 

38,959

 

171%

 

51,394

 

171%

 

(24%)

 

71,290

 

170%

 

91,852

 

170%

 

(22%)

Corporate/Eliminations

 

(1,846)

 

(71%)

 

(3,456)

 

(71%)

 

(47%)

 

(3,849)

 

(70%)

 

(6,718)

 

(70%)

 

(43%)

Total consolidated revenue

 

37,113

 

100%

 

47,938

 

100%

 

(23%)

 

67,441

 

100%

 

85,134

 

100%

 

(21%)

Consolidated operating (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing

 

(7,301)

 

68%

 

(5,505)

 

86%

 

33%

 

(17,682)

 

68%

 

(11,353)

 

67%

 

56%

IPG

 

(2,772)

 

(7%)

 

(1,973)

 

(4%)

 

40%

 

(7,419)

 

29%

 

(4,893)

 

29%

 

52%

All others

 

(4,529)

 

(12%)

 

(3,532)

 

(7%)

 

28%

 

(10,263)

 

40%

 

(6,460)

 

38%

 

59%

Financial services

 

(2,372)

 

22%

 

345

 

(5%)

 

nm

 

(3,443)

 

13%

 

(904)

 

5%

 

281%

Technology

 

1,775

 

(16%)

 

1,145

 

(18%)

 

55%

 

2,853

 

(11%)

 

1,734

 

(10%)

 

65%

Subtotal: Operating segments

 

(7,898)

 

55%

 

(4,015)

 

52%

 

97%

 

(18,272)

 

139%

 

(10,523)

 

129%

 

74%

Corporate/eliminations

 

(2,877)

 

45%

 

(2,421)

 

48%

 

19%

 

(7,708)

 

(39%)

 

(6,333)

 

(29%)

 

22%

Total consolidated operating (loss)

 

(10,775)

 

100%

 

(6,436)

 

100%

 

67%

Total consolidated operating loss

 

(25,980)

 

100%

 

(16,856)

 

100%

 

54%

(1) Consolidated revenue-Processing-All others for the six months ended December 31, 2019 has been restated for the error described in Note 1 to the unaudited condensed consolidated financial statements. There was no impact on operating loss as a result of the restatement.

4051

 

Table 7

 

In South African Rand

Table 13

 

In South African Rand(1)

 

 

 

 

 

Three months ended December 31,

 

Three months ended September 30,

 

2020

 

% of

 

2019

 

% of

 

% change

 

2020

 

% of

 

2019

 

% of

 

% change

 

 

(as restated)

 

Operating Segment

ZAR ’000

total

ZAR ’000

total

ZAR ’000

total

ZAR ’000

total

Consolidated revenue:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing

 

410,673

 

66%

 

442,811

 

63%

 

(7%)

 

699,803

 

63%

 

767,887

 

63%

 

(9%)

IPG

 

20,280

 

3%

 

11,699

 

2%

 

73%

 

27,781

 

3%

 

17,642

 

1%

 

57%

All others

 

390,393

 

63%

 

431,112

 

61%

 

(9%)

 

672,022

 

61%

 

750,245

 

61%

 

(10%)

Financial services

 

138,635

 

22%

 

209,006

 

30%

 

(34%)

 

295,987

 

27%

 

380,739

 

31%

 

(22%)

Technology

 

104,182

 

17%

 

106,347

 

15%

 

(2%)

 

178,178

 

16%

 

174,253

 

14%

 

2%

Subtotal: Operating segments

 

653,490

 

171%

 

758,164

 

171%

 

(14%)

 

1,173,968

 

170%

 

1,322,879

 

170%

 

(11%)

Corporate/Eliminations

 

(30,964)

 

(71%)

 

(50,983)

 

(71%)

 

(39%)

 

(63,383)

 

(70%)

 

(96,755)

 

(70%)

 

(34%)

Total consolidated revenue

 

622,526

 

100%

 

707,181

 

100%

 

(12%)

 

1,110,585

 

100%

 

1,226,124

 

100%

 

(9%)

Consolidated operating (loss) income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing

 

(122,466)

 

68%

 

(81,210)

 

86%

 

51%

 

(291,178)

 

68%

 

(163,509)

 

67%

 

