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, 20212022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from |
| To |
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Commission file number: 000-31203
NET 1 UEPSLESAKA TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Florida |
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| 98-0171860 |
(State or other jurisdiction |
| (IRS Employer | ||
of incorporation or organization) |
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| 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)
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Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common stock, par value $0.001 per share |
| 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 |
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☐ | Non-accelerated filer | ☒ | Smaller reporting company |
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| ☐ | Emerging growth company |
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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 5, 20218, 2022 (the latest practicable date), 56,996,21459,278,976 shares of the registrant’s common stock, par value $0.001 per share, net of treasury shares, were outstanding.
| Form 10-Q
Table of Contents |
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| Page No. |
PART I. FINANCIAL INFORMATION |
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| Unaudited Condensed Consolidated Balance Sheets as of September 30, | |
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| Notes to Unaudited Condensed Consolidated Financial Statements | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | ||
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1
Part I. Financial information
Item 1. Financial Statements
NET 1 UEPSLESAKA TECHNOLOGIES, INCINC.
Unaudited Condensed Consolidated Balance Sheets
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| September 30, |
| June 30, |
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| September 30, |
| June 30, | |||||||
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| 2021 |
| 2021(A) |
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| 2022 |
| 2022(A) | ||||||
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| (In thousands, except share data) |
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| (In thousands, except share data) | ||||||||||
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| ASSETS |
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| ASSETS |
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CURRENT ASSETS | CURRENT ASSETS |
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| CURRENT ASSETS |
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| Cash and cash equivalents | $ | 188,495 |
| $ | 198,572 | Cash and cash equivalents | $ | 30,140 |
| $ | 43,940 | ||||||||
| Restricted cash related to ATM funding and credit facilities (Note 8) |
| 61,926 |
| 25,193 | Restricted cash related to ATM funding and credit facilities (Note 8) |
| 63,231 |
| 60,860 | ||||||||||
| Accounts receivable, net and other receivables (Note 2) |
| 27,643 |
| 26,583 | Accounts receivable, net and other receivables (Note 2) |
| 29,356 |
| 28,898 | ||||||||||
| Finance loans receivable, net (Note 2) |
| 20,607 |
| 21,142 | Finance loans receivable, net (Note 2) |
| 33,484 |
| 33,892 | ||||||||||
| Inventory (Note 3) |
| 19,613 |
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| 22,361 | Inventory (Note 3) |
| 31,164 |
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| 34,226 | ||||||||
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| Total current assets before settlement assets |
| 318,284 |
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| 293,851 |
| Total current assets before settlement assets |
| 187,375 |
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| 201,816 | ||||||
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| Settlement assets |
| 466 |
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| 466 |
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| Settlement assets |
| 16,286 |
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| 15,916 | ||||
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| Total current assets |
| 318,750 |
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| 294,317 |
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| Total current assets |
| 203,661 |
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| 217,732 | ||||
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of - September: $36,163 June: $38,535 |
| 6,718 |
| 7,492 | ||||||||||||||||
PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of - September: $32,987 June: $35,249 | PROPERTY, PLANT AND EQUIPMENT, net of accumulated depreciation of - September: $32,987 June: $35,249 |
| 24,385 |
| 24,599 | |||||||||||||||
OPERATING LEASE RIGHT-OF-USE (Note 16) | OPERATING LEASE RIGHT-OF-USE (Note 16) |
| 3,890 |
| 4,519 | OPERATING LEASE RIGHT-OF-USE (Note 16) |
| 5,943 |
| 7,146 | ||||||||||
EQUITY-ACCOUNTED INVESTMENTS (Note 5) | EQUITY-ACCOUNTED INVESTMENTS (Note 5) |
| 7,607 |
| 10,004 | EQUITY-ACCOUNTED INVESTMENTS (Note 5) |
| 5,111 |
| 5,861 | ||||||||||
GOODWILL (Note 6) | GOODWILL (Note 6) |
| 27,619 |
| 29,153 | GOODWILL (Note 6) |
| 147,167 |
| 162,657 | ||||||||||
INTANGIBLE ASSETS, NET (Note 6) | INTANGIBLE ASSETS, NET (Note 6) |
| 321 |
| 357 | INTANGIBLE ASSETS, NET (Note 6) |
| 137,984 |
| 156,702 | ||||||||||
DEFERRED INCOME TAXES | DEFERRED INCOME TAXES |
| 934 |
| 622 | DEFERRED INCOME TAXES |
| 3,685 |
| 3,776 | ||||||||||
OTHER LONG-TERM ASSETS, including reinsurance assets (Note 5 and 7) | OTHER LONG-TERM ASSETS, including reinsurance assets (Note 5 and 7) |
| 77,916 |
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| 81,866 | OTHER LONG-TERM ASSETS, including reinsurance assets (Note 5 and 7) |
| 77,834 |
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| 78,092 | ||||||||
TOTAL ASSETS | TOTAL ASSETS |
| 443,755 |
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| 428,330 | TOTAL ASSETS |
| 605,770 |
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| 656,565 | ||||||||
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| LIABILITIES |
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| LIABILITIES |
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CURRENT LIABILITIES | CURRENT LIABILITIES |
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| CURRENT LIABILITIES |
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| Short-term credit facilities for ATM funding (Note 8) |
| 51,568 |
| 14,245 | Short-term credit facilities for ATM funding (Note 8) |
| 57,951 |
| 51,338 | ||||||||||
| Accounts payable |
| 4,308 |
| 7,113 | Short-term credit facilities (Note 8) |
| 11,381 |
| 14,880 | ||||||||||
| Other payables (Note 9) |
| 28,180 |
| 27,588 | Accounts payable |
| 19,281 |
| 18,572 | ||||||||||
| Operating lease liability - current (Note 16) |
| 2,674 |
| 2,822 | Other payables (Note 9) |
| 28,426 |
| 34,362 | ||||||||||
| Income taxes payable |
| 539 |
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| 256 | Operating lease liability - current (Note 16) |
| 1,772 |
| 2,498 | |||||||||
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| Total current liabilities before settlement obligations |
| 87,269 |
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| 52,024 | Current portion of long-term borrowings (Note 8) |
| 6,365 |
| 6,804 | ||||||||
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| Settlement obligations |
| 466 |
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| 466 | Income taxes payable |
| 2,554 |
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| 2,140 | ||||||
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| Total current liabilities |
| 87,735 |
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| 52,490 |
| Total current liabilities before settlement obligations |
| 127,730 |
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| 130,594 | |||||
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| Settlement obligations |
| 15,811 |
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| 15,276 | ||||||||||||
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| Total current liabilities |
| 143,541 |
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| 145,870 | ||||||||||||
DEFERRED INCOME TAXES | DEFERRED INCOME TAXES |
| 10,404 |
| 10,415 | DEFERRED INCOME TAXES |
| 48,977 |
| 54,211 | ||||||||||
OPERATING LEASE LIABILITY - LONG TERM (Note 16) | OPERATING LEASE LIABILITY - LONG TERM (Note 16) |
| 1,413 |
| 1,890 | OPERATING LEASE LIABILITY - LONG TERM (Note 16) |
| 4,333 |
| 4,827 | ||||||||||
LONG-TERM BORROWINGS (Note 8) | LONG-TERM BORROWINGS (Note 8) |
| 121,435 |
| 134,842 | |||||||||||||||
OTHER LONG-TERM LIABILITIES, including insurance policy liabilities (Note 7) | OTHER LONG-TERM LIABILITIES, including insurance policy liabilities (Note 7) |
| 2,477 |
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| 2,576 | OTHER LONG-TERM LIABILITIES, including insurance policy liabilities (Note 7) |
| 2,192 |
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| 2,466 | ||||||||
TOTAL LIABILITIES | TOTAL LIABILITIES |
| 102,029 |
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| 67,371 | TOTAL LIABILITIES |
| 320,478 |
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| 342,216 | ||||||||
REDEEMABLE COMMON STOCK | REDEEMABLE COMMON STOCK |
| 84,979 |
| 84,979 | REDEEMABLE COMMON STOCK |
| 79,429 |
| 79,429 | ||||||||||
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| EQUITY |
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| EQUITY |
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COMMON STOCK (Note 10) | COMMON STOCK (Note 10) |
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| COMMON STOCK (Note 10) |
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| Authorized: 200,000,000 with $0.001 par value; |
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| Authorized: 200,000,000 with $0.001 par value; |
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| Issued and outstanding shares, net of treasury - September: 56,996,214 June: 56,716,620 |
| 80 |
| 80 | Issued and outstanding shares, net of treasury - September: 62,522,384 June: 62,324,321 |
| 83 |
| 83 | ||||||||||
PREFERRED STOCK | PREFERRED STOCK |
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| PREFERRED STOCK |
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| Authorized shares: 50,000,000 with $0.001 par value; |
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| Authorized shares: 50,000,000 with $0.001 par value; |
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| Issued and outstanding shares, net of treasury: September: 0 June: 0 |
| - |
| - | Issued and outstanding shares, net of treasury: September: - June: - |
| - |
| - | ||||||||||
ADDITIONAL PAID-IN-CAPITAL | ADDITIONAL PAID-IN-CAPITAL |
| 302,277 |
| 301,959 | ADDITIONAL PAID-IN-CAPITAL |
| 329,365 |
| 327,891 | ||||||||||
TREASURY SHARES, AT COST: September: 24,891,292 June: 24,891,292 |
| (286,951) |
| (286,951) | ||||||||||||||||
TREASURY SHARES, AT COST: September: 24,926,752 June: 24,891,292 | TREASURY SHARES, AT COST: September: 24,926,752 June: 24,891,292 |
| (287,136) |
| (286,951) | |||||||||||||||
ACCUMULATED OTHER COMPREHENSIVE LOSS (Note 11) | ACCUMULATED OTHER COMPREHENSIVE LOSS (Note 11) |
| (152,278) |
| (145,721) | ACCUMULATED OTHER COMPREHENSIVE LOSS (Note 11) |
| (188,490) |
| (168,840) | ||||||||||
RETAINED EARNINGS | RETAINED EARNINGS |
| 393,619 |
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| 406,613 | RETAINED EARNINGS |
| 352,041 |
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| 362,737 | ||||||||
TOTAL NET1 EQUITY |
| 256,747 |
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| 275,980 | |||||||||||||||
TOTAL LESAKA EQUITY | TOTAL LESAKA EQUITY |
| 205,863 |
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| 234,920 | ||||||||||||||
NON-CONTROLLING INTEREST | NON-CONTROLLING INTEREST |
| 0 |
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| 0 | NON-CONTROLLING INTEREST |
| - |
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| - | ||||||||
TOTAL EQUITY | TOTAL EQUITY |
| 256,747 |
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| 275,980 | TOTAL EQUITY |
| 205,863 |
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| 234,920 | ||||||||
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TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS’ EQUITY | TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS’ EQUITY | $ | 443,755 |
| $ | 428,330 | TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS’ EQUITY | $ | 605,770 |
| $ | 656,565 | ||||||||
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| (A) – Derived from audited financial statements | (A) – Derived from audited financial statements | ||||||||||||||||||
| See Notes to Unaudited Condensed Consolidated Financial Statements | See Notes to Unaudited Condensed Consolidated Financial Statements |
2
NET 1 UEPSLESAKA TECHNOLOGIES, INCINC.
Unaudited Condensed Consolidated Statements of Operations
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| Three months ended |
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| Three months ended | |||||||||||
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| September 30, |
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| September 30, | ||||||||
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| 2021 |
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| 2020(A) |
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| 2022 |
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| 2021 | ||
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| (In thousands, except per share data) |
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REVENUE (Note 15) | REVENUE (Note 15) |
| $ | 34,504 |
| $ | 35,136 | REVENUE (Note 15) |
| $ | 124,786 |
| $ | 34,504 | ||||||
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EXPENSE | EXPENSE |
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| EXPENSE |
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| Cost of goods sold, IT processing, servicing and support |
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| 24,207 |
| 26,460 | Cost of goods sold, IT processing, servicing and support |
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| 100,528 |
| 24,207 | ||||||||
| Selling, general and administration |
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| 20,627 |
| 18,528 | Selling, general and administration(1) |
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| 22,931 |
| 20,442 | ||||||||
| Depreciation and amortization |
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| 895 |
| 923 | Depreciation and amortization |
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| 5,998 |
| 895 | ||||||||
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| Transaction costs related to Connect acquisition(1) |
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| - |
| 185 | ||||
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OPERATING LOSS | OPERATING LOSS |
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| (11,225) |
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| (10,775) | OPERATING LOSS |
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| (4,671) |
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| (11,225) | ||||||
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NET GAIN ON DISPOSAL OF EQUITY-ACCOUNTED INVESTMENTS (Note 5) | NET GAIN ON DISPOSAL OF EQUITY-ACCOUNTED INVESTMENTS (Note 5) |
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| 248 |
| - | ||||||||||||||
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INTEREST INCOME | INTEREST INCOME |
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| 389 |
| 611 | INTEREST INCOME |
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| 411 |
| 389 | ||||||||
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INTEREST EXPENSE | INTEREST EXPENSE |
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| 816 |
| 747 | INTEREST EXPENSE |
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| 4,036 |
| 816 | ||||||||
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LOSS BEFORE INCOME TAX EXPENSE (BENEFIT) |
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| (11,652) |
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| (10,911) | ||||||||||||||
LOSS BEFORE INCOME TAX EXPENSE | LOSS BEFORE INCOME TAX EXPENSE |
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| (8,048) |
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| (11,652) | |||||||||||||
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INCOME TAX EXPENSE (BENEFIT) (Note 18) |
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| 186 |
| (1,090) | |||||||||||||||
INCOME TAX EXPENSE (Note 18) | INCOME TAX EXPENSE (Note 18) |
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| 31 |
| 186 | ||||||||||||||
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NET LOSS BEFORE LOSS FROM EQUITY-ACCOUNTED INVESTMENTS | NET LOSS BEFORE LOSS FROM EQUITY-ACCOUNTED INVESTMENTS |
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| (11,838) |
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| (9,821) | NET LOSS BEFORE LOSS FROM EQUITY-ACCOUNTED INVESTMENTS |
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| (8,079) |
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| (11,838) | ||||||
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LOSS FROM EQUITY-ACCOUNTED INVESTMENTS (Note 5) | LOSS FROM EQUITY-ACCOUNTED INVESTMENTS (Note 5) |
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| (1,156) |
| (19,137) | LOSS FROM EQUITY-ACCOUNTED INVESTMENTS (Note 5) |
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| (2,617) |
| (1,156) | ||||||||
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NET LOSS | NET LOSS |
| $ | (12,994) |
| $ | (28,958) | NET LOSS |
| $ | (10,696) |
| $ | (12,994) | ||||||
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Net loss per share, in United States dollars (Note 13): | Net loss per share, in United States dollars (Note 13): |
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| Net loss per share, in United States dollars (Note 13): |
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Basic loss attributable to Net1 shareholders |
| $ | (0.23) |
| $ | (0.51) | ||||||||||||||
Diluted loss attributable to Net1 shareholders |
| $ | (0.23) |
| $ | (0.51) | ||||||||||||||
Basic loss attributable to Lesaka shareholders | Basic loss attributable to Lesaka shareholders |
| $ | (0.17) |
| $ | (0.23) | |||||||||||||
Diluted loss attributable to Lesaka shareholders | Diluted loss attributable to Lesaka shareholders |
| $ | (0.17) |
| $ | (0.23) | |||||||||||||
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(A) Certain amounts have been restated to correct the misstatement discussed in Note 1. | ||||||||||||||||||||
(1) $185,000 of transaction costs previously included in the caption selling, general and administration and has been reclassified to the caption transaction costs related to Connect acquisition in order to conform with the Company's presentation for the year ended June 30, 2022 | (1) $185,000 of transaction costs previously included in the caption selling, general and administration and has been reclassified to the caption transaction costs related to Connect acquisition in order to conform with the Company's presentation for the year ended June 30, 2022 | |||||||||||||||||||
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 UEPSLESAKA TECHNOLOGIES, INCINC.
Unaudited Condensed Consolidated Statements of Comprehensive (Loss) Income
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| Three months ended |
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| Three months ended | |||||||||||||
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| September 30, |
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| September 30, | ||||||||||||
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| 2021 |
| 2020 |
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| 2022 |
| 2021 | ||||||||||
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| (In thousands) |
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| (In thousands) | ||||||||||||
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Net loss | Net loss | $ | (12,994) |
| $ | (28,958) | Net loss | $ | (10,696) |
| $ | (12,994) | ||||||||
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Other comprehensive (loss) income, net of taxes | Other comprehensive (loss) income, net of taxes |
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| Other comprehensive (loss) income, net of taxes |
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| Movement in foreign currency translation reserve |
| (5,913) |
| 6,142 | Movement in foreign currency translation reserve |
| (22,093) |
| (5,913) | ||||||||||
| Movement in foreign currency translation reserve related to equity-accounted investments |
| (644) |
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| 1,688 | Movement in foreign currency translation reserve related to equity-accounted investments |
| 2,441 |
| (644) | |||||||||
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| Total other comprehensive (loss) income, net of taxes |
| (6,557) |
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| 7,830 | Release of foreign currency translation reserve related to disposal of Finbond equity securities |
| 2 |
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| - | |||||||
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| Total other comprehensive (loss) income, net of taxes |
| (19,650) |
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| (6,557) | ||||||
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| Comprehensive loss |
| (19,551) |
| (21,128) |
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| Add comprehensive loss attributable to non-controlling interest |
| 0 |
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| 0 |
| Comprehensive loss |
| (30,346) |
| (19,551) | |||||||
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|
|
| Add comprehensive loss attributable to non-controlling interest |
| - |
|
| - | ||||||
|
| Comprehensive loss attributable to Net1 | $ | (19,551) |
| $ | (21,128) |
|
|
|
|
|
|
| ||||||
|
|
|
|
|
|
|
|
| Comprehensive loss attributable to Lesaka | $ | (30,346) |
| $ | (19,551) | ||||||
|
|
|
|
|
|
|
| |||||||||||||
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 UEPSLESAKA TECHNOLOGIES, INCINC.
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 | $ | 0 | $ | 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 |
|
|
|
|
|
|
|
| - |
| 98 |
|
|
|
|
| 98 |
|
|
| 98 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
|
|
|
|
|
|
| - |
|
|
| (28,958) |
|
|
| (28,958) |
| 0 |
| (28,958) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other comprehensive income (Note 11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 7,830 |
| 7,830 |
| 0 |
| 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 | $ | 0 | $ | 269,542 | $ | 84,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Lesaka 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 Lesaka Equity |
| Non-controlling Interest |
| Total |
| Redeemable common stock |
|
| For the three months ended September 30, 2021 (dollar amounts in thousands) | ||||||||||||||||||||||
| Balance – July 1, 2021 | 81,607,912 | $ | 80 |
| (24,891,292) | $ | (286,951) |
| 56,716,620 | $ | 301,959 | $ | 406,613 | $ | (145,721) | $ | 275,980 | $ | - | $ | 275,980 | $ | 84,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Restricted stock granted (Note 12) | 279,594 |
|
|
|
|
|
|
| 279,594 |
|
|
|
|
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stock-based compensation charge (Note 12) |
|
|
|
|
|
|
|
| - |
| 344 |
|
|
|
|
| 344 |
|
|
| 344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Reversal of stock-based compensation charge (Note 12) | - |
|
|
|
|
|
|
| - |
| (35) |
|
|
|
|
| (35) |
|
|
| (35) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stock-based compensation charge related to equity-accounted investment (Note 5) |
|
|
|
|
|
|
|
| - |
| 9 |
|
|
|
|
| 9 |
|
|
| 9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
|
|
|
|
|
|
| - |
|
|
| (12,994) |
|
|
| (12,994) |
| - |
| (12,994) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other comprehensive loss (Note 11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (6,557) |
| (6,557) |
| - |
| (6,557) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance – September 30, 2021 | 81,887,506 | $ | 80 |
| (24,891,292) | $ | (286,951) |
| 56,996,214 | $ | 302,277 | $ | 393,619 | $ | (152,278) | $ | 256,747 | $ | - | $ | 256,747 | $ | 84,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5
NET 1 UEPSLESAKA TECHNOLOGIES, INCINC.
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, 2021 (dollar amounts in thousands) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance – July 1, 2021 | 81,607,912 | $ | 80 |
| (24,891,292) | $ | (286,951) |
| 56,716,620 | $ | 301,959 | $ | 406,613 | $ | (145,721) | $ | 275,980 | $ | 0 | $ | 275,980 | $ | 84,979 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Restricted stock granted (Note 12) | 279,594 |
|
|
|
|
|
|
| 279,594 |
|
|
|
|
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stock-based compensation charge (Note 12) |
|
|
|
|
|
|
|
|
|
| 344 |
|
|
|
|
| 344 |
|
|
| 344 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Reversal of stock-based compensation charge (Note 12) | - |
|
|
|
|
|
|
| - |
| (35) |
|
|
|
|
| (35) |
|
|
| (35) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stock-based compensation charge related to equity-accounted investment (Note 5) |
|
|
|
|
|
|
|
|
|
| 9 |
|
|
|
|
| 9 |
|
|
| 9 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
|
|
|
|
|
|
|
|
|
|
| (12,994) |
|
|
| (12,994) |
| 0 |
| (12,994) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other comprehensive loss (Note 11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (6,557) |
| (6,557) |
| 0 |
| (6,557) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance – September 30, 2021 | 81,887,506 | $ | 80 |
| (24,891,292) | $ | (286,951) |
| 56,996,214 | $ | 302,277 | $ | 393,619 | $ | (152,278) | $ | 256,747 | $ | 0 | $ | 256,747 | $ | 84,979 |
|
| Lesaka 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 Lesaka Equity |
| Non-controlling Interest |
| Total |
| Redeemable common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the three months ended September 30, 2022 (dollar amounts in thousands) | ||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance – July 1, 2022 | 87,215,613 | $ | 83 |
| (24,891,292) | $ | (286,951) |
| 62,324,321 | $ | 327,891 | $ | 362,737 | $ | (168,840) | $ | 234,920 | $ | - | $ | 234,920 | $ | 79,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Shares repurchased (Note 12) |
|
|
|
| (35,460) |
| (185) |
| (35,460) |
|
|
|
|
|
|
| (185) |
|
|
| (185) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Restricted stock granted (Note 12) | 231,523 |
|
|
|
|
|
|
| 231,523 |
|
|
|
|
|
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Exercise of stock option (Note 12) | 2,000 |
| - |
|
|
|
|
| 2,000 |
| 6 |
|
|
|
|
| 6 |
|
|
| 6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stock-based compensation charge (Note 12) |
|
|
|
|
|
|
|
|
|
| 1,462 |
|
|
|
|
| 1,462 |
|
|
| 1,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Stock-based compensation charge related to equity-accounted investment (Note 5) |
|
|
|
|
|
|
|
|
|
| 6 |
|
|
|
|
| 6 |
|
|
| 6 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Net loss |
|
|
|
|
|
|
|
|
|
|
|
| (10,696) |
|
|
| (10,696) |
| - |
| (10,696) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other comprehensive loss (Note 11) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| (19,650) |
| (19,650) |
| - |
| (19,650) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Balance – September 30, 2022 | 87,449,136 | $ | 83 |
| (24,926,752) | $ | (287,136) |
| 62,522,384 | $ | 329,365 | $ | 352,041 | $ | (188,490) | $ | 205,863 | $ | - | $ | 205,863 | $ | 79,429 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| See Notes to Unaudited Condensed Consolidated Financial Statements |
6
NET 1 UEPSLESAKA TECHNOLOGIES, INCINC.
