Exhibit 99.1
1
Connect
Combined Audited Financial Statements
for the years ended 28 February 2022 and
2021
These combined audited financial statements were prepared by:
BDO South Africa Incorporated
(under supervision of M McGarrigle CA (SA))
These combined financial statements have been audited in compliance with the applicable requirements of
the Companies Act of South Africa
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
Index
2
Page
2
3-4
5
Combined Statement of Profit or Loss and Other Comprehensive Income for the years ended 28 February 2022 and 2021
6
7
8
10-19
20-36
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
Directors’ Responsibilities and Approval
3
The directors are responsible for the preparation and fair presentation of the combined financial statements of Connect, comprising the
Combined Statements of Financial Position as at 28 February 2022 and 2021, the Combined Statement of Profit or Loss and Other
Comprehensive Income, Combined Statement of Changes in Equity, Combined Statement of Cash Flows for the years ended 28 February
2022 and 2021, and the notes to the combined financial statements which include the background, scope and basis of preparation, in
accordance with the International Financial Reporting Standard for Small and Medium-sized Entities and reconciled to Generally Accepted
Accounting Policies.
The directors are also responsible for such internal control as the directors determine is necessary to enable the preparation of the combined
financial statements that are free from material misstatement, whether due to fraud or error, and for maintaining adequate accounting records
and an effective system of risk management.
The directors have made an assessment of the ability of Connect to continue as going concerns and have no reason to believe that the
businesses will not be going concerns in the year ahead.
The auditor is responsible for reporting on whether the combined financial statements are fairly presented in accordance with the applicable
financial reporting framework.
Approval of the combined financial statements
The combined financial statements of Connect, as identified in the first paragraph, were approved by the board of directors on 30 June 2022
and signed by:
/s/ Steven. Heilbron
Steven Heilbron
Authorised Director
4
Report of Independent Auditors
To the Directors of Cash Connect Management Solutions Proprietary Limited and K2021477132 Proprietary Limited
Opinion
We have audited the combined financial statements of Cash Connect Management Solutions Proprietary Limited and K2021477132
Proprietary Limited (together “Connect”), which comprise the combined statements of financial position as of 28 February 2022 and 2021,
and the related combined statements of profit or loss and other comprehensive income, combined statements of changes in equity and
combined statements of cash flows for the years then ended, and the related notes (collectively referred to as the “financial statements”).
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of Connect at 28 February
2022 and 2021, and the results of its operations and its cash flows for the years then ended in accordance with International Financial
Reporting Standards for Small and Medium-sized Entities (“IFRS for SMEs”) as issued by the International Accounting Standards Board
(IASB).
Basis for Opinion
We conducted our audits in accordance with auditing standards generally accepted in the United States of America (GAAS). Our
responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section
of our report. We are required to be independent of Connect and to meet our other ethical responsibilities in accordance with the relevant
ethical requirements relating to our audits. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a
basis for our audit opinion.
US GAAP Reconciliation
IFRS for SMEs vary in certain respects from accounting principles generally accepted in the United States of America. In Note 27 to the
combined financial statements is a reconciliation from IFRS for SMEs to US GAAP. Our opinion is not modified with respect to this matter.
Responsibilities of Management for the Financial Statements
Management is responsible for the preparation and fair presentation of the financial statements in accordance with IFRS for SMEs, and for
the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that
are free of material misstatement, whether due to fraud or error.
In preparing the financial statements, management is required to evaluate whether there are conditions or events, considered in the aggregate,
that raise substantial doubt about Connect’s ability to continue as a going concern for one year after the date that the financial statements are
available to be issued.
Auditor’s Responsibilities for the Audit of the Financial Statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free of material misstatement, whether
due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance but is not
absolute assurance and therefore is not a guarantee that an audit conducted in accordance with GAAS will always detect a material
misstatement when it exists. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control. Misstatements are
considered material if there is a substantial likelihood that, individually or in the aggregate, they would influence the judgment made by a
reasonable user based on the financial statements.
In performing an audit in accordance with GAAS, we:
●
Exercise professional judgment and maintain professional skepticism throughout the audit.
●
Identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, and design and
perform audit procedures responsive to those risks. Such procedures include examining, on a test basis, evidence regarding the
amounts and disclosures in the financial statements.
5
●
Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of Connect’s internal control. Accordingly, no
such opinion is expressed.
●
Evaluate the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by
management, as well as evaluate the overall presentation of the financial statements.
●
Conclude whether, in our judgment, there are conditions or events, considered in the aggregate, that raise substantial doubt about
Connect’s ability to continue as a going concern for a reasonable period of time.
We are required to communicate with those charged with governance regarding, among other matters, the planned scope and timing of the
audit, significant audit findings, and certain internal control-related matters that we identified during the audit.
/s/ Ernst & Young Incorporated
Johannesburg, South Africa
30 June 2022
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
6
Combined Statements of Financial Position as at 28 February 2022 and 2021
Figures in Rand
Note(s)
2022
2021
Assets
Non-current assets
Property, plant and equipment
2
294,543,366
269,354,718
Goodwill
3
328,327,404
369,476,330
Intangible assets
4
385,943,323
434,125,523
Investments in associates
5
1,169,157
1,006,129
Loans to shareholders
6
784,073
844,046
Deferred tax
7
13,537,492
8,649,749
1,024,304,815
1,083,456,495
Current assets
Inventories
8
175,452,924
166,868,090
Current tax receivable
21
6,241,191
1,454,847
Trade and other receivables
9
339,314,594
222,965,461
Cash and cash equivalents
10
580,302,053
490,922,551
1,101,310,762
882,210,949
Total assets
2,125,615,577
1,965,667,444
Equity and liabilities
Equity attributable to equity holders of parent
Foreign currency translation reserve
(515,614)
(130,282)
Other invested equity
464,170,919
377,482,093
Total invested equity attributable to Parent entities
463,655,305
377,351,811
Non-controlling interest
2,789,069
3,271,904
Total equity
466,444,374
380,623,715
Non-current liabilities
Loans from financial institutions
11
413,478,065
735,907,015
Finance lease obligation
12
-
10,994
Deferred tax
7
90,089,089
104,697,320
503,567,154
840,615,329
Current liabilities
Loans from financial institutions
11
536,189,657
171,876,266
Current tax payable
21
9,472,370
5,641,771
Finance lease obligation
12
-
222,700
Trade and other payables
13
609,941,944
566,682,298
Bank overdraft
10
78
5,365
1,155,604,049
744,428,400
Total liabilities
1,659,171,203
1,585,043,729
Total equity and liabilities
2,125,615,577
1,965,667,444
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
7
Combined Statement of Profit or Loss and Other Comprehensive Income for the years ended
28 February 2022 and 2021
Figures in Rand
Note(s)
2022
2021
Revenue
14
5,151,666,378
4,234,613,920
Cost of sales
(4,582,035,806)
(3,819,036,705)
Gross profit
569,630,572
415,577,215
Other income
15
53,006,700
49,317,766
Operating expenses
(422,443,964)
(334,979,310)
Operating profit
16
200,193,308
129,915,671
Finance income
17
4,702,641
2,619,368
Finance expense
18
(75,422,555)
(72,034,566)
Profit before taxation
129,473,394
60,500,473
Taxation
19
(46,593,037)
(26,393,762)
Profit for the year
82,880,357
34,106,711
Other comprehensive income
(385,332)
(130,282)
Total comprehensive income for the year
82,495,025
33,976,429
Total comprehensive income attributable to:
Owners of the parent
80,829,962
34,523,163
Non-controlling interest
1,665,063
(546,734)
82,495,025
33,976,429
Profit/(loss) attributable to:
Owners of the parent
81,215,294
34,653,445
Non-controlling interest
1,665,063
(546,734)
82,880,357
34,106,711
8
Combined Statement of Changes in Equity for the years ended 28 February 2022 and 2021
Figures in Rand
Foreign currency
translation
reserve
Other invested
equity
Total invested
equity
attributable to
Parent entities
Non- controlling
interest
Total equity
Balance at 01 March 2020
-
343,127,530
343,127,530
3,818,638
346,946,168
Profit for the year
-
34,653,445
34,653,445
(546,734)
34,106,711
Other comprehensive income
(130,282)
-
(130,282)
-
(130,282)
Total comprehensive income for the year
(130,282)
34,653,445
34,523,163
(546,734)
33,976,429
Contribution from parent
-
13,200,000
13,200,000
-
13,200,000
Repayment of equity loan
-
(13,280,000)
(13,280,000)
-
(13,280,000)
Net other distributions to Parent entities
-
(218,882)
(218,882)
-
(218,882)
Balance at 01 March 2021
(130,282)
377,482,093
377,351,811
3,271,904
380,623,715
Profit for the year
-
81,215,294
81,215,294
1,665,063
82,880,357
Other comprehensive income
(385,332)
-
(385,332)
-
(385,332)
Total comprehensive income for the year
(385,332)
81,215,294
80,829,962
1,665,063
82,495,025
Contribution from parent