78%

IPG

 

(46,497)

 

(7%)

 

(29,106)

 

(4%)

 

60%

 

(122,172)

 

29%

 

(70,470)

 

29%

 

73%

All others

 

(75,969)

 

(12%)

 

(52,104)

 

(7%)

 

46%

 

(169,006)

 

40%

 

(93,039)

 

38%

 

82%

Financial services

 

(39,787)

 

22%

 

5,089

 

(5%)

 

nm

 

(56,698)

 

13%

 

(13,020)

 

5%

 

335%

Technology

 

29,773

 

(16%)

 

16,891

 

(18%)

 

76%

 

46,982

 

(11%)

 

24,974

 

(10%)

 

88%

Subtotal: Operating segments

 

(132,480)

 

55%

 

(59,230)

 

52%

 

124%

 

(300,894)

 

139%

 

(151,555)

 

129%

 

99%

Corporate/eliminations

 

(48,258)

 

45%

 

(35,715)

 

48%

 

35%

 

(126,931)

 

(39%)

 

(91,210)

 

(29%)

 

39%

Total consolidated operating (loss)

 

(180,738)

 

100%

 

(94,945)

 

100%

 

90%

Total consolidated operating loss

 

(427,825)

 

100%

 

(242,765)

 

100%

 

76%

(1) Consolidated revenue-Processing-All others for the six months ended December 31, 2019 has been restated for the error described in Note 1 to the unaudited condensed consolidated financial statements. There was no impact on operating loss as a result of the restatement.

 

Processing

 

Excluding IPG, segment revenue decreased primarily due to fewer prepaid airtime sales, which was partially offset by higher volume-driven transaction fees. Excluding IPG, Processing operating loss has been impacted by lower revenue and by an increase in transaction-based costs. IPG incurred an operating loss but is in the process of being closed down.

 

Our operating loss margin (calculated as operating (loss) income divided by revenue) for the first quarterhalf of fiscal 2021 and 2020 was (29.8%(41.6%) and (18.3%(21.3%), respectively. Excluding IPG, our operating loss margin for the Processing segment was (19.5%(25.1%) and (12.1%(12.4%) during the first quarterhalf of fiscal 2021 and 2020, respectively.

 

Financial services

 

Segment revenue decreased due to lower account fee revenue, whilst lending revenues were relatively flat, and insurance revenues were relatively flatmoderately higher compared to the prior period. The segment incurred an operating loss compared with fiscal 2020 primarily due to the reduction in account fee revenue as well as higher employee-related costs and an increase in insurance claims experience.

 

Our operating (loss) incomeloss margin for the first quarterhalf of fiscal 2021 and 2020 was (28.7%(19.2%) and 2.4%(3.4%), respectively.

 

Technology

 

Segment revenue was modestly lowerhigher than in fiscal 2020. Operating income for the first quarterhalf of fiscal 2021 improved compared with fiscal 2020 due to improved margins on the sale of hardware.various product lines within the segment.

 

Our operating income margin for the Technology segment was 28.6%26.4% and 15.9%14.3% during the first quarterhalf of fiscal 2021 and 2020, respectively.

 

Corporate/Eliminations

 

Our corporate expenses generally include acquisition-related intangible asset amortization; expenses incurred related to corporate actions; expenditure related to compliance with the Sarbanes-Oxley Act of 2002; non-employee directors’ fees; employee and executive bonuses; stock-based compensation; legal fees; audit fees; directors and officer’s insurance premiums; telecommunications expenses; and elimination entries.

Our corporate expenses increased primarily due to foreign exchange losses incurredan allowance on doubtful loans receivable from equity-accounted investments created during the first half of fiscal 2021, and higher legal and consulting fees, which were partially offset by lower audit and consulting fees.