Unaudited Condensed Consolidated Statements of Cash Flows
|
|
| Three months ended |
|
|
| Three months ended | |||||||
|
|
|
| September 30, |
|
|
| September 30, | ||||||
|
|
|
| 2021 |
|
| 2020 |
|
|
| 2022 |
|
| 2021 |
|
|
|
| (In thousands) |
|
|
| (In thousands) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Cash flows from operating activities | Cash flows from operating activities |
|
|
|
| Cash flows from operating activities |
|
|
|
| ||||
| Net loss | $ | (12,994) |
| $ | (28,958) | Net loss | $ | (10,696) |
| $ | (12,994) | ||
| Depreciation and amortization |
| 895 |
| 923 | Depreciation and amortization |
| 5,998 |
| 895 | ||||
| Impairment loss |
| 140 |
| 0 | Movement in allowance for doubtful accounts receivable |
| 1,049 |
| 386 | ||||
| Movement in allowance for doubtful accounts receivable |
| 386 |
| 514 | Loss from equity-accounted investments (Note 5) |
| 2,617 |
| 1,156 | ||||
| Loss from equity-accounted investments (Note 5) |
| 1,156 |
| 19,137 | Fair value adjustment related to financial liabilities |
| 63 |
| (90) | ||||
| Movement in allowance for doubtful loans to equity-accounted investments |
| 0 |
| 78 | Interest payable |
| 26 |
| 11 | ||||
| Fair value adjustment related to financial liabilities |
| (90) |
| 886 | Facility fee amortized |
| 249 |
| - | ||||
| Interest payable |
| 11 |
| (63) | Net gain on disposal of equity-accounted investments (Note 5) |
| (248) |
| - | ||||
| Profit on disposal of property, plant and equipment |
| (165) |
| (10) | Profit on disposal of property, plant and equipment(1) |
| (208) |
| (25) | ||||
| Stock-based compensation charge (Note 12) |
| 309 |
| 399 | Stock-based compensation charge (Note 12) |
| 1,462 |
| 309 | ||||
| Dividends received from equity-accounted investments |
| 137 |
|
| 57 | Dividends received from equity-accounted investments |
| 21 |
|
| 137 | ||
| Decrease (Increase) in accounts receivable and finance loans receivable |
| 1,188 |
|
| (8,115) | (Increase) Decrease in accounts receivable and finance loans receivable |
| (6,524) |
|
| 1,188 | ||
| Decrease in inventory |
| 1,583 |
| 2,359 | (Increase) Decrease in inventory |
| (279) |
| 1,583 | ||||
| Decrease in accounts payable and other payables |
| (431) |
| (415) | Increase (Decrease) in accounts payable and other payables |
| (438) |
| (431) | ||||
| Increase (Decrease) in taxes payable |
| 294 |
| (14,917) | Increase in taxes payable |
| 642 |
| 294 | ||||
| Decrease in deferred taxes |
| (367) |
|
| (1,755) | Decrease in deferred taxes |
| (1,394) |
|
| (367) | ||
|
| Net cash used in operating activities |
| (7,948) |
|
| (29,880) |
| Net cash used in operating activities |
| (7,660) |
|
| (7,948) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities | Cash flows from investing activities |
|
|
|
| Cash flows from investing activities |
|
|
|
| ||||
Capital expenditures | Capital expenditures |
| (698) |
| (275) | Capital expenditures |
| (4,501) |
| (698) | ||||
Proceeds from disposal of property, plant and equipment | Proceeds from disposal of property, plant and equipment |
| 231 |
| 16 | Proceeds from disposal of property, plant and equipment |
| 417 |
| 231 | ||||
Proceeds from disposal of Net1 Korea |
| 0 |
| 20,114 | ||||||||||
Proceeds from disposal of DNI as equity-accounted investment |
| 0 |
| 329 | ||||||||||
Proceeds from disposal of equity-accounted investments (Note 5) | Proceeds from disposal of equity-accounted investments (Note 5) |
| 253 |
| - | |||||||||
Loan to equity-accounted investment | Loan to equity-accounted investment |
| 0 |
| (78) | Loan to equity-accounted investment |
| (112) |
| - | ||||
Repayment of loans by equity-accounted investments | Repayment of loans by equity-accounted investments |
| 112 |
| - | |||||||||
Net change in settlement assets | Net change in settlement assets |
| 0 |
|
| 4,068 | Net change in settlement assets |
| (1,884) |
|
| - | ||
| Net cash (used in) provided by investing activities |
| (467) |
|
| 24,174 | Net cash used in investing activities |
| (5,715) |
|
| (467) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities | Cash flows from financing activities |
|
|
|
| Cash flows from financing activities |
|
|
|
| ||||
Proceeds from bank overdraft (Note 8) | Proceeds from bank overdraft (Note 8) |
| 138,905 |
| 69,146 | Proceeds from bank overdraft (Note 8) |
| 146,068 |
| 138,905 | ||||
Repayment of bank overdraft (Note 8) | Repayment of bank overdraft (Note 8) |
| (98,908) |
| (76,850) | Repayment of bank overdraft (Note 8) |
| (136,922) |
| (98,908) | ||||
Proceeds from disgorgement of shareholders' short-swing profits |
| 0 |
| 98 | ||||||||||
Long-term borrowings utilized (Note 8) | Long-term borrowings utilized (Note 8) |
| 1,059 |
| - | |||||||||
Repayment of long-term borrowings (Note 8) | Repayment of long-term borrowings (Note 8) |
| (1,580) |
| - | |||||||||
Acquisition of treasury stock (Note 12) | Acquisition of treasury stock (Note 12) |
| (185) |
|
| |||||||||
Proceeds from exercise of stock options | Proceeds from exercise of stock options |
| 6 |
| - | |||||||||
Net change in settlement obligations | Net change in settlement obligations |
| 0 |
|
| (4,068) | Net change in settlement obligations |
| 1,987 |
|
| - | ||
| Net cash provided by (used in) financing activities |
| 39,997 |
|
| (11,674) | Net cash provided by financing activities |
| 10,433 |
|
| 39,997 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash | Effect of exchange rate changes on cash |
| (4,925) |
|
| 806 | Effect of exchange rate changes on cash |
| (8,487) |
|
| (4,926) | ||
Net increase (decrease) in cash, cash equivalents and restricted cash |
| 26,657 |
|
| (16,574) | |||||||||
Net increase in cash, cash equivalents and restricted cash | Net increase in cash, cash equivalents and restricted cash |
| (11,429) |
|
| 26,656 | ||||||||
Cash, cash equivalents and restricted cash – beginning of period | Cash, cash equivalents and restricted cash – beginning of period |
| 223,765 |
|
| 232,485 | Cash, cash equivalents and restricted cash – beginning of period |
| 104,800 |
|
| 223,765 | ||
Cash, cash equivalents and restricted cash – end of period (Note 14) | Cash, cash equivalents and restricted cash – end of period (Note 14) | $ | 250,422 |
| $ | 215,911 | Cash, cash equivalents and restricted cash – end of period (Note 14) | $ | 93,371 |
| $ | 250,421 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Impairment losses of $140,000 previously reported in a separate caption during the three months ended September 30, 2021, have been included in the caption profit on disposal of property, plant and equipment for the three months ended September 30, 2021 | (1) Impairment losses of $140,000 previously reported in a separate caption during the three months ended September 30, 2021, have been included in the caption profit on disposal of property, plant and equipment for the three months ended September 30, 2021 | |||||||||||||
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 UEPSLESAKA TECHNOLOGIES, INC
Notes to the Unaudited Condensed Consolidated Financial Statements
for the three months ended September 30, 20212022 and 20202021
(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”) and the 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, 20212022 and 2020,2021, 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 unaudited condensed consolidated 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, 2021.2022. 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”“Lesaka” are references solely to Net 1 UEPSLesaka Technologies, Inc. References to the “Company” refer to Net1Lesaka and its consolidated subsidiaries, collectively, unless the context otherwise requires.
Impact of COVID-19 on the Company’s business
The Company’s business has been, and continues to be, impacted by government restrictions and quarantines related to COVID-19. South Africa operates with a five-level COVID-19 alert system, with Level 1 being the least restrictive and Level 5 being the most restrictive. South Africa is currently at adjusted Level 1, which has a limited impact on the Company’s businesses. The South Africa government commenced its vaccination program in early calendar 2021, with a stated goal of vaccinating 67% of the South African population by the end of the calendar year.
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.
July 2021 civil unrest in South Africa
Two of South Africa’s nine provinces experienced significant civil unrest in July 2021 resulting in mass looting, loss of life, disruption of transport and supply routes, and widespread destruction of property. In total 337 South Africans lost their lives in the unrest - fortunately none of the Company’s employees were injured or harmed. There was widespread damage to bank and ATM infrastructure in the affected provinces. In total approximately 1,800 ATMs and 300 branches were damaged, and the Banking Association of South Africa (“BASA”), estimates that total damage to banking infrastructure amounted to ZAR 1.6 billion. The South African Special Risks Insurance Association (“SASRIA”), a public enterprise and a non-life insurance company that provides coverage for damage caused by special risks such as politically motivated malicious acts, riots, strikes, terrorism and public disorders, estimates that the total damage to property across South Africa will be in the order of between ZAR 19.0 and ZAR 20.0 billion.
The Company suffered damage at 19 of its branches and to 173 ATMs. The disruption and related closure of branches also impacted the Company’s efforts to grow EPE customer numbers. The Company also saw an impact on transaction volumes through its ATMs with July 2021 volumes 13% lower than June 2021, and August 2021 3% lower than July 2021.
The Company estimates that it will cost approximately ZAR 40.0 million to repair its branches and damaged ATMs and to replace ATMs that have been destroyed. The Company believes that these losses suffered through destruction of property will be fully covered under its various insurance policies, through the government backed SASRIA cover.
As a result of the disruption to ATM coverage and availability, BASA and South Africa’s banks agreed that the fee which customers pay to utilize other bank’s ATMs would be waived for August and September 2021. The Company lost transaction fee revenue of approximately ZAR 6.0. million ($0.4 million) during the three months ended September 30, 2021, as a result of this decision.
8
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 consolidated statement of operations due to the misinterpretation of certain system reports. The error did not impact on the Company’s operating loss, net loss, 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 impacted the Company’s reported results and the Company has restated its unaudited condensed consolidated statement of operations and certain note presentation, primarily Note 15 (Revenue) and Note 17 (Operating segments) for the three months ended September 30, 2020. Refer Note 25 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2021, for additional information regarding the impact of the restatement on the Company’s unaudited condensed consolidated statement of operations and certain note presentation.
Recent accounting pronouncements adopted
In August 2018,October 2021, the Financial Accounting Standards Board (“FASB”) issued guidance regardingwhich amends guidance in Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurement.Business Combinations (Topic 805) The guidance modifiesregarding the disclosure requirements related torecognition and measurement of contract assets and liabilities in a business combination. These items are recognized at fair value measurement.on acquisition under current guidance. The new guidance requires an acquiring entity to apply guidance in Revenue Recognition (Topic 606) to recognize and measure contract assets and contract liabilities in a business combination. The guidance became effective for the Company beginning July 1, 2021.2022. The adoption of this guidance did not have a material impact on the Company’s financial statements or its footnote disclosures.
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. The guidance became effective for the Company beginning July 1, 2021. The adoption of this guidance did not have a material impact on the Company’s financial statements or its footnoterelated disclosures.
Recent accounting pronouncements not yet adopted as of September 30, 20212022
In June 2016, the 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 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.
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.
98
2. 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, 2021,2022, and June 30, 20212022, are presented in the table below:
|
|
|
|
| September 30, |
| June 30, |
| |||||
|
|
|
|
| 2021 |
|
| 2021 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts receivable, trade, net | $ |
| 8,037 |
|
| $ |
| 10,493 |
| |||
| Accounts receivable, trade, gross |
|
| 8,402 |
|
|
|
| 10,760 |
| |||
| Allowance for doubtful accounts receivable, end of period |
|
| 365 |
|
|
|
| 267 |
| |||
|
| Beginning of period |
|
| 267 |
|
|
|
| 253 |
| ||
|
| Reversed to statement of operations |
|
| 0 |
|
|
|
| (182) |
| ||
|
| Charged to statement of operations |
|
| 120 |
|
|
|
| 232 |
| ||
|
| Utilized |
|
| (3) |
|
|
|
| (59) |
| ||
|
| Foreign currency adjustment |
|
| (19) |
|
|
|
| 23 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current portion of amount outstanding related to sale of interest in Bank Frick |
|
| 11,390 |
|
|
|
| 7,500 |
| |||
| Loans provided to Carbon |
|
| 0 |
|
|
|
| 0 |
| |||
| Current portion of total held to maturity investments |
|
| 0 |
|
|
|
| 0 |
| |||
|
| Investment in 7.625% of Cedar Cellular Investment 1 (RF) (Pty) Ltd 8.625% notes |
|
| 0 |
|
|
|
| 0 |
| ||
| Other receivables |
|
| 8,216 |
|
|
|
| 8,590 |
| |||
|
| Total accounts receivable, net and other receivables | $ |
| 27,643 |
|
| $ |
| 26,583 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
| June 30, |
| |||||
|
|
|
|
| 2022 |
|
| 2022 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accounts receivable, trade, net | $ |
| 12,332 |
|
| $ |
| 13,904 |
| |||
| Accounts receivable, trade, gross |
|
| 12,604 |
|
|
|
| 14,413 |
| |||
| Allowance for doubtful accounts receivable, end of period |
|
| 272 |
|
|
|
| 509 |
| |||
|
| Beginning of period |
|
| 509 |
|
|
|
| 267 |
| ||
|
| Reversed to statement of operations |
|
| (3) |
|
|
|
| (133) |
| ||
|
| Charged to statement of operations |
|
| 422 |
|
|
|
| 779 |
| ||
|
| Utilized |
|
| (414) |
|
|
|
| (154) |
| ||
|
| Foreign currency adjustment |
|
| (242) |
|
|
|
| (250) |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Current portion of amount outstanding related to sale of interest in Carbon, net of allowance: September 2022: $250 |
|
| - |
|
|
|
| - |
| |||
| Loans provided to Carbon, net of allowance: June 2022: $3,000 |
|
| - |
|
|
|
| - |
| |||
| Current portion of total held to maturity investments |
|
| - |
|
|
|
| - |
| |||
|
| Investment in 7.625% of Cedar Cellular Investment 1 (RF) (Pty) Ltd 8.625% notes |
|
| - |
|
|
|
| - |
| ||
| Other receivables |
|
| 17,024 |
|
|
|
| 14,994 |
| |||
|
| Total accounts receivable, net and other receivables | $ |
| 29,356 |
|
| $ |
| 28,898 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of amount outstanding related to sale of interest in Bank FrickCarbon represents the amount due byfrom the purchaser related to the sale of Bank Frick. The Company received the first scheduled repaymentCarbon Tech Limited (“Carbon”), an equity-accounted investment of $7.5$0.25 million, in October 2021 and the remaining amountnet of $3.9an allowance for doubtful loans receivable of $0.25 million, is due in July 2022.refer to Note 5 for additional information.
The loan of $3.0 million provided to Carbon was scheduled to be repaid before June 30, 2020, however, Carbon requested a payment holiday as a result of the impact of the COVID-19 pandemic on its business. The parties had not agreed to new repayment terms as of SeptemberJune 30, 2021. However,2022. In June 2021, the Company acknowledges the unexpected and ongoing challenges facing Carbon and determined in June 2021 to create an allowance for doubtful loans receivable of $3.0 million due to these circumstances and the ongoing consolidatedoperating losses incurred by Carbon. The loan was sold in September 2022 for $0.75 million (refer to Note 5).
Investment in 7.625% of Cedar Cellular Investment 1 (RF) (Pty) Ltd 8.625% notes represents the investment in a note which matureswas due to mature in August 2022.2022 and formed part of Cell C’s capital structure. The carrying value as of each of September 30, 20212022 and June 30, 2021,2022, respectively was $0 (nil). The note is included in other long-term assets as of June 30, 2021 (refer to Note 5).
Other receivables includeincludes prepayments, deposits, income taxes receivable and other receivables.receivables, as well as transactions-switching funds receivable of $3.2 million which was received in full in November 2022.
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, 2021:2022:
|
|
|
|
|
|
|
|
| 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 |
|
Cost basis | Estimated fair value(1) | ||||||||||||
Due in one year or less | $ | - | $ | - | |||||||||
Due in one year through five years(2) | - | - | |||||||||||
Due in five years through ten years | - | - | |||||||||||
Due after ten years | - | - | |||||||||||
Total | $ | - | $ | - |
(1) The estimated fair value of the Cedar Cellular note has been calculated utilizing the Company’s portion of the security provided to the Companyassets held by Cedar Cellular, namely, Cedar Cellular’s investment in Cell C.
(2) The cost basis is zero ($0.0 million).
109
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, 2021,2022, and June 30, 2021,2022, is presented in the table below:
|
|
|
|
| September 30, |
| June 30, |
| |||||
|
|
|
|
| 2021 |
| 2021 | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Microlending finance loans receivable, net | $ |
| 20,607 |
|
| $ |
| 21,142 |
| |||
| Microlending finance loans receivable, gross |
|
| 22,897 |
|
|
|
| 23,491 |
| |||
| Allowance for doubtful finance loans receivable, end of period |
|
| 2,290 |
|
|
|
| 2,349 |
| |||
|
| Beginning of period |
|
| 2,349 |
|
|
|
| 1,858 |
| ||
|
| Reversed to statement of operations |
|
| 0 |
|
|
|
| (1,004) |
| ||
|
| Charged to statement of operations |
|
| 370 |
|
|
|
| 2,060 |
| ||
|
| Utilized |
|
| (300) |
|
|
|
| (967) |
| ||
|
| Foreign currency adjustment |
|
| (129) |
|
|
|
| 402 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total accounts receivable, net | $ |
| 20,607 |
|
| $ |
| 21,142 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
|
| June 30, | |||||
|
|
|
|
| 2022 |
|
| 2022 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Microlending finance loans receivable, net | $ |
| 18,227 |
|
| $ |
| 20,058 |
| |||
| Microlending finance loans receivable, gross |
|
| 19,494 |
|
|
|
| 21,452 |
| |||
| Allowance for doubtful finance loans receivable, end of period |
|
| 1,267 |
|
|
|
| 1,394 |
| |||
|
| Beginning of period |
|
| 1,394 |
|
|
|
| 2,349 |
| ||
|
| Reversed to statement of operations |
|
| - |
|
|
|
| (805) |
| ||
|
| Charged to statement of operations |
|
| 264 |
|
|
|
| 1,268 |
| ||
|
| Utilized |
|
| (258) |
|
|
|
| (1,179) |
| ||
|
| Foreign currency adjustment |
|
| (133) |
|
|
|
| (239) |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Merchant finance loans receivable, net |
|
| 15,257 |
|
|
|
| 13,834 |
| |||
| Merchant finance loans receivable, gross |
|
| 15,770 |
|
|
|
| 14,131 |
| |||
| Allowance for doubtful finance loans receivable, end of period |
|
| 513 |
|
|
|
| 297 |
| |||
|
| Beginning of period |
|
| 297 |
|
|
|
| - |
| ||
|
| Reversed to statement of operations |
|
| (3) |
|
|
|
| - |
| ||
|
| Charged to statement of operations |
|
| 366 |
|
|
|
| 442 |
| ||
|
| Utilized |
|
| - |
|
|
|
| - |
| ||
|
| Foreign currency adjustment |
|
| (147) |
|
|
|
| (145) |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total finance loans receivable, net | $ |
| 33,484 |
|
| $ |
| 33,892 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total finance loans receivable, net, comprises microlending finance loans receivable related to the Company’s microlending operations in South Africa as well as its merchant finance loans receivable related to Connect’s lending activities in South Africa. Certain merchant finance loans receivable have been pledged as security for the Company’s revolving credit facility (refer to Note 8).
3. Inventory
The Company’s inventory comprised the following categories as of September 30, 2021,2022, and June 30, 20212022:
|
| September 30, |
|
| June 30, |
| |
|
|
| 2021 |
|
| 2020 |
|
|
|
|
|
|
|
|
|
| Finished goods | $ | 19,613 |
| $ | 22,361 |
|
|
| $ | 19,613 |
| $ | 22,361 |
|
|
| September 30, |
|
| June 30, |
| |
|
|
| 2022 |
|
| 2022 |
|
|
|
|
|
|
|
|
|
| Raw materials | $ | 2,238 |
| $ | 2,446 |
|
| Work-in-progress |
| 277 |
|
| 147 |
|
| Finished goods |
| 28,649 |
|
| 31,633 |
|
|
| $ | 31,164 |
| $ | 34,226 |
|
As of September 30, 20212022 and June 30, 2021, respectively2022, finished goods includes $15.4$11.0 million and $ 16.5$13.7 million, respectively, of Cell C airtime inventory that was previously classified as finished goods subject to sale restrictions.
In support of Cell C’s liquidity position and pursuant to Cell C’s recapitalization process, the Company has limited the resale of this airtime to its own distribution channels. On September 30, 2022, Cell C concluded its recapitalization process and the Company and Cell C entered into an agreement under which Cell C agreed to repurchase, from October 2023, up to ZAR 10 million of Cell C inventory from the Company per month. The amount to be repurchased by Cell C will be calculated as ZAR 10 million less the face value of any sales made by the Company during that month. The Company has continued to sell a minimum amount of Cell C airtime through its internal channels until such time asin late fiscal 2022/ early fiscal 2023 in support of Cell C’s recapitalisation processliquidity position. However, its ability to sell this airtime has increased significantly since the acquisition of Connect because Connect is concluded.a significant reseller of Cell C airtime. As a result, and depending on prevailing conditions in the airtime market, the Company intends to sell a higher volume of airtime through this channel than it did prior to the Cell C recapitalization. If the Company is able to sell at least ZAR 10 million a month through this channel from October 1, 2023, then Cell C would not be required to repurchase any airtime from the Company during any specific month. The Company has agreed to notify Cell C prior to selling any of this airtime, however, there is no restriction placed on the Company on the sale of the airtime.
10
4. 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, microlending credit and equity price and liquidity risks as discussed below.
Currency exchange risk
The Company is subject to currency exchange risk because it purchases components for safe assets, that the Company assembles, and inventories that it is required to settle in other currencies, primarily the euro, renminbi, 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.
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 mosta significant amount of its revenues and incurs a significant amount of its expenses in ZAR. The U.S. dollar to the ZAR exchange rate 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.
11
4. Fair value of financial instruments (continued)
Interest rate risk
As a result of its normal borrowing activities, the Company’s operating results are exposed to fluctuations in interest rates, which it manages primarily through regular financing activities. Interest rates in South Africa are trending upwards and the Company expects higher interest rates in the foreseeable future which will increase its cost of borrowing. The Company periodically evaluates the cost and effectiveness of interest rate hedging strategies to manage this risk. The Company generally maintains investmentssurplus cash 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.
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 in 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 provides unsecured short-term loans to qualifying customers. Credit bureau checks as well as an affordability test are conducted as part of the risk management process, both of which are in accordance with local regulations. The affordability test 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. 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 those 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 tradedexchange-traded price, or at all.
11
4. Fair value of financial instruments (continued)
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.
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, 2021,2022 and June 30, 2021,2022, respectively, and valued Cell C at $0.0 (zero) at each of September 30, 2021,2022, and June 30, 2021. 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.2022. The Company incorporates the payments under Cell C’s lease liabilities into the cash flow forecasts and assumes that Cell C’s deferred tax assets would be utilized over the forecast period. The Company has increased the marketability discount from 10% to 20% and the minority discount from 15% to 30% due to the reduction in our shareholding percentage from 15% to 5% as well as current market conditions. The Company utilized the latest revised business plan provided by Cell C management for the period ended December 31, 2025, for the September 30, 2021 valuation2022, and the period ended December 31, 2025 for the June 30, 2021 valuation.
12
4. Fair value2022 valuations. Adjustments have been made to the WACC rate to reflect the Company’s assessment of financial instruments (continued)
Financial instruments (continued)
Asset measured at fair value using significant unobservable inputs – investment inrisk to Cell C (continued)achieving its business plan.
The following key valuation inputs were used as of September 30, 20212022 and June 30, 2021:
2022:
| Weighted Average Cost of Capital ("WACC"): | Between | |
| Long term growth rate: | 3% (3% as of June 30, | 2022) |
| Marketability discount: |
| 20% (10% as of June 30, 2022) |
| Minority discount: |
| 30% (15% as of June 30, 2022) |
| Net adjusted external debt - September 30, | ZAR | |
| Net adjusted external debt - June 30, | ZAR |
(1) translated from ZAR to U.S. dollars at exchange rates applicable as of September 30, 2021.2022.
(2) translated from ZAR to U.S. dollars at exchange rates applicable as of June 30, 2021.2022.
The following table presents the impact on the carrying value of the Company’s Cell C investment of a 4.2%1.0% increase and 3.2%1.0% decrease in the WACC rate and the EBITDA margins respectively used in the Cell C valuation on September 30, 2021,2022, all amounts translated at exchange rates applicable as of September 30, 2021:2022:
| Sensitivity for fair value of Cell C investment |
| 4.2% increase |
| 3.2% decrease |
|
| WACC rate | $ | 0 | $ | 543 |
|
| EBITDA margin | $ | 30 | $ | 0 |
|
| Sensitivity for fair value of Cell C investment |
| 1.0% increase |
| 1.0% decrease |
|
| WACC rate | $ | - | $ | 226 |
|
| EBITDA margin | $ | 1,246 | $ | - |
|
The fair value of the Cell C shares as of September 30, 2021,2022, represented 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. Substantially 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 require fair value measurement under Level 1 or 3 of the fair value hierarchy.
The Company had 0no outstanding foreign exchange contracts as of September 30, 2021.2022.
The Company’sCompany had no outstanding foreign exchange contracts as of June 30,2021, were as follows:30, 2022.
