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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
10-K
(Mark One)
☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended
June 30, 2021
OR
☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND
EXCHANGE ACT OF 1934
For the transition period from
To
Commission file number:
000-31203
NET 1 UEPS TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
Florida
98-0171860
(State or other jurisdiction
(IRS Employer
of incorporation or organization)
Identification No.)
President Place
,
4th 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
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange
on which registered
Common stock, par value $0.001 per share
UEPS
NASDAQ
Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
Indicate by check
mark if the
registrant is a
well-known seasoned issuer, as
defined in Rule
405 of the
Securities
Act.
Yes
☐
No
☒
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d)
of
the
Act.
Yes
☐
No
☒
Indicate by check mark whether
the registrant (1) has filed
all reports required to be
filed by Section 13 or
15(d)
of
the
Securities
Exchange
Act
of
1934
during
the
preceding
12
months
(or
for
such
shorter
period
that
the
registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.
Yes
☒
No
☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data
File required
to
be
submitted
pursuant
to
Rule
405
of
Regulation
S-T
(§232.405
of
this
chapter)
during
the
preceding
12
months (or for such shorter period that the registrant was required to submit such files).
Yes
☒
No
☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated
filer, smaller
reporting company
or an
emerging growth
company. See the
definitions of
“large accelerated
filer,”
“accelerated
filer,”
“smaller
reporting
company,”
and
“emerging
growth
company”
in
Rule 12b-2
of
the
Exchange Act (check one):
☐
Large accelerated filer
☒
Accelerated filer
☐
Non-accelerated filer
☒
Smaller reporting company
☐
Emerging growth company
If an
emerging
growth company,
indicate by
check mark
if the
registrant has
elected not
to use
the extended
transition
period for
complying with
any new
or revised
financial
accounting standards
provided pursuant
to
Section 13(a) of the Exchange Act.
☐
Indicate
by
check
mark
whether
the
registrant
has
filed
a
report
on
and
attestation
to
its
management’s
assessment
of
the
effectiveness
of
its
internal
control
over
financial
reporting
under
Section
404(b)
of
the
Sarbanes-Oxley Act
(15
U.S.C.
7262(b)) by
the registered
public
accounting firm
that prepared
or
issued its
audit report.
☒
Indicate by
check mark
whether the
registrant is
a shell
company (as
defined in
Rule 12b-2
of the
Exchange
Act). Yes
☐
No
☒
The
aggregate
market
value
of
the
registrant’s
common
stock
held
by
non-affiliates
of
the
registrant
as
of
December
31,
2020
(the
last
business
day
of
the registrant’s
most
recently completed
second fiscal
quarter),
based upon the closing price of the common stock as reported by The NASDAQ Global Select Market on such
date, was $
177,551,120
. This calculation
does not reflect
a determination that
persons are affiliates
for any other
purposes.
As of September 6,
2021,
56,996,214
shares of the registrant’s
common stock, par value
$0.001 per share, net
of treasury shares, were outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Certain
portions
of
the
definitive
Proxy
Statement
for
our
2021
Annual
Meeting
of
Shareholders
are
incorporated by reference into Part III of this Form 10-K.
1
NET 1 UEPS TECHNOLOGIES, INC
INDEX TO ANNUAL REPORT ON FORM 10-K
Year
Ended June 30, 2021
Page
PART
I
Item 1.
Business
2
Item 1A.
Risk Factors
8
Item 1B.
Unresolved Staff Comments
21
Item 2.
Properties
21
Item 3.
Legal Proceedings
22
Item 4.
Mine Safety Disclosures
23
PART
II
Item 5.
Market for Registrant’s Common equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
24
Item 6.
Selected Financial Data
26
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
28
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
52
Item 8.
Financial Statements and Supplementary Data
54
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosures
55
Item 9A.
Controls and Procedures
55
Item 9B.
Other Information
57
PART
III
Item 10.
Directors, Executive Officers and Corporate Governance
58
Item 11.
Executive Compensation
58
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
58
Item 13.
Certain Relationships and Related Transactions, and Director Independence
58
Item 14.