4152

 

Presentation of quarterly revenue and operating (loss) income by segment for fiscal 2020 and 2019

 

The tables below present quarterly revenue and operating (loss) income generated by our three reportable segments for the fiscal 2020 and 2019, and reconciliations to consolidated revenue and operating (loss) income, as well as the U.S. dollar/ ZAR exchange rates applicable per fiscal quarter and year:

 

Table 8

Fiscal 2020

Table 14

Fiscal 2020(1)

In United States Dollars

In United States Dollars

Quarter 1

 

Quarter 2

 

Quarter 3

 

Quarter 4

 

F2020

Quarter 1

 

Quarter 2

 

Quarter 3

 

Quarter 4

 

F2020

$ '000

 

$ '000

 

$ '000

 

$ '000

 

$ '000

$ '000

 

$ '000

 

$ '000

 

$ '000

 

$ '000

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing

30,017

 

26,671

 

23,978

 

17,818

 

98,484

28,295

 

25,022

 

22,078

 

16,391

 

91,786

IPG

793

 

432

 

1,164

 

921

 

3,310

793

 

432

 

1,164

 

921

 

3,310

All Other

29,224

 

26,239

 

22,814

 

16,897

 

95,174

27,502

 

24,590

 

20,914

 

15,470

 

88,476

Financial services

14,168

 

12,268

 

11,683

 

8,751

 

46,870

14,168

 

12,268

 

11,683

 

8,751

 

46,870

Technology and Other

7,209

 

4,890

 

4,040

 

1,932

 

18,071

7,209

 

4,890

 

4,040

 

1,932

 

18,071

Subtotal: Operating segments

51,394

 

43,829

 

39,701

 

28,501

 

163,425

49,672

 

42,180

 

37,801

 

27,074

 

156,727

Corporate/Eliminations

(3,456)

 

(3,262)

 

(3,187)

 

(2,523)

 

(12,428)

(3,456)

 

(3,262)

 

(3,187)

 

(2,523)

 

(12,428)

Total

47,938

 

40,567

 

36,514

 

25,978

 

150,997

46,216

 

38,918

 

34,614

 

24,551

 

144,299

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (loss) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing

(5,505)

 

(5,848)

 

(12,394)

 

(10,089)

 

(33,836)

(5,505)

 

(5,848)

 

(12,394)

 

(10,089)

 

(33,836)

IPG

(1,973)

 

(2,920)

 

(3,175)

 

(4,280)

 

(12,348)

(1,973)

 

(2,920)

 

(3,175)

 

(4,280)

 

(12,348)

All Other

(3,532)

 

(2,928)

 

(9,219)

 

(5,809)

 

(21,488)

(3,532)

 

(2,928)

 

(9,219)

 

(5,809)

 

(21,488)

Financial services

345

 

(1,249)

 

(1,701)

 

(1,016)

 

(3,621)

345

 

(1,249)

 

(1,701)

 

(1,016)

 

(3,621)

Technology and Other

1,145

 

589

 

945

 

136

 

2,815

1,145

 

589

 

945

 

136

 

2,815

Subtotal: Operating segments

(4,015)

 

(6,508)

 

(13,150)

 

(10,969)

 

(34,642)

(4,015)

 

(6,508)

 

(13,150)

 

(10,969)

 

(34,642)

Corporate/Eliminations

(2,421)

 

(3,912)

 

(1,062)

 

(2,211)

 

(9,606)

(2,421)

 

(3,912)

 

(1,062)

 

(2,211)

 

(9,606)

Total

(6,436)

 

(10,420)

 

(14,212)

 

(13,180)

 

(44,248)

(6,436)

 

(10,420)

 

(14,212)

 

(13,180)

 

(44,248)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income and expense items: $1 = ZAR

14.7520

 

14.6022

 

15.3667

 

17.2810

 

17.5686

14.7520

 

14.6022

 

15.3667

 

17.2810

 

17.5686

(1) Revenues-Processing-All others has been restated for the error described in Note 1 to the unaudited condensed consolidated financial statements. There was no impact on operating loss as a result of the restatement.