Notional amount ('000) | Strike price | Fair market | Maturity | |||
EUR | 5.7 | USD | 1.1911 | USD | 1.1859 | July 02, 2021 |
1312
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, 2021,2022, 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) |
| 380 |
|
| 0 |
|
| 0 |
|
| 380 |
| ||
|
| Fixed maturity investments (included in cash and cash equivalents) |
| 1,578 |
|
| 0 |
|
| 0 |
|
| 1,578 |
| ||
|
| Total assets at fair value | $ | 1,958 |
| $ | 0 |
| $ | 0 |
| $ | 1,958 |
|
|
|
|
|
|
| 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 | $ | - |
| $ | - |
| $ | - |
| $ | - |
| |||
| Related to insurance business: |
|
|
|
|
|
|
|
|
|
|
|
| |||
|
| Cash, cash equivalents and restricted cash (included in other long-term assets) |
| 261 |
|
| - |
|
| - |
|
| 261 |
| ||
|
| Fixed maturity investments (included in cash and cash equivalents) |
| 2,710 |
|
| - |
|
| - |
|
| 2,710 |
| ||
|
| Total assets at fair value | $ | 2,971 |
| $ | - |
| $ | - |
| $ | 2,971 |
|
The following table presents the Company’s assets measured at fair value on a recurring basis as of June 30, 2021,2022, 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) |
| 381 |
|
| 0 |
|
| 0 |
|
| 381 |
| ||
|
| Fixed maturity investments (included in cash and cash equivalents) |
| 3,158 |
|
| 0 |
|
| 0 |
|
| 3,158 |
| ||
|
|
| Total assets at fair value | $ | 3,539 |
| $ | 0 |
| $ | 0 |
| $ | 3,539 |
|
|
|
|
|
|
| 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 | $ | - |
| $ | - |
| $ | - |
| $ | - |
| |||
| Related to insurance business |
|
|
|
|
|
|
|
|
|
|
|
| |||
|
| Cash and cash equivalents (included in other long-term assets) |
| 371 |
|
| - |
|
| - |
|
| 371 |
| ||
|
| Fixed maturity investments (included in cash and cash equivalents) |
| 1,196 |
|
| - |
|
| - |
|
| 1,196 |
| ||
|
|
| Total assets at fair value | $ | 1,567 |
| $ | - |
| $ | - |
| $ | 1,567 |
|
There have been 0no transfers in or out of Level 3 during the three months ended September 30, 20212022 and 2020,2021, respectively.
There was 0no movement in the carrying value of assets measured at fair value on a recurring basis, and categorized within Level 3, during the three months ended September 30, 20212022 and 2020.2021.
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 three months ended September 30, 2021:2022:
|
|
|
|
|
| Carrying value |
| |
| Assets |
|
|
| ||||
| Balance as of June 30, 2021 | $ | 0 |
| ||||
|
| Foreign currency adjustment(1) |
| 0 |
| |||
|
|
| Balance as of September 30, 2021 | $ | 0 |
|
Carrying value | ||||||||
Assets | ||||||||
Balance as of June 30, 2022 | $ | - | ||||||
Foreign currency adjustment(1) | - | |||||||
Balance as of September 30, 2022 | $ | - |
(1) The foreign currency adjustment represents the effects of the fluctuations betweenof the ZAR, andSouth African rand against the U.S. dollar on the carrying value.
1413
4. Fair value of financial instruments (continued)
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 three months ended September 30, 2020:2021:
|
|
|
|
|
| Carrying value |
| |
| Assets |
|
|
| ||||
| Balance as at June 30, 2020 | $ | 0 |
| ||||
|
| Foreign currency adjustment(1) |
| 0 |
| |||
|
|
| Balance as of September 30, 2020 | $ | 0 |
|
Carrying value | ||||||||
Assets | ||||||||
Balance as of June 30, 2021 | $ | - | ||||||
Foreign currency adjustment(1) | - | |||||||
Balance as of September 30, 2021 | $ | - |
(1) The foreign currency adjustment represents the effects of the fluctuations betweenof the ZAR, andSouth African rand against 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. Refer to Note 5 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.basis
5.Equity-accounted investments and other long-term assets
Refer to Note 89 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2021,2022, 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, 2021,2022, and June 30, 2021,2022, was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
| June 30, |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2021 |
| 2021 |
| |||
| Finbond Group Limited (“Finbond”) |
| 31.5 | % |
| 31.5 | % |
| ||||||||||||
| Carbon Tech Limited (“Carbon”) |
| 25.0 | % |
| 25.0 | % |
| ||||||||||||
| SmartSwitch Namibia (Pty) Ltd (“SmartSwitch Namibia”) |
| 50.0 | % |
| 50.0 | % |
|
15
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
| June 30, |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2022 |
| 2021 |
| |||
| Finbond Group Limited (“Finbond”) |
| 29.3 | % |
| 29.3 | % |
| ||||||||||||
| Sandulela Technology (Pty) Ltd ("Sandulela") |
| 49.0 | % |
| 49.0 | % |
| ||||||||||||
| Carbon Tech Limited (“Carbon”) |
| - | % |
| 25.0 | % |
| ||||||||||||
| SmartSwitch Namibia (Pty) Ltd (“SmartSwitch Namibia”) |
| 50.0 | % |
| 50.0 | % |
|
5.Equity-accounted investments and other long-term assets (continued)
Equity-accounted investments (continued)
Finbond
As of September 30, 2021,2022, the Company owned 268,820,933245,897,968 shares in Finbond representing approximately 31.5%29.3% of its issued and outstanding ordinary shares. Finbond is listed on the Johannesburg Stock Exchange (“JSE”) and its closing price on September 30, 2021,2022, the last trading day of the month, was ZAR 1.400.49 per share. The market value, using the September 30, 2021,2022, closing price, of the Company’s holding in Finbond on September 30, 2021,2022, was ZAR 376.3120.5 million ($24.96.7 million translated at exchange rates applicable as of September 30, 2021)2022).
Impairment of investmentThe Company sold 81,935 shares in Finbond for cash during the three months ended September 202030, 2022, and recorded a loss of $0.002 million which is included in the caption net gain on disposal of equity-accounted investments in the Company’s unaudited condensed consolidated statements of operations.
14
5.Equity-accounted investments and other long-term assets (continued)
Equity-accounted investments (continued)
Finbond published its half-year results to August 2020 in October 2020, which included(continued)
The following table presents the financial impactcalculation of the COVID-19 pandemicloss on its reported results during that reporting period.disposal of Finbond incurred lossesshares during the sixthree months to August 2020, and experienced a slow-down in its lending activities. Finbond reported that its lending activities had 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) toended September 30, 2020, and the weakness in its traded share price continued post September 30, 2020. 2022:
|
|
|
|
|
| Three months ended September 30, |
| |
|
| 2022 |
| |||||
| Loss on disposal of Finbond shares: |
|
|
| ||||
| Consideration received in cash | $ | 3 |
| ||||
| Less: carrying value of Finbond shares sold |
| (3) |
| ||||
| Less: release of foreign currency translation reserve from accumulated other comprehensive loss |
| (2) |
| ||||
| Add: release of stock-based compensation charge related to equity-accounted investment |
| - |
| ||||
|
| Loss on sale of Finbond shares | $ | (2) |
|
The Company considered the combination of the slow-down in business activityongoing losses incurred and thereported by Finbond and its lower share price as impairment indicators. The Company performed an impairment assessment of its holding in Finbond as of September 30, 2020.2022. The Company recorded an impairment loss of $16.8$1.1 million during the quarter ended September 30, 2020,2022, 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 iscontinues to be limited trading in Finbond shares on the JSE because it has 3a small number of shareholders that own approximately 90%80% 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%25% to the September 30, 2020,2022, Finbond closing price of ZAR 1.04.0.49. The Company has increased the liquidity discount from 15% (used in the previous impairment assessment) to 25% as a result of the ongoing limited trading activity observed on the JSE.
Carbon
In September 2022, the Company, through its wholly-owned subsidiary, Net1 Applied Technologies Netherlands B.V. (“Net1 BV”), entered into a binding term sheet with the Etobicoke Limited (“Etobicoke”) to sell its entire interest, or 25%, in Carbon to Etobicoke for $0.5 million and a loan due from Carbon, with a face value of $3 million, to Etobicoke for $0.75 million. Both the equity interest and the loan had a carrying value of $0 (nil) at June 30, 2022. The parties have agreed that Etobicoke pledge the Carbon shares purchased as security for the amounts outstanding under the binding term sheet.
The Company received $0.25 million on closing and the outstanding balance due by Etobicoke is expected to be paid as follows: (i) $0.25 million on September 30, 2023, which is included in the caption accounts receivable, net and other receivables in the Company’s unaudited condensed consolidated balance sheet as of September 30, 2022, and (ii) the remaining amount, of $0.75 million in March 2024, which is included in the caption other long-term assets, including reinsurance assets in the Company’s unaudited condensed consolidated balance sheet as of September 30, 2022. The Company has allocated the $0.25 million received to the sale of the equity interest and will allocate the funds received first to the sale of the equity interest and then to the loans.
The Company currently believes that the fair value of the Carbon shares provided as security is $0 (nil), in line with the carrying value as of June 30, 2022, and has created an allowance for doubtful loans receivable related to the $1.0 million due from Etobicoke. The Company did not incur any significant transaction costs. The Company has included the gain of $0.25 million related to the sale of the Carbon equity interest in the caption net gain on disposal of equity-accounted investments in the Company’s unaudited condensed consolidated statements of operations. The following table presents the calculation of the gain on disposal of Carbon in September 2022:
|
|
|
|
|
| Three months ended September 30, |
| |
|
| 2022 |
| |||||
| Gain on disposal of Carbon shares: |
|
|
| ||||
| Consideration received in cash in September 2022 | $ | 250 |
| ||||
| Less: carrying value of Carbon |
| - |
| ||||
|
| Gain on disposal of Carbon shares:(1) | $ | 250 |
|
(1) The Company does not expect to pay taxes related to the sale of Carbon because the base cost of its investment exceeds the sales consideration received. The Company does not believe that it will be able to utilize the loss generated because Net1 BV does not generate taxable income.
15
5.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 three months ended September 30, 2021:2022:
|
|
|
|
|
|
|
| Finbond |
| Other(1) |
| Total |
| |||
| Investment in equity |
|
|
|
|
|
|
|
|
| ||||||
|
| Balance as of June 30, 2021 | $ | 9,822 |
| $ | 182 |
| $ | 10,004 |
| |||||
|
|
| Stock-based compensation |
| 9 |
|
| 0 |
|
| 9 |
| ||||
|
|
| Comprehensive loss: |
| (1,800) |
|
| 0 |
|
| (1,800) |
| ||||
|
|
|
| Other comprehensive loss |
| (644) |
|
| 0 |
|
| (644) |
| |||
|
|
|
| Equity accounted loss |
| (1,156) |
|
| 0 |
|
| (1,156) |
| |||
|
|
|
|
| Share of net loss |
| (1,156) |
|
| 0 |
|
| (1,156) |
| ||
|
|
| Dividends received |
| 0 |
|
| (137) |
|
| (137) |
| ||||
|
|
| Foreign currency adjustment(2) |
| (464) |
|
| (5) |
|
| (469) |
| ||||
|
| Balance as of September 30, 2021 | $ | 7,567 |
| $ | 40 |
| $ | 7,607 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Equity |
| Loans |
| Total |
| |||
| Carrying amount as of : |
|
|
|
|
|
|
|
|
| ||||||
|
|
| June 30, 2021 | $ | 10,004 |
| $ | 0 |
| $ | 10,004 |
| ||||
|
|
| September 30, 2021 | $ | 7,607 |
| $ | 0 |
| $ | 7,607 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Finbond |
| Other(1) |
| Total |
| |||
| Investment in equity |
|
|
|
|
|
|
|
|
| ||||||
|
| Balance as of June 30, 2022 | $ | 5,760 |
| $ | 101 |
| $ | 5,861 |
| |||||
|
|
| Stock-based compensation |
| 6 |
|
| - |
|
| 6 |
| ||||
|
|
| Comprehensive income: |
| (190) |
|
| 14 |
|
| (176) |
| ||||
|
|
|
| Other comprehensive income |
| 2,441 |
|
| - |
|
| 2,441 |
| |||
|
|
|
| Equity accounted (loss) earnings |
| (2,631) |
|
| 14 |
|
| (2,617) |
| |||
|
|
|
|
| Share of net (loss) earnings |
| (1,521) |
|
| 14 |
|
| (1,507) |
| ||
|
|
|
|
| Impairment |
| (1,110) |
|
| - |
|
| (1,110) |
| ||
|
|
| Dividends received |
| - |
|
| (21) |
|
| (21) |
| ||||
|
|
| Disposal of Finbond shares |
| (3) |
|
| - |
|
| (3) |
| ||||
|
|
| Foreign currency adjustment(2) |
| (546) |
|
| (10) |
|
| (556) |
| ||||
|
| Balance as of September 30, 2022 | $ | 5,027 |
| $ | 84 |
| $ | 5,111 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Investment in loans: |
|
|
|
|
|
|
|
|
| ||||||
|
| Balance as of June 30, 2022 | $ | - |
| $ | - |
| $ | - |
| |||||
|
|
| Loans granted |
| - |
|
| 112 |
|
| 112 |
| ||||
|
|
| Loans repaid |
| - |
|
| (112) |
|
| (112) |
| ||||
|
|
| Foreign currency adjustment(2) |
| - |
|
| - |
|
| - |
| ||||
|
| Balance as of September 30, 2022 | $ | - |
| $ | - |
| $ | - |
| |||||
|
|
|
|
|
|
|
| Equity |
| Loans |
| Total |
| |||
| Carrying amount as of : |
|
|
|
|
|
|
|
|
| ||||||
|
|
| June 30, 2022 | $ | 5,861 |
| $ | - |
| $ | 5,861 |
| ||||
|
|
| September 30, 2022 | $ | 5,111 |
| $ | - |
| $ | 5,111 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes Carbon, Sandulela, and SmartSwitch Namibia.Namibia;
(2) The foreign currency adjustment represents the effects of the fluctuations of the 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 of September 30, 2022, and June 30, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
|
| June 30, | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2022 |
|
| 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total equity investments | $ | 76,297 |
| $ | 76,297 | |||||||||||
|
|
| Investment in 5% of Cell C (June 30, 2022: 15%) at fair value (Note 4) |
| - |
|
| - | |||||||||
|
|
| Investment in 10% of MobiKwik (June 30, 2022: 10%)(1) |
| 76,297 |
|
| 76,297 | |||||||||
|
|
| Investment in 87.5% of CPS (June 30, 2022: 87.5%) at fair value(1)(2) |
| - |
|
| - | |||||||||
| Long-term portion of amount due related to sale of loan to Carbon(3) |
| - |
|
| - | |||||||||||
| Policy holder assets under investment contracts (Note 7) |
| 261 |
|
| 371 | |||||||||||
| Reinsurance assets under insurance contracts (Note 7) |
| 1,276 |
|
| 1,424 | |||||||||||
|
|
| Total other long-term assets | $ | 77,834 |
| $ | 78,092 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) The Company determined that MobiKwik and CPS do not have readily determinable fair values and therefore elected to record these investments at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the same issuer.
(2) On October 16, 2020, the High Court of South Africa, Gauteng Division, Pretoria ordered that CPS be placed into liquidation.
(3) Long-term portion of amount due related to sale of loan to Carbon represents $0.75 million related to the sale of a loan with a face value of $3.0 million which was sold in September 2022 for $0.75 million, net of an allowance for doubtful loans receivable of $0.75 million.
16
5.Equity-accounted investments and other long-term assets (continued)
Other long-term assets
Summarized below is the breakdown of other long-term assets as of September 30, 2021, and June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
|
| June 30, | |
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2021 |
|
| 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total equity investments | $ | 76,297 |
| $ | 76,297 | |||||||||||
|
|
| Investment in 15% of Cell C, at fair value (Note 4) |
| 0 |
|
| 0 | |||||||||
|
|
| Investment in 12% of MobiKwik |
| 76,297 |
|
| 76,297 | |||||||||
|
|
| Investment in 87.5% of CPS(1) |
| 0 |
|
| 0 | |||||||||
| Total held to maturity investments |
| 0 |
|
| 0 | |||||||||||
|
|
| Investment in 7.625% of Cedar Cellular Investment 1 (RF) (Pty) Ltd 8.625% notes(2) |
| 0 |
|
| 0 | |||||||||
| Long-term portion of amount due related to sale of interest in Bank Frick(3) |
| 0 |
|
| 3,890 | |||||||||||
| Policy holder assets under investment contracts (Note 7) |
| 380 |
|
| 381 | |||||||||||
| Reinsurance assets under insurance contracts (Note 7) |
| 1,239 |
|
| 1,298 | |||||||||||
|
|
| Total other long-term assets | $ | 77,916 |
| $ | 81,866 | |||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) On October 16, 2020, the High Court of South Africa, Gauteng Division, Pretoria ordered that CPS be placed into liquidation.
(2) The note is included in accounts receivable, net and other receivables as of September 30, 2021 (refer to Note 2).
(3) Long-term portion of amount due related to sale of interest in Bank Frick as of June 30, 2021, represents the amount due by the purchaser in July 2022 and is included in accounts receivable, net, and other receivables as of September 30, 2021 (refer to Note 2).Cell C - reduced effective percentage holding following recapitalization
MobiKwik
The Company did not identify any observable price changes in orderly transactions for similar or identical equity securities issued by MobiKwik during the three months endedOn September 30, 2021. In October 2021,2022, Cell C completed its recapitalization process which includes the Company converted its 310,781 sharesissuance of compulsorily convertible cumulative preferences shares to 6,215,620additional equity shares in anticipation of MobiKwik’s initial public offering.instruments by Cell C. The Company’s investmenteffective percentage remained unchangedholding in Cell C’s equity has reduced from 15% to 5% following the conversion.recapitalization.
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, 2021:2022:
|
|
|
|
|
|
|
|
|
|
| Cost basis |
|
| Unrealized holding |
|
| Unrealized holding |
|
| Carrying |
|
|
|
|
|
|
|
|
|
|
|
|
|
| gains |
|
| losses |
|
| value |
| |
| Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
| Investment in MobiKwik | $ | 26,993 |
| $ | 49,304 |
| $ | 0 |
| $ | 76,297 |
| |||||||
|
| Investment in CPS |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
| |||||||
| Held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
| Investment in Cedar Cellular notes (Note 2) |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
| |||||||
|
|
|
| Total | $ | 26,993 |
| $ | 49,304 |
| $ | 0 |
| $ | 76,297 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Cost basis |
|
| Unrealized holding |
|
| Unrealized holding |
|
| Carrying |
|
|
|
|
|
|
|
|
|
|
|
|
|
| gains |
|
| losses |
|
| value |
| |
| Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
| Investment in MobiKwik | $ | 26,993 |
| $ | 49,304 |
| $ | - |
| $ | 76,297 |
| |||||||
|
| Investment in CPS |
| - |
|
| - |
|
| - |
|
| - |
| |||||||
| Held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
| Investment in Cedar Cellular notes (Note 2) |
| - |
|
| - |
|
| - |
|
| - |
| |||||||
|
|
|
| Total | $ | 26,993 |
| $ | 49,304 |
| $ | - |
| $ | 76,297 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 2021:2022:
|
|
|
|
|
|
|
|
|
|
| Cost basis |
|
| Unrealized holding |
|
| Unrealized holding |
|
| Carrying |
|
|
|
|
|
|
|
|
|
|
|
|
|
| gains |
|
| losses |
|
| value |
| |
| Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
| Investment in MobiKwik | $ | 26,993 |
| $ | 49,304 |
| $ | 0 |
| $ | 76,297 |
| |||||||
|
| Investment in CPS |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
| |||||||
| Held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
| Investment in Cedar Cellular notes |
| 0 |
|
| 0 |
|
| 0 |
|
| 0 |
| |||||||
|
|
|
| Total | $ | 26,993 |
| $ | 49,304 |
| $ | 0 |
| $ | 76,297 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
| Cost basis |
|
| Unrealized holding |
|
| Unrealized holding |
|
| Carrying |
|
|
|
|
|
|
|
|
|
|
|
|
|
| gains |
|
| losses |
|
| value |
| |
| Equity securities: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
| Investment in MobiKwik | $ | 26,993 |
| $ | 49,304 |
| $ | - |
| $ | 76,297 |
| |||||||
|
| Investment in CPS |
| - |
|
| - |
|
| - |
|
| - |
| |||||||
| Held to maturity: |
|
|
|
|
|
|
|
|
|
|
|
| ||||||||
|
| Investment in Cedar Cellular notes |
| - |
|
| - |
|
| - |
|
| - |
| |||||||
|
|
|
| Total | $ | 26,993 |
| $ | 49,304 |
| $ | - |
| $ | 76,297 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6.Goodwill and intangible assets, net
Goodwill
Summarized below is the movement in the carrying value of goodwill for the three months ended September 30, 2021:2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross value |
|
| Accumulated impairment |
|
| Carrying value |
|
|
| Balance as of June 30, 2021 |
| $ | 42,949 |
| $ | (13,796) |
| $ | 29,153 |
| ||||||||||
|
|
| Foreign currency adjustment (1) |
|
| (1,965) |
|
| 431 |
|
| (1,534) |
| |||||||||
|
|
|
| Balance as of September 30, 2021 |
| $ | 40,984 |
| $ | (13,365) |
| $ | 27,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Gross value |
|
| Accumulated impairment |
|
| Carrying value |
|
|
| Balance as of June 30, 2022 |
| $ | 175,476 |
| $ | (12,819) |
| $ | 162,657 |
| ||||||||||
|
|
| Foreign currency adjustment (1) |
|
| (16,162) |
|
| 672 |
|
| (15,490) |
| |||||||||
|
|
|
| Balance as of September 30, 2022 |
| $ | 159,314 |
| $ | (12,147) |
| $ | 147,167 |
|
(1) – The foreign currency adjustment represents the effects of the fluctuations betweenof the ZAR andSouth African rand against the U.S. dollar on the carrying value.
Goodwill has been allocated to the Company’s reportable segments as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Processing |
|
| Financial services |
|
| Technology |
|
| Carrying value |
|
| Balance as of June 30, 2021 |
| $ | 11,967 |
| $ | 0 |
| $ | 17,186 |
| $ | 29,153 | ||
|
|
| Foreign currency adjustment (1) |
|
| (609) |
|
| 0 |
|
| (925) |
|
| (1,534) | |
|
|
|
| Balance as of September 30, 2021 |
| $ | 11,358 |
| $ | 0 |
| $ | 16,261 |
| $ | 27,619 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consumer |
| Merchant |
| Other |
| Carrying value | ||||
|
| Balance as of June 30, 2022 |
| $ | - |
| $ | 162,000 |
| $ | 657 |
| $ | 162,657 | ||
|
|
| Foreign currency adjustment (1) |
|
| - |
|
| (15,490) |
|
| - |
|
| (15,490) | |
|
|
|
| Balance as of September 30, 2022 |
| $ | - |
| $ | 146,510 |
| $ | 657 |
| $ | 147,167 |
(1) The foreign currency adjustment represents the effects of the fluctuations betweenof the ZAR andSouth African rand against the U.S. dollar on the carrying value.
17
6.Goodwill and intangible assets, net (continued)
Intangible assets, net
Carrying value and amortization of intangible assets
Summarized below is the carrying value and accumulated amortization of the intangible assets as of September 30, 2021,2022, and June 30, 2021:2022:
|
|
|
|
| As of September 30, 2021 |
| As of June 30, 2021 |
| ||||||||||||||
|
|
|
|
|
| Gross carrying value |
|
| Accumulated amortization |
|
| Net carrying value |
|
| Gross carrying value |
|
| Accumulated amortization |
|
| Net carrying value |
|
| Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
| Customer relationships | $ | 9,782 |
| $ | (9,782) |
| $ | 0 |
| $ | 10,340 |
| $ | (10,340) |
| $ | 0 |
| ||
|
| Software and unpatented technology |
| 1,633 |
|
| (1,633) |
|
| 0 |
|
| 1,726 |
|
| (1,726) |
|
| 0 |
| ||
|
| FTS patent |
| 2,535 |
|
| (2,535) |
|
| 0 |
|
| 2,679 |
|
| (2,679) |
|
| 0 |
| ||
|
| Trademarks |
| 1,907 |
|
| (1,586) |
|
| 321 |
|
| 2,015 |
|
| (1,658) |
|
| 357 |
| ||
|
| Total finite-lived intangible assets | $ | 15,857 |
| $ | (15,536) |
| $ | 321 |
| $ | 16,760 |
| $ | (16,403) |
| $ | 357 |
|
18
|
|
|
|
| As of September 30, 2022 |
| As of June 30, 2022 |
| ||||||||||||||
|
|
|
|
|
| Gross carrying value |
|
| Accumulated amortization |
|
| Net carrying value |
|
| Gross carrying value |
|
| Accumulated amortization |
|
| Net carrying value |
|
| Finite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
|
| Customer relationships | $ | 26,123 |
| $ | (10,545) |
| $ | 15,578 |
| $ | 26,937 |
| $ | (9,140) |
| $ | 17,797 |
| ||
|
| Software, integrated platform and unpatented technology |
| 115,566 |
|
| (5,662) |
|
| 109,904 |
|
| 127,785 |
|
| (3,075) |
|
| 124,710 |
| ||
|
| FTS patent |
| 2,127 |
|
| (2,127) |
|
| - |
|
| 2,352 |
|
| (2,352) |
|
| - |
| ||
|
| Brands and trademarks |
| 14,487 |
|
| (1,985) |
|
| 12,502 |
|
| 16,018 |
|
| (1,823) |
|
| 14,195 |
| ||
|
| Total finite-lived intangible assets | $ | 158,303 |
| $ | (20,319) |
| $ | 137,984 |
| $ | 173,092 |
| $ | (16,390) |
| $ | 156,702 |
|
6.Goodwill and intangible assets, net (continued)
Intangible assets, net (continued)
Aggregate amortization expense on the finite-lived intangible assets for each of the three months ended September 30, 20212022 and 2020,2021, was approximately $4.0 million and $0.1 million, respectively.