Principal Accountant Fees and Services
58
PART
IV
Item 15.
Exhibits and Financial Statement Schedules
59
Item 16.
Form 10-K Summary
62
Signatures
63
Financial Statements
2
PART
I
FORWARD
LOOKING STATEMENTS
In addition
to historical
information, this
Annual Report
on Form
10-K contains
forward-looking statements
that involve
risks
and uncertainties
that could
cause our
actual results
to differ
materially from
those projected,
anticipated or
implied in
the forward-
looking statements. Factors
that might cause or
contribute to such differences
include, but are not
limited to, those
discussed in Item
1A—“Risk Factors.”
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.
You
should not place undue reliance on these forward-looking statements,
which reflect our
opinions only as of
the date of this
Annual Report. We
undertake no obligation to
release publicly any revisions
to
the forward-looking
statements after
the date
of this
Annual Report.
You
should carefully
review the
risk factors
described in
other
documents we file
from time to time
with the Securities
and Exchange Commission,
or the SEC, including
the Quarterly Reports on
Form 10-Q to be filed by us during our 2022 fiscal year,
which runs from July 1, 2021 to June 30, 2022.
All references
to “the
Company,”
“we,” “us,”
or “our”
are references
to Net
1 UEPS
Technologies,
Inc. and
its consolidated
subsidiaries, collectively,
and all
references to
“Net1” are
to Net
1 UEPS
Technologies,
Inc. only,
except as
otherwise indicated
or
where the context indicates otherwise.
ITEM
1.
BUSINESS
Overview
Our
vision
is
to
build
and
operate
the
leading
South
African
full-service
fintech
platform
offering
payment
processing
and
financial services to underserved merchants and consumers.
Our
core
purpose
is
to
improve
people’s
lives
by
bringing
financial
inclusion
to
South
Africa’s
underbanked
customers
and
helping
small
businesses
access
the
financial
services
they
need
to
prosper.
We
will
achieve
this
through
our
unique
ability
to
efficiently digitize
the last
mile of financial
inclusion and
to provide
a full-service
fintech platform,
across cash
and digital, serving
the needs of both, while also facilitating the secular shift from cash to digital
that is taking place.
In South Africa,
our core competencies
are centered around
the provision of
low-cost financial services
to underserved consumers
and payment
processing.
We
have developed
and own
most of
our payment
technologies, and
we aim
to utilize
this technology
to
provide financial and value-added services to our customers by
including them into the formal financial system.
Low-cost
financial
services
to
consumers
—We
provide
a
suite
of
low-cost
financial
services
to
underserved
and
unbanked
customers today,
through a
combination of
digital and
brick-and-mortar distribution
platforms. We
provide unsecured
micro-credit,
transactional banking, funeral insurance and airtime and value-added
services.
Payment
processing
—
Our
core
technologies
leverage
biometric
authentication,
last
-
mile
distribution,
and
cash
handling/distribution to enable payments, while EasyPay is a transaction switch and bill payments platform. We also own and operate
POS and ATM
networks.
End-to-end
fintech
platforms
layer
multiple
services
into
their
merchant
and
consumer
propositions,
increasing
revenue
and
customer stickiness. We believe
our consumer proposition is well-positioned for organic growth, and we intend to rapidly expand our
cardholder base and our transacting network. Despite being well-positioned to serve the micro, small and medium-sized enterprise, or
MSME,
market,
our
MSME
merchant
offering
is
less
well-developed.
We
plan
to
substantially
grow
our
presence
in
the
MSME
merchant space through
a focus on building
a leading POS distribution
capability to MSMEs. We
will seek to achieve
this through a
combination of organic growth, acquisitions and partnerships,
as appropriate, in order to
accelerate the implementation of our
business
plan.
3
Building the Leading Full-Service Fintech Platform for South Africa
Market Opportunity
Secular
shift
to
electronic
payments:
Globally,
there
is
a
secular
shift
from
cash
and
checks
to
various
forms
of
electronic
payments and while
most developed economies
perform the
majority of their
consumer payments electronically, developing economies
remain
largely
cash
driven
countries.