 

Table 9

Fiscal 2019

Table 15

Fiscal 2019(1)

In United States Dollars

In United States Dollars

Quarter 1

 

Quarter 2

 

Quarter 3

 

Quarter 4

 

F2019

Quarter 1

 

Quarter 2

 

Quarter 3

 

Quarter 4

 

F2019

$ '000

 

$ '000

 

$ '000

 

$ '000

 

$ '000

$ '000

 

$ '000

 

$ '000

 

$ '000

 

$ '000

Revenues

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing

46,239

 

28,755

 

23,330

 

25,356

 

123,680

45,658

 

26,807

 

21,959

 

23,664

 

118,088

IPG

2,404

 

2,300

 

1,892

 

1,561

 

8,157

2,404

 

2,300

 

1,892

 

1,561

 

8,157

All Other

43,835

 

26,455

 

21,438

 

23,795

 

115,523

43,254

 

24,507

 

20,067

 

22,103

 

109,931

Financial services

25,442

 

11,779

 

10,550

 

9,263

 

57,034

25,442

 

11,779

 

10,550

 

9,263

 

57,034

Technology and Other

4,748

 

4,796

 

5,277

 

5,294

 

20,115

4,748

 

4,796

 

5,277

 

5,294

 

20,115

Subtotal: Operating segments

76,429

 

45,330

 

39,157

 

39,913

 

200,829

75,848

 

43,382

 

37,786

 

38,221

 

195,237

Corporate/Eliminations

(5,883)

 

(3,288)

 

(2,571)

 

(22,860)

 

(34,602)

(5,883)

 

(3,288)

 

(2,571)

 

(22,860)

 

(34,602)

Total

70,546

 

42,042

 

36,586

 

17,053

 

166,227

69,965

 

40,094

 

35,215

 

15,361

 

160,635

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating (loss) income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Processing

(7,091)

 

(23,481)

 

(15,431)

 

(5,572)

 

(51,575)

(7,091)

 

(23,481)

 

(15,431)

 

(5,572)

 

(51,575)

IPG

(2,238)

 

(9,425)

 

(1,877)

 

(2,561)

 

(16,101)

(2,238)

 

(9,425)

 

(1,877)

 

(2,561)

 

(16,101)

All Other

(4,853)

 

(14,056)

 

(13,554)

 

(3,011)

 

(35,474)

(4,853)

 

(14,056)

 

(13,554)

 

(3,011)

 

(35,474)

Financial services

4,038

 

(25,144)

 

(4,477)

 

(4,485)

 

(30,068)

4,038

 

(25,144)

 

(4,477)

 

(4,485)

 

(30,068)

Technology and Other

210

 

335

 

164

 

(6,003)

 

(5,294)

210

 

335

 

164

 

(6,003)

 

(5,294)

Subtotal: Operating segments

(2,843)

 

(48,290)

 

(19,744)

 

(16,060)

 

(86,937)

(2,843)

 

(48,290)

 

(19,744)

 

(16,060)

 

(86,937)

Corporate/Eliminations

(4,492)

 

(3,175)

 

(4,032)

 

(36,296)

 

(47,995)

(4,492)

 

(3,175)

 

(4,032)

 

(36,296)

 

(47,995)

Total

(7,335)

 

(51,465)

 

(23,776)

 

(52,356)

 

(134,932)

(7,335)

 

(51,465)

 

(23,776)

 

(52,356)

 

(134,932)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Income and expense items: $1 = ZAR

14.8587

 

14.3236

 

14.1703

 

14.2884

 

14.2695

14.8587

 

14.3236

 

14.1703

 

14.2884

 

14.2695

(1) Revenues-Processing-All others has been restated for the error described in Note 1 to the unaudited condensed consolidated financial statements. There was no impact on operating loss as a result of the restatement.

 

4253

 

Liquidity and Capital Resources

 

At September 30,December 31, 2020, our cash and cash equivalents were $209.2$206.3 million and comprised of U.S. dollar-denominated balances of $174.0$156.8 million, ZAR-denominated balances of ZAR 547.2 million0.7 billion ($32.545.5 million), and other currency deposits, primarily Botswana pula, of $2.7$3.9 million, all amounts translated at exchange rates applicable as of September 30,December 31, 2020. The decrease in our unrestricted cash balances from June 30, 2020, was primarily due to the payment of Federal income taxes, weak trading activities and an increase in our lending book, which was partially offset by the receipt of the outstanding proceeds related to the sale of our Korean business.business and the receipt of the outstanding loan related to the disposal of our remaining interest in DNI.

 

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.