Future estimated annual amortization expense for the next five fiscal years and thereafter, assuming exchange rates that prevailed on September 30, 2021,2022, 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 2022 |
| $ | 68 |
| ||||||||
| Fiscal 2023 |
|
| 68 |
| ||||||||
| Fiscal 2024 |
|
| 67 |
| ||||||||
| Fiscal 2025 |
|
| 67 |
| ||||||||
| Fiscal 2026 |
|
| 67 |
| ||||||||
|
| Total future estimated annual amortization expense |
|
|
|
|
|
|
|
| $ | 337 |
|
Fiscal 2023 (nine months ended June 30, 2023) | $ | 11,202 | |||||||||||
Fiscal 2024 | 14,938 | ||||||||||||
Fiscal 2025 | 14,938 | ||||||||||||
Fiscal 2026 | 14,938 | ||||||||||||
Fiscal 2027 | 14,881 | ||||||||||||
Thereafter | 67,087 | ||||||||||||
Total future estimated annual amortization expense | $ | 137,984 |
7.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 three months ended September 30, 2021:2022:
|
|
|
|
|
| Reinsurance Assets(1) |
|
| Insurance contracts(2) |
|
| Balance as of June 30, 2021 | $ | 1,298 |
| $ | (2,011) |
| |||
|
| Increase in policy holder benefits under insurance contracts |
| 1,016 |
|
| 3,608 |
| ||
|
| Claims and decrease in policyholders’ benefits under insurance contracts |
| (1,005) |
|
| (3,627) |
| ||
|
| Foreign currency adjustment(3) |
| (70) |
|
| 108 |
| ||
|
|
| Balance as of September 30, 2021 | $ | 1,239 |
| $ | (1,922) |
|
|
|
|
|
|
| Reinsurance Assets(1) |
|
| Insurance contracts(2) |
|
| Balance as of June 30, 2022 | $ | 1,424 |
| $ | (1,955) |
| |||
|
| Increase in policy holder benefits under insurance contracts |
| 381 |
|
| (2,199) |
| ||
|
| Claims and decrease in policyholders’ benefits under insurance contracts |
| (394) |
|
| 2,165 |
| ||
|
| Foreign currency adjustment(3) |
| (135) |
|
| 188 |
| ||
|
|
| Balance as of September 30, 2022 | $ | 1,276 |
| $ | (1,801) |
|
(1) Included in other long-term assets (refer to Note 5);
(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 estimatesestimate assumptions plus prescribed margins includes assumptions related to claim reporting delays (based on average industry experience).
18
7.Assets and policyholder liabilities under insurance and investment contracts (continued)
Assets and policyholder liabilities under investment contracts
Summarized below is the movement in assets and policyholder liabilities under investment contracts during the three months ended September 30, 2021:2022:
|
|
|
|
| Assets(1) |
| Investment contracts(2) |
| ||
| Balance as of June 30, 2021 | $ | 381 |
| $ | (381) |
| |||
|
| Increase in policy holder benefits under investment contracts |
| 132 |
|
| (132) |
| ||
|
| Claims and decrease in policyholders’ benefits under investment contracts |
| (112) |
|
| 112 |
| ||
|
| Foreign currency adjustment (3) |
| (21) |
|
| 21 |
| ||
|
|
| Balance as of September 30, 2021 | $ | 380 |
| $ | (380) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Assets(1) |
| Investment contracts(2) |
| ||
| Balance as of June 30, 2022 | $ | 371 |
| $ | (349) |
| |||
|
| Increase in policy holder benefits under investment contracts |
| 7 |
|
| (7) |
| ||
|
| Claims and decrease in policyholders’ benefits under investment contracts |
| (81) |
|
| 81 |
| ||
|
| Foreign currency adjustment (3) |
| (36) |
|
| 30 |
| ||
|
|
| Balance as of September 30, 2022 | $ | 261 |
| $ | (245) |
|
(1) Included in other long-term assets (refer to Note 5);
(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.
19
8.Borrowings
Refer to Note 1112 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2021,2022, for additional information regarding its borrowings.
South Africa
July 2017The amounts below have been translated at exchange rates applicable as of the dates specified.
RMB Facilities, as amended, comprising long-term borrowings (all repaid) and a short-term facility (Facility E) and long-term borrowings
Long-term borrowings - Facility G and Facility H
The Company’s credit agreement with FirstRand Bank Limited, acting through its Rand Merchant Bank division (“RMB”), requires that the Company achieve certain milestones by September 30, 2022, failing which the Company would be required to place ZAR 250 million into bank accounts with RMB. The Company was unable to achieve the required milestones by September 30, 2022. However, RMB did not require the Company to place cash into the RMB bank accounts nor did RMB declare an event of default as a result of the Company’s failure to do so. The Company is currently renegotiating the terms of these lending arrangements with RMB.
Available short-term facility - Facility E
On August 2, 2021, Net1 SA andAs of September 30, 2022, the aggregate amount of the Company’s short-term South African overdraft facility with RMB entered into a Letter of Amendment to increase Facility E from ZAR 1.2 billion towas ZAR 1.4 billion ($92.6 million, translated at exchange rates applicable as77.7 million). As of September 30, 2021). As at September 30, 2021,2022, the Company had utilized approximately ZAR 0.81.0 billion ($51.658.0 million) of this overdraft facility. This overdraft facility may only be used to fund ATMs and therefore the overdraft utilized and converted to cash to fund the Company’s ATMs is considered restricted cash. The interest rate on this facility is equal to the prime rate. The prime rate on September 30, 2021,2022, was 7.0%9.75%.
Connect Facilities, comprising long-term borrowings and a short-term facility
As of September 30, 2022, the Connect Facilities include (i) an overdraft facility (general banking facility) of ZAR 248.0 million (of which ZAR 205.0 million has been utilized); (ii) Facility A of ZAR 700.0 million; (iii) Facility B of ZAR 350.0 million (both fully utilized); and (iv) an asset-backed facility of ZAR 100.0 million (of which ZAR 90.2 million has been utilized). The amount available under the general banking facility will reduce to ZAR 205.0 million in mid-November 2022.
In November 2022, the Company, through its wholly owned subsidiaries, Cash Connect Rentals (Pty) Ltd and Main Street 1723 (Pty) Ltd, increased its aggregate asset-backed facilities from ZAR 100 million to ZAR 200 million.
19
8.Borrowings (continued)
South Africa (continued)
K2020 facility, comprising long-term borrowings
The Company, through its wholly owned subsidiary, K2020, entered into a revolving credit facility agreement with RMB on February 15, 2021. The revolving credit facility is for an amount of ZAR 150.0 million and matured on August 12, 2022. The facility continues to operate normally in agreement with K2020’s lender, while the parties conclude the legal agreements to significantly increase and extend the facility. Interest on the revolving credit facility is payable quarterly in arrears based on the prime rate in effect from time to time plus a margin. A commitment fee of 1.5% per annum is charged on the undrawn available facility amount.
RMB facility, comprising indirect facilities
As of September 30, 2022, the aggregate amount of the Company’s short-term South African indirect credit facility with RMB was ZAR 135.0 million ($7.5 million), which includes facilities for guarantees, letters of credit and forward exchange contracts. As of September 30, 2022 and June 30, 2022, the Company had utilized approximately ZAR 33.1 million ($1.8 million) and ZAR 5.1 million ($0.3 million), respectively, of its indirect and derivative facilities of ZAR 135.0 million (June 30, 2022: ZAR 135.0 million) to enable the bank to issue guarantees, letters of credit and forward exchange contracts (refer to Note 19).
Nedbank facility, comprising short-term facilities
As of September 30, 2021,2022, the aggregate amount of the Company’s short-term South African credit facility with Nedbank Limited was ZAR 406.6156.6 million ($26.98.7 million). The credit facility comprises an overdraft facility of up to ZAR 250.0 million ($16.5 million), which may only be used to fund mobile ATMs andrepresents indirect and derivative facilities of up to ZAR 156.6 million ($10.48.7 million), which include guarantees, letters of credit and forward exchange contracts.
The Company has entered into cession and pledge agreements with Nedbank related to certain of its Nedbank credit facilities (the general banking facility and a portion of the indirect facility) and the Company has ceded and pledged certain bank accounts to Nedbank. The funds included in these bank accounts are restricted as they may not be withdrawn without the express permission of Nedbank. These funds, of ZAR 156.6 million ($10.4 million translated at exchange rates applicable as of September 30, 2021), are included within the caption restricted cash related to ATM funding and credit facilities to the Company’s unaudited condensed consolidated balance sheet as of September 30, 2021. As of September 30, 2021, the interest rate on the overdraft facility was 5.9%.
As of September 30, 20212022 and June 30, 2021,2022, the Company had utilized approximately ZAR 156.692.1 million ($10.45.1 million) and ZAR 156.692.1 million ($10.95.7 million), respectively, of its indirect and derivative facilities of ZAR 156.6 million (June 30, 2021:2022: ZAR 156.6 million) 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).
Movement in short-term credit facilities
Summarized below are the Company’s short-term facilities as of September 30, 2021,2022, and the movement in the Company’s short-term facilities from as of June 30, 20212022 to as of September 30, 2021, as well as the respective interest rates applied to the borrowings as of September 30, 2021:2022:
|
|
|
|
|
|
| South Africa |
|
| Total |
| |||
|
|
|
|
|
| RMB |
| Nedbank |
|
|
|
| ||
| Short-term facilities available as of September 30, 2021 | $ | 92,623 |
| $ | 26,898 |
| $ | 119,521 |
| ||||
|
| Overdraft restricted as to use for ATM funding only |
| 92,623 |
|
| 16,540 |
|
| 109,163 |
| |||
|
| Indirect and derivative facilities |
| 0 |
|
| 10,358 |
|
| 10,358 |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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, 2021 |
| 14,245 |
|
| 0 |
|
| 14,245 |
| |||
|
|
| Utilized |
| 137,558 |
|
| 1,347 |
|
| 138,905 |
| ||
|
|
| Repaid |
| (97,586) |
|
| (1,322) |
|
| (98,908) |
| ||
|
|
| Foreign currency adjustment(1) |
| (2,649) |
|
| (25) |
|
| (2,674) |
| ||
|
|
|
| Balance as of September 30, 2021 |
| 51,568 |
|
| 0 |
|
| 51,568 |
| |
|
|
|
|
| Restricted as to use for ATM funding only |
| 51,568 |
|
| 0 |
|
| 51,568 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Movement in utilized indirect and derivative |
|
|
|
|
|
|
|
|
| ||||
| facilities: |
|
|
|
|
|
|
|
|
| ||||
|
| Balance as of June 30, 2021(2) |
| 0 |
|
| 10,947 |
|
| 10,947 |
| |||
|
|
| Utilized |
| 0 |
|
| 4,311 |
|
| 4,311 |
| ||
|
|
| Foreign currency adjustment(1) |
| 0 |
|
| (4,900) |
|
| (4,900) |
| ||
|
|
|
| Balance as of September 30, 2021(2) | $ | 0 |
| $ | 10,358 |
| $ | 10,358 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| RMB |
| RMB |
| RMB |
| Nedbank |
|
|
| ||||
|
|
|
|
|
| Facility E |
| Indirect |
| Connect |
| Facilities |
| Total | |||||
| Short-term facilities available as of September 30, 2022 | $ | 77,723 |
| $ | 7,495 |
| $ | 13,766 |
| $ | 8,691 |
| $ | 107,675 | ||||
|
| Overdraft |
| - |
|
| - |
|
| 13,766 |
|
| - |
|
| 13,766 | |||
|
| Overdraft restricted as to use for ATM funding only |
| 77,723 |
|
| - |
|
| - |
|
| - |
|
| 77,723 | |||
|
| Indirect and derivative facilities |
| - |
|
| 7,495 |
|
| - |
|
| 8,691 |
|
| 16,186 | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Movement in utilized overdraft facilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Restricted as to use for ATM funding only |
| 51,338 |
|
| - |
|
| - |
|
| - |
|
| 51,338 | |||
|
| No restrictions as to use |
| - |
|
| - |
|
| 14,880 |
|
| - |
|
| 14,880 | |||
|
|
| Balance as of June 30, 2022 |
| 51,338 |
|
| - |
|
| 14,880 |
|
| - |
|
| 66,218 | ||
|
|
|
| Utilized |
| 145,497 |
|
| - |
|
| 571 |
|
| - |
|
| 146,068 | |
|
|
|
| Repaid |
| (134,130) |
|
| - |
|
| (2,792) |
|
| - |
|
| (136,922) | |
|
|
|
| Foreign currency adjustment(1) |
| (4,754) |
|
| - |
|
| (1,278) |
|
| - |
|
| (6,032) | |
|
| Balance as of September 30, 2022 |
| 57,951 |
|
| - |
|
| 11,381 |
|
| - |
|
| 69,332 | |||
|
|
|
| Restricted as to use for ATM funding only |
| 57,951 |
|
| - |
|
| - |
|
| - |
|
| 57,951 | |
|
|
|
| No restrictions as to use | $ | - |
| $ | - |
| $ | 11,381 |
| $ | - |
| $ | 11,381 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest rate as of September 30, 2022 (%)(2) |
| 9.75 |
|
|
|
|
| 9.65 |
|
| - |
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Movement in utilized indirect and derivative facilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
|
| Balance as of June 30, 2022 | $ | - |
| $ | 313 |
| $ | - |
| $ | 5,654 |
| $ | 5,967 | |||
|
|
| Utilized |
| - |
|
| 1,634 |
|
| - |
|
| - |
|
| 1,634 | ||
|
|
| Foreign currency adjustment(1) |
| - |
|
| (109) |
|
| - |
|
| (540) |
|
| (649) | ||
|
| Balance as of September 30, 2022 | $ | - |
| $ | 1,838 |
| $ | - |
| $ | 5,114 |
| $ | 6,952 |
(1) Represents the effects of the fluctuations between the ZAR and the U.S. dollar.
(2) Facility E interest set at prime and the Connect facility at prime less 0.10%.
20
8.Borrowings (continued)
Movement in long-term borrowings
Summarized below is the movement in the Company’s long-term borrowing from as of as of June 30, 2022 to as of September 30, 2022:
|
|
|
|
| Facilities |
|
|
| ||||||||||
|
|
|
|
| G & H |
| A&B |
| K2020 |
| Asset backed |
| Total | |||||
| Included in current | $ | - |
| $ | 4,604 |
| $ | - |
| $ | 2,200 |
| $ | 6,804 | |||
| Included in long-term |
| 63,354 |
|
| 59,868 |
|
| 8,346 |
|
| 3,274 |
|
| 134,842 | |||
| Opening balance as of June 30, 2022 |
| 63,354 |
|
| 64,472 |
|
| 8,346 |
|
| 5,474 |
|
| 141,646 | |||
|
| Facilities utilized |
| - |
|
| - |
|
| 476 |
|
| 583 |
|
| 1,059 | ||
|
| Facilities repaid |
| - |
|
| (1,067) |
|
| - |
|
| (513) |
|
| (1,580) | ||
|
| Non-refundable fees paid |
| - |
|
| - |
|
| - |
|
| - |
|
| - | ||
|
| Non-refundable fees amortized |
| - |
|
| - |
|
| - |
|
| - |
|
| - | ||
|
| Foreign currency adjustment(1) |
| (5,853) |
|
| (6,123) |
|
| (815) |
|
| (534) |
|
| (13,325) | ||
|
|
| Closing balance as of September 30, 2022 |
| 57,501 |
|
| 57,282 |
|
| 8,007 |
|
| 5,010 |
|
| 127,800 | |
|
|
| Included in current |
| - |
|
| 4,164 |
|
| - |
|
| 2,201 |
|
| 6,365 | |
|
|
| Included in long-term |
| 57,501 |
|
| 53,118 |
|
| 8,007 |
|
| 2,809 |
|
| 121,435 | |
|
|
|
| Unamortized fees |
| (678) |
|
| (276) |
|
| - |
|
| - |
|
| (954) |
|
|
|
| Due within 2 years |
| 58,179 |
|
| 4,510 |
|
| 8,007 |
|
| 1,956 |
|
| 72,652 |
|
|
|
| Due within 3 years |
| - |
|
| 5,899 |
|
| - |
|
| 798 |
|
| 6,697 |
|
|
|
| Due within 4 years |
| - |
|
| 7,286 |
|
| - |
|
| 55 |
|
| 7,341 |
|
|
|
| Due within 5 years | $ | - |
| $ | 35,699 |
| $ | - |
| $ | - |
| $ | 35,699 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Interest rates as of September 30, 2022 (%): |
| 8.5 - 9.5 |
|
| 10.22 |
|
| 11.00 |
|
| 10.50 |
|
|
| |||
|
| Base rate (%) |
| 6.47 |
|
| 6.47 |
|
| 9.75 |
|
| 9.75 |
|
|
| ||
|
| Margin (%) |
| Varies |
|
| 3.75 |
|
| 1.25 |
|
| 0.75 |
|
|
| ||
| Footnote number |
| (2)(3) |
|
| (4) |
|
| (5) |
|
| (6) |
|
|
|
(1) Represents the effects of the fluctuations between the ZAR and the U.S. dollar.
(2) Interest on Facility G is calculated based on the 3-month JIBAR in effect from time to time plus a margin of (i) 3.00% per annum until January 13, 2023; and then (ii) from January 14, 2023, (x) 2.50% per annum if the Facility G balance outstanding is less than or equal to ZAR 250.0 million, or (y) 3.00% per annum if the Facility G balance is between ZAR 250.0 million to ZAR 450.0 million, or (z) 3.50% per annum if the Facility G balance is greater than ZAR 450.0 million. The interest rate shall increase by a further 2.00% per annum in the event of default (as defined in the Loan Documents).
(3) Interest on Facility H is calculated based on JIBAR in effect from time to time plus a margin of 2.00% per annum which increases by a further 2.00% per annum in the event of default (as defined in the Loan Documents).
(4) Interest on Facility A and Facility B is calculated based on JIBAR plus a margin, of approximately 3.75%, in effect from time to time.
(5) Interest is charged at prime plus 1.25% per annum on the utilized balance.
(6) Interest is charged at prime plus 1.00% per annum on the utilized balance.
Interest expense incurred under the Company’s South African long-term borrowings and included in the caption interest expense on the condensed consolidated statement of operations during the three months ended September 30, 2022, was $2.7 million. There was no interest expense incurred during the three months ended September 30, 2021. Prepaid facility fees amortized included in interest expense during the three months ended September 30, 2022, were $0.2 million. There was no prepaid facility fee amortization during the three months ended September 30, 2021. Interest expense incurred under the Company’s K2020 facility relates to borrowings utilized to fund a portion of the Company’s merchant finance loans receivable and this interest expense of $0.2 million is included in the caption cost of goods sold, IT processing, servicing and support on the condensed consolidated statement of operations for the three months ended September 30, 2022.
21
9.Other payables
Summarized below is the breakdown of other payables as of September 30, 2021,2022, and June 30, 2021:2022:
|
|
|
| September 30, |
| June 30, |
| ||
|
|
|
|
| 2021 |
|
| 2021 |
|
| Accruals |
| $ | 7,813 |
| $ | 7,501 |
| |
| Provisions |
|
| 6,444 |
|
| 5,343 |
| |
| Other |
|
| 12,169 |
|
| 13,288 |
| |
| Value-added tax payable |
|
| 421 |
|
| 435 |
| |
| Payroll-related payables |
|
| 1,206 |
|
| 884 |
| |
| Participating merchants' settlement obligation |
|
| 127 |
|
| 137 |
| |
|
|
| $ | 28,180 |
| $ | 27,588 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
| June 30, |
| ||
|
|
|
|
| 2022 |
|
| 2022 |
|
| Accruals |
| $ | 7,135 |
| $ | 9,948 |
| |
| Provisions |
|
| 7,270 |
|
| 7,365 |
| |
| Value-added tax payable |
|
| 783 |
|
| 845 |
| |
| Payroll-related payables |
|
| 1,178 |
|
| 1,306 |
| |
| Participating merchants' settlement obligation |
|
| 103 |
|
| 114 |
| |
| Vendor consideration due to sellers of Connect |
|
| - |
|
| 1,459 |
| |
| Other |
|
| 11,957 |
|
| 13,325 |
| |
|
|
| $ | 28,426 |
| $ | 34,362 |
|
Other includes transactions-switching funds payable, deferred income, client deposits and other payables.
10.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 as of September 30, 20212022 and 2020,2021, respectively:
|
|
| September 30, |
| September 30, |
|
|
|
| 2021 |
| 2020 |
|
|
|
|
|
|
|
|
| Number of shares, net of treasury: |
|
|
|
| |
|
| Statement of changes in equity | 56,996,214 |
| 56,638,725 |
|
|
| Non-vested equity shares that have not vested as of end of period | 664,154 |
| 324,000 |
|
| Number of shares, net of treasury, excluding non-vested equity shares that have not vested | 56,332,060 |
| 56,314,725 |
|
|
|
| September 30, |
| September 30, |
|
|
|
| 2022 |
| 2021 |
|
|
|
|
|
|
|
|
| Number of shares, net of treasury: |
|
|
|
| |
|
| Statement of changes in equity | 62,522,384 |
| 56,996,214 |
|
|
| Non-vested equity shares that have not vested as of end of period | 2,518,546 |
| 664,154 |
|
| Number of shares, net of treasury, excluding non-vested equity shares that have not vested | 60,003,838 |
| 56,332,060 |
|
11.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, 2021:2022:
|
|
|
|
|
|
|
| Three months ended |
| ||||
|
|
|
|
|
|
|
| September 30, 2021 |
| ||||
|
|
|
|
|
|
|
|
| Accumulated foreign currency translation reserve |
|
| Total |
|
| Balance as of July 1, 2021 |
|
|
|
| $ | (145,721) |
| $ | (145,721) |
| ||
|
| Movement in foreign currency translation reserve related to equity-accounted investment |
|
| (644) |
|
| (644) |
| ||||
|
| Movement in foreign currency translation reserve |
|
| (5,913) |
|
| (5,913) |
| ||||
|
|
| Balance as of September 30, 2021 |
|
|
|
| $ | (152,278) |
| $ | (152,278) |
|
|
|
|
|
|
|
|
| Three months ended |
| ||||
|
|
|
|
|
|
|
| September 30, 2022 |
| ||||
|
|
|
|
|
|
|
|
| Accumulated foreign currency translation reserve |
|
| Total |
|
| Balance as of July 1, 2022 |
|
|
|
| $ | (168,840) |
| $ | (168,840) |
| ||
|
| Release of foreign currency translation reserve related to the disposal of Finbond equity securities (Note 5) |
|
| 2 |
|
| 2 |
| ||||
|
| Movement in foreign currency translation reserve related to equity-accounted investment |
|
| 2,441 |
|
| 2,441 |
| ||||
|
| Movement in foreign currency translation reserve |
|
| (22,093) |
|
| (22,093) |
| ||||
|
|
| Balance as of September 30, 2022 |
|
|
|
| $ | (188,490) |
| $ | (188,490) |
|
2122
11.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, 2020:2021:
|
|
|
|
| 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 |
| ||||
|
|
|
|
| September 30, 2021 |
| ||||
|
|
|
|
|
| Accumulated foreign currency translation reserve |
|
| Total |
|
| Balance as of July 1, 2021 |
| $ | (145,721) |
| $ | (145,721) |
| ||
|
| Movement in foreign currency translation reserve related to equity-accounted investment |
|
| (644) |
|
| (644) |
| |
|
| Movement in foreign currency translation reserve |
|
| (5,913) |
|
| (5,913) |
| |
|
|
| Balance as of September 30, 2021 |
| $ | (152,278) |
| $ | (152,278) |
|
During the three months ended September 30, 2022, the Company reclassified $0.002 million from accumulated other comprehensive loss (accumulated foreign currency translation reserve) to net loss related to the disposal of shares in Finbond (refer to Note 5). There were 0no reclassifications from accumulated other comprehensive loss to net (loss) income during the three months ended September 30, 2021 and 2020.2021.
22
12.Stock-based compensation
The Company’s Amended and Restated 2015 Stock Incentive Plan and the vesting terms of certain stock-based awards granted are described in Note 1617 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2021.2022.
Stock option and restricted stock activity
Options
The following table summarizes stock option activity for the three months ended September 30, 20212022 and 2020:2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Number of shares |
|
| Weighted average exercise price ($) |
|
| Weighted average remaining contractual term (in years) |
|
| Aggregate intrinsic value ($'000) |
| Weighted average grant date fair value ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Outstanding - June 30, 2021 |
| 1,294,832 |
|
| 3.93 |
|
| 7.68 |
|
| 1,624 |
| 1.45 | ||||
|
| Forfeited |
| (85,000) |
|
| 3.48 |
|
| - |
|
| - |
| 1.34 | |||
|
|
| Outstanding - September 30, 2021 |
| 1,209,832 |
|
| 3.96 |
|
| 7.63 |
|
| 1,445 |
| 1.46 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
NaN stock options were awarded during the three months ended September 30, 2021. 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.
Employees forfeited 85,000 stock options during the three months ended September 30, 2021. During the three months ended September 30, 2020, the Company’s former chief executive officer forfeited 250,034 stock options with strike prices ranging from $6.20 to $11.23 per share following his separation from the Company.