-
7,022,797
7,022,797
-
7,022,797
Transactions with non-controlling interests
-
(1,375,737)
(1,375,737)
(2,147,898)
(3,523,635)
Net other distributions to Parent entities
-
(173,528)
(173,528)
-
(173,528)
Balance at 28 February 2022
(515,614)
464,170,919
463,655,305
2,789,069
466,444,374
9
Combined Statement of Cash Flows for the years ended 28 February 2022 and 2021
Figures in Rand
Note(s)
2022
2021
Cash flows from operating activities
Cash generated from operations
20
300,024,440
326,979,481
Interest received
4,702,641
2,619,368
Interest paid
(75,422,555)
(71,838,449)
Tax paid
21
(66,948,756)
(45,101,029)
Net cash inflow from operating activities
162,355,770
212,659,371
Cash flows from investing activities
Purchase of property, plant and equipment
2
(136,445,016)
(114,761,280)
Proceeds from sale of property, plant and equipment
2
18,810,810
14,188,792
Purchase of intangible assets
4
(210,100)
(606,204)
Net cash outflow from investing activities
(117,844,306)
(101,178,692)
Cash flows from financing activities
Contribution from parent entities
7,022,797
13,200,000
Acquisition of minority interest
(3,523,635)
-
Proceeds from loans from financial institutions
41,884,442
79,840,862
Repayment of loans from related parties
(103,057)
(35,762,514)
Repayment of finance lease obligations
(233,694)
(524,287)
Distribution to parent entities
(173,528)
(218,882)
Repayment of shareholder loan
-
(13,280,000)
Net cash inflow from financing activities
44,873,325
43,255,179
Total cash and cash equivalents movement for the year
89,384,789
154,735,858
Cash and cash equivalents at the beginning of the year
490,917,186
336,181,328
Total cash and cash equivalents at end of the year
10
580,301,975
490,917,186
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
Background, scope and basis of preparation
10
Background and scope
On 14 April 2022, Lesaka Technologies, Inc. (“Lesaka”), formerly known as Net 1 UEPS Technologies, Inc., through its wholly owned
subsidiary Net1 Applied Technologies South Africa Proprietary Limited (“Net1 SA”) acquired (the “Acquisition”) all of the issued and
outstanding ordinary shares of Ovobix (RF) Proprietary Limited (“Ovobix”) and Luxanio 227 Proprietary Limited (“Luxanio”) and 14.14%
of Cash Connect Management Solutions Proprietary Limited (“CCMS”) and K2021477132 (South Africa) Proprietary Limited (“K2021”)
and together with Ovobix, Luxanio and CCMS (the “Target Companies”). Each of Ovobix and Luxanio own 69.05% and 16.81% of CCMS
and K2021, respectively, and combined with the 14.14% referred to previously, Lesaka effectively owns 100% of CCMS and K2021.
The transaction consideration of ZAR3.8 billion was funded through existing cash resources of ZAR2.1 billion, upsized net debt facilities of
ZAR1.4 billion and deferred equity consideration of ZAR350.0 million. The deferred equity consideration represents 3,185,079 shares of
Lesaka’s common stock which are to be issued ratably (or 1,061,693 per year) on the first, second and third anniversaries of the closing to
the Sellers of the Target Companies.
Lesaka determined that the operations of CCMS and K2021 and their respective subsidiaries (together “Connect”) constitute the business
acquired. Such businesses were under the common control of Ovobix. The entities that form Connect for the purposes of the combined
financial statements historically did not prepare separate consolidated financial statements. The Connect financial statements therefore
represent a combination of the consolidated financial statements of CCMS and the consolidated financial information of K2021 (which
includes K2020 Connect Proprietary Limited ("K2020") in respect of the years ended 28 February 2022 and 2021) which are the businesses
which are the subject of the Acquisition.
Connect offers a specialist retail cash management solutions to its customers and its activities include the development and manufacturing of
cash acceptance, cash management and related products for use in cash intensive retail environments, unsecured lending to the retail industry,
merchant card payment solutions and enabling merchants to vend a range of value added services (VAS), through a prepaid eWall et.
The combined financial statements were authorized for issue by the company’s board of directors on 30 June 2022.
1.
Basis of preparation
The purpose of these combined financial statements is to meet the reporting requirements of Rule 8-04 of Regulation S-X (“Rule 8-04”).
The combined financial statements of Connect have been prepared in accordance with the International Financial Reporting Standard for
Small and Medium-sized Entities (“IFRS for SMEs”) and interpretations of those standards as issued by the International Accounting
Standards Board (IASB) and reconciled to Generally Accepted Accounting Policies in the United States (“U.S. GAAP”) in order to comply
with Rule 8-04. The combined financial statements of Connect were derived from the consolidated financial statements of CCMS and the
consolidated financial information of K2021 (which included K2020 in respect of both years ended 28 February 2022 and 28 February 2021)
for the years ended 28 February 2022 and 28 February 2021, which were prepared in accordance with IFRS for SMEs. The combined financial
statements have been prepared for the purpose of presenting the financial position, and results of operations of Connect on a stand-alone
basis.
As IFRS for SMEs does not provide specific guidance for the preparation of combined financial statements, consideration has been given to
the principles outlined in Section 10 Accounting Policies, Estimated and Errors (“Section 10”). Section 10 requires consideration of the most
recent pronouncements of other standard-setting bodies, other financial reporting requirements and recognised industry practices in the
preparation of the combined financial statements as detailed below.
The accounting policies applied in the combined financial statements are consistent with those applied by CCMS in its consolidated financial
statements, and K2021 in its consolidated financial information. The combined financial statements are:
●
Presented in South African Rand (ZAR).
●
Prepared using the historic cost convention, except for certain financial instruments measured at fair value.
●
Prepared on the going concern basis. and,
●
Prepared as at and for the years ended 28 February 2022 and 28 February 2021.
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
Background, scope and basis of preparation
11
As Connect does not constitute a Group as defined by Section 9 Consolidated and Separate Financial Statements, the combined financial
statements are not consolidated financial statements and do not comply with the requirements of Section 9. However, the combined financial
statements have been prepared on a combined basis by applying the consolidation principles of Section 9, since the entities comprising
Connect were under common control.
The combined financial statements comprise all revenues, costs, assets and liabilities directly attributable to Connect.
In preparing the combined financial statements, Section 35 Transition to the IFRS for SMEs has been applied at the 1 April 2020 transition
date. The combined financial statements have been prepared by applying accounting policies consistent with IFRS for SMEs effe ctive at 28
February 2022 and have not elected to apply any of the exemptions. Since Connect has not previously prepared financial statements, it has
not presented a reconciliation of its income statement, financial position or cash flows to previous generally accepted accounting principles.
Limitations inherent to combined financial statements
As the combined financial statements of Connect have been prepared on a combined basis it may not be indicative of Connect’s future
performance and what its combined results of operations, financial position and cash flows would have been, had Connect operated as a
separate reporting entity for the periods presented.
The following principles and assumptions have been applied:
Equity
●
As Connect did not historically constitute a combined legal group there is no issued share capital. Earnings Per Share was not presented
as this is not possible given the combined entity is not a legal entity.
●
As a result of combining CCMS consolidated financial statements and K2021 consolidated financial information there is no
consolidating parent entity, so the contribution to Connect from its shareholders is recognised at the carrying value of the net assets
contributed to the acquired business at the earliest comparative period presented. This contribution represents the aggregated combined share
capital and retained earnings of the entities included in the combined historical financial information of Connect at the earliest comparative
period presented. The opening balance and movements in aggregated combined share capital and retained earnings of the entities included
in the combined historical financial information of Connect has been described as “Total invested equity attributable to Parent entities” in
the combined statement of changes in equity of Connect.
●
No other reserves have been presented as there are no categories in equity that will be recycled to profit or loss in the
future, with the exception of the foreign currency translation reserve.
Goodwill and intangible assets
Goodwill and intangible assets that arose on the acquisition of the entities by CCMS have been recognised in the combined financial
statements. During the reporting periods presented, goodwill was already tested for impairment at a Cash- generating unit (“CGU”) level.
IFRS for SMEs requires assets to be grouped at the lowest level for which identifiable cash flows are largely independent of cash flows from
other assets and liabilities. Because cash flows are identified at this level, there are no changes in the asset groups in Connect.
Allocation of central costs
No additional central costs were required to be allocated to Connect as no additional outside costs were incurred outside the acquired group.
Taxation
The entities that comprise Connect have historically filed separate tax returns in South Africa. All entities will continue to file separate tax
returns. The income taxes have been accounted for using the separate tax return method by aggregating the tax positions of the individual
entities of Connect.