 

Available short-term borrowings

 

Summarized below are our short-term facilities available and utilized as of September 30,December 31, 2020:

 

Table 10

RMB

 

Nedbank

Table 16

RMB

 

Nedbank

$ ’000

 

ZAR ’000

 

$ ’000

 

ZAR ’000

$ ’000

 

ZAR ’000

 

$ ’000

 

ZAR ’000

Total short-term facilities available, comprising:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Overdraft

-

 

-

 

2,970

 

50,000

-

 

-

 

3,410

 

50,000

Overdraft restricted as to use(1)

71,283

 

1,200,000

 

14,851

 

250,000

81,852

 

1,200,000

 

17,052

 

250,000

Total overdraft

71,283

 

1,200,000

 

17,821

 

300,000

81,852

 

1,200,000

 

20,462

 

300,000

Indirect and derivative facilities(2)

-

 

-

 

8,910

 

150,000

-

 

-

 

10,848

 

159,037

Total short-term facilities available

71,283

 

1,200,000

 

26,731

 

450,000

81,852

 

1,200,000

 

31,310

 

459,037

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Utilized short-term facilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Overdraft restricted as to use(1)

6,681

 

112,470

 

45

 

752

53,734

 

787,779

 

7,069

 

103,632

Indirect and derivative facilities(2)

-

 

-

 

5,557

 

93,556

-

 

-

 

10,679

 

156,556

 

 

 

 

 

 

 

 

 

 

 

 

 

 

RMB interest rate, based on South African prime rate

 

 

7.00%

 

 

 

 

 

 

7.00%

 

 

 

 

Interest rate, based on South African prime rate less 1.15%

 

 

 

 

 

 

5.85%

 

 

 

 

 

 

5.85%

(1) Overdraft may only be used to fund mobile 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 Nedbank to various third parties on our behalf.

 

Restricted cash

 

We have credit facilities with RMB and Nedbank in order to access cash to fund our ATMs in South Africa. Our cash, cash equivalents and restricted cash presented in our unaudited condensed consolidated statement of cash flows as of September 30,December 31, 2020, includes restricted cash of approximately $6.7$60.8 million related to cash withdrawn from our various debt facilities 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 unaudited condensed consolidated balance sheet.

 

Cash flows from operating activities

 

FirstSecond quarter

 

Net cash used in operating activities during the firstsecond quarter of fiscal 2021 was $29.9$12.0 million (ZAR 501.2185.3 million) compared to $18.3net cash provided by operating activities of $4.4 million (ZAR 270.464.5 million) during the firstsecond quarter of fiscal 2020. Excluding the impact of income taxes, our cash used in operating activities during the firstsecond quarter of fiscal 2021 was impacted by the cash losses incurred by the majority of our continuing operations and the growth in our lending book. Our net cash used inprovided by operating activities during the firstsecond quarter of fiscal 2020 includes the contribution from our Korean operations.

 

During the second quarter of fiscal 2021, we paid our first provisional South African tax payments of $0.7 million (ZAR 10.1 million) related to our 2021 tax year. During the second quarter of fiscal 2020, we paid our first provisional South African tax payments of $0.7 million (ZAR 10.7 million) related to our 2020 tax year. We also paid taxes totaling $1.3 million in other tax jurisdictions, primarily South Korea.

54

Taxes paid during the second quarter of fiscal 2021 and 2020 were as follows:

Table 17

Three months ended December 31,

 

2020

 

2019

 

2020

 

2019

$

$

ZAR

ZAR

‘000

‘000

‘000

‘000

First provisional payments

677

 

740

 

10,084

 

10,657

Total South African taxes paid

677

 

740

 

10,084

 

10,657

Foreign taxes paid

88

 

1,264

 

1,391

 

18,205

Total tax paid

765

 

2,004

 

11,475

 

28,862

We expect to pay additional provisional payments in South Africa of approximately $0.2 million (ZAR 2.4 million translated at exchange rates applicable as of December 31, 2020) related to our 2021 tax year in the third quarter of fiscal 2021.

First half

Net cash used in operating activities during the first half of fiscal 2021 was $41.9 million (ZAR 689.3 million) compared to $13.9 million (ZAR 200.5 million) during the first half of fiscal 2020. Excluding the impact of income taxes, our cash used in operating activities during the first half of fiscal 2021 was impacted by the cash losses incurred by the majority of our continuing operations, which was partially offset by the unwind in our lending book during the quarter. Our net cash used in operating activities during the first half of fiscal 2020 includes the contribution from our Korean operations.