The fair value of each option is estimated on the date of grant using the Cox Ross Rubinstein binomial model that uses the assumptions noted in the following table. The estimated expected volatility is calculated based on the Company’s 750-day volatility. The estimated expected life of the option was determined based on historical behavior of employees who were granted options with similar terms.
The table below presents the range of assumptions used to value stock options granted during the three months ended September 30, 2020:
| |||||||
| |||||||
| |||||||
|
|
| |||||
|
| ||||||
|
|
|
|
|
|
|
|
|
| Number of shares |
|
| Weighted average exercise price ($) |
|
| Weighted average remaining contractual term (in years) |
|
| Aggregate intrinsic value ($'000) |
| Weighted average grant date fair value ($) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Outstanding - June 30, 2022 |
| 926,225 |
|
| 4.14 |
|
| 6.60 |
|
| 1,249 |
| 1.60 | ||||
|
| Exercised |
| (2,000) |
|
| 3.07 |
|
| - |
|
| 1 |
| - | |||
|
|
| Outstanding - September 30, 2022 |
| 924,225 |
|
| 4.14 |
|
| 6.36 |
|
| 226 |
| 1.60 | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Outstanding - June 30, 2021 |
| 1,294,832 |
|
| 3.93 |
|
| 7.68 |
|
| 1,624 |
| 1.45 | ||||
|
| Forfeited |
| (85,000) |
|
| 3.48 |
|
|
|
|
|
|
| 1.34 | |||
|
|
| Outstanding - September 30, 2021 |
| 1,209,832 |
|
| 3.96 |
|
| 7.63 |
|
| 1,445 |
| 1.46 |
23
12.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, 2021:2022:
|
|
|
|
|
|
| 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, 2021 |
|
| 1,209,832 |
|
| 3.96 |
|
| 7.63 |
|
| 1,445 |
|
|
|
|
|
|
|
| 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, 2022 |
|
| 924,225 |
|
| 4.14 |
|
| 6.36 |
|
| 226 |
|
These options have an exercise price range of $3.01 to $11.23.
The following table presents stock options that are exercisable as of September 30, 2021:2022:
|
|
|
|
|
|
| Number of shares |
|
| Weighted average exercise price ($) |
|
| Weighted average remaining contractual term (in years) |
|
| Aggregate intrinsic value ($’000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Exercisable - September 30, 2021 |
|
| 401,677 |
|
| 5.18 |
|
| 6.42 |
|
| 199 |
|
|
|
|
|
|
|
| Number of shares |
|
| Weighted average exercise price ($) |
|
| Weighted average remaining contractual term (in years) |
|
| Aggregate intrinsic value ($’000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Exercisable - September 30, 2022 |
|
| 378,674 |
|
| 5.01 |
|
| 5.19 |
|
| 35 |
|
No stock options became exercisable during the three months ended September 30, 2022. During the three months ended September 30, 2021, and 2020, respectively, 231,333 and ,15633375,000 stock options became exercisable. The Company issues new shares to satisfy stock option exercises.
Restricted stock
The following table summarizes restricted stock activity for the three months ended September 30, 20212022 and 2020:2021:
|
|
|
|
|
|
| Number of shares of restricted stock |
|
|
| Weighted average grant date fair value ($’000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
| Non-vested – June 30, 2021 |
|
| 384,560 |
|
|
| 1,123 |
|
| |||
|
| Granted – July 2021 |
|
| 234,608 |
|
|
| 963 |
|
| ||
|
| Granted – August 2021 |
|
| 44,986 |
|
|
| 192 |
|
| ||
|
|
| Non-vested – September 30, 2021 |
|
| 664,154 |
|
|
| 2,610 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 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 |
|
|
|
|
|
|
|
|
| Number of shares of restricted stock |
|
|
| Weighted average grant date fair value ($’000) |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
| ||
| Non-vested – June 30, 2022 |
|
| 2,385,267 |
|
|
| 11,879 |
|
| |||
|
| Total granted |
|
| 212,080 |
|
|
| 1,167 |
|
| ||
|
|
| Granted – July 2022 |
|
| 32,582 |
|
|
| 172 |
|
| |
|
|
| Granted – August 2022 |
|
| 179,498 |
|
|
| 995 |
|
| |
|
| Total vested |
|
| (78,801) |
|
|
| 410 |
|
| ||
|
|
| Vested – July 2022 |
|
| (78,801) |
|
|
| 410 |
|
| |
|
|
| Non-vested – September 30, 2022 |
|
| 2,518,546 |
|
|
| 12,568 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Non-vested – June 30, 2021 |
|
| 384,560 |
|
|
| 1,123 |
|
| |||
|
| Total Granted |
|
| 279,594 |
|
|
| 1,155 |
|
| ||
|
|
| Granted – July 2021 |
|
| 234,608 |
|
|
| 963 |
|
| |
|
|
| Granted – August 2021 |
|
| 44,986 |
|
|
| 192 |
|
| |
|
|
|
| Non-vested – September 30, 2021 |
|
| 664,154 |
|
|
| 2,610 |
|
|
24
12.Stock-based compensation (continued)
Stock option and restricted stock activity (continued)
Restricted stock (continued)
Grants
In July 2022, the Company granted 32,582 shares of restricted stock to employees which have time -based vesting conditions. The Company agreed to match, on a one-for-one basis, an employee’s purchase of up to $1.0 million worth of the Company’s shares of common stock in open market purchases, and in August 2022, the Company granted 179,498 shares of restricted stock to the employee . These shares of restricted stock contain time-based vesting conditions.
On June 30,July 1, 2021, the Company entered into employment agreements with Mr. Chris G.B. Meyer, under which Mr. Meyer was appointedgranted its Group Chief Executive Officer, of the Company effective July 1, 2021. Mr. Meyer was awarded 117,304 shares of restricted stock, on July 1, 2021, which wereare subject to time-based vesting conditions and vest in full on June 30, 2024, subject to Mr. Meyer’s continued service to the Company through June 30, 2024. In addition, under the terms of Mr. Meyer’s engagement, the Company’s Remuneration CommitteeMeyer was also awarded Mr. Meyer 117,304 shares of restricted stock which include performanceperformance-based conditions and which only vest on June 30, 2024 if the performance conditions are met and Mr. Meyer remains employed with the Company through June 30, 2024. Vesting of half of these awards, or 58,652 shares of restricted stock, is subject to the Company achieving its three-year financial services plan during the specific measurement period from June 30, 2021, to June 30, 2024, and the other half is subject to share price growth targets, and only vest if the Company’s share price is $8.14 or higher on June 30, 2024. In August 2021, the Company awarded 44,986 shares of restricted stock to an employee which have time-basedcontained time and performance-based (market conditions related to share price performance) vesting conditions.
NaNAs fully described in Note 17 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2022, the Company granted a further 19,443 shares of restricted stock vestedto an advisor during the three months ended September 30, 2021.2022, which may not be transferred until the earlier of December 31, 2022, or the occurrence of the agreed event.
During the three months ended September 30, 2020, 244,500Vesting
In July 2022, 78,801 shares of restricted stock with time-based vesting conditions vested. In connection withgranted to Mr. Meyer vested and he elected for 35,460 shares to be withheld to satisfy the Company’s former chief executive officer’s separation, the Company agreed to acceleratewithholding tax liability on the vesting of ,66800these shares. These 35,460 shares of restricted stock which were grantedhave been included in February 2020, and which were subject to time-based vesting. These shares of restricted stock vested on September 30, 2020. The 480,200 shares of restricted stock that were forfeited during the three months ended September 30, 2020, included 375,200 shares of restricted stock forfeited by the Company’s former chief executive officer upon his separation from the Company.
Stock-based compensation charge and unrecognized compensation costour treasury shares.
The Company recorded a stock-based compensation charge, net during the three months ended September 30, 2022 and 2021, and 2020, of $0.3$1.5 million and $0.4$0.3 million, respectively, which comprised:
|
|
|
|
|
| Total charge |
| Allocated to cost of goods sold, IT processing, servicing and support |
| Allocated to selling, general and administration |
| |||
| Three months ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
| |||
|
|
| Stock-based compensation charge |
| $ | 344 |
| $ | 0 |
| $ | 344 |
| |
|
|
| Reversal of stock compensation charge related to stock options and restricted stock forfeited |
|
| (35) |
|
| - |
|
| (35) |
| |
|
|
|
| Total - three months ended September 30, 2021 |
| $ | 309 |
| $ | 0 |
| $ | 309 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended September 30, 2020 |
|
|
|
|
|
|
|
|
|
| |||
|
|
| Stock-based compensation charge |
| $ | 682 |
| $ | 0 |
| $ | 682 |
| |
|
|
| Reversal of stock compensation charge related to stock options and restricted stock forfeited |
|
| (283) |
|
| 0 |
|
| (283) |
| |
|
|
|
| Total - three months ended September 30, 2020 |
| $ | 399 |
| $ | 0 |
| $ | 399 |
|
|
|
|
|
|
| Total charge |
| Allocated to cost of goods sold, IT processing, servicing and support |
| Allocated to selling, general and administration |
| |||
| Three months ended September 30, 2022 |
|
|
|
|
|
|
|
|
|
| |||
|
|
| Stock-based compensation charge |
| $ | 1,462 |
| $ | - |
| $ | 1,462 |
| |
|
|
|
| Total - three months ended September 30, 2022 |
| $ | 1,462 |
| $ | - |
| $ | 1,462 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended September 30, 2021 |
|
|
|
|
|
|
|
|
|
| |||
|
|
| Stock-based compensation charge |
| $ | 344 |
| $ | - |
| $ | 344 |
| |
|
|
| Reversal of stock compensation charge related to stock options and restricted stock forfeited |
|
| (35) |
|
| - |
|
| (35) |
| |
|
|
|
| Total - three months ended September 30, 2021 |
| $ | 309 |
| $ | - |
| $ | 309 |
|
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.
25
12.Stock-based compensation (continued)
As of September 30, 2021,2022, the total unrecognized compensation cost related to stock options was approximately $0.6$0.3 million, which the Company expects to recognize over approximately two years. As of September 30, 2021,2022, the total unrecognized compensation cost related to restricted stock awards was approximately $2.2$9.9 million, which the Company expects to recognize over approximately three years.
As of September 30, 2021,2022, and June 30, 2021,2022, respectively, the Company recorded a deferred tax asset of approximately $0.4 million and $0.1$0.3 million, related to the stock-based compensation charge recognized related to employees of Net1.Lesaka. As of September 30, 2021,2022, and June 30, 2021,2022, respectively, the Company recorded a valuation allowance of approximately $0.4 million and $0.1$0.3 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.
25
13.(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, 20212022 and 2020.2021. 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 1314 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2021.2022.
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, 20212022 and 20202021, 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. The Company has excluded employee stock options to purchase 210,530 shares of common stock from the calculation of diluted loss per share during the three months ended September 30, 2022, because the effect would be antidilutive.
The calculation of diluted (loss) earnings per share includes the dilutive effect of a portion of the restricted stock granted to employees in May 2018, September 2018, February 2020, May 2021, July 2021 and August 2021 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 1617 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2021.2022.
26
13.(Loss) Earnings per share (continued)
The following table presents net loss attributable to Net1Lesaka 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, | ||||||
|
|
|
|
|
|
|
| 2021 |
|
|
| 2020 |
|
|
|
|
|
|
|
|
| (in thousands except |
| ||||
|
|
|
|
|
|
|
| percent and |
| ||||
|
|
|
|
|
|
|
| per share data) |
| ||||
| Numerator: |
|
|
|
|
|
|
|
| ||||
|
| Net loss attributable to Net1 |
| $ | (12,994) |
|
| $ | (28,958) |
| |||
|
| Undistributed (loss) earnings |
| $ | (12,994) |
|
| $ | (28,958) |
| |||
|
|
|
|
|
|
|
|
|
|
| |||
|
| Percent allocated to common shareholders (Calculation 1) |
|
| 99 |
|
|
| 98 |
| |||
|
| Numerator for (loss) earnings per share: basic and diluted |
|
| (12,915) |
|
|
| (28,443) |
| |||
|
|
|
| Continuing |
|
| (12,915) |
|
|
| (28,443) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Denominator |
|
|
|
|
|
|
|
| ||||
|
| Denominator for basic (loss) earnings per share: |
|
|
|
|
|
|
|
| |||
|
| weighted-average common shares outstanding |
|
| 56,332 |
|
|
| 56,104 |
| |||
|
|
|
| Denominator for diluted (loss) earnings per share: adjusted weighted average common shares outstanding and assuming conversion |
|
| 56,463 |
|
|
| 56,104 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (Loss) Earnings per share: |
|
|
|
|
|
|
|
| ||||
|
| Basic |
| $ | (0.23) |
|
| $ | (0.51) |
| |||
|
| Diluted |
| $ | (0.23) |
|
| $ | (0.51) |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (Calculation 1) |
|
|
|
|
|
|
|
| ||||
|
| Basic weighted-average common shares outstanding (A) |
|
| 56,332 |
|
|
| 56,104 |
| |||
|
| Basic weighted-average common shares outstanding and unvested restricted shares expected to vest (B) |
|
| 56,678 |
|
|
| 57,119 |
| |||
|
| Percent allocated to common shareholders (A) / (B) |
|
| 99 |
|
|
| 98 |
|
26
|
|
|
|
|
|
| Three months ended | ||||||
|
|
|
|
|
|
| September 30, | ||||||
|
|
|
|
|
|
|
| 2022 |
|
|
| 2021 |
|
|
|
|
|
|
|
|
| (in thousands except |
| ||||
|
|
|
|
|
|
|
| percent and |
| ||||
|
|
|
|
|
|
|
| per share data) |
| ||||
| Numerator: |
|
|
|
|
|
|
|
| ||||
|
| Net loss attributable to Lesaka |
| $ | (10,696) |
|
| $ | (12,994) |
| |||
|
| Undistributed (loss) earnings |
| $ | (10,696) |
|
| $ | (12,994) |
| |||
|
|
|
|
|
|
|
|
|
|
| |||
|
| Percent allocated to common shareholders (Calculation 1) |
|
| 96 |
|
|
| 99 |
| |||
|
| Numerator for (loss) earnings per share: basic and diluted |
|
| (10,277) |
|
|
| (12,915) |
| |||
|
|
|
| Continuing |
|
| (10,277) |
|
|
| (12,915) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Denominator |
|
|
|
|
|
|
|
| ||||
|
| Denominator for basic (loss) earnings per share: |
|
|
|
|
|
|
|
| |||
|
| Weighted-average common shares outstanding |
|
| 59,996 |
|
|
| 56,332 |
| |||
|
|
|
| Denominator for diluted (loss) earnings per share: adjusted weighted average common shares outstanding and assuming conversion |
|
| 59,996 |
|
|
| 56,463 |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (Loss) Earnings per share: |
|
|
|
|
|
|
|
| ||||
|
| Basic |
| $ | (0.17) |
|
| $ | (0.23) |
| |||
|
| Diluted |
| $ | (0.17) |
|
| $ | (0.23) |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (Calculation 1) |
|
|
|
|
|
|
|
| ||||
|
| Basic weighted-average common shares outstanding (A) |
|
| 59,996 |
|
|
| 56,332 |
| |||
|
| Basic weighted-average common shares outstanding and unvested restricted shares expected to vest (B) |
|
| 62,445 |
|
|
| 56,678 |
| |||
|
| Percent allocated to common shareholders (A) / (B) |
|
| 96 |
|
|
| 99 |
|
13.(Loss) EarningsOptions to purchase 324,619 shares of the Company’s common stock at prices ranging from $4.87 to $11.23 per share (continued)
were outstanding during the three months ended September 30, 2022, 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 270,832 shares of the Company’s common stock at prices ranging from $6.20 to $11.23 per share were outstanding during the three months ended September 30, 2021, 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 1,231,617 shares of the Company’s common stock at prices ranging from $3.07 to $11.23 per share were outstanding during the three months ended September 30, 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. The options, which expire at various dates through November 4, 2030,February 3, 2032, were still outstanding as of September 30, 2021.2022.
14.Supplemental cash flow information
The following table presents supplemental cash flow disclosures for the three months ended September 30, 20212022 and 2020:2021:
|
|
|
|
| Three months ended | |||
|
|
|
|
| September 30, | |||
|
|
|
|
| 2021 |
|
| 2020 |
|
|
|
|
|
|
|
|
|
|
| Cash received from interest |
| $ | 382 |
| $ | 495 |
|
| Cash paid for interest |
| $ | 804 |
| $ | 908 |
|
| Cash paid for income taxes |
| $ | 11 |
| $ | 15,406 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| Three months ended | |||
|
|
|
|
| September 30, | |||
|
|
|
|
| 2022 |
|
| 2021 |
|
|
|
|
|
|
|
|
|
|
| Cash received from interest |
| $ | 409 |
| $ | 382 |
|
| Cash paid for interest |
| $ | 4,011 |
| $ | 804 |
|
| Cash paid for income taxes |
| $ | 677 |
| $ | 11 |
|
|
|
|
|
|
|
|
|
27
14.Supplemental cash flow information (continued)
Leases
The following table presents supplemental cash flow disclosure related to leases for the three months ended September 30, 20212022 and 2020:2021:
|
|
|
|
|
|
|
|
|
| Three months ended |
| ||||
|
|
|
|
|
|
|
|
|
|
| September 30, |
| |||
|
|
|
|
|
|
|
|
|
| 2021 |
| 2020 |
| ||
|
| Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating cash flows from operating leases |
|
|
|
|
|
|
| $ | 925 |
| $ | 872 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Right-of-use assets obtained in exchange for lease obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating leases |
|
|
|
|
|
|
| $ | 504 |
| $ | 90 |
|
27
|
|
|
|
|
|
|
|
|
| Three months ended |
| ||||
|
|
|
|
|
|
|
|
|
|
| September 30, |
| |||
|
|
|
|
|
|
|
|
|
| 2022 |
| 2021 |
| ||
|
| Cash paid for amounts included in the measurement of lease liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating cash flows from operating leases |
|
|
|
|
|
|
| $ | 805 |
| $ | 925 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Right-of-use assets obtained in exchange for lease obligations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating leases |
|
|
|
|
|
|
| $ | 5,734 |
| $ | 504 |
|
15.Revenue recognition
Disaggregation of revenue
The following table presents ourthe Company’s revenue disaggregated by major revenue streams, including a reconciliation to operating segments for the three months ended September 30, 2022:
|
|
|
| Consumer |
| Merchant |
| Other |
| Total | ||||
| Processing fees | $ | 6,535 |
| $ | 26,923 |
| $ | 374 |
| $ | 33,832 | ||
|
| South Africa |
| 6,535 |
|
| 26,028 |
|
| - |
|
| 32,563 | |
|
| Rest of world |
| - |
|
| 895 |
|
| 374 |
|
| 1,269 | |
| Technology products |
| 37 |
|
| 3,897 |
|
| - |
|
| 3,934 | ||
|
| South Africa |
| 37 |
|
| 3,830 |
|
| - |
|
| 3,867 | |
|
| Rest of world |
| - |
|
| 67 |
|
| - |
|
| 67 | |
| Telecom products and services |
| - |
|
| 76,120 |
|
| - |
|
| 76,120 | ||
|
| South Africa |
| - |
|
| 72,029 |
|
| - |
|
| 72,029 | |
|
| Rest of world |
| - |
|
| 4,091 |
|
| - |
|
| 4,091 | |
| Lending revenue |
| 4,711 |
|
| - |
|
| - |
|
| 4,711 | ||
| Interest from customers |
| - |
|
| 1,223 |
|
| - |
|
| 1,223 | ||
| Insurance revenue |
| 2,181 |
|
| - |
|
| - |
|
| 2,181 | ||
| Account holder fees |
| 1,411 |
|
| - |
|
| - |
|
| 1,411 | ||
| Other |
| 129 |
|
| 1,245 |
|
| - |
|
| 1,374 | ||
|
| South Africa |
| 129 |
|
| 1,201 |
|
| - |
|
| 1,330 | |
|
| Rest of world |
| - |
|
| 44 |
|
| - |
|
| 44 | |
|
| Total revenue, derived from the following geographic locations |
| 15,004 |
|
| 109,408 |
|
| 374 |
|
| 124,786 | |
|
|
| South Africa |
| 15,004 |
|
| 104,311 |
|
| - |
|
| 119,315 |
|
|
| Rest of world | $ | - |
| $ | 5,097 |
| $ | 374 |
| $ | 5,471 |
28
15.Revenue recognition (continued)
Disaggregation of revenue (continued)
The following table presents the Company’s revenue disaggregated by major revenue streams, including a reconciliation to operating segments for the three months ended September 30, 2021:
|
|
|
| Processing |
| Financial services |
| Technology |
| Total | ||||
| Processing fees | $ | 15,630 |
| $ | 464 |
| $ | 0 |
| $ | 16,094 | ||
|
| South Africa |
| 15,203 |
|
| 464 |
|
| 0 |
|
| 15,667 | |
|
| Rest of world |
| 427 |
|
| 0 |
|
| 0 |
|
| 427 | |
| Technology products |
| 604 |
|
| 132 |
|
| 4,349 |
|
| 5,085 | ||
| Telecom products and services |
| 2,277 |
|
| 0 |
|
| 0 |
|
| 2,277 | ||
| Lending revenue |
| 0 |
|
| 5,376 |
|
| 0 |
|
| 5,376 | ||
| Insurance revenue |
| 0 |
|
| 2,193 |
|
| 0 |
|
| 2,193 | ||
| Account holder fees |
| 0 |
|
| 1,443 |
|
| 0 |
|
| 1,443 | ||
| Other |
| 1,645 |
|
| 78 |
|
| 313 |
|
| 2,036 | ||
|
| Total revenue, derived from the following geographic locations |
| 20,156 |
|
| 9,686 |
|
| 4,662 |
|
| 34,504 | |
|
|
| South Africa |
| 19,729 |
|
| 9,686 |
|
| 4,662 |
|
| 34,077 |
|
|
| Rest of world | $ | 427 |
| $ | 0 |
| $ | 0 |
| $ | 427 |
The following table presents our revenue disaggregated by major revenue streams, including a reconciliation to operating segments for the three months ended September 30, 2020:
|
|
|
| Processing |
| Financial services |
| Technology |
| Total | ||||
|
|
|
| (as restated) |
|
|
|
|
| (as restated)(1) | ||||
| Processing fees | $ | 16,330 |
| $ | 599 |
| $ | 0 |
| $ | 16,929 | ||
|
| South Africa(1) |
| 14,774 |
|
| 599 |
|
| 0 |
|
| 15,373 | |
|
| Rest of world |
| 1,556 |
|
| 0 |
|
| 0 |
|
| 1,556 | |
| Technology products |
| 460 |
|
| 0 |
|
| 6,074 |
|
| 6,534 | ||
| Telecom products and services |
| 4,422 |
|
| 0 |
|
| 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 |
| 21,518 |
|
| 7,520 |
|
| 6,098 |
|
| 35,136 | |
|
|
| South Africa |
| 19,962 |
|
| 7,520 |
|
| 6,098 |
|
| 33,580 |
|
|
| Rest of world | $ | 1,556 |
| $ | 0 |
| $ | 0 |
| $ | 1,556 |
(1) Processing fees South Africa and Total column has been restated for the error described in Note 1.
|
|
|
| Consumer |
| Merchant |
| Other |
| Total | ||||
| Processing fees | $ | 7,659 |
| $ | 8,008 |
| $ | 427 |
| $ | 16,094 | ||
|
| South Africa |
| 7,659 |
|
| 8,008 |
|
| - |
|
| 15,667 | |
|
| Rest of world |
| - |
|
| - |
|
| 427 |
|
| 427 | |
| Technology products |
| 132 |
|
| 4,953 |
|
| - |
|
| 5,085 | ||
| Telecom products and services |
| - |
|
| 2,277 |
|
| - |
|
| 2,277 | ||
| Lending revenue |
| 5,376 |
|
| - |
|
| - |
|
| 5,376 | ||
| Insurance revenue |
| 2,193 |
|
| - |
|
| - |
|
| 2,193 | ||
| Account holder fees |
| 1,443 |
|
| - |
|
| - |
|
| 1,443 | ||
| Other |
| 361 |
|
| 1,675 |
|
| - |
|
| 2,036 | ||
|
| Total revenue, derived from the following geographic locations |
| 17,164 |
|
| 16,913 |
|
| 427 |
|
| 34,504 | |
|
|
| South Africa |
| 17,164 |
|
| 16,913 |
|
| - |
|
| 34,077 |
|
|
| Rest of world | $ | - |
| $ | - |
| $ | 427 |
| $ | 427 |
16.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, 2022 and 2021 was $0.8 million and 2020 was $0.9 million, respectively. The Company does not have any significant leases that have not commenced as of September 30, 20212022.
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, 20212022 and 20202021, was $1.1 million and $ 1.3 million, and $ 1.1 million, respectively.