South
Africa
too,
remains
predominantly
a
cash-based
economy,
with
an
estimated
60%
of
consumer payments made in cash.
Consumer financial services for the
unbanked:
Our focus is on the Living Standards
Measure, or LSM, 1-6 population in South
Africa, which represents approximately 26 million adults in the country. The total addressable market
for consumer financial services
is an estimated ZAR 57 billion including transactional banking,
short-term and unsecured lending, and insurance.
Total
Addressable Market for Consumer Financial Services in South Africa
for LSM 1-6
Source: South
African Reserve Bank Long-Term
Insurance Industry (2017), Solidarity
Bank Charges
Report (2019), Finscope South
Africa (2013), NCR
Consumer
Credit Report (2019)
4
Merchant payment
and financial services
for MSMEs:
Bill payments are
an attractive customer
acquisition channel and
we are
one of the leading
bill payment platforms in
South Africa. The total addressable
market for merchant payment
and financial services
is an estimated ZAR 100 billion including bill payments, merchant
payments, and merchant lending.
Total
Addressable Market for Merchant Payment and
Financial Services in South Africa for MSMEs
Source: Genisis Analytics (2018), BIS Data, Electrum, IFC Report (The Unseen
Sector – A report on the MSME Opportunity in South Africa)
We
believe there
is a
big opportunity
for neo-,
or challenger,
banks and
fintech companies
to improve
reach and
coverage for
MSMEs and accelerate access to, and reduce the cost of, banking and financial services. Estimates suggest that approximately 33% of
South Africa’s
700,000 formal MSMEs are unable
to accept electronic payments.
Tier 1 merchants are
actively serviced by the large
local
banks
while
Tier
2
to
4
merchants
are
underserved.
In
addition,
it
is
estimated
that
there
are
a
further
1.4
million
informal
merchants active in South Africa that have similar needs but are currently
largely ignored by the traditional market players.
Competition
We
intend to differentiate
our value proposition
for our end-users
by offering
a seamless financial
and technology platform
for
underserved
consumers
and
small
merchants
while
leveraging
a
multichannel
distribution
network.
In
South
Africa,
there
are
competitors
for
individual
products,
services
or technologies,
though
few,
if
any,
with an
end-to-end
offering,
particularly
for
our
target customer segments.
For consumers, there are
a number of
traditional and digital
providers of low-cost transactional
bank accounts and micro
financial
services. These
include the
large South
African banks
such as FNB,
Standard Bank,
Absa, Nedbank
and Capitec, the
South African
Post
Office,
or
SAPO,
and
digital
banks
such
as
Discovery
Bank,
African
Bank,
Tyme
and
Bank
Zero.
Other
financial
services
providers include Old Mutual, Sanlam, Capfin, Letsatsi, Bayport and
Finbond.
For
EasyPay,
our
South
African
transaction
processing
business,
competitors
include
BankservAfrica,
Pay@,
eCentric
and
Transaction Junction.
BankservAfrica is the
largest transaction processor
in South Africa, which
processes all transactions
on behalf
of the South African banks and processes more than 2.5 billion transactions
annually.
In
the
South
African
ATM
network
market,
we
compete
against
the
South
African
banks,
ATM
Solutions
and
Spark
ATM
Systems, which collectively have a market share in excess of 90%.
Intellectual Property
Our success depends
in part on our
ability to develop, maintain
and protect our intellectual
property.
We
rely on a combination
of patents, copyrights, trademarks and trade secret laws, as well as non-disclosure agreements to protect our intellectual property.
We
seek to protect new intellectual
property developed by us by filing
new patents worldwide. We hold a number of trademarks
in various
countries.
Human Capital Resources
We
have been able
to bring on
board high-caliber
individuals, from different
organizations, to
form our leadership
group. This
leadership group
is deeply committed
to building
a high-performance culture
that is based
on a foundation
of care and
development
for
our
people.
5
As such we are on path towards building an aspirational work environment
that is characterized by:
•
Open and honest engagements;
•
Flat organizational structures;
•
Humility and respect;
•
Embracing diversity,
inclusion and a sense of belonging;
•
A spirit of generosity for our people, customers and our communities;
•
A willingness to partner with our stakeholders towards common
goals;
•
A deep connection to our shared purpose of inclusive financial services; and
•
A culture of learning and curiosity.