During the first half of fiscal 2021, we paid our first provisional South African tax payments of $0.7 million (ZAR 10.1 million) related to our 2021 tax year. During the first half of fiscal 2021, we paid South African tax of $0.2 million (ZAR 3.4 million) related to our 2020 tax year. We also paid taxes totaling $15.2$15.3 million in other tax jurisdictions, primarily in the U.S. During the first quarterhalf of fiscal 2020, we paid our first provisional South African tax payments of $0.7 million (ZAR 10.7 million) related to our 2020 tax year. During the first half of fiscal 2020, we paid South African tax of $0.8 million (ZAR 11.6 million) related to our 2019 tax year. We also paid taxes totaling $1.1$2.4 million in other tax jurisdictions, primarily South Korea.

 

43

Taxes paid during the first quarterhalf of fiscal 2021 and 2020 were as follows:

 

Table 11

Three months ended September 30,

Table 18

Six months ended December 31,

2020

 

2019

 

2020

 

2019

2020

 

2019

 

2020

 

2019

$

ZAR

$

ZAR

‘000

‘000

First provisional payments

677

 

740

 

10,084

 

10,657

Taxation paid related to prior years

205

 

782

 

3,423

 

11,620

205

 

782

 

3,423

 

11,620

Tax refund received

(12)

 

(28)

 

(205)

 

(392)

(12)

 

(28)

 

(205)

 

(392)

Total South African taxes (refunded) paid

193

 

754

 

3,218

 

11,228

Foreign taxes paid: Korea

15,213

 

1,129

 

254,450

 

15,907

Total South African taxes paid

870

 

1,494

 

13,302

 

21,885

Foreign taxes paid

15,301

 

2,393

 

255,841

 

34,112

Total tax paid

15,406

 

1,883

 

257,668

 

27,135

16,171

 

3,887

 

269,143

 

55,997

 

Cash flows from investing activities

 

FirstSecond quarter

 

Cash used in investing activities for the firstsecond quarter of fiscal 2021 included capital expenditures of $0.3$3.0 million (ZAR 4.646.8 million), primarily due to the acquisition of motor vehicles, which largely comprises a fleet of customized mobile ATMs used to deliver a service to rural communities. During the second quarter of fiscal 2021 we received the outstanding amounts due on the deferred sale proceeds related to the April 2020 sale of DNI, which has now been paid in full. We also extended loan funding of $1.0 million to V2 and $0.2 million to Revix.

Cash used in investing activities for the second quarter of fiscal 2020 included capital expenditures of $0.8 million (ZAR 12.1 million), primarily due to the acquisition of processing equipment in South Korea to maintain operations. During the second quarter of fiscal 2020, we received $10.9 million from the sale of FIHRST. We also extended loan funding of $0.6 million to Revix.

55

First half

Cash used in investing activities for the first half of fiscal 2021 included capital expenditures of $3.0 million (ZAR 46.8 million), primarily due to the acquisition of motor vehicles, which largely comprises a fleet of customized mobile ATMs used to deliver a service to rural communities, computer equipment and leasehold improvements in South Africa. We received $20.1 million related to the sale of our Korean business in March 2020 following the successful refund application of the amounts withheld and paid to the South Korean tax authorities pursuant to that transaction. We also received the first of the eighteen scheduled repaymentsamount due on the deferred sale proceeds related to the April 2020 sale of DNI.DNI, which has now been paid in full. We also extended loan funding of $1.0 million to V2 and $0.2 million to Revix.

 

Cash used in investing activities for the first quarterhalf of fiscal 2020 included capital expenditures of $2.6$0.8 million (ZAR 38.712.1 million), primarily due to the acquisition of ATMs in South Africa.Africa and processing equipment in South Korea to maintain operations. During the first half of fiscal 2020, we received $10.9 million from the sale of FIHRST. We also made a further equity contribution of $1.3 million to V2, extended loan funding of $0.6 million to Revix, and received $4.3 million from DNI related to the settlement of a ZAR 60.0 million loan outstanding.