Deferred taxation has already been calculated by comparing the assets and liabilities in the consolidated financial statements of CCMS and
the consolidated financial information of K2021.
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
Background, scope and basis of preparation
12
Intercompany
Transactions and balances with Ovobix and Luxanio have been disclosed as related party transactions and balances in the combined financial
statements. All intergroup transactions and balances between the entities comprising Connect are eliminated.
Connect’s key management personnel are deemed to be the non-executive directors of Connect and those individuals, including the executive
directors in Connect, whose remuneration is determined by Connect's Remuneration Committee.
Subsequent events
Subsequent events have been considered from 28 February 2022 up to the date that the combined financial statements were authorized for
issuance. Refer to note 25.
Significant accounting policies
1.1
Property, plant and equipment
Recognition and measurement
Property, plant and equipment are measured at cost, less accumulated depreciation and impairment losses.
If significant parts of an item of property, plant and equipment have different useful lives then they are accounted for as a separate item of
property, plant and equipment.
Any gain or loss on disposal of an item of property, plant and equipment is recognised in profit or loss.
Subsequent costs
Subsequent expenditure is capitalised only if it is probable that the future economic benefits associated with the expenditure will
flow to the company. All other costs are recognised in profit or loss as an expense as incurred.
Depreciation
Depreciation is calculated to write off the cost of items of property, plant and equipment less their residual values using the straight line
method over their estimated useful lives, and is generally recognised in profit or loss. Leased assets are depreciated over the shorter of the
lease term and their useful lives unless it is reasonably certain that the company will obtain ownership by the end of the lease term.
The estimated useful lives for the current and comparative years are as follows:
Item
Useful life
Plant and machinery, including POS Terminals
2 - 6 years
Furniture and fixtures
3 years
Motor vehicles
3 - 5 years
Computer equipment
3 years
Leasehold improvements
5 years; or the initial lease period
Safe assets
8 years
Residual values, depreciation methods and useful lives of all assets are reviewed and adjusted if appropriate.
Property, plant and equipment are derecognised upon disposal or when no future economic benefits are expected to flow to the group from
either their use or disposal. Gains or losses on derecognition of an item of property, plant and equipment are determined by the comparing of
the proceeds from disposal, if applicable, with the carrying amount of the item and are recognised directly in profit or loss.
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
Background, scope and basis of preparation
13
Property, plant and equipment are assessed for impairment as non-financial assets as per note 1.9.
1.2
Business combinations and goodwill
Connect accounts for business combinations using the purchase method when control is transferred. The consideration transferred is generally
measured at fair value at the date of acquisition, as are the identifiable net assets acquired. Any goodwill (the excess of the cost of the business
combination over the acquirer's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities) that arises is
amortised and tested annually for impairment. Any excess over the cost of the company's interest in the net fair value of the acquirer's
identifiable assets, liabilities and contingent liabilities is recognised in profit or loss immediately. Transaction costs directly attributable to
the business combination are capitalised to the cost of the acquisition.
The consideration transferred does not include amounts related to settlement of pre-existing relationships. Such amounts are generally
recognised in profit or loss.
Goodwill
Goodwill arising on an acquisition of a business combination is carried at cost as established at the date of acquisition of the business less
accumulated impairment losses and amortisation. Goodwill is amortised over ten years.
Goodwill is assessed for impairment as a non-financial asset as per note 1.9.
Non-controlling interest in the acquiree is measured at the non-controlling interest’s proportionate share of the acquiree’s recognised
identifiable net assets.
1.3
Intangible assets
Intangible assets are measured at cost less accumulated amortisation and accumulated impairment losses. Research and development
expenditure is recognised in profit or loss when incurred unless they form part of the cost of another asset that meets the recognition criteria.
Subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the specific asset to which it relates.
Other intangible assets, including computer software and intellectual property that are acquired by the company and have finite useful lives
are measured at cost less accumulated amortisation and any accumulated impairment losses. For intangible assets with infinite useful lives,
they are amortised over 10 years.
Amortisation is calculated on the cost of intangible assets less their estimated residual values using the straight line method over their
estimated useful lives, and is recognised in profit or loss.
The amortisation methods, useful lives and residual values are reviewed at each reporting date and adjusted appropriately. Residual values
of intangibles is zero unless there is an active market or a commitment by a third party to acquire at the end of useful life.
Intangible assets are assessed for impairment as non-financial assets as per note 1.9.
Intangible assets are derecognised upon disposal or when no future economic benefits are expected to flow to the company from either their
use or disposal. Gains or losses on derecognition of an intangible asset are determined by comparing the proceeds from disposal, if applicable,
with the carrying amount of the intangible asset and are recognised directly in profit or loss.
The estimated useful lives for the current and comparative years:
Item
Useful life
Computer software
2 – 3 years
Intellectual property
5 – 10 years
Integrated trading platform
10 years
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
Background, scope and basis of preparation
14
1.4
Investments in associates
Connect uses the equity method to account for investments in companies when it has significant influence but not control over the operations
of the company. Under the equity method, the Company initially records the investment at cost and thereafter adjusts the carrying value of
the investment to recognize the proportional share of the equity-accounted company’s net income or loss.
1.5
Financial instruments
An entity recognises a financial asset or financial liability only when the entity becomes a party to the contractual provisions of the instrument.
On initial recognition, financial instruments are measured at their transaction price, unless the arrangement constitutes a financing transaction.
Subsequently they are measured as detailed below.
Financial assets
Connect initially recognises financial assets on the date when they originated. Such assets consist of cash, a contractual right to receive cash
or another financial asset or a contractual right to exchange financial instruments with another entity on potentially favourable terms.
Connect classifies its financial assets as loans and receivables which comprise of: trade and other receivables including amounts owing by
related parties and loans to customers and cash and cash equivalents.
Trade and other receivables including amounts owing by related parties and loans to customers
Trade and other receivables, including amounts owing by related parties and loans to customers are financial assets with fixed or determinable
payments that are not quoted in an active market. Subsequent to initial recognition trade and other receivables and amounts owing by related
parties are measured at amortised cost using the effective interest method, less any impairment loss. Appropriate allowances for estimated
irrecoverable amounts are recognised in profit or loss where there is objective evidence that the asset is impaired.
Cash and cash equivalents including bank overdrafts
Cash and cash equivalents including bank overdrafts are measured at amortised cost. Cash and cash equivalents comprises of cash balances,
bank overdrafts and cash on hand.
For the purpose of the cash flow statement, cash and cash equivalents comprise cash at bank, bank overdrafts and cash on hand which are
available for use by Connect unless otherwise stated.
Impairment of financial assets
A financial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A financial asset
is considered to be impaired if objective evidence indicates that one or more loss events have occurred and have had a negative effect on the
estimated future cash flows of that asset.
Objective evidence that financial assets are impaired can include default or delinquency by a debtor, restructuring of an amount due to the
Company on terms that the company would not consider otherwise and indications that a debtor or issuer will enter bankruptcy.
Impairment losses are recognised in profit or loss and reflected in an allowance account against receivables. When the company considers
that there are no realistic prospects of recovery of the asset, the relevant amounts are written off. If the amount of the actual impairment loss
subsequently causes the amount of the initial impairment loss provided for to decrease and the decrease can be related objectively to an event
occurring after the impairment was recognised, then the previously recognised impairment loss is reversed through profit or loss.
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
Background, scope and basis of preparation
15
Financial liabilities
Connect initially recognises financial liabilities at the transaction price when the entity becomes a party to the contractual provisions of the
instrument.
Financial liabilities are derecognised if Connect’s obligations specified in the contract are discharged, cancelled or expire.
Interest-bearing bank loans and other financial liabilities
Interest-bearing bank loans and other financial liabilities are initially measured at transaction price, and are subsequently measured at
amortised cost, using the effective interest rate method. Interest on bank and other financial liabilities is recognised in profit or loss.
Trade and other payables, including amounts owing to related parties and loans from shareholders
Subsequent to initial recognition, trade and other payables, amounts owing to related parties and loans to shareholders are measured at
amortised cost using the effective interest method.
1.6
Taxation
Income tax
Income tax comprises of current and deferred tax. It is recognised in profit or loss except to the extent that it relates to a business combination,
or items recognised directly in equity or in other comprehensive income, in which case it is recognised in equity or in other comprehensive
income respectively.
Current taxation
Current tax comprises the expected tax payable or receivable on the taxable income or loss for the year and any adjustments to the tax
payable or receivable in respect of previous years. It is measured using tax rates enacted or substantively enacted at the reporting date. Current
tax also includes any tax arising from dividends.
Current tax assets and liabilities are offset only if there is a legally enforceable right to set off the amounts and the entity can demonstrate
without undue cost or effort that it plans either to settle on a net basis or to realise the asset and settle the liability simultaneously.