28
16.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, 20212022 and June 30, 20212022:
|
|
|
| September 30, |
| June 30, |
| ||
|
|
|
| 2021 |
| 2021 |
| ||
|
| Right of use assets obtained in exchange for lease obligations: |
|
|
|
|
|
|
|
|
| Weighted average remaining lease term (years) |
|
| 3.11 |
|
| 3.94 |
|
|
| Weighted average discount rate (percent) |
|
| 6.3 |
|
| 9.3 |
|
|
|
|
| September 30, |
| June 30, |
| ||
|
|
|
| 2022 |
| 2022 |
| ||
|
| Right of use assets obtained in exchange for lease obligations: |
|
|
|
|
|
|
|
|
| Weighted average remaining lease term (years) |
|
| 2.93 |
|
| 2.77 |
|
|
| Weighted average discount rate (percent) |
|
| 9.5 |
|
| 9.6 |
|
The maturities of the Company’s operating lease liabilities as of September 30, 2021,2022, are presented below:
|
|
|
| September 30, | |
|
|
|
|
| 2021 |
|
| Maturities of operating lease liabilities |
|
|
|
|
| 2022 (for September 30, 2021 excluding three months to September 30, 2021) |
| $ | 2,915.00 |
|
| 2023 |
|
| 907.00 |
|
| 2024 |
|
| 603.00 |
|
| 2025 |
|
| 47.00 |
|
| 2026 |
|
| 0 |
|
| Thereafter |
|
| 0 |
|
| Total undiscounted operating lease liabilities |
|
| 4,472 |
|
| Less imputed interest |
|
| 385 |
|
| Total operating lease liabilities, included in |
|
| 4,087 |
|
| Operating lease liability - current |
|
| 2,674 |
|
| Operating lease liability - long-term |
| $ | 1,413 |
|
| Maturities of operating lease liabilities |
|
|
|
|
| Year ended June 30, |
|
|
|
|
| 2023 (excluding three months to September 30, 2022) |
| $ | 1,929 |
|
| 2024 |
|
| 1,812 |
|
| 2025 |
|
| 1,110 |
|
| 2026 |
|
| 892 |
|
| 2027 |
|
| 908 |
|
| Thereafter |
|
| 802 |
|
| Total undiscounted operating lease liabilities |
|
| 7,453 |
|
| Less imputed interest |
|
| 1,348 |
|
| Total operating lease liabilities, included in |
|
| 6,105 |
|
| Operating lease liability - current |
|
| 1,772 |
|
| Operating lease liability - long-term |
| $ | 4,333 |
29
17.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. A description of the Company’s operating segments is contained in Note 21 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2022.
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 but share the Company’s assets.
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 for fiscal 2021 as IPG’s activities were ceased in fiscal 2021.
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 sales 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.
29
17.Operating segments (continued)
Operating segments (continued)
The reconciliation of the reportable segment’s revenue to revenue from external customers for the three months ended September 30, 20212022 and 2020,2021, is as follows:
|
|
|
|
|
| Revenue (as restated)(1) | |||||||
|
|
|
|
|
| Reportable Segment |
|
| Inter-segment |
|
| From external customers | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Processing | $ | 21,356 |
| $ | 1,200 |
| $ | 20,156 | ||||
| Financial services |
| 10,626 |
|
| 940 |
|
| 9,686 | ||||
| Technology |
| 4,824 |
|
| 162 |
|
| 4,662 | ||||
|
| Total for the three months ended September 30, 2021 | $ | 36,806 |
| $ | 2,302 |
| $ | 34,504 | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Processing(1) | $ | 22,506 |
| $ | 988 |
| $ | 21,518 | ||||
| Financial services |
| 8,265 |
|
| 745 |
|
| 7,520 | ||||
| Technology |
| 6,211 |
|
| 113 |
|
| 6,098 | ||||
|
|
| Total for the three months ended September 30, 2020 | $ | 36,982 |
| $ | 1,846 |
| $ | 35,136 |
|
|
|
|
|
| Revenue | |||||||
|
|
|
|
|
| Reportable Segment |
|
| Inter-segment |
|
| From external customers | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consumer | $ | 15,004 |
| $ | - |
| $ | 15,004 | ||||
| Merchant |
| 109,437 |
|
| 29 |
|
| 109,408 | ||||
| Other |
| 374 |
|
| - |
|
| 374 | ||||
|
| Total for the three months ended September 30, 2022 | $ | 124,815 |
| $ | 29 |
| $ | 124,786 | |||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consumer | $ | 17,164 |
| $ | - |
| $ | 17,164 | ||||
| Merchant |
| 17,072 |
|
| 159 |
|
| 16,913 | ||||
| Other |
| 427 |
|
| - |
|
| 427 | ||||
|
|
| Total for the three months ended September 30, 2021 | $ | 34,663 |
| $ | 159 |
| $ | 34,504 |
(1) Processing for the three months ended September 30, 2020 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 operatingearnings before interest, tax, depreciation and amortization (“EBITDA”), adjusted for items mentioned in the next sentence (“Segment Adjusted EBITDA”). The Company does not allocate depreciation and amortization, impairment of goodwill or other intangible assets, certain lease charges (“Lease adjustments”), other items (including gains or losses on disposal of investments, fair value adjustments to equity securities, stock-based compensation charges, fair value adjustments to currency options), interest income, interest expense, income tax expense or loss from equity-accounted investments to its reportable segments. The Lease adjustments reflect lease charges and the Stock-based compensation adjustments reflect stock-based compensation expense and are both excluded from the calculation of Segment Adjusted EBITDA and are therefore reported as reconciling items to reconcile the reportable segments’ Segment Adjusted EBITDA to the Company’s loss 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.tax expense.
The reconciliation of the reportable segmentssegments’ measures of profit or loss to loss before income tax expense (benefit) for the three months ended September 30, 20212022 and 2020,2021, is as follows:
|
|
|
|
| Three months ended | |||
|
|
|
|
| September 30, | |||
|
|
|
| 2021 |
| 2020 | ||
|
|
|
|
|
|
|
|
|
| Reportable segments measure of profit or loss | $ | (9,526) |
| $ | (7,898) | ||
|
| Operating loss: Corporate/Eliminations |
| (1,699) |
|
| (2,877) | |
|
| Interest income |
| 389 |
|
| 611 | |
|
| Interest expense |
| (816) |
|
| (747) | |
|
|
| Loss before income tax expense (benefit) | $ | (11,652) |
| $ | (10,911) |
|
|
|
|
| Three months ended | |||
|
|
|
|
| September 30, | |||
|
|
|
| 2022 |
| 2021 | ||
|
|
|
|
|
|
|
|
|
| Reportable segments measure of profit or loss | $ | 6,499 |
| $ | (7,281) | ||
|
| Operating loss: Corporate/Eliminations |
| (2,898) |
|
| (1,816) | |
|
| Lease adjustments |
| (812) |
|
| (924) | |
|
| Stock-based compensation charge adjustments |
| (1,462) |
|
| (309) | |
|
| Depreciation and amortization |
| (5,998) |
|
| (895) | |
|
| Gain on disposal of equity-accounted investments |
| 248 |
|
| - | |
|
| Interest income |
| 411 |
|
| 389 | |
|
| Interest expense |
| (4,036) |
|
| (816) | |
|
|
| Loss before income tax expense (benefit) | $ | (8,048) |
| $ | (11,652) |
30
17.Operating segments (continued)
The following tables summarize segment information that is prepared in accordance with GAAP for the three months ended September 30, 20212022 and 2020:2021:
|
|
|
|
|
|
|
|
|
| Three months ended | |||
|
|
|
|
|
|
|
|
|
| September 30, | |||
|
|
|
|
|
|
|
|
| 2021 |
| 2020 | ||
|
|
|
|
|
|
|
|
|
|
| (as restated)(1) | ||
| Revenues |
|
|
|
|
| |||||||
|
| Processing | $ | 21,356 |
| $ | 22,506 | ||||||
|
|
| All others |
| 21,356 |
|
| 21,297 | |||||
|
|
| IPG |
| 0 |
|
| 1,209 | |||||
|
| Financial services |
| 10,626 |
|
| 8,265 | ||||||
|
| Technology |
| 4,824 |
|
| 6,211 | ||||||
|
|
| Total |
| 36,806 |
|
| 36,982 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Operating (loss) income |
|
|
|
|
| |||||||
|
| Processing |
| (7,131) |
|
| (7,301) | ||||||
|
|
| All others |
| (7,131) |
|
| (4,529) | |||||
|
|
| IPG |
| 0 |
|
| (2,772) | |||||
|
| Financial services |
| (2,998) |
|
| (2,372) | ||||||
|
| Technology |
| 603 |
|
| 1,775 | ||||||
|
|
| Subtotal: Operating segments |
| (9,526) |
|
| (7,898) | |||||
|
|
| Corporate/Eliminations |
| (1,699) |
|
| (2,877) | |||||
|
|
|
| Total |
| (11,225) |
|
| (10,775) | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Depreciation and amortization |
|
|
|
|
| |||||||
|
| Processing |
| 594 |
|
| 704 | ||||||
|
| Financial services |
| 90 |
|
| 136 | ||||||
|
| Technology |
| 193 |
|
| 2 | ||||||
|
|
| Subtotal: Operating segments |
| 877 |
|
| 842 | |||||
|
|
| Corporate/Eliminations |
| 18 |
|
| 81 | |||||
|
|
|
| Total |
| 895 |
|
| 923 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Expenditures for long-lived assets |
|
|
|
|
| |||||||
|
| Processing |
| 514 |
|
| 246 | ||||||
|
| Financial services |
| 56 |
|
| 28 | ||||||
|
| Technology |
| 128 |
|
| 1 | ||||||
|
|
| Subtotal: Operating segments |
| 698 |
|
| 275 | |||||
|
|
| Corporate/Eliminations |
| 0 |
|
| 0 | |||||
|
|
|
| Total | $ | 698 |
| $ | 275 |
|
|
|
|
|
|
|
|
|
| Three months ended | |||
|
|
|
|
|
|
|
|
|
| September 30, | |||
|
|
|
|
|
|
|
|
| 2022 |
| 2021 | ||
| Revenues |
|
|
|
|
| |||||||
|
| Consumer | $ | 15,004 |
| $ | 17,164 | ||||||
|
| Merchant |
| 109,437 |
|
| 17,072 | ||||||
|
| Other |
| 374 |
|
| 427 | ||||||
|
|
| Total reportable segment revenue |
| 124,815 |
|
| 34,663 | |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Segment Adjusted EBITDA |
|
|
|
|
| |||||||
|
| Consumer |
| (1,394) |
|
| (9,356) | ||||||
|
| Merchant |
| 7,852 |
|
| 1,932 | ||||||
|
| Other |
| 41 |
|
| 143 | ||||||
|
|
| Total Segment Adjusted EBITDA |
| 6,499 |
|
| (7,281) | |||||
|
|
| Corporate/Eliminations |
| (2,898) |
|
| (1,816) | |||||
|
|
|
| Subtotal | 3,601 |
|
| (9,097) | |||||
|
|
|
|
| Less: Lease adjustments |
| 812 |
|
| 924 | |||
|
|
|
|
| Less: Stock-based compensation adjustments |
| 1,462 |
|
| 309 | |||
|
|
|
|
| Less: Depreciation and amortization |
| 5,998 |
|
| 895 | |||
|
|
|
|
|
| Total operating loss |
| (4,671) |
|
| (11,225) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Depreciation and amortization |
|
|
|
|
| |||||||
|
| Consumer |
| 245 |
|
| 652 | ||||||
|
| Merchant |
| 1,789 |
|
| 210 | ||||||
|
| Other |
| 12 |
|
| 15 | ||||||
|
|
| Subtotal: Operating segments |
| 2,046 |
|
| 877 | |||||
|
|
| Corporate/Eliminations |
| 3,952 |
|
| 18 | |||||
|
|
|
| Total |
| 5,998 |
|
| 895 | ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Expenditures for long-lived assets |
|
|
|
|
| |||||||
|
| Consumer |
| 628 |
|
| 642 | ||||||
|
| Merchant |
| 3,868 |
|
| 56 | ||||||
|
| Other |
| 5 |
|
| - | ||||||
|
|
| Subtotal: Operating segments |
| 4,501 |
|
| 698 | |||||
|
|
| Corporate/Eliminations |
| - |
|
| - | |||||
|
|
|
| Total | $ | 4,501 |
| $ | 698 |
(1) Revenues-Processing-All others for the three months ended September 30, 2020 have been restated for the error described in Note 1.
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.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.
The South African corporate income tax rate was expected to reduce from 28% to 27% from July 1, 2022. The change in the income tax rate has not been enacted as of September 30, 2022, and accordingly all deferred taxes assets and liabilities related to the Company’s South African operations are still recorded using the enacted corporate income tax rate of 28%.
31
18.Income tax (continued)
Income tax in interim periods (continued)
For the three months ended September 30, 2022, the Company’s effective tax rate was impacted by the tax expense recorded by the Company’s profitable South African operations, non-deductible expenses, the on-going losses incurred by 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.
For the three months ended September 30, 2021, the Company’s effective tax rate was impacted by the tax expense recorded by the Company’s profitable South African operations, non-deductible expenses, the on-going losses incurred by 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.
31
18.Income tax (continued)
Income tax in interim periods (continued)
For the three months ended September 30, 2020, the Company’s effective tax rate was impacted by the reversal of the deferred tax liability related to one of the Company’s equity-accounted investments following its impairment, 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
Uncertain tax positions
The Company had no significant uncertain tax positions during the three months ended September 30, 2021,2022, and therefore, the Company had no 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 no 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, 2021,2022, 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, 2017.2018. 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.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.banks. The Company is required to procure these guarantees for these third parties to operate its business.business
Nedbank has issued guarantees to these third parties amounting to ZAR 156.692.1 million ($10.45.1 million, translated at exchange rates applicable as of September 30, 2021)2022) thereby utilizing part of the Company’s short-term facilities. The Company pays commission of between 0.4% per annum to 1.94%1.82% per annum of the face value of these guarantees and does not recover any of the commission from third parties.
RMB has issued guarantees to these third parties amounting to ZAR 33.1 million ($1.8 million, translated at exchange rates applicable as of September 30, 2022) thereby utilizing part of the Company’s short-term facilities.
The Company has not recognized any obligation related to these guarantees in its consolidated balance sheet as of September 30, 2021.2022. The maximum potential amount that the Company could pay under these guarantees is ZAR 156.6125.2 million ($10.47.0 million, translated at exchange rates applicable as of September 30, 2021)2022). As discussed in Note 8, the Company has ceded and pledged certain bank accounts to Nedbank as security for thesethe guarantees issued by them with an aggregate value of ZAR 156.695.1 million ($10.45.3 million, translated at exchange rates applicable as of September 30, 2021)2022). The guarantees have reduced the amount available under its indirect and derivative facilities in the Company’s short-term credit facilityfacilities described in Note 8.
Contingencies
The Company is subject to a variety of 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. Subsequent events
Agreement to acquire a controlling interest in the Connect Group
On October 31, 2021, the Company entered into a Sale of Shares Agreement (the “Sale Agreement”) with the Sellers (as defined in the Sale Agreement), Cash Connect Management Solutions Proprietary Limited (“CCMS”), Ovobix (RF) Proprietary Limited (“Ovobix”), Luxiano 227 Proprietary Limited (“Luxiano”) and K2021477132 (South Africa) Proprietary Limited (“K2021” and together with CCMS, Ovobix and Luxiano, the “Target Companies”). Pursuant to the Sale Agreement, and subject to its terms and conditions, the Company’s wholly-owned subsidiary, Net1 SA, agreed to acquire, and the Sellers agreed to sell, all of the outstanding equity interests and certain claims in the Target Companies. The Company has guaranteed the performance of Net1 SA’s obligations under the Sale Agreement.
32
20. Subsequent events (continued)
Subject to the terms and conditions set forth in the Sale Agreement, at the closing of the transaction, the Sellers shall receive consideration of ZAR 3,683,559,419, after deducting an aggregate amount of ZAR 175,860,000 representing awards to certain members of management, subject to certain adjustments. The ZAR 3,683,559,419 includes 3,065,883 shares of common stock to be issued in three tranches on each of the first, second and third anniversaries of the closing. The Sale Agreement also includes a purchase price escalator that is intended to reflect an assumed increase in Enterprise Value (as defined in the Sale Agreement) from March 1, 2021, through closing at the rate of 3.05% per annum.
The Sale Agreement includes customary covenants from the Sellers, including (i) to conduct the business in the ordinary course during the period between the execution of the Sale Agreement and the closing of the transactions contemplated thereby, and (ii) not to engage in certain kinds of transactions during such period.
The closing of the transaction is subject to customary closing conditions, including (i) approval from the competition authorities of South Africa, Namibia and Botswana, (ii) exchange control approval from the financial surveillance department of the South African Reserve Bank, and (iii) obtaining certain third-party consents. In addition, the closing of the transaction is subject to entry into definitive agreements by Net1 SA for an aggregate of ZAR 2.35 billion in debt financing to be provided by Rand Merchant Bank and satisfying the conditions precedent for funding thereunder.
The Company signed non-binding term sheets for a ZAR 2.35 billion ($154.4 million) debt package with Rand Merchant Bank. These include a credit enhancement mechanism of ZAR 350 million ($23.0 million), which will be provided by investment funds managed by the Company’s largest shareholder, Value Capital Partners (Pty) Ltd, on commercially agreed terms, which include a contingent subscription for new shares.
If certain conditions related to Net1 SA’s debt financing are not satisfied by their respective due dates for fulfilment for any reason, Net1 SA agreed to pay to the Sellers an amount of ZAR 50,000,000. If certain undertakings by the Sellers are not completed by their respective due dates for fulfilment for any reason and the Sale Agreement is terminated, the Seller responsible for such failure will pay to Net1 SA an amount of ZAR 50,000,000.
The Sale Agreement may be terminated under certain customary and limited circumstances at any time prior to the closing of the transactions contemplated thereby.
On October 29, 2021, the USD/ZAR exchange rate was $1.00 / ZAR 15.22.
33
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, 2021,2022, 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 our Annual Report on Form 10-K for the year ended June 30, 2021.2022. 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
Agreement to acquire a controlling interestLesaka has continued on its journey of renewal in the Connect Groupquarter, building further on the process that commenced in earnest in Q2 of fiscal 2022. The progress that has been made over this period has been transformational and is clear in the significant improvement in financial performance over this period. The progress is particularly clear if this quarter’s performance is compared against the same quarter in fiscal 2022.
On October 31, 2021, we entered into an agreementLesaka’s core purpose is to acquireimprove people’s lives by bringing financial inclusion to South Africa’s underserved consumers, and by helping small businesses access the financial services they need to prosper. This is achieved through Lesaka’s ability to efficiently digitize the last mile of financial inclusion, and by providing a controlling stake infull-service fintech platform across cash and digital, serving the Connect Group. Subjectneeds of both, while also facilitating the secular shift to the terms and conditions set forth in the transaction agreement, the sellers will receive consideration of ZAR 3,683,559,419, which includes 3,065,883 shares of common stock to be issued in three tranches on each of the first, second and third anniversaries of the closing. The transaction also includes a purchase price escalatordigital that is intended to reflect an assumed increase in Enterprise Value (as defined in the agreement) from March 1, 2021, through closing at the rate of 3.05% per annum.currently taking place.
The transaction agreement includes customary covenants fromLesaka platform serves micro and small merchants together with the sellers and closing conditions, including obtaining regulatory approvals, and will be settled using a combination of cash, shares of our common stock as noted above, and external debt. We have signed non-binding term sheets for a ZAR 2.35 billion ($154.4 million) debt package with Randconsumers who typically shop in their stores. Both the Merchant Bank, a division of FirstRand Bank Limited. These include a credit enhancement mechanism of ZAR 350 million ($23.0 million), which will be provided by investment funds managed by our largest shareholder, Value Capital Partners (Pty) Ltd, on commercially agreed terms, which include a contingent subscription for new shares. If certain conditions related to our debt financing are not satisfied by their respective due dates for fulfilment for any reason, we have agreed to pay to the Sellers an amount of ZAR 50,000,000. If certain undertakings by the sellers are not completed by their respective due dates for fulfilment for any reason and the transaction agreement is terminated,Consumer business have large addressable markets and significant growth opportunities in their own right. Taken together, Lesaka has the seller responsible for such failure will pay us an amount of ZAR 50,000,000.opportunity to develop a self-reinforcing ecosystem which creates synergies and further opportunities to accelerate growth and expand Lesaka’s value proposition.
ReferRapid growth of our Merchant business
Our Merchant business has been transformed by the successful conclusion of the Connect acquisition. Connect’s micro, small and medium enterprises (“MSMEs”). offering has been combined with our EasyPay platform to target the larger merchants, and along with our point-of-sale business, provides a suite of products and services to address the needs of the entire spectrum of merchants in South Africa. These are two complementary and mutually reinforcing businesses that combined represent an exciting growth story rather than a cost optimization opportunity. Connect fills the gaps in Lesaka’s MSME offering and completes the end-to-end financial ecosystem.
Progress to date includes:
Merging EasyPay and Kazang under a single leadership team;
The integration of the Cash Connect vault business and the ATM business, creating a complete cash solution proposition for key merchants;
The EasyPay Money Market concept which had been launched in select Merchant stores; and
The Activation of cash-out for customers which allows consumers to withdraw grants at Kazang Merchants.
Lesaka’s Merchant offering continues to grow:
In the Value-Added-Service (“VAS”) and bill and supplier payments business Lesaka had approximately 57,000 devices in field as of September 30, 2022, compared to approximately 51,000 as of June 30, 2022, and approximately 41,000 devices a year ago;
33
Our vault business effectively puts the bank in approximately 4,200 merchants’ stores (compared to approximately 3,700 merchants’ stores a year ago). Historically Connect has been placing vaults into formal sector merchant stores but are now also penetrating the informal sector. This has provided significant operational and risk benefits for our informal merchant customer base;
In the card acquiring business, card-enabled POS devices increased to approximately 27,700 as of September 30, 2022, compared to approximately 12,600 a year ago, and approximately 22,600 as of June 30, 2022; and
We provide merchants quick access to working capital and grew our book to record levels during the first quarter of fiscal 2023, disbursing over ZAR 190 million during this quarter, compared to ZAR 108 million in the comparable period.
Returning the Consumer business to profitability and positioning this segment for growth
Significant progress has been made toward returning the Consumer segment to profitability and Lesaka remains on track to achieve a Consumer monthly Segment Adjusted EBITDA break-even point during the second quarter of fiscal 2023. Our progress on our three key initiatives to drive the turnaround is as follows:
Driving customer acquisition
oLesaka believes it now has the right team and right products in place ending the first quarter of fiscal 2023 with 1.17 million active EPE clients (excluding EPE lite) compared to 1.04 million at the end of the first quarter of fiscal 2022.
oLesaka achieved approximately 85,000 EPE account activations in the first quarter of fiscal 2023 and the churn rate for the first quarter of fiscal 2023 averaged well below 5% evidencing traction in our focused consumer strategy mentioned above.
oNotably churn is at the higher end of Lesaka’s expected churn rate range partly attributable to volatility in the SRD grant base
oLesaka continues to refine its points of presence and is pursuing a strategy of partnering with various retailers rather than maintaining a distinct branch network in order to improve visibility, awareness and service levels.
Progress on cross selling
oWe issued approximately 78,000 new loans in the quarter, achieving a consistent penetration of our active EPE client base. The average loan size grew 4% to ZAR 1,476, while the portfolio loss ratio, calculated as the loans written off during the period as a percentage of the total loan book, remains encouragingly low at around 1.00% for the quarter (i.e. approximately 4% per annum), as a result of our ongoing application of prudent credit scoring and a culture of responsible lending.
oThe average take-up rate of loans is above 80% highlighting progress made in understanding the needs of our customers and executing on implementing a refined, affordable, and compelling value proposition for customers.
oOur funeral insurance product provides an important growth opportunity for our cross-selling strategy, with penetration levels now around 23% of the active account base. Over 24,000 new standalone policies were initiated during the first quarter of fiscal 2023, growing the total number of active policies to approximately 268,000, up 10% compared with the first quarter of fiscal 2022. Sales in the first quarter of fiscal 2023 were at their highest level since the loss of the grant payment contract.
oOur low loss rate and high cash collection rate in insurance emphasizes our compelling value proposition in offering fit for purpose solutions to millions of consumers desperately needing financial services.
oAverage revenue per user (“ARPU”) for the first quarter of fiscal 2023 remains broadly within our targeted ARPU range. Lesaka remains focused on cross-selling opportunities to the discussion under “Part II—Item 1A.—Risk Factors— Failurecurrent client base, to complete, or delays in completing, the Connect Group acquisition, could materially and adversely affect our results of operations and stock price.” and “We may not realize some orincrease ARPU.
Progress on cost optimization
oWe put all of the anticipated benefitsmembers of our sales team through a performance review process during the first quarter of fiscal 2023, which resulted in approximately 400 people leaving us. This has not had a significant impact on sales performance and the intention is to replace some of these positions with suitably qualified individuals.
Strengthening our relationships with key stakeholders
We continue to build our relationship with the South African Social Security Agency (“SASSA”) through proactive engagement at a local, provincial and national level, to gain a better understanding of their needs and how we can help and improve the delivery of social grants to over 12 million grant recipients.
We have also made good progress on building relationships with our various key stakeholders, be it shareholders, regulators, suppliers and other participants in our sectors.