 

Cash flows from financing activities

 

FirstSecond quarter

 

During the firstsecond quarter of fiscal 2021, we utilized approximately $69.1$137.3 million from our South African overdraft facilities to fund our ATMs and repaid $76.9$88.3 million of these facilities.

 

During the firstsecond quarter of fiscal 2020, we utilized approximately $182.5$200.7 million from our South African overdraft facilities, primarily to fund our ATMs, and repaid $180.8$193.8 million of these facilities. We prepaid approximately $11.3 million of borrowings (Facility F) utilizing the proceeds received from the disposal of FIHRST. We also utilized $7.2 million of our Bank Frick overdraft to fund our operations.

First half

During the first half of fiscal 2021, we utilized approximately $206.5 million from our South African overdraft facilities to fund our ATMs and repaid $165.1 million of these facilities.

During the first half of fiscal 2020, we utilized approximately $383.2 million from our South African overdraft facilities, primarily to fund our ATMs, and repaid $374.6 million of these facilities. We utilized approximately $14.8 million of our borrowings to fund the purchase of Cell C prepaid airtime that iswas subject to sale restrictions. We prepaid approximately $11.3 million of these borrowings (Facility F) utilizing the proceeds received from the disposal of FIHRST. We also repaid $4.0 million of our Bank Frick overdraft and utilized $1.2$8.4 million of this overdraft to fund our operations.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

Capital Expenditures

 

We expect capital spending for the secondthird quarter of fiscal 2021 be higher due to the purchase of vehicles from CPS on October 15, 2020. These vehicles largely comprise the fleet of customized mobile ATMs used to deliver a service to rural communitiesprimarily include limited investments into our ATM infrastructure and were previously leased from CPS. The balance of capital spending will be primarily to maintain our capital equipment.branch network in South Africa.

 

Our capital expenditures for the firstsecond quarter of fiscal 2021 and 2020 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. We had outstanding capital commitments as of September 30,December 31, 2020, of $0.2$0.6 million. We expect to fund these expenditures through internally generated funds and available facilities.

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

In addition to the tables below, see Note 45 to the unaudited condensed consolidated financial statements for a discussion of market risk.

 

We have short-term borrowings which attract interest at rates that fluctuate based on changes in the South African prime interest rate. The following table illustrates the effect on our annual expected interest charge, translated at exchange rates applicable as of September 30,December 31, 2020, as a result of changes in the South African prime interest rate, assuming hypothetical short-term borrowings of ZAR 1.0 billion as of September 30,December 31, 2020. The effect of a hypothetical 1% (i.e. 100 basis points) increase and a 1% decrease in the South African prime interest rate as of September 30,December 31, 2020, are shown. The selected 1% hypothetical change does not reflect what could be considered the best or worst case scenarios.

 

Table 12

As of September 30, 2020

Table 19

As of September 30, 2020

Annual expected interest charge

($ ’000)

 

Hypothetical change in interest rates

 

Estimated annual expected interest charge after hypothetical change in interest rates

($ ’000)

Annual expected interest charge

($ ’000)

 

Hypothetical change in interest rates

 

Estimated annual expected interest charge after hypothetical change in interest rates

($ ’000)

Interest on South Africa overdraft (South African prime interest rate)

4,158

 

1%

 

4,752

4,775

 

1%

 

5,457

 

 

 

 

 

 

 

 

 

 

 

 

 

Item 4. Controls and Procedures

 

Under the supervision and with the participation of our management, including our chief executive officer and our chief financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, as of September 30,December 31, 2020. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on this evaluation, and in light of the insufficient timeinstances to assess the effectiveness of the procedures we have adopted to remediate the material weakness in our internal control over financial reporting in our Annual Report on Form 10-K for our fiscal year ended June 30, 2020, our interim chief executive officer concluded that our disclosure controls and procedures were not effective as of September 30,December 31, 2020.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting during the most recent fiscal quarter ended September 30,December 31, 2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. We continue to monitor the effectiveness of our internal control over financial reporting in the areas affected by the material weakness described in our Annual Report on Form 10-K for our fiscal year ended June 30, 2020, and we have and will continue to perform additional procedures, including the use of manual mitigating control procedures and employing any additional tools and resources deemed necessary, to ensure that our consolidated financial statements are fairly stated in all material respects.