Deferred taxation
Deferred taxation is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial
reporting purposes and their taxation bases.
Deferred tax assets are recognised for unused tax losses, unused tax credits and deductible temporary differences to the extent that it is
probable that future taxable profits will be available against which they can be used. Deferred tax assets are reviewed at each reporting period
date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised; such reductions are reversed when
the probability of future taxable profits improves.
Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that future
taxable profits will be available against which they can be used.
Deferred tax is measured at the tax rates that are expected to be applied to temporary differences when they reverse, using tax rates enacted
or substantively enacted at the reporting date.
A deferred tax liability is recognised for all taxable temporary differences.
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
Background, scope and basis of preparation
16
1.7
Leases
Assets held by Connect under leases that transfer to the company substantially all of the risks and rewards of ownership are classified as
finance leases. Leases of assets under which all the risks and benefits of ownership are effectively retained by the lessor are classified as
operating leases.
Assets held under other leases are classified as operating leases and are not recognised in Connect’s statement of financial position.
Finance leases – lessee
Finance leases are recognised as assets and liabilities in the statement of financial position at amounts equal to the fair value of the leased
property or, if lower, the present value of the minimum lease payments. The corresponding liability to the lessor is included in the statement
of financial position as a finance lease obligation. Subsequent to initial recognition, the assets are accounted for in accordance with the
accounting policy applicable to that asset.
The lease payments are apportioned between the finance charge and reduction of the outstanding liability. The finance charge is allocated to
each period during the lease term so as to produce a constant periodic rate on the remaining balance of the liability.
Operating leases - lessor
Operating lease income is recognised as an income on a straight-line basis over the lease term except in cases where another systematic basis
is representative of the time pattern of the benefit from the leased asset, even if the receipt of payments is not on that basis, or where the
payments are structured to increase in line with expected general inflation.
Initial direct costs incurred in negotiating and arranging operating leases are added to the carrying amount of the leased asset and recognised
as an expense over the lease term on the same basis as the lease income.
Operating leases – lessee
Operating lease payments are recognised as an expense on a straight-line basis over the lease term except in cases where another systematic
basis is representative of the time pattern of the benefit from the leased asset, even if the receipt of payments is not on that basis, or where
the payments are structured to increase in line with expected general inflation.
1.8
Inventories
Inventories consists of bulk purchases of VAS products, consumables and spares used to repair / manufacture safe assets.
Inventories are measured at the lower of cost and net realisable value. The cost of inventories is determined on First in, First out (FIFO) cost
principle and includes expenditure incurred in acquiring the inventories, production or conversion costs and other costs incurred in bringing
them to their existing location and condition. In the case of manufactured inventories and work in progress, cost includes an appropriate share
of production overheads on normal operating capacity.
Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and selling
expenses.
When inventories are sold, the carrying amounts of those inventories are recognised as an expense in the period in which the related revenue
is recognised. Obsolete, redundant and slow moving inventories are identified on a regular basis. The amount of any write-down of
inventories to net realisable value and all losses of inventories are recognised as an expense in the period the write-down or loss occurs.
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
Background, scope and basis of preparation
17
1.9
Impairment
Impairment of non financial assets
The company’s non-financial assets, other than inventories and deferred taxation assets are reviewed whenever events or changes in
circumstances indicate that the carrying amount may not be recoverable, to determine whether there is any indication of impairment.
An impairment test is performed on all goodwill and intangible assets not available for use whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable. If an impairment indicator exists, the asset’s recoverable amount is estimated. For
impairment testing, assets are grouped together into the smallest group of assets that generates cash inflows from continuing use that are
largely independent of the cash inflows of other assets or CGUs. Goodwill arising from a business combination is allocated to CGUs or
groups of CGUs that are expected to benefit from the synergies of the combination.
The recoverable amount of an asset or CGU is the greater of its fair value less cost to sell and value in use. Value in use is based on the
estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset or CGU.
An impairment loss is recognised if the carrying amount of an asset or CGU exceeds its recoverable amount. Impairment losses are recognised
in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying
amounts of the other assets in the CGU on a pro rata basis.
An impairment loss in respect of goodwill is not reversed. For other assets, an impairment loss is reversed only to the extent that the asset’s
carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment
loss had been recognised.
A reversal of an impairment loss is recognised in profit or loss.
1.10
Employee benefits
Short-term employee benefits
The cost of all short-term employee benefits is recognised during the period in which the employee renders the related service.
The accruals for employee entitlements to salaries, performance bonuses and annual leave represent the amounts which the company has a
present legal or constructive obligation to pay as a result of services provided by employees to date. The obligation must be estimated reliably.
The accruals have been calculated at undiscounted amounts based on current salary rates.
The expected cost of bonus payments is recognised as an expense when there is a legal or constructive obligation to make such payments as
a result of past performance.
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
Background, scope and basis of preparation
18
1.11
Revenue
Revenue comprises proceeds from the sale of goods (prepaid and other vouchers, sale of zip zap machines), proceeds from the rendering of
services, safe rental income, cash deposit fee income, cash-in-transit fee income, treasury income, management fee income, transaction fee
income, installation income and minimum discount charges.
Sale of goods
Revenue from the sale of goods is recognised at the fair value of the consideration received or receivable net of indirect taxation, rebates and
trade discounts and consists primarily of the sale of prepaid and other vouchers and the sale of zip zap machines. Revenue from the sale of
goods are recognised when a group entity sells a product to the customer, because control passes to the customer on the day that the transaction
takes place.
For pinned airtime transactions Connect holds the virtual voucher stock as inventory bearing the risk of stock losses on its platforms until it
is on-sold to merchants and recognises the revenue on a gross basis.
For pinless airtime transactions no stock is held and it has therefore been determined that Connect should be considered as an agent and for
transactions related to the sale of pinless airtime revenue is recognised on a net basis.
Rendering of services
Revenue from the rendering of services such as safe rental income, cash deposit fee income, cash-in-transit (“CIT”) fee income, treasury
income, management fee income, transaction fee income, installation income and minimum discount charges is measured at the fair value of
the consideration received or receivable which is, net of trade discounts and volume rebates, and value added tax.
As Connect acts as principal by taking primary responsibility for fulfilling the promise for the provision of CIT services with the customer
and has discretion in establishing the prices by negotiating prices with the customer, CIT fee income is presented on a gross basis.
For pinless airtime transactions no stock is held and it has therefore been determined that Connect should be considered as an agent and as a
result transactions related to the sale of pinless airtime revenue are recognised on a net basis.
Rental income
Rental income from POS terminals and other devices that are leased to a third party under an operating lease is recognised in the Statement
of Profit or Loss and Other Comprehensive income on a straight-line basis overthe lease term and is included in “revenue”.
Interest income
Interest income earned on loans to customers is recognised, in profit or loss, using the effective interest rate method and is included in
“revenue”.
1.12
Finance income and costs
Finance income
Finance income comprises interest income on funds invested. Interest income is recognised as it accrues (taking into account the effective
yield on the asset) unless collectability is in doubt.
Finance costs
Financing costs comprise interest expense on borrowings. All borrowing costs are recognised in profit or loss using the effective interest rate
method.
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
Background, scope and basis of preparation
19
Use of judgements, estimates and assumptions
The preparation of consolidated and separate financial statements in conformity with IFRS for SMEs requires management to make certain
judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and
expenses. The estimates, and associated assumptions, are based on historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period
in which the estimate is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects
both current and future periods.