Investments
There has been no change in the carrying value of our investment in MobiKwik in the quarter. MobiKwik’s regulatory approval for an IPO has now expired and while this remains the strategic aim, their board will keep market conditions under review before re-obtaining the necessary approvals to IPO. The underlying business continues to grow strongly, particularly in the buy now pay later business, and is optimistic about achieving annual EBITDA profitability within the next two financial years.
34
The recapitalization of Cell C became effective on September 30, 2022, following a very lengthy process aimed at right-sizing the debt on the balance sheet to create a sustainable business that can achieve long term success for the benefit of all its stakeholders. This conclusion was a major milestone in the recovery of Cell C and over time we expect to see some recovery in the value of our remaining equity stake. Our equity stake in Cell C reduced from 15% to a little over 5% as a result of the Connect Group acquisition.”recapitalization as we did not actively participate in the process. We continue to hold our investment at $0 (zero) carrying value as at September 30, 2022, and we will continue to monitor Cell C’s post recapitalization performance for risks relatedindications of an increase in its value.
During the first quarter of fiscal 2023 we sold our 25% stake in Carbon to transaction.the founders for $0.5 million on deferred payment terms. Refer to Note 5 to the unaudited condensed consolidated financial statements for additional information.
Impact of COVID-19
We do not believe the COVID-19 pandemic has had a significant impact our South African operations since the initial lockdown period which occurred between March 2020 and June 2020. South Africa operates with a five-level COVID-19 alert system, with Level 1 being the least restrictive and Level 5 beingDuring the most restrictive and is currently in adjusted Level 1. The South African government commenced its vaccination program in early calendar 2021, with a stated goal of vaccinating 67% of the South African population by the end of the calendar year. At the end of October around 38% of the adult population had been vaccinated, indicating that the goal is unlikely to be achieved. Expectations are that a fourth wave will affect the country in the coming months.
Business and operations
During therecent quarter, our operations largely operated as normal though there is an indirect impact from the lower economic activity in the South African economy. Our insurance business is the only operation seeing a clear impact from a higher level of benefit claims which continues to persist.
34
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 iswe did 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.
Cash resources and liquidity
We believe we have sufficient cash reserves to support us through the next twelve months. We do not believe there will beexperience 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. We believe that our South African insurance business is adequately capitalized to address the higher claim levels it is currently experiencing.
While we have not incurred significant disruptions thus far from the COVID-19 outbreak, we are unableand the risk relating 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 inappears to have substantially reduced. Refer to Part I, Item 1A. “Risk Factors— We are unable to ascertain the full impact the COVID-19 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, 2021.2022. 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 our South African financial inclusion activities on 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 benefits 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.
During the last quarter the focus has been on upskilling and refocusing our employees on customer acquisition and cross-selling of our various products. This is a significant initiative that is being driven by a new team of provincial heads who have the necessary experience of implementing and managing a sales driven culture. Many of these new provincial heads only joined the business during the last quarter and while we are already seeing improvements in sales activity, the real benefits will only be seen in the coming months.
Gross customer additions for the quarter were approximately 124,000 compared to the 43,000 of the previous quarter, while net additions amounted to 102,000 customers compared to the 33,000 of the previous quarter. This improvement was despite the impact of the social unrest experienced in parts of South Africa during July, with a number of branches damaged. This constrained some of our sales activities but the impact was short term. Based on historic data, our expectation is for 45% to 50% of these accounts to become active within three months of opening.
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.
Transaction volumes in our ATM business were down by 12% on the previous quarter and by 10% on the prior year, but this was largely due to the impact of the social unrest – volumes had largely recovered in September 2021. This part of our business was affected by the social unrest with over 10% of our ATMs destroyed. While we now have a smaller ATM fleet, our focus is on improving transaction volumes to compensate for this, with a focus on expanding the presence of our ATMs in various retailers.
As articulated in respect of our revised strategy, we aim to grow our business to business, or B2B, operations through the servicing of small and micro enterprises. Our B2B operations performed broadly in line with expectations with throughput growing by 4% compared to the previous quarter and transaction volumes by 11%. Opportunities related to the expansion of the processing business into the small and micro enterprises space have been identified and are being progressed.
International Activities
India – In July 2021, MobiKwik filed its draft red herring prospectus with the appropriate Indian regulator related to its proposed initial public offering process. We did not identify any observable price changes in orderly transactions for similar or identical equity securities issued by MobiKwik during the first quarter of fiscal 2022 and therefore did not change the carrying value of our investment.
Status of Cell C recapitalization
35
Cell C – We continued to carry the value of our Cell C investment at $0 (zero) as of September 30, 2021. Cell C remains focused on its recapitalization and implementing various initiatives to improve its operational performance. While it remains in default on its various lending arrangements, Cell C and its lenders continue to work constructively and are making steady progress towards its recapitalization.
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, 2021:2022:
Business Combinations and the Recoverability of Goodwill;
Intangible Assets Acquired Through Acquisitions;
Revenue recognition – principal versus agent considerations;
Valuation of investment in Cell C;
Recoverability of equity securities and equity-accounted investments and other equity securities;
Business combinations and the recoverability of goodwill;
Intangible assets acquired through acquisitions;investments;
Deferred taxation;Taxation;
Stock-based compensation;Compensation; and
Accounts receivableReceivable and allowanceAllowance for doubtful accounts receivable.Doubtful Accounts Receivable.
Recent accounting pronouncements adopted
Refer to Note 1 to our unaudited condensed consolidated financial statements for a full description of accounting pronouncements adopted, including the dates of adoption and the effects on our unaudited condensed consolidated financial statements.
Recent accounting pronouncements not yet adopted as of September 30, 20212022
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, 2021,2022, including the expected dates of adoption and effects on our financial condition, results of operations and cash flows.
35
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 | Three months ended |
| Year ended | ||||
| September 30, |
| June 30, | September 30, |
| June 30, | ||||
| 2021 |
| 2020 |
| 2021 | 2022 |
| 2021 |
| 2022 |
ZAR : $ average exchange rate | 14.6246 |
| 16.9080 |
| 15.4146 | 17.0201 |
| 14.6246 |
| 15.2154 |
Highest ZAR : $ rate during period | 15.3110 |
| 17.6866 |
| 17.6866 | 18.0545 |
| 15.3110 |
| 16.2968 |
Lowest ZAR : $ rate during period | 14.1630 |
| 16.2165 |
| 13.4327 | 16.2035 |
| 14.1630 |
| 14.1630 |
Rate at end of period | 15.1150 |
| 16.8344 |
| 14.3010 | 18.0126 |
| 15.1150 |
| 16.2903 |
36
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, 2022 and 2021, 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 |
| Year ended | ||||
Table 2 | September 30, |
| June 30, | September 30, |
| June 30, | ||||
| 2021 |
| 2020 |
| 2021 | 2022 |
| 2021 |
| 2022 |
Income and expense items: $1 = ZAR | 14.6129 |
| 16.7738 |
| 15.7162 | 17.1307 |
| 14.6129 |
| 15.1978 |
Balance sheet items: $1 = ZAR | 15.1150 |
| 16.8344 |
| 14.3010 | 18.0126 |
| 14.3010 |
| 16.2903 |
36
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 17 to those statements. Our chief operating decision is maker is our Group Chief Executive Officer and he evaluates segment performance based on segment earnings before interest, tax, depreciation and amortization (“EBITDA”), adjusted for items mentioned in the next sentence (“Segment Adjusted EBITDA”). We do not allocate depreciation and amortization, impairment of goodwill or other intangible assets, certain lease charges (“Lease adjustments”), stock-based compensation charges (“Stock-based compensation adjustments”), other items (including gains or losses on disposal of investments, fair value adjustments to equity securities, fair value adjustments to currency options), interest income, interest expense, income tax expense or loss from equity-accounted investments to our reportable segments. The Lease adjustments reflect lease charges and the Stock-based compensation adjustments reflect stock-based compensation expense and are both excluded from the calculation of Segment Adjusted EBITDA and are therefore reported as reconciling items to reconcile the reportable segments’ Segment Adjusted EBITDA to the Company’s loss before income tax expense. Unless otherwise stated, reference to EBITDA in the discussion below relates to Segment Adjusted EBITDA.
Fiscal 2023 includes Connect for the entire quarter, and this business is not included in the results for fiscal 2022.
We analyze our business and operations in terms of three inter-related but independent operating segments: (1) Processing,Consumer, (2) Financial servicesMerchant and (3) Technology.Other. In addition, corporate and corporate office activities that are impracticable to allocate directly to any of the other operating segments, as well as any inter-segment eliminations, are included in Corporate/Eliminations.
37
First quarter of fiscal 20222023 compared to first quarter of fiscal 20212022
The following factors had a significant impact on our results of operations during the first quarter of fiscal 20222023 as compared with the same period in the prior year:
LowerHigher revenue: Our revenues decreased 14%increased 324% in ZAR, primarily due to fewer prepaid airtimethe contribution from Connect and a moderate increase in account fees, lending and insurance revenues which was partially offset by a decrease in hardware sales and lower transaction fee revenue;due to shipping delays;
Lower operating losses: Operating losses have reduced by 9%decreased, delivering an improvement of 51% in ZAR compared with the prior period primarily due to the closurecontribution from Connect, and the implementation of IPG and lower legal and consulting fees (excluding thosevarious cost reduction initiatives in our Consumer business, which was partially offset by an increase in acquisition related intangible asset amortization;
Higher net interest charge: The net interest charge increased to ZAR 62.0 million from ZAR 6.0 million due to the additional borrowings incurred in order to fund the acquisition of Connect Group transaction). We continue to experience operating losses because of depressed revenuesas well as the debt within the Connect business itself; and have embarked on a plan to reduce operating expenses, including closing our mobile payment infrastructure;
Foreign exchange movements: The U.S. dollar was 13% weaker17% stronger against the ZARduring the first quarter of fiscal 2022,2023, which impacted our reported results.
37
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 | ||||
| Three months ended September 30, | ||||
| 2021 |
| 2020 |
|
|
|
|
| (as restated)(A) |
| |
| $ ’000 |
| $ ’000 | change | |
Revenue | 34,504 |
| 35,136 |
| (2%) |
Cost of goods sold, IT processing, servicing and support | 24,207 |
| 26,460 |
| (9%) |
Selling, general and administration | 20,627 |
| 18,528 |
| 11% |
Depreciation and amortization | 895 |
| 923 |
| (3%) |
Operating loss | (11,225) |
| (10,775) |
| 4% |
Interest income | 389 |
| 611 |
| (36%) |
Interest expense | 816 |
| 747 |
| 9% |
Loss before income tax expense | (11,652) |
| (10,911) |
| 7% |
Income tax expense | 186 |
| (1,090) |
| nm |
Net loss before loss from equity-accounted investments | (11,838) |
| (9,821) |
| 21% |
Loss from equity-accounted investments | (1,156) |
| (19,137) |
| (94%) |
Net (loss) income attributable to us | (12,994) |
| (28,958) |
| (55%) |
(A) 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.
Table 3 | In United States Dollars | ||||
| Three months ended September 30, | ||||
| 2022 |
| 2021 |
|
|
| $ ’000 |
| $ ’000 | change | |
Revenue | 124,786 |
| 34,504 |
| 262% |
Cost of goods sold, IT processing, servicing and support | 100,528 |
| 24,207 |
| 315% |
Selling, general and administration | 22,931 |
| 20,442 |
| 12% |
Depreciation and amortization | 5,998 |
| 895 |
| 570% |
Transaction costs related to Connect Group acquisition | - |
| 185 |
| nm |
Operating loss | (4,671) |
| (11,225) |
| (58%) |
Net gain on disposal of equity-accounted investments | 248 |
| - |
| nm |
Interest income | 411 |
| 389 |
| 6% |
Interest expense | 4,036 |
| 816 |
| 395% |
Loss before income tax expense | (8,048) |
| (11,652) |
| (31%) |
Income tax expense | 31 |
| 186 |
| (83%) |
Net loss before loss from equity-accounted investments | (8,079) |
| (11,838) |
| (32%) |
Loss from equity-accounted investments | (2,617) |
| (1,156) |
| 126% |
Net loss attributable to us | (10,696) |
| (12,994) |
| (18%) |
38
Table 4 | In South African Rand | ||||
| Three months ended September 30, | ||||
| 2021 |
| 2020 |
|
|
|
|
| (as restated)(A) |
| |
| ZAR ’000 |
| ZAR ’000 | change | |
Revenue | 504,204 |
| 589,364 |
| (14%) |
Cost of goods sold, IT processing, servicing and support | 353,734 |
| 443,835 |
| (20%) |
Selling, general and administration | 301,420 |
| 310,785 |
| (3%) |
Depreciation and amortization | 13,079 |
| 15,482 |
| (16%) |
Operating loss | (164,029) |
| (180,738) |
| (9%) |
Interest income | 5,684 |
| 10,249 |
| (45%) |
Interest expense | 11,924 |
| 12,530 |
| (5%) |
Loss before income tax expense | (170,269) |
| (183,019) |
| (7%) |
Income tax expense | 2,718 |
| (18,284) |
| nm |
Net loss before loss from equity-accounted investments | (172,987) |
| (164,735) |
| 5% |
Loss from equity-accounted investments | (16,893) |
| (321,000) |
| (95%) |
Net (loss) income attributable to us | (189,880) |
| (485,735) |
| (61%) |
(A) 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.
Table 4 | In South African Rand | ||||
| Three months ended September 30, | ||||
| 2022 |
| 2021 |
|
|
| ZAR ’000 |
| ZAR ’000 | change | |
Revenue | 2,137,671 |
| 504,204 |
| 324% |
Cost of goods sold, IT processing, servicing and support | 1,722,115 |
| 353,734 |
| 387% |
Selling, general and administration | 392,824 |
| 298,717 |
| 32% |
Depreciation and amortization | 102,749 |
| 13,079 |
| 686% |
Transaction costs related to Connect Group acquisition | - |
| 2,703 |
| nm |
Operating loss | (80,017) |
| (164,029) |
| (51%) |
Net gain on disposal of equity-accounted investments | 4,248 |
| - |
| nm |
Interest income | 7,041 |
| 5,684 |
| 24% |
Interest expense | 69,140 |
| 11,924 |
| 480% |
Loss before income tax expense | (137,868) |
| (170,269) |
| (19%) |
Income tax expense | 532 |
| 2,718 |
| (80%) |
Net loss before loss from equity-accounted investments | (138,400) |
| (172,987) |
| (20%) |
Loss from equity-accounted investments | (44,831) |
| (16,893) |
| 165% |
Net loss attributable to us | (183,231) |
| (189,880) |
| (4%) |
The decreaseincrease in revenue was primarily due to fewerthe inclusion of Connect, which has substantial low margin prepaid airtime sales in addition to its core processing revenue and hardware salesa modest increase in account fees, lending and lower transaction fee revenue,insurance revenues, which was partially offset by higher lending revenues.a decrease in hardware sales due to shipping delays.
The decreaseincrease in cost of goods sold, IT processing, servicing and support was primarily due to lower costthe inclusion of prepaid airtimeConnect and hardware sales, which was partially offset by higher costs related to transaction fees in our Consumer business, which were partially offset by the benefits of various cost reduction initiatives in our Consumer business and an increase inlower insurance-related claims experience.claims.
In ZAR, the decreaseincrease in selling, general and administration expenseexpenses was primarily due to lower IPG-relatedhigher employee-related expenses incurred following its closure and lower legal and consulting fees, which was partially offset byrelated to the expansion of our senior management team, the year-over-year impact of inflationary increases on employee-related expenses.expenses and the inclusion of expenses related to Connect’s operations, which were partially offset by the benefits of various cost reduction initiatives in our Consumer business.
Depreciation and amortization decreased primarily due to lower overall depreciation related to tangible assets that were fully depreciated duringexpense increased in the first quarter of fiscal 2021.2023 compared with the first quarter of fiscal 2022 due to the inclusion of acquisition-related intangible asset amortization related to intangible assets identified pursuant to the Connect acquisition, as well as the inclusion of depreciation expense related to Connect’s property, plant and equipment.
Transaction costs related to the Connect Group acquisition include fees paid to external service providers for various advisory services procured during fiscal 2022.
38
Our operating loss margin for the first quarter of fiscal 2023 and 2022 and 2021 was (32.5%(3.7%) and (30.7%(32.5%), respectively. We discuss the components of operating loss margin under “—Results of operations by operating segment.”
Interest on surplus cash decreased to $0.4 million (ZAR 5.7 million) from $0.6 million (ZAR 10.2 million), primarily due to lower average daily cash balancesWe did not record any changes in the fair value of equity interests in MobiKwik and lower average interest rates applied to daily cash balancesCell C during the first quarter of fiscal 2022.2023 and 2022, respectively. We continue to carry our investment in Cell C at $0 (zero). Refer to Note 4 for the methodology and inputs used in the fair value calculation for Cell C.
We recorded a gain of $0.3 million related to the disposal of our entire interest in Carbon during the first quarter of fiscal 2023. Refer to Note 5 to our unaudited condensed consolidated financial statements for additional information regarding this disposal.
In ZAR, interest on surplus cash increased to $0.4 million (ZAR 7.0 million) from $0.4 million (ZAR 5.7 million), primarily due to the inclusion of Connect.
Interest expense increased to $4.0 million (ZAR 69.1 million) from $0.8 million (ZAR 11.9 million) from $0.7 million (ZAR 12.5 million), primarily as a result of additional interest expense incurred related to borrowings obtained to partially fund the acquisition of Connect, interest expenses incurred in Connect to fund our cash management, digitization and VAS offerings, and a higher utilization of our ATM facilities to fund our ATMs.
Fiscal 20222023 tax expense was $0.03 million (ZAR 0.5 million) compared to the tax expense of $0.2 million (ZAR 2.7 million) compared toin fiscal 2022. Our effective tax rate for fiscal 2023 was impacted by the tax expense recorded by our profitable South African operations, a deferred tax benefit related to acquisition-related intangible asset amortization, non-deductible expenses, the on-going losses incurred by certain of $(1.1) million (ZAR (18.3) million) in fiscal 2021. 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.
Our effective tax rate for fiscal 2022 was impacted by 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.
Our effective tax rate for fiscal 2021 was impacted by the reversal of the deferred tax liability related to one of our equity-accounted investments following its impairment, which was partially offset by 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.
39
Bank Frick was sold in the third quarter of fiscal 2021 and was accounted for using the equity method during the first quarter of fiscal 2021. 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, | Three months ended September 30, | ||||||
| 2021 |
| 2020 | $ % | 2022 |
| 2021 | $ % |
| $ ’000 |
| $ ’000 | change | $ ’000 |
| $ ’000 | change |
Finbond | (1,156) |
| (19,461) | (94%) | (2,631) |
| (1,156) | 128% |
Share of net loss | (1,156) |
| (2,617) | (56%) | (1,521) |
| (1,156) | 32% |
Impairment | - |
| (16,844) | nm | (1,110) |
| - | nm |
Bank Frick | - |
| 481 | nm | ||||
Share of net income | - |
| 481 | nm | ||||
Other | - |
| (157) | nm | 14 |
| - | nm |
Share of net loss | - |
| (157) | nm | ||||
Total loss from equity-accounted investments | (1,156) |
| (19,137) | (94%) | (2,617) |
| (1,156) | 126% |
39
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 6 |
| In United States Dollars(1) | ||||||||
|
|
| ||||||||
|
| Three months ended September 30, | ||||||||
|
| 2021 |
| % of |
| 2020 |
| % of |
| % change |
|
|
| (as restated) |
| ||||||
Operating Segment | $ ’000 | total | $ ’000 | total | ||||||
Consolidated revenue: |
|
|
|
|
|
|
|
|
|
|
Processing |
| 21,356 |
| 62% |
| 22,506 |
| 64% |
| (5%) |
All others |
| 21,356 |
| 62% |
| 21,297 |
| 61% |
| 0% |
IPG |
| - |
| - |
| 1,209 |
| 3% |
| nm |
Financial services |
| 10,626 |
| 31% |
| 8,265 |
| 24% |
| 29% |
Technology |
| 4,824 |
| 14% |
| 6,211 |
| 18% |
| (22%) |
Subtotal: Operating segments |
| 36,806 |
| 169% |
| 36,982 |
| 170% |
| (0%) |
Corporate/Eliminations |
| (2,302) |
| (69%) |
| (1,846) |
| (70%) |
| 25% |
Total consolidated revenue |
| 34,504 |
| 100% |
| 35,136 |
| 100% |
| (2%) |
Consolidated operating (loss) income: |
|
|
|
|
|
|
|
|
|
|
Processing |
| (7,131) |
| 64% |
| (7,301) |
| 68% |
| (2%) |
All others |
| (7,131) |
| 64% |
| (4,529) |
| 42% |
| 57% |
IPG |
| - |
| - |
| (2,772) |
| 26% |
| nm |
Financial services |
| (2,998) |
| 27% |
| (2,372) |
| 22% |
| 26% |
Technology |
| 603 |
| (5%) |
| 1,775 |
| (16%) |
| (66%) |
Subtotal: Operating segments |
| (9,526) |
| 150% |
| (7,898) |
| 142% |
| 21% |
Corporate/eliminations |
| (1,699) |
| (50%) |
| (2,877) |
| (42%) |
| (41%) |
Total consolidated operating loss |
| (11,225) |
| 100% |
| (10,775) |
| 100% |
| 4% |
Table 6 |
| In United States Dollars | ||||||||
|
| Three months ended September 30, | ||||||||
|
| 2022 |
| % of |
| 2021 |
| % of |
| % change |
Operating Segment | $ ’000 | total | $ ’000 | total | ||||||
Consolidated revenue: |
|
|
|
|
|
|
|
|
|
|
Consumer |
| 15,004 |
| 12% |
| 17,164 |
| 50% |
| (13%) |
Merchant |
| 109,437 |
| 88% |
| 17,072 |
| 49% |
| 541% |
Other |
| 374 |
| - |
| 427 |
| 1% |
| (12%) |
Subtotal: Operating segments |
| 124,815 |
| 100% |
| 34,663 |
| 100% |
| 260% |
Corporate/Eliminations |
| (29) |
| - |
| (159) |
| - |
| (82%) |
Total consolidated revenue |
| 124,786 |
| 100% |
| 34,504 |
| 100% |
| 262% |
Segment Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
Consumer |
| (1,394) |
| (39%) |
| (9,356) |
| 103% |
| (85%) |
Merchant |
| 7,852 |
| 218% |
| 1,932 |
| (21%) |
| 306% |
Other |
| 41 |
| 1% |
| 143 |
| (2%) |
| (71%) |
Total Segment Adjusted EBITDA |
| 6,499 |
| 180% |
| (7,281) |
| 80% |
| nm |
Corporate/eliminations |
| (2,898) |
| (80%) |
| (1,816) |
| 20% |
| 60% |
Subtotal |
| 3,601 |
| 100% |
| (9,097) |
| 100% |
| nm |
Less: Lease adjustments |
| 812 |
|
|
| 924 |
|
|
|
|
Less: Stock-based compensation |
| 1,462 |
|
|
| 309 |
|
|
|
|
Less: Depreciation and amortization |
| 5,998 |
|
|
| 895 |
|
|
|
|
Total consolidated operating loss |
| (4,671) |
|
|
| (11,225) |
|
|
|
|
(1) Consolidated revenue-Processing-All others
Table 7 |
| In South African Rand | ||||||||
|
| Three months ended September 30, | ||||||||
|
| 2022 |
| % of |
| 2021 |
| % of |
| % change |
Operating Segment | ZAR ’000 | total | ZAR ’000 | total | ||||||
Consolidated revenue: |
|
|
|
|
|
|
|
|
|
|
Consumer |
| 257,029 |
| 12% |
| 250,816 |
| 50% |
| 2% |
Merchant |
| 1,874,732 |
| 88% |
| 249,471 |
| 49% |
| 651% |
Other |
| 6,407 |
| - |
| 6,240 |
| 1% |
| 3% |
Subtotal: Operating segments |
| 2,138,168 |
| 100% |
| 506,527 |
| 100% |
| 322% |
Corporate/Eliminations |
| (497) |
| - |
| (2,323) |
| - |
| (79%) |
Total consolidated revenue |
| 2,137,671 |
| 100% |
| 504,204 |
| 100% |
| 324% |
Segment Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
Consumer |
| (23,880) |
| (39%) |
| (138,150) |
| 104% |
| (83%) |
Merchant |
| 134,510 |
| 218% |
| 27,545 |
| (21%) |
| 388% |
Other |
| 702 |
| 1% |
| 2,090 |
| (2%) |
| (66%) |
Total Segment Adjusted EBITDA |
| 111,332 |
| 180% |
| (108,515) |
| 81% |
| nm |
Corporate/eliminations |
| (49,645) |
| (80%) |
| (24,418) |
| 19% |
| 103% |
Subtotal |
| 61,687 |
| 100% |
| (132,933) |
| 100% |
| nm |
Less: Lease adjustments |
| 13,910 |
|
|
| 13,502 |
|
|
|
|
Less: Stock-based compensation |
| 25,045 |
|
|
| 4,515 |
|
|
|
|
Less: Depreciation and amortization |
| 102,750 |
|
|
| 13,079 |
|
|
|
|
Total consolidated operating loss |
| (80,018) |
|
|
| (164,029) |
|
|
|
|
Consumer
Segment revenue increased primarily due to higher lending and insurance revenues and higher account holder fees, though this was partially offset by lower ATM transaction fees. The cost reduction initiatives we initiated in fiscal 2022 delivered a significant reduction in our Consumer segment’s operating expenses which resulted in a significantly lower EBITDA loss compared with fiscal 2022. Specifically, expenses associated with operating a mobile distribution network were discontinued in early fiscal 2022, and we have streamlined our fixed distribution network through reductions in certain expenses including employee-related costs, security, guarding and premises costs.