 

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Part II. Other Information

 

Item 1. Legal Proceedings

 

CPS placed into business rescue and SASSA application to place CPS into liquidationWithdrawal of legal proceedings against a PG Purchasing customer regarding non-payment of working capital finance loans receivable

 

On June 18, 2020, SASSA launched an urgent applicationIn January 2019, we filed a Petition with the HighDistrict Court of South Africa, Gauteng Division, Pretoria, or High Court,Dallas County, Texas (“Texas district court lawsuit”), naming Permian Crude Transport, LP, f/k/a Permian Crude Transport, LLC, d/b/a Permian Transport & Trading (“PCT”), and Centurion Marketing, LLC d/b/a Jupiter Marketing & Trading, LLC (“Centurion” and collectively with PCT, “PCT/Centurion”) as defendants regarding the recovery of working capital finance loans receivable made to place CPS into liquidationPCT/Centurion by our wholly-owned subsidiary, PG Purchasing. This lawsuit was in its initial stages and declaretrial was set for December 2, 2019. However, the business rescue process invalid.Texas district court lawsuit was administratively closed following PCT’s filing for bankruptcy in June 2019 and Centurion’s filing for bankruptcy in July 2019. The matter was heard on October 16, 2020, andTexas district court lawsuit may be re-opened if the High Court ordered that CPS be placed into liquidation. We do not intend to appeal the order of the High Court.PCT/Centurion bankruptcy matters are lifted.

 

However, on December 3, 2020, we filed a notice with the United States Bankruptcy Court for the Northern District of Texas, Dallas Division withdrawing our claim as we do not believe we will be able to successfully recover all or a part of the receivable outstanding within a reasonable period of time and without further undue cost and effort.

Item 6. Exhibits

 

The following exhibits are filed as part of this Form 10-Q:

 

 

 

 

Incorporated by Reference Herein

 

 

 

Incorporated by Reference Herein

Exhibit No.

 

Description of Exhibit

Included Herewith

Form

Exhibit

Filing Date

 

Description of Exhibit

Included Herewith

Form

Exhibit

Filing Date

 

 

 

 

 

 

 

 

 

 

 

 

10.28

 

Separation and Release of Claims Agreement, dated August 5, 2020, by and between the Company and Herman G. Kotzé

X

8-K

10.1

August 5, 2020

10.29

 

Consulting Agreement, dated August 5, 2020, by and between the Company and Ali Mazanderani

X

8-K

10.1

August 5, 2020

10.30

 

Amendment No. 1 to Cooperation Agreement, dated December 9, 2020, by and between Net 1 UEPS Technologies, Inc. and Value Capital Partners (Pty) Ltd

X

8-K

10.1

December 10, 2020

31.1

 

Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act

X

 

 

 

 

Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act

X

 

 

 

31.2

 

Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act

X

 

 

 

 

Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act

X

 

 

 

32

 

Certification pursuant to 18 USC Section 1350

X

 

 

 

 

Certification pursuant to 18 USC Section 1350

X

 

 

 

101.INS

 

XBRL Instance Document

X

 

 

 

 

XBRL Instance Document

X

 

 

 

101.SCH

 

XBRL Taxonomy Extension Schema

X

 

 

 

 

XBRL Taxonomy Extension Schema

X

 

 

 

101.CAL

 

XBRL Taxonomy Extension Calculation Linkbase

X

 

 

 

 

XBRL Taxonomy Extension Calculation Linkbase

X

 

 

 

101.DEF

 

XBRL Taxonomy Extension Definition Linkbase

X

 

 

 

 

XBRL Taxonomy Extension Definition Linkbase

X

 

 

 

101.LAB

 

XBRL Taxonomy Extension Label Linkbase

X

 

 

 

 

XBRL Taxonomy Extension Label Linkbase

X

 

 

 

101.PRE

 

XBRL Taxonomy Extension Presentation Linkbase

X

 

 

 

 

XBRL Taxonomy Extension Presentation Linkbase

X

 

 

 

 

 

 

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 5, 2020.February 4, 2021.

NET 1 UEPS TECHNOLOGIES, INC.

By: /s/ Alex M.R. Smith

Alex M.R. Smith
Interim Chief Executive Officer, Chief Financial Officer, Treasurer and Secretary

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