In particular, information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have
the most significant effect on the amount recognised in the financial statements are described below:
-
principal vs agent assessments in the recognition of revenue for CIT fee income and airtime vouchers (Note 1.11)
-
useful lives and residual values of property, plant and equipment (Note 1.1)
-
useful lives and residual values of goodwill (Note 1.2)
-
useful lives and residual value of intangible assets (Note 1.3)
-
financial instruments (Note 1.5)
-
deferred taxation (Note 1.6)
-
impairment (Note 1.9)
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
Notes to the Combined Financial Statements for the years ended 28 February 2022 and 2021
Figures in Rand 2022 2021
20
2. Property, plant and equipment
Figures in Rand
2022
2021
Cost
Accumulated
depreciation
and
impairments
Carrying
value
Cost
Accumulated
depreciation
and
impairments
Carrying
value
Plant and machinery
67,129,675
(21,447,535)
45,682,140
46,790,972
(11,831,157)
34,959,815
Furniture and fixtures
9,425,283
(6,634,205)
2,791,078
8,454,422
(4,557,411)
3,897,011
Motor vehicles
6,146,593
(3,299,756)
2,846,837
4,515,404
(2,083,666)
2,431,738
Office equipment
340,670
(339,193)
1,477
340,670
(329,965)
10,705
Computer equipment
15,591,304
(9,929,732)
5,661,572
10,219,709
(6,274,359)
3,945,350
Leasehold improvements
6,176,031
(5,416,861)
759,170
5,805,983
(4,049,275)
1,756,708
Safe assets
443,452,658
(206,651,566)
236,801,092
435,208,870
(212,855,479)
222,353,391
Total
548,262,214
(253,718,848)
294,543,366
511,336,030
(241,981,312)
269,354,718
Reconciliation of property, plant and equipment
-
2022
Figures in Rand
Opening
balance
Additions
Disposals
Foreign
exchange
movements
Depreciation
Total
Plant and machinery
34,959,815
40,645,336
(7,042,401)
(27,933)
(22,852,677)
45,682,140
Furniture and fixtures
3,897,011
519,747
-
(4,219)
(1,621,461)
2,791,078
Motor vehicles
2,431,738
1,568,776
(12,078)
-
(1,141,599)
2,846,837
Office equipment
10,705
-
-
-
(9,228)
1,477
Computer equipment
3,945,350
4,361,276
(1,663)
(1,700)
(2,641,691)
5,661,572
Leasehold improvements
1,756,708
373,116
-
(460)
(1,370,194)
759,170
Safe assets
222,353,391
88,976,765
(11,754,668)
-
(62,774,396)
236,801,092
269,354,718
136,445,016
(18,810,810)
(34,312)
(92,411,246)
294,543,366
Reconciliation of property, plant and equipment
-
2021
Figures in Rand
Opening
balance
Additions
Disposals
Foreign
exchange
movements
Depreciation
Total
Plant and machinery
33,036,778
24,895,754
(3,737,306)
(1,164)
(19,234,247)
34,959,815
Furniture and fixtures
3,388,285
2,297,660
-
(766)
(1,788,168)
3,897,011
Motor vehicles
812,556
2,577,104
(8,951)
231
(949,202)
2,431,738
Office equipment
63,940
15,881
(15,881)
-
(53,235)
10,705
Computer equipment
3,293,024
2,811,745
(53)
(9,758)
(2,149,608)
3,945,350
Leasehold improvements
2,488,932
417,120
-
3,548
(1,152,892)
1,756,708
Safe assets
209,568,981
81,730,232
(10,402,909)
-
(58,542,913)
222,353,391
252,652,496
114,745,496
(14,165,100)
(7,909)
(83,870,265)
269,354,718
Motor vehicles are pledged as security to WesBank - a division of FirstRand Bank Limited, refer to note 12 for the details relating to the
Finance lease obligation.
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
Notes to the Combined Financial Statements for the years ended 28 February 2022 and 2021
Figures in Rand 2022 2021
21
3. Goodwill
Figures in Rand
2022
2021
Cost
Accumulated
amortisation
Carrying
value
Cost
Accumulated
amortisation
Carrying
value
Goodwill
412,413,448
(84,086,044)
328,327,404
412,509,448
(43,033,118)
369,476,330
Reconciliation of goodwill
-
2022
Figures in Rand
Opening
balance
Transfers
Amortisation
Total
Goodwill
369,476,330
(96,000)
(41,052,926)
328,327,404
Reconciliation of goodwill
-
2021
Figures in Rand
Opening
balance
Transfers
Amortisation
Total
Goodwill
410,677,750
-
(41,201,420)
369,476,330
4. Intangible assets
Figures in Rand
2022
2021
Cost
Accumulated
amortisation
Carrying
value
Cost
Accumulated
amortisation
Carrying
value
Computer software
5,254,693
(4,648,970)
605,723
8,098,660
(7,477,937)
620,723
Intellectual property
11,660,731
(11,660,731)
-
11,660,731
(11,660,731)
-
Integrated trading platform
481,672,000
(96,334,400)
385,337,600
481,672,000
(48,167,200)
433,504,800
Total
498,587,424
(112,644,101)
385,943,323
501,431,391
(67,305,868)
434,125,523
Reconciliation of intangible assets - 2022
Figures in Rand
Opening
balance
Additions
Amortisation
Total
Computer software
620,723
210,100
(225,100)
605,723
Integrated trading platform
433,504,800
-
(48,167,200)
385,337,600
434,125,523
210,100
(48,392,300)
385,943,323
Reconciliation of intangible assets - 2021
Figures in Rand
Opening
balance
Additions
Amortisation
Total
Computer software
392,935
606,204
(378,416)
620,723
Integrated trading platform
481,672,000
-
(48,167,200)
433,504,800
482,064,935
606,204
(48,545,616)
434,125,523
Amortisation of computer software and the integrated trading platform is included in operating expenses and amortisation of intellectual
property is included in cost of sales.
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
Notes to the Combined Financial Statements for the years ended 28 February 2022 and 2021
Figures in Rand 2022 2021
22
5. Investments in associates
Figures in Rand
% Holding
% Holding
Carrying
amount
Carrying
amount
Name of company
2022
2021
2022
2021
Sandulela Technology Proprietary Limited
49.00%
49.00%
1,169,157
1,006,129
6. Loans to shareholders
Ovobix (RF) Proprietary Limited
784,073
784,073
This loan is unsecured, bears no interest and has no fixed repayment terms.
Leon de Wit
-
59,973
This loan is unsecured, bears no interest and has no fixed repayment terms.
784,073
844,046
7. Deferred tax
Deferred tax liability
Accelerated wear and tear on property plant and equipment and intangible assets
(90,089,089)
(104,531,580)
Prepaid expenses
-
(165,740)
Total net deferred tax asset
(90,089,089)
(104,697,320)
Deferred tax asset
Allowance for doubtful debts
6,783,558
2,985,958
Other accruals
5,969,657
3,359,493
Tax losses available for set off against future taxable income
784,277
2,304,298
Total deferred tax asset
13,537,492
8,649,749
Reconciliation of deferred tax asset (liability)
At beginning of the year
(96,047,571)
(111,609,930)
Increase (decrease) in tax losses available for set off against future taxable income
(1,520,022)
2,304,298
Originating temporary difference on tangible fixed and intangible assets
14,439,900
11,704,034
Allowance for doubtful debts
3,647,403
729,811
Other accruals
2,920,059
664,253
Prepaid expenditure
8,634
159,963
(76,551,597)
(96,047,571)
8. Inventories
Raw materials
42,981,000
42,269,243
Work in progress
1,580,904
1,245,593
Finished goods
313,540
313,540
Prepaid airtime vouchers
78,491,750
74,783,572
Point of sale terminals
14,044,521
17,106,448
Consumables
39,476,275
31,155,532
176,887,990
166,873,928
Inventories (write-downs)
(1,435,066)
(5,838)
175,452,924
166,868,090
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
Notes to the Combined Financial Statements for the years ended 28 February 2022 and 2021
Figures in Rand 2022 2021
23
9. Trade and other receivables
Trade receivables (net of allowance for doubtful debts)
113,620,153
145,694,109
Loans to customers (net of allowance for doubtful debts)
202,221,116
59,255,014
Prepayments
15,642,009
8,635,753
Deposits
708,604
491,391
Customs value added tax receivable
2,678,674
920,357
Other receivables
4,444,038
7,968,837
339,314,594
222,965,461
10. Cash and cash equivalents
Cash and cash equivalents consist of:
Cash on hand
140,577
116,901
Bank balances
580,161,476
490,805,650
Bank overdraft
(78)
(5,365)
580,301,975
490,917,186
Current assets
580,302,053
490,922,551
Current liabilities
(78)
(5,365)
580,301,975
490,917,186
Included in the bank balances are the following:
●
Cash held by Cash Connect Collateral Holding Trust of ZAR331,656,897 (2021: ZAR308,891,329) which is ring-fenced in the Special
Purpose Vehicle for client settlements.
●
Merchant cash held by Main Street 1723 Proprietary Limited in a separate bank account on behalf of its merchants of ZAR31,183,251
(2021: ZAR9,060,350).
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
Notes to the Combined Financial Statements for the years ended 28 February 2022 and 2021
Figures in Rand 2022 2021
24
11. Loans from financial institutions
At amortised cost
ABSA Bank Limited
Commercial Asset Facility
51,323,894
39,897,843
The Commercial Asset Facility is an amortising facility, interest is charged at prime + 1% and is
repayable between 36-48 months depending on the asset financed by the facility. The Commercial
Asset Facility is used to finance POS terminals, safe assets and motor vehicles. The Commercial
Asset Facility was settled in full on 14 April 2022.
Overdraft
121,039,842
102,300,013
The overdraft is repayable on demand and bears interest at prime. The facility has an unutilised
balance of ZAR3,960,158. The overdraft facility was settled in full on 14 April 2022.