Our EBITDA loss margin (calculated as EBITDA loss divided by revenue) for the three months ended September 30, 2020 has been restated for the error described in Note 1 to the unaudited condensed consolidated financial statements. Therefirst quarter of fiscal 2023 and 2022 was no impact on operating loss as a result of the restatement.(9.3%) and (54.5%), respectively.
40
Table 7 |
| In South African Rand(1) | ||||||||
|
|
| ||||||||
|
| Three months ended September 30, | ||||||||
|
| 2021 |
| % of |
| 2020 |
| % of |
| % change |
|
|
| (as restated) |
| ||||||
Operating Segment | ZAR ’000 | total | ZAR ’000 | total | ||||||
Consolidated revenue: |
|
|
|
|
|
|
|
|
|
|
Processing |
| 312,073 |
| 62% |
| 377,511 |
| 64% |
| (17%) |
All others |
| 312,073 |
| 62% |
| 357,232 |
| 61% |
| (13%) |
IPG |
| - |
| - |
| 20,279 |
| 3% |
| nm |
Financial services |
| 155,277 |
| 31% |
| 138,635 |
| 24% |
| 12% |
Technology |
| 70,493 |
| 14% |
| 104,182 |
| 18% |
| (32%) |
Subtotal: Operating segments |
| 537,843 |
| 169% |
| 620,328 |
| 170% |
| (13%) |
Corporate/Eliminations |
| (33,639) |
| (69%) |
| (30,964) |
| (70%) |
| 9% |
Total consolidated revenue |
| 504,204 |
| 100% |
| 589,364 |
| 100% |
| (14%) |
Consolidated operating (loss) income: |
|
|
|
|
|
|
|
|
|
|
Processing |
| (104,205) |
| 64% |
| (122,466) |
| 68% |
| (15%) |
All others |
| (104,205) |
| 64% |
| (75,969) |
| 42% |
| 37% |
IPG |
| - |
| - |
| (46,497) |
| 26% |
| nm |
Financial services |
| (43,809) |
| 27% |
| (39,787) |
| 22% |
| 10% |
Technology |
| 8,812 |
| (5%) |
| 29,773 |
| (16%) |
| (70%) |
Subtotal: Operating segments |
| (139,202) |
| 150% |
| (132,480) |
| 142% |
| 5% |
Corporate/eliminations |
| (24,827) |
| (50%) |
| (48,258) |
| (42%) |
| (49%) |
Total consolidated operating loss |
| (164,029) |
| 100% |
| (180,738) |
| 100% |
| (9%) |
(1) Consolidated revenue-Processing-All others for the three months ended September 30, 2020 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 reduction in volume-driven transaction fees, including as a result of the South African banking industry’s decision to waive fees charged to customers for utilizing other banks’ ATMs in August and September 2021. Excluding IPG, Processing’s operating loss has been impacted by the lower revenue.
Our operating loss margin (calculated as operating (loss) income divided by revenue) for the first quarter of fiscal 2022 and 2021 was (33.4%) and (32.4%), respectively. Excluding IPG, our operating loss margin for the Processing segment was (21.3%) during the first quarter of fiscal 2021.
Financial servicesMerchant
Segment revenue increased sixfold due to higher account fee revenue following an increasethe contribution from inclusion of Connect which was partially offset by a decrease in the number of EPE accounts, an increase in lending revenue as a result of improved lending activity, and an increase in insurance revenues from an increase in business written.hardware sales due to shipping delays. The increase in operating losssegment EBITDA is primarily due to the increaseinclusion of Connect, which was partially offset by higher employee-related expenses. Connect records a significant proportion of its airtime sales in insurance-related claims experienced this quarter attributed torevenue and cost of sales, while only earning a relatively small margin. This significantly depresses the COVID-19 pandemic as well as higher employee costs compared withEBITDA margins shown by the prior period.business.
Our operating lossEBITDA margin for the first quarter of fiscal 2023 and 2022 was 7.2% and 2021 was (28.2%) and (28.7%)11.3%, respectively.
TechnologyOther
SegmentIn ZAR, segment revenue decreasedincreased modestly primarily due to feweran increase in hardware sales compared tosales. EBITDA decreased as a result of an allowance for doubtful debts created as well as inflationary increases in staff and other operating costs, which were at a higher percentage increase than the prior period. Operating income for the first quarter of fiscal 2022 was directly impacted by the lower revenue compared with fiscal 2021.increase in revenue.
Our operating incomeEBITDA (loss) margin for the TechnologyOther segment was 12.5%11.0% and 28.6%33.5% during the first quarter of fiscal 20222023 and 2021,2022, respectively.
41
Corporate/Eliminations
Our corporate expenses generally include acquisition-related intangible asset amortization; expenses incurred related to corporate actions; expenditureexpenditures related to compliance with the Sarbanes-Oxley Act of 2002; non-employee directors’ fees; Group CEO and Group CFO compensation costs, certain 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 for fiscal 2022 decreased2023 increased compared with fiscal 2021the prior period due to lower legalhigher employee costs and consulting fees incurred. We expect to incur additional expenses related to the Connect Group transactionan increase in the second quarter of fiscal 2022.director and officer’s insurance premiums.
Liquidity and Capital Resources
AtAs of September 30, 2021,2022, our cash and cash equivalents were $188.5$30.1 million and comprised of U.S. dollar-denominated balances of $162.5$9.2 million, ZAR-denominated balances of ZAR 0.4 billion346.8 million ($23.719.3 million), and other currency deposits, primarily Botswana pula, of $2.3$1.7 million, all amounts translated at exchange rates applicable as of September 30, 2021.2022. The decrease in our unrestricted cash balances from June 30, 2021,2022, was primarily due to weak trading activities and utilization of cash reserves to fund our operations.Consumer operations and an investment in working capital in our Merchant operations, which was partially offset by the contribution from Connect.
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. For instance, in fiscal 2022, we obtained loan facilities from RMB to fund a portion of our acquisition of Connect, with the balance being funded from cash resources. Following the acquisition of Connect, we now utilize a combination of short and long-term facilities to fund our operating activities and a long-term asset-backed facility to fund the acquisition of POS devices and safe assets. Refer to Note 12 to our consolidated financial statements for the year ended June 30, 2022, for additional information related to our borrowings.
41
Available short-term borrowings
Summarized below are our short-term facilities available and utilized as of September 30, 2021:2022:
Table 8 | RMB |
| Nedbank | RMB Facility E |
| RMB Indirect |
| RMB Connect |
| Nedbank | ||||||||||||
| $ ’000 |
| ZAR ’000 |
| $ ’000 |
| ZAR ’000 | $ ’000 |
| ZAR ’000 |
| $ ’000 |
| ZAR ’000 |
| $ ’000 |
| ZAR ’000 |
| $ ’000 |
| ZAR ’000 |
Total short-term facilities available, comprising: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overdraft | - |
| - |
| - |
| - |
| 13,766 |
| 247,954 |
| - |
| - | |||||||
Overdraft restricted as to use(1) | 92,623 |
| 1,399,995 |
| 16,540 |
| 250,000 | 77,723 |
| 1,400,000 |
| - |
| - |
| - |
| - |
| - |
| - |
Total overdraft | 92,623 |
| 1,399,995 |
| 16,540 |
| 250,000 | 77,723 |
| 1,400,000 |
| - |
| - |
| 13,766 |
| 247,954 |
| - |
| - |
Indirect and derivative facilities(2) | - |
| - |
| 10,358 |
| 156,561 | - |
| - |
| 7,495 |
| 135,000 |
| - |
| - |
| 8,691 |
| 156,566 |
Total short-term facilities available | 92,623 |
| 1,399,995 |
| 26,898 |
| 406,561 | 77,723 |
| 1,400,000 |
| 7,495 |
| 135,000 |
| 13,766 |
| 247,954 |
| 8,691 |
| 156,566 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Utilized short-term facilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Overdraft | - |
| - |
| - |
| - |
| 11,381 |
| 205,001 |
| - |
| - | |||||||
Overdraft restricted as to use(1) | 51,568 |
| 779,451 |
| - |
| - | 57,951 |
| 1,043,847 |
| - |
| - |
| - |
| - |
| - |
| - |
Indirect and derivative facilities(2) | - |
| - |
| 10,358 |
| 156,556 | - |
| - |
| 1,838 |
| 33,106 |
| - |
| - |
| 5,114 |
| 92,110 |
Total short-term facilities available | 57,951 |
| 1,043,847 |
| 1,838 |
| 33,106 |
| 11,381 |
| 205,001 |
| 5,114 |
| 92,110 | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate, based on South African prime rate |
|
| 7.00% |
|
|
|
|
|
| 9.75% |
|
|
|
|
|
|
| 9.65% |
|
|
|
|
Interest rate, based on South African prime rate less 1.15% |
|
|
|
|
|
| 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 RMB and Nedbank to various third parties on our behalf.
Long-term borrowings
We have aggregate long-term borrowing outstanding of ZAR 2.3 billion ($127.8 million translated at exchange rates as of September 30, 2022) as described in Note 8. These borrowings include outstanding long-term borrowings obtained by Lesaka SA of ZAR 1.0 billion to partially fund the acquisition of Connect. In contemplation of the Connect transaction, Connect obtained total facilities of approximately ZAR 1.3 billion which were utilized to repay its existing borrowings and to fund a portion of its capital expenditures and to settle obligations under the transaction documents. We also have a revolving credit facility, of ZAR 150.0 million which is utilized to fund a portion of our merchant finance loans receivable book.
Our credit agreement with RMB requires that we achieve certain milestones by September 30, 2022, failing which we would be required to place ZAR 250 million into bank accounts with RMB. We were unable to achieve the required milestones by September 30, 2022. However, RMB did not require us to place cash into the RMB bank accounts nor did RMB declare an event of default as a result of our failure to do so. We are currently renegotiating the terms of these lending arrangements with RMB.
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, 2021,2022, includes restricted cash of approximately $51.6$58.0 million related to cash withdrawn from our various debt facilitiesfacility 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.
We have also entered into cession and pledge agreements with Nedbank related to certain of our Nedbank indirect credit facilities and we have ceded and pledged certain bank accounts to Nedbank. The funds included in these bank accounts are restricted as they may not be withdrawn without the express permission of Nedbank. Our cash, cash equivalents and restricted cash presented in our unaudited condensed consolidated statement of cash flows as of September 30, 2021,2022, includes restricted cash of approximately $10.4$5.3 million that has been ceded and pledged.
42
Cash flows from operating activities
First quarter
Net cash used in operating activities during the first quarter of fiscal 20222023 was $7.7 million (ZAR 131.2 million) compared to $7.9 million (ZAR 116.1 million) compared to $29.9 million (ZAR 501.2 million) during the first quarter of fiscal 20212022. Excluding the impact of income taxes, our cash used in operating activities during the first quarter of fiscal 20222023 was impacted by month-end working capital movements (primarily an increase in receivable balances) within our merchant business which general unwind in the following month, growth in our merchant finance loans receivable book, and the utilization of cash losses incurredreserves to fund our Consumer operations, which was partially offset by the majority of our continuing operations.contribution from Connect.
There were no significant tax payments made or refunds received during the first quarter of fiscal 2022. During the first quarter of fiscal 2021,2023, we paid first provisional South African tax payments of $0.5 million (ZAR 8.2 million) related to our 2023 tax year, and additional second provisional South African tax payments of $0.2 million (ZAR 3.4 million) related to our 20202022 tax year. We also paid taxes totaling $15.2 million in other tax jurisdictions, primarily in the U.S.
Taxes paid during the first quarter of fiscal 20222023 and 20212022 were as follows:
Table 9 | Three months ended September 30, | Three months ended September 30, | ||||||||||||
| 2021 |
| 2020 |
| 2021 |
| 2020 | 2022 |
| 2021 |
| 2022 |
| 2021 |
$ | ZAR | $ | ZAR | |||||||||||
‘000 | ‘000 | |||||||||||||
Taxation paid related to prior years | - |
| 205 |
| - |
| 3,423 | |||||||
First provisional payments | 492 |
| - |
| 8,216 |
| - | |||||||
Second provisional payments | 191 |
| - |
| 3,371 |
| - | |||||||
Tax refund received | (25) |
| (12) |
| (376) |
| (205) | (57) |
| (25) |
| (970) |
| (376) |
Total South African taxes paid (received) | (25) |
| 193 |
| (376) |
| 3,218 | 626 |
| (25) |
| 10,617 |
| (376) |
Foreign taxes paid | 36 |
| 15,213 |
| 525 |
| 254,450 | 51 |
| 36 |
| 886 |
| 525 |
Total tax paid | 11 |
| 15,406 |
| 149 |
| 257,668 | 677 |
| 11 |
| 11,503 |
| 149 |
Cash flows from investing activities
First quarter
Cash used in investing activities for the first quarter of fiscal 20222023 included capital expenditures of $4.5 million (ZAR 77.1 million), primarily due to the acquisition of safe assets, POS devices and computer equipment. During the first quarter of fiscal 2023, we received proceeds $0.25 million related to the first tranche (of two) from the disposal of our entire interest in Carbon.
Cash used in investing activities for the first quarter of fiscal 2022included capital expenditures of $0.7 million (ZAR 10.2 million), primarily due to the roll out of our new express branches.
Cash used in investing activities for the first quarter of fiscal 2021 included capital expenditures of $0.3 million (ZAR 4.6 million), primarily due to the acquisition of 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 repayments due on the deferred sale proceeds related to the April 2020 sale of DNI.
Cash flows from financing activities
First quarter
During the first quarter of fiscal 20222023, we utilized approximately $146.1 million from our South African overdraft facilities to fund our ATMs and our cash management business through Connect, and repaid $136.9 million of these facilities. We utilized approximately $1.1 million of our long-term borrowings to fund our merchant finance loans receivable business and to fund the acquisition of certain capital expenditures. We repaid approximately $1.6 million of long-term borrowings in accordance with our repayment schedule. We paid $0.2 million to repurchase shares from an employee in order for the employee to settle taxes due related to the vesting of shares of restricted stock.
During the first quarter of fiscal 2022, we utilized approximately $138.9 million from our South African overdraft facilities to fund our ATMs and repaid $98.9 million of these facilities.
During the first quarter of fiscal 2021, we utilized approximately $69.1 million from our South African overdraft facilities to fund our ATMs, and repaid $76.9 million of these facilities.43
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
Capital Expenditures
We expect capital spending for the second quarter of fiscal 20222023 to primarily include limited investments into our ATM infrastructure and branch network in South Africa.Africa as well as IT equipment, and through Connect, spending for POS devices, safe assets, vehicles, computer and office equipment. Our capital expenditures for the first quarter of fiscal 20222023 and 20212022 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.funds, or, following the Connect acquisition, our asset-backed borrowing arrangement. We had outstanding capital commitments as of September 30, 2021,2022, of $1.0$2.4 million. We expect to fund these expenditures through internally generated funds and available facilities.
4344
Item 3. Quantitative and Qualitative Disclosures About Market Risk
In addition to the tables below, see Note 4 to the unaudited condensed consolidated financial statements for a discussion of market risk.
We have short-termshort and long-term borrowings in South Africa which attract interest at rates that fluctuate based on changes in the South African prime and 3-month JIBAR interest rate.rates. The following table illustrates the effect on our annual expected interest charge, translated at exchange rates applicable as of September 30, 2021,2022, as a result of changes in the South African prime and 3-month JIBAR interest rate, assuming hypothetical short-termrates, using our outstanding short and long-term borrowings of ZAR 1.0 billion as of September 30, 2021.2022. The effect of a hypothetical 1% (i.e. 100 basis points) increase and a 1% decrease in the South African prime interest raterates applicable to the borrowings as of September 30, 2021,2022, are shown. The selected 1% hypothetical change does not reflect what could be considered the bestbest- or worst caseworst-case scenarios.
Table 10 | As of March 31, 2021 | As of September 30, 2022 | ||||||||
| Annual expected interest charge ($ ’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) | 4,631 |
| 1% |
| 5,293 | |||||
Interest on South African borrowings | 19,349 |
| 1% |
| 21,331 | |||||
|
|
|
|
|
|
|
| (1%) |
| 17,369 |
45
Item 4. Controls and Procedures
Under the supervision and with the participation of our management, including our group chief executive officer and our group 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, 2021.2022. 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, the group chief executive officer and the group chief financial officer concluded that our disclosure controls and procedures were effective as of September 30, 2021.2022.
Changes in Internal Control over Financial Reporting
There have not been any changes in our internal control over financial reporting during the fiscal quarter ended September 30, 2021,2022, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
4446
Part II. Other Information
Item 1. Legal Proceedings
Resolution of NCR application for the cancelation of Moneyline’s registration as a credit provider
In September 2014, the NCR applied to the South African National Consumer Tribunal, or Tribunal, to cancel the registration of our subsidiary, Moneyline, for breach of the NCA based on an investigation concluded by it. We raised a number of procedural points in defense and argument on these points was heard on November 27, 2015, before three tribunal members. Two ruled against us and one upheld our points. We appealed the majority ruling to the High Court. This matter was heard on December 4, 2018, by a full bench of the Pretoria High Court. In opposing this appeal, the NCR contended that our appeal had no basis and they raised, as a procedural point, that we should have joined the Tribunal as a party to the appeal proceedings. On August 30, 2019, it was ordered that the Tribunal be included in the appeal proceedings and this appeal was scheduled to be heard on October 27, 2021.
The parties settled the matter out of court in mid-October 2021. The settlement process included the NCR withdrawing its application to cancel our NCA registration with the Tribunal and we agreed to withdraw our appeal with the High Court. The settlement was made an order of the High Court on October 27, 2021. The parties agreed to pay their own costs related to this matter.
Item 1A. Risk Factors
See “Item 1A RISK FACTORS” in Part I of our Annual Report on Form 10-K for the fiscal year ended June 30, 2021, for a discussion of risk factors relating to (i) our business, (ii) operating in South Africa and other foreign markets, (iii) government regulation, and (iv) our common stock. Except as set forth below, there have been no material changes from the risk factors previously disclosed in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021.
Failure to complete, or delays in completing, the Connect Group acquisition, could materially and adversely affect our results of operations and stock price.
The completion of the Connect Group acquisition is subject to a number of conditions precedent, including receipt of regulatory approvals, certain third-party consents and the completion of financing arrangements. Some of these conditions are outside our control.
To complete the acquisition, we must make certain filings with and obtain certain consents and approvals from various governmental and regulatory authorities. The regulatory approval processes may take a lengthy period of time to complete, and there can be no assurance as to the outcome of the approval processes, including the undertakings and conditions that may be required for approval, or whether the regulatory approvals will be obtained at all.
We signed non-binding term sheets for a ZAR 2.35 billion ($154.4 million) debt package with RMB. The finalization of binding lending agreements may take some time to complete, and there can be no assurance as to the outcome, including abiding with the undertakings and conditions included in the non-binding term sheets. Furthermore, we have agreed that if certain conditions related to our debt financing are not satisfied by their respective due dates for fulfilment for any reason, we have agreed to pay to the Connect Group sellers an amount of ZAR 50,000,000.
As we expect to finance a significant portion of the acquisition price using the debt package we expect that we will be required to provide certain of our assets as security against the debt package. The final financing agreements are also expected to contain covenants that that will require us to maintain certain specified financial ratios and may place restrictions on our ability to make certain distributions from the target group, prepay other debt, encumber their assets, incur additional indebtedness, make capital expenditures above specified levels, engage in certain business combinations and engage in other corporate activities. These security arrangements and covenants may reduce our operating flexibility or our ability to engage in other transactions that may be beneficial to us. If we are unable to comply with these covenants, we could be in default under the financing agreements and the indebtedness negotiated thereunder could be accelerated. Furthermore, we may not be able to service scheduled debt or interest repayments, or both, as a result of our inability to generate sufficient future cash flows, which may place us in contravention of the terms of the financing agreements and which may result in an event of default. If any of these events were to occur, we might not be able to obtain waivers of default or to refinance the debt with another lender and as a result, our business and financial condition would suffer.
The non-binding term sheets also include a credit enhancement mechanism of ZAR 350 million ($23.0 million), which will be provided by investment funds managed by Net1’s largest shareholder, Value Capital Partners (Pty) Ltd (“VCP”), on commercially agreed terms, which include a contingent subscription for new shares. There can be no assurance that VCP will perform under the commercially agreed terms and failure by it to fulfil its obligation under the credit enhancement mechanism may put our funding or future repayments at risk.
In addition, the completion of the acquisition is conditional on, among other things, no action or circumstance occurring that would result in a material adverse effect on the Connect Group’s business operations or financial results.
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We cannot provide any assurance regarding if or when all conditions precedent to the acquisition will be satisfied or waived. If, for any reason, the acquisition is not completed, its completion is materially delayed and/or the share purchase agreement is terminated, the market price of our common stock may be materially and adversely affected.
In addition, if the acquisition is not completed for any reason, there are risks that the announcement of the acquisition and the dedication of management’s attention and other of our resources to the completion thereof could have a negative impact on our relationships with our stakeholders and could have a material adverse effect on our current and future operations, financial condition and prospects.
We may not realize some or all of the anticipated benefits from the Connect Group acquisition.
Even if we complete the Connect Group acquisition, we may experience unforeseen events, changes or circumstances that may adversely affect us. For example, we may incur unexpected costs, charges or expenses resulting from the transaction, including charges to future earnings if the Connect Group’s business does not perform as expected. Our expectations regarding the Connect Group’s business and prospects may not be realized, including as a result of changes in the financial condition of the markets that the Connect Group serves. In addition, there are risks associated with the Connect Group’s product and service offerings or results of operations, including the risk of reduced cash settlements through Connect Group’s vault infrastructure or higher cash losses, lower than expected growth in Connect Group’s value-added services, lower than expected levels of loan advances or higher credit losses and slower than expected growth in card transactions. Further, there are numerous challenges, risks and costs involved with integrating the operations of Connect Group with ours. For example, Integrating the Connect Group into our company will require significant attention from our senior management which may divert their attention from our day-to-day business. The difficulties of integration may be increased by cultural differences between our two organizations and the necessity of retaining and integrating personnel, including Connect Group’s key employees. Furthermore, our management certification and auditor attestation regarding the effectiveness of our internal control over financial reporting as of June 30, 2022, will likely exclude the operations of the Connect Group. If some or all of the aforementioned or other risks materialize, our ability to realize the anticipated benefits of the Connect Group could be materially impaired, and as a result, our financial condition, results of operations, cash flows and stock price could suffer.
Item 6. Exhibits
The following exhibits are filed as part of this Form 10-Q:
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| Incorporated by Reference Herein | ||
Exhibit No. |
| Description of Exhibit | Included Herewith | Form | Exhibit | Filing Date |
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10.40 |
| X | 8-K | 10.1 | August 2, 2021 | |
31.1 |
| Certification of Principal Executive Officer pursuant to Rule 13a-14(a) under the Exchange Act | X |
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31.2 |
| Certification of Principal Financial Officer pursuant to Rule 13a-14(a) under the Exchange Act | X |
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| X |
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101.INS |
| XBRL Instance Document | X |
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101.SCH |
| XBRL Taxonomy Extension Schema | X |
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101.CAL |
| XBRL Taxonomy Extension Calculation Linkbase | X |
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101.DEF |
| XBRL Taxonomy Extension Definition Linkbase | X |
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101.LAB |
| XBRL Taxonomy Extension Label Linkbase | X |
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101.PRE |
| XBRL Taxonomy Extension Presentation Linkbase | X |
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| Incorporated by Reference Herein | |||||
Exhibit No. | Description of Exhibit | Included Herewith | Form | Exhibit | Filing Date | |
Certification of Principal Executive 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 | |||||
X | ||||||
101.INS | XBRL Instance Document | X | ||||
101.SCH | XBRL Taxonomy Extension Schema | X | ||||
101.CAL | XBRL Taxonomy Extension Calculation Linkbase | X | ||||
101.DEF | XBRL Taxonomy Extension Definition Linkbase | X | ||||
101.LAB | XBRL Taxonomy Extension Label Linkbase | X | ||||
101.PRE | XBRL Taxonomy Extension Presentation Linkbase | X | ||||
104 | Cover page formatted as Inline XBRL and contained in Exhibit 101 |
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 8, 2021.2022.
NET 1 UEPSLESAKA TECHNOLOGIES, INC.
By: /s/ Chris G.B. Meyer
Chris G.B. Meyer
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Group Chief Executive Officer
By: /s/ Alex M.R. SmithNaeem E. Kola
Alex M.R. SmithNaeem E. Kola
Group Chief Financial Officer, Treasurer and Secretary
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