Facility A
167,704,863
223,180,028
Facility A has an outstanding balance of ZAR168,750,001 (2021: ZAR225,000,001), which
includes capitalised cost incurred to place the facility of ZAR1,045,137. The loan has a 60 month
term and bears interest at JIBAR plus 3.55% per annum. Interest is serviced quarterly, no repayment
was made for the first 12 months from the date of the first draw down of the facility (28 February
2020) and thereafter the facility will be repaid evenly each quarter over the remaining 48 months.
Facility A was settled in full on 14 April 2022.
Facility B
273,040,279
272,387,039
Facility B has an outstanding balance of ZAR275,000,000 (2021: ZAR275,000,000), which includes
capitalised cost incurred to place the facility of ZAR1,959,721. The loan has a 60 month term and
bears interest at JIBAR plus 4.05% per annum. Interest is serviced quarterly and the facility shall be
repaid with a single capital payment in full within 60 months from the date of first draw down of the
facility (28 February 2020). Facility B was settled in full on 14 April 2022.
Facility C
214,865,495
214,730,970
Facility C has an outstanding balance of ZAR215,000,020 (2021: ZAR215,000,020), which includes
capitalised cost incurred to place the facility of ZAR134,252. The loan has a 36 month term loan
and bears interest at JIBAR plus 3.65% per annum. Interest is serviced quarterly and the facility
shall be repaid with a single capital payment in full within 36 months from the date of first draw
down of the facility (28 February 2020). Facility C was settled in full on 14 April 2022.
FirstRand Bank Limited
Revolving Credit Facility
121,693,349
55,287,388
The revolving credit facility agreement with FirstRand Bank Limited (acting through its Rand
Merchant Bank division) commenced on 15 February 2021. The facility is for an amount of
ZAR150,000,000 which matures on 12 August 2022. The facility has an outstanding balance of
ZAR122,725,905 (2021: ZAR57,233,395), which includes capitalised cost incurred to place the
facility of ZAR1,032,556. Interest is charged at prime plus 1.25% per annum on the utilised balance.
In addition to the interest a commitment fee of 1.5% per annum is charged on the undrawn available
facility amount.
949,667,722
907,783,281
Non-current liabilities
At amortised cost
413,478,065
735,907,015
Current liabilities
At amortised cost
536,189,657
171,876,266
949,667,722
907,783,281
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
Notes to the Combined Financial Statements for the years ended 28 February 2022 and 2021
Figures in Rand 2022 2021
25
Loans to customers have been pledged as security for the loan received from Rand Merchant Bank. Refer to note 26 for more information on
guarantees provided for the above loans.
12. Finance lease obligation
Minimium lease payments due
- within one year
-
230,349
- in second to fifth year inclusive
-
11,086
-
241,435
less: future finance charges
-
(7,741)
Present value of minimum lease payments
-
233,694
Present value of minimum lease payments due
- within one year
-
222,700
- in second to fifth year inclusive
-
10,994
-
233,694
Non-current liabilities
-
10,994
Current liabilities
-
222,700
-
233,694
13. Trade and other payables
Trade payables
193,369,402
203,237,822
Value added tax payable
19,669,657
16,999,529
Settlement control payable
355,583,018
323,693,181
Accruals
32,862,752
19,415,020
Other payables
8,457,115
3,336,746
609,941,944
566,682,298
Included in Settlement control payable balance are the following:
●
Client settlements owing in Cash Connect Collateral Holding Trust of ZAR329,647,593 (2021: ZAR310,664,337) which is ring-fenced
in the Special Purpose Vehicle.
●
Merchant settlements owing in Main Street 1723 Proprietary Limited of ZAR25,935,425 (2021: ZAR13,028,844).
14. Revenue
Sale of airtime vouchers, goods and transaction fees
4,516,676,406
3,708,273,929
Cash deposit fees
192,061,505
160,139,471
Rental income
257,032,285
227,622,176
Interest income
53,448,502
31,301,888
Cash in transit income
100,835,022
81,681,164
Risk fees
16,712,628
11,779,851
Minimum discount charges
948,174
2,233,900
Treasury interest income
13,951,856
11,581,541
5,151,666,378
4,234,613,920
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
Notes to the Combined Financial Statements for the years ended 28 February 2022 and 2021
Figures in Rand 2022 2021
26
15. Other income
Profit on sale of property, plant and equipment
323,971
57,141
Profit and loss on exchange differences
5,912
(53,836)
Management fees received from associate
1,176,000
1,873,298
Recoveries
1,366,366
-
Sundry income
1,948,348
7,691,257
Cost recovery income
116,564
10,525,136
Insurance recovery
2,621,200
13,224,417
Recoupments
25,151,130
4,479,421
Installation and maintenance income
18,730,839
11,520,932
Share of profits from associate
1,566,370
-
53,006,700
49,317,766
16. Operating profit
Operating profit for the year is stated after accounting for the following:
Operating lease charges
Premises
(10,135,982)
(8,927,413)
Equipment
(402,811)
(529,792)
(10,538,793)
(9,457,205)
Audit fees
(2,389,519)
(2,961,426)
Profit on exchange differences
174,671
53,836
Amortisation on intangible assets - included in operating expenses
(48,392,300)
(48,545,616)
Amortisation of goodwill
(41,052,926)
(41,201,420)
Depreciation on property, plant and equipment
(92,411,516)
(83,870,265)
Employee costs
(196,459,489)
(166,108,407)
Directors remuneration (included in employee cost)
(27,422,148)
(26,041,222)
Key management remuneration (excluding directors) (included in employee cost)
(6,769,395)
(14,903,409)
17. Finance income
Interest revenue
Cash balances
4,702,641
2,619,368
4,702,641
2,619,368
18. Finance expense
Interest Expense
Loans from related parties
-
1,115,363
Loans from financial institutions
65,667,839
70,415,874
Overdraft balances
9,703,366
488,568
SARS
51,350
-
Other related parties
-
14,761
75,422,555
72,034,566
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
Notes to the Combined Financial Statements for the years ended 28 February 2022 and 2021
Figures in Rand 2022 2021
27
19. Taxation
Major components of the tax expense
Current
Local income tax - current period
66,557,641
40,993,795
Local income tax - recognised in current tax for prior periods
(1,834,947)
(369,212)
Foreign income tax or withholding tax - current period
1,236,938
1,380,884
65,959,632
42,005,467
Deferred
Originating and reversing temporary differences
(19,366,595)
(15,611,705)
46,593,037
26,393,762
Reconciliation of the tax expense
Reconciliation between accounting profit and tax expense.
Accounting profit
129,473,394
60,500,473
Tax at the applicable tax rate of 28% (2021: 28%)
36,158,209
16,940,127
Tax effect of adjustments on taxable income
Non deductible expenses
3,971,164
918,489
Non deductible amortisation and impairment
11,777,258
9,096,000
Non-taxable income
(3,674,473)
(521,923)
Non deductible depreciation of leasehold improvements
124,272
151,591
Non deductible debt raising fees
-
129,849
Tax losses carried forward
71,554
48,841
Prior year (under)/over provision
(1,834,947)
(369,212)
46,593,037
26,393,762
The effective tax rate for Connect for the year is 36% (2021: 44%).
20. Cash generated from (used in
)
operations
Profit/ (loss) before taxation
129,473,394
60,500,473
Adjustments for:
Depreciation on property, plant and equipment
92,411,516
83,870,266
Interest received
(4,702,641)
(2,619,368)
Interest paid
75,422,555
71,838,449
Movement in foreign currency reserve
(351,290)
(130,282)
Amortisation of goodwill
41,052,926
41,201,420
Amortisation of intangible assets
48,392,300
48,545,616
Changes in working capital:
Inventories
(8,584,834)
(62,643,889)
Trade and other receivables
(116,349,133)
(41,155,977)
Trade and other payables
43,259,647
127,572,773
300,024,440
326,979,481
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
Notes to the Combined Financial Statements for the years ended 28 February 2022 and 2021
Figures in Rand 2022 2021
28
21. Tax refunded / (paid)
Balance at beginning of the year
(4,236,269)
(7,331,831)
Current tax for the year recognised in profit or loss
(65,959,632)
(42,005,467)
Balance at end of the year
3,247,145
4,236,269
(66,948,756)
(45,101,029)
22. Commitments
Operating lease
Minimum lease payments due
- within one year
7,697,015
4,126,681
- in second to fifth year inclusive
6,521,553
4,656,908
14,218,568
8,783,589
The above commitments relate to future commitments for cash charges and not the future accounting expense calculated on a straight -line
basis disclosed in profit or loss.
23. Related parties
Relationships
Common control company
Ovobix (RF) Proprietary Limited
Associates
Refer to note 5
Shareholders with significant influence
Futuregrowth Asset Management Proprietary Limited (acting on behalf of client funds)
Luxanio 227 Proprietary Limited
Members of key management
Richard Philips
Steven Heilbron
Neil Davis
Mark Templemore -Walters
Martin Wright
Ivan Epstein
Pieter Erasmus
Amrishsingh Narrandes
Christopher Meyer
Naeem Kola
Lincoln Mali
Related party balances and transactions with entities with control, joint control or significant influence over Connect
Related party balances
Loan accounts - Owing (to) by related parties
Ovobix (RF) Proprietary Limited
784,073
784,073
Leon de Wit
-
59,973
Amounts included in Trade receivables (Trade Payables) regarding related parties
Sandulela Technology Proprietary Limited
6,783,550
(8,520,822)
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
Notes to the Combined Financial Statements for the years ended 28 February 2022 and 2021
Figures in Rand 2022 2021
29
Related party transactions
Management fees (received from) paid to related parties
Sandulela Technology Proprietary Limited
(1,176,000)
(59,843)
Compensation to directors and other key management
Short-term employee benefits
34,191,543
41,024,666
24. Going concern
The directors believe that Connect has adequate financial resources to continue in operation for the foreseeable future and accordingly the
combined financial statements have been prepared on a going concern basis. The directors are satisfied that Connect is in a sound financial
position and that it has access to sufficient borrowing facilities to meet its foreseeable cash requirements. The directors are not aware of any
new material changes that may adversely impact Connect. The directors are also not aware of any material non-compliance with statutory or
regulatory requirements or of any pending changes to legislation which may affect Connect.
25. Events after the reporting period
Lesaka Technologies, Inc. transaction
On 14 April 2022, Lesaka, through its wholly owned subsidiary Net1 SA acquired all of the issued and outstanding ordinary shares of Ovobix
and Luxanio and 14.14% of CCMS and K2021 and together with Ovobix, Luxanio and CCMS. Each of Ovobix and Luxanio own 69.05%
and 16.81% of CCMS and K2021, respectively, and combined with the 14.14% referred to previously, Lesaka effectively owns 100% of
CCMS and K2021.
As part of the Lesaka Technologies, Inc. transaction, all the facilities with ABSA Limited were settled and replaced with new facilities
advanced by FirstRand Bank Limited (acting through its Rand Merchant Bank division).
Change in shareholding of Deposit Manager
There was a change in shareholding in that Deposit Manager's minority interests were purchased from shareholders on 14 April 2022, thus
making Deposit Manager a wholly-owned subsidiary of CCMS.
The directors are not aware of any other significant matter or circumstance arising since the end of the financial year and to the date of this
report that may materially affect the results of the group for the period reported or their financial position as at year end.
26. Commitments and guarantees
Guarantees provided to ABSA Limited
On 28 February 2020 CCMS acquired Main Street 1723 Proprietary Limited and its subsidiaries from Main Street 1722 Proprietary Limited
(part of the Paycorp Group) (“the Transaction”). In order to partly fund the Transaction, CCMS raised funding from ABSA Limited (“ABSA”)
to the value of ZAR500,000,000 (“Senior Debt”).
In order to facilitate the security requirement for such Senior Debt as required by the Finance Documents, the subsidiaries within the Connect
Group stood as guarantor for the obligations of CCMS to ABSA in terms of the funding arrangements.
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
Notes to the Combined Financial Statements for the years ended 28 February 2022 and 2021
30
As security for such obligations in favour of ABSA, CCMS has agreed to pledge the shares and securities held in the capital of each of its
subsidiaries and to cede in securitatem debiti of all of its rights, title and interest.
•
all and any claims of whatsoever nature and howsoever arising, whether actual, prospective or contingent, direct or indirect, whether a
claim for the payment of money (whether in respect of interest, principal or otherwise) or for the performance of any other obligation,
including, without limitation, all rights to any dividends and/or distributions made and/or claims on account of shareholders loans
whether on loan account or otherwise, which CCMS now or from time to time in the future has or will have against each company
that are subsidiaries;
•
all of the shares and securities in the capital of the company’s subsidiaries, of which it is or becomes the owner
from time to time or which may be issued or transferred to it, including the following -
Ø
all the shares of any class in the share capital of each subsidiary;
Ø
all other securities in the capital of each subsidiary (including any capitalisation shares or bonus shares issued in respect of the
shares referred to above); and
Ø
any securities issued in substitution or exchange for the securities in the aforementioned, including all dividends (whether paid
or unpaid), rights to dividends and voting rights in relation to those shares and securities; and
•
in relation to the rights listed above, the
Ø
any monies and proceeds (including the proceeds of a disposal or other realisation) accrued or receivable in respect of all or part
thereof;
Ø
all rights and benefits in respect of any agreement for the disposal or other realisation thereof; and
Ø
all contracts, warranties, remedies, security, indemnities and other undertakings in respect thereof.
Finance Document means:
•
the Common Terms Agreement
•
the Facility A Agreement
•
the Facility B Agreement
•
the Facility C Agreement
•
the Borrower Cession and Pledge;
•
the Obligor Cession;
•
the Shareholder Cession and Pledge;
•
the Target Cession and Pledge;
•
the Special Notarial Bond;
•
the Subordination Agreement;
•
the Option Agreement.
Guarantees provided to FirstRand Bank Limited
On 15 February 2021 Connect provided FirstRand Bank Limited (“FirstRand”) an unsecured limited guarantee (“the guarantee”) in respect
of the facility entered into between Connect and FirstRand. The guarantee shall be limited to a maximum aggregate amount of
ZAR10,000,000 and will become due and payable should there be any default on any of its payment obligations to FirstRand.
Inventories already contracted for but not provided for by Main Street 1723 Proprietary Limited
Inventories already contracted for but not provided for
36,055,951
36,702,666
Guarantees provided by Main Street 1723 Proprietary Limited Already contracted for but not
provided for
Syntell
200,000
200,000
Fundamental Holdings
530,716
530,716
City of Cape Town*
2,573,947
2,573,947
* City of Cape Town guarantee of ZAR2,573,946.76, Guarantor for the full amount is FirstRand Bank Limited. FirstRand Bank is
guaranteeing the sum on behalf of Sandulela Technology Proprietary Limited. The beneficiary of the guaranteed sum would be City of Cape
Town. Main Street 1723 Proprietary Limited ("Main Street 1723") indemnifies FirstRand for the entire guaranteed sum if the sum is released
to City of Cape Town. Nk Mvulana then indemnifies Main Street 1723 in the event that the sum is released in an amount equal to his prorata
shareholding at the time, currently 51% of amount released.
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
Notes to the Combined Financial Statements for the years ended 28 February 2022 and 2021
31
27. Reconciliation of certain financial information to US GAAP
These combined financial statements have been prepared in accordance with the basis of preparation as set out above in accordance with
IFRS for SMEs which differs in certain respects from accounting principles generally accepted in the United States of America (“US GAAP”).
The tables presented below provide a reconciliation of certain financial information prepared in accordance with IFRS for SMEs to US GAAP
as at and for the years ended 28 February 2022 and 28 February 2021.
Statement of Financial Position as at 28 February 2022
IFRS for SMEs
US GAAP
Figures in Rand
Note
2022
Adjustments
2022
Assets
Non-current assets
Property, plant and equipment
294,543,366
-
294,543,366
Operating lease right-of-use
(b)
-
11,601,815
11,601,815
Goodwill
(a)
328,327,404
84,086,044
412,413,448
Intangible assets
385,943,323
-
385,943,323
Investments in associates
1,169,157
-
1,169,157
Loans to shareholders
784,073
-
784,073
Deferred tax
13,537,492
-
13,537,492
1,024,304,815
95,687,859
1,119,992,674
Current assets
Inventories
175,452,924
-
175,452,924
Current tax receivable
6,241,191
-
6,241,191
Trade and other receivables
339,314,594
-
339,314,594
Cash and cash equivalents
580,302,053
-
580,302,053
1,101,310,762
-
1,101,310,762
Total assets
2,125,615,577
95,687,859
2,221,303,436
Equity and liabilities
Equity attributable to equity holders of parent
Foreign currency translation reserve
(515,614)
-
(515,614)
Other invested equity
(a)
464,170,919
84,086,044
548,256,963
Total invested equity attributable to Parent entities
463,655,305
84,086,044
547,741,349
Non-controlling interest
2,789,070
-
2,789,070
Total equity
466,444,375
84,086,044
550,530,419
Non-current liabilities
Loans from financial institutions
413,478,065
-
413,478,065
Operating lease liability - long-term
(b)
-
5,512,830
5,512,830
Deferred tax
90,089,089
-
90,089,089
503,567,154
5,512,830
509,079,984
Current liabilities
Loans from financial institutions
536,189,657
-
536,189,657
Current tax payable
9,472,370
-
9,472,370
Operating lease liability - current
(b)
-
6,894,104
6,894,104
Trade and other payables
609,941,943
(805,119)
609,136,824
Bank overdraft
78
-
78
1,155,604,048
6,088,985
1,161,693,033
Total liabilities
1,659,171,202
11,601,815
1,670,773,017
Total equity and liabilities
2,125,615,577
95,687,859
2,221,303,436
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
Notes to the Combined Financial Statements for the years ended 28 February 2022 and 2021
32
Statement of Financial Position as at 28 February 2021
IFRS for SMEs
US GAAP
Figures in Rand
Note
2021
Adjustments
2021
Assets
Non-current assets
Property, plant and equipment
269,354,718
-
269,354,718
Operating lease right-of-use
(b)
-
11,556,222
11,556,222
Goodwill
(a)
369,476,330
43,033,118
412,509,448
Intangible assets
434,125,522
-
434,125,522
Investments in associates
1,006,129
-
1,006,129
Loans to shareholders
844,046
-
844,046
Deferred tax
8,649,749
-
8,649,749
1,083,456,494
54,589,340
1,138,045,834
Current assets
Inventories
166,868,090
-
166,868,090
Current tax receivable
1,454,847
-
1,454,847
Trade and other receivables
222,965,461
-
222,965,461
Cash and cash equivalents
490,922,551
-
490,922,551
882,210,949
-
882,210,949
Total assets
1,965,667,443
54,589,340
2,020,256,783
Equity and liabilities
Equity attributable to equity holders of parent
Foreign currency translation reserve
(130,282)
-
(130,282)
Other invested equity
(a)
377,482,093
43,033,118
420,515,211
Total invested equity attributable to Parent entities
377,351,811
43,033,118
420,384,929
Non-controlling interest
3,271,904
-
3,271,904
Total equity
380,623,715
43,033,118
423,656,833
Non-current liabilities
Loans from financial institutions
735,907,015
-
735,907,015
Finance lease obligation
10,994
-
10,994
Operating lease liability - long-term
(b)
-
5,529,051
5,529,051
Deferred tax
104,697,320
-
104,697,320
840,615,329
5,529,051
846,144,380
Current liabilities
Loans from financial institutions
171,876,266
-
171,876,266
Current tax payable
5,641,771
-
5,641,771
Finance lease obligation
222,700
-
222,700
Operating lease liability - current
(b)
-
6,612,848
6,612,848
Trade and other payables
566,682,297
(585,677)
566,096,620
Bank overdraft
5,365
-
5,365
744,428,399
6,027,171
750,455,570
Total liabilities
1,585,043,728
11,556,222
1,596,599,950
Total equity and liabilities
1,965,667,443
54,589,340
2,020,256,783
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
Notes to the Combined Financial Statements for the years ended 28 February 2022 and 2021
33
Notes
(a)
Goodwill is not amortized under US GAAP, and the adjustment is made to reverse the goodwill amortization recognised under IFRS for
SMEs.
(b)
Under US GAAP, a company is required to determine whether an arrangement is a lease at inception. A lessee is required to classify a
lease as an operating or a finance lease. In respect of leases recognised as operating leases, right of-use assets (“ROU”), and operating
lease liabilities are recognised in the consolidated statements of financial position .
A ROU asset represents the company’s right to use an underlying asset for the lease term and the lease liabilities represent its obligation
to make lease payments arising from the lease arrangement. Operating lease ROU assets and liabilities are recognized at commencement
date based on the present value of lease payments over the lease term. As most of the company’s leases do not provide an implicit rate,
the company generally uses its incremental borrowing rate based on the estimated rate of interest for collateralized borrowing over a
similar term as the lease payments at commencement date. The operating lease ROU asset also includes any lease prepayments made and
excludes lease incentives. The terms of the company’s lease arrangements may include options to extend or terminate the lease when it is
reasonably certain that the company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over
the lease term.
IFRS for SMEs does not require the recording of an operating lease ROU and operating lease liability, and an adjustment is made to
record such amounts under US GAAP. In recognising the ROU Connect accounted for all components in a lease arrangement as a single
combined lease component as permitted under US GAAP. There is no tax implication arising from this adjustment since the lease expense
is still recognised on a straight-line basis over the lease term under US GAAP.
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
Notes to the Combined Financial Statements for the years ended 28 February 2022 and 2021
34
Statement of Profit or Loss and Other Comprehensive Income for the year ended 28 February 2022
IFRS for SMEs
US GAAP
Figures in Rand
Note
2022
Adjustments
2022
Revenue
5,151,666,378
-
5,151,666,378
Cost of sales
(4,582,035,806)
-
(4,582,035,806)
Gross profit
569,630,572
-
569,630,572
Other income
53,006,700
-
53,006,700
Operating expenses
(a)
(422,443,964)
41,052,926
(381,391,038)
Operating profit
200,193,308
41,052,926
241,246,234
Finance income
4,702,641
-
4,702,641
Interest paid
(75,422,555)
-
(75,422,555)
Profit before taxation
129,473,394
41,052,926
170,526,320
Taxation
(46,593,037)
-
(46,593,037)
Profit after tax
82,880,357
41,052,926
123,933,283
Profit for the year
82,880,357
41,052,926
123,933,283
Other comprehensive income
(385,332)
-
(385,332)
Total comprehensive income for the year
82,495,025
41,052,926
123,547,951
Total comprehensive income/(loss)
Owners of the parent
(a)
80,829,962
41,052,926
121,882,888
Non-controlling interest
(a)
1,665,063
-
1,665,063
Total comprehensive income for the year
82,495,025
41,052,926
123,547,951
Profit/(loss) attributable to:
Owners of the parent
(a)
81,215,294
41,052,926
122,268,220
Non-controlling interest
(a)
1,665,063
-
1,665,063
82,880,357
41,052,926
123,933,283
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
Notes to the Combined Financial Statements for the years ended 28 February 2022 and 2021
35
Statement of Profit or Loss and Other Comprehensive Income for the year ended 28 February 2021
IFRS for SMEs
US GAAP
Figures in Rand
Note
2021
Adjustments
2021
Revenue
4,234,613,920
-
4,234,613,920
Cost of sales
(3,819,036,705)
-
(3,819,036,705)
Gross profit
415,577,215
-
415,577,215
Other income
49,317,766
-
49,317,766
Operating expenses
(a)
(334,979,310)
41,201,420
(293,777,890)
Operating profit
129,915,671
41,201,420
171,117,091
Finance income
2,619,368
-
2,619,368
Interest paid
(72,034,566)
-
(72,034,566)
Profit before taxation
60,500,473
41,201,420
101,701,893
Taxation
(26,393,762)
-
(26,393,762)
Profit after tax
34,106,711
41,201,420
75,308,131
Profit for the year
34,106,711
41,201,420
75,308,131
Net loss
(130,282)
-
(130,282)
Total comprehensive income for the year
33,976,429
41,201,420
75,177,849
Total comprehensive income/(loss)
Owners of the parent
(a)
34,523,163
41,201,420
75,724,583
Non-controlling interest
(a)
(546,734)
-
(546,734)
Total comprehensive income for the year
33,976,429
41,201,420
75,177,849
Profit/(loss) attributable to:
Owners of the parent
(a)
34,653,445
41,201,420
75,854,865
Non-controlling interest
(a)
(546,734)
-
(546,734)
34,106,711
41,201,420
75,308,131
Notes
(a)
Goodwill is not amortized under US GAAP, and the adjustment is made to reverse the goodwill amortization recognised under IFRS for
SMEs.
Connect
Combined Audited Financial Statements for the years ended 28 February 2022 and 2021
Notes to the Combined Financial Statements for the years ended 28 February 2022 and 2021
36
Statement of Cash Flows for the years ended 28 February 2022 and 28 February 2021
No significant adjustments were required to the statement of cash flows if U.S. GAAP had been applied instead of IFRS for SMEs. The
following was noted with regard to the adjustments above:
The reversal of goodwill amortization will have no net impact on the Cash generated from operations as the increase in profit before taxation
will be offset by the absence of a corresponding adjustment for non-cash items. The recognition of an operating lease right of use asset and
lease liability in accordance with US GAAP will not require significant adjustment to the Statement of Cash Flows.
ASC 842 requires lessees to report the single expense associated with an operating lease as an operating activity and operating lease payments
should be classified as operating activities. Under ASC 842, both a right-of-use asset and lease liability are recorded as separate line items
on the balance sheet for operating leases. Changes in right-of-use assets and lease liabilities arising from lease expense would be reported
separately consistent with the balance sheet presentation, by presenting the amortization of the right-of-use asset as a non-cash adjustment
from net income and the change in the lease liability due to cash payments as a change in operating assets and liabilities. This is therefore
consistent with the existing treatment under IFRS for SMEs where the cash flow impact of operating leases is presented within operating
activities.
*****************************