Employee training and skills development
We strongly believe that learning
is an ongoing process and that the majority of learning is in the doing. As such, while we offer
a range of
formal programs (as
listed further below), more
importantly, we continue to build
a culture of
lifelong learning in everything
that we do.
Sustainable
employee
training and
development
programs impact
employee
retention,
and
we believe
that our
willingness to
invest
in
employee
development
contributes
to
employee
satisfaction
and
belonging.
This
increases
loyalty,
which
will
in
turn
contribute to employee retention. We
offer the following development programs to enhance employee
performance and skills:
•
unemployed and employed learnerships;
•
leadership development programs;
•
training programs;
•
mentorship programs;
•
other in-house and cross-functional training to aid with career advancement;
and
•
succession planning – training interventions.
Equal opportunity
Having an inclusive
and diverse workforce
which reflects our
economically active
population and society
in general, is
crucial
for helping the organization attract and retain talent and is important for long-term organizational
success. Our human resources team
emphasizes recruiting
and retaining
a talented
and diverse
workforce
with special
focus on
hiring previously
disadvantaged groups
whenever possible. We
are committed to hiring qualified candidates without
regard to their personal status, while taking into account
the
unique
circumstances
affecting
our
operations
in
South
Africa
and
the
need
to
uplift
previously
disadvantaged
groups.
This
commitment extends to all levels of our organization,
including within senior management and our board of directors.
As of June 30, 2021, the composition of our workforce was:
•
54% female and 46% male;
•
41% between 18 and 34 years old, 56% between 35 and 54 years old, and 3% over
55 years old; and
•
76% Black, 14% two or more races, 5% Indian and 5% White.
We have no
female named executive officers.
In the
last year
we have
taken positive
strides to
help build
a more
inclusive workforce
and to
enhance our
pay structures
by
taking
measures
to eliminate
potential
discrimination
in our
pay
structures
and
to help
close gender
pay
gaps in
order to
progress
towards gender equality
at work. We
have implemented a
job evaluation system that
allows the corporate
hierarchy and functions
to
be mapped
out in
an objective
manner.
In this
way,
remuneration levels
can be
set for
every function
with reference
to the
external
market, and people in similar functions can be paid equally.
Employee compensation programs
We
are committed to
ensuring that
all of
our employees
are paid
fair and
competitive remuneration.
To
that end,
we offer the
following to our employees:
•
Access to a comprehensive medical, dental, and vision plan that our
employees have the option to join;
•
Access to a defined contribution retirement plan that our employees have
the option to join;
•
Paid sick, annual and family responsibility leave;
•
Maternity benefits;
•
Life and disability insurance coverage;
•
Employee assistance programs; and
•
Product
discounts.
6
Annual
increases
and
incentive
compensation
are
based
on
merit,
which
is
communicated
to
employees
upon
hire
and
documented as part of our annual performance review process.
Our number of employees allocated on a segmental basis as of the years ended June
30, is presented in the table below:
Number of employees
2021
2020
2019
Management
164
167
179
Processing
(1)
1,108
1,141
1,227
Financial services
1,778
1,531
1,443
Technology
29
36
40
Total
3,079
2,875
2,889
(1) Processing includes employees allocated to corporate/ eliminations
activities.
On a
functional basis,
three of
our employees
were part
of executive
management, 17
were employed
in sales
and marketing,
116
were
employed
in
finance
and
administration,
175
were
employed
in
information
technology
and
2,768
were
employed
in
operations.
Health and safety laws and regulations
We
are
subject
to various
South
African
laws and
regulations
that
regulate
the health
and
safety of
our
South
African-based
workforce, including
those laws monitored
by the
South African
Department of
Employment and
Labour which
stipulates the
legal
framework within which we need to function. This framework comprises
the Occupational Health and Safety Act, Act 85 of 1993, or
OHSA,
the
Compensation
for
Occupational
Injuries
and
Diseases
Act,
Act
130
of
1993,
or
COIDA,
the
Basic
Conditions
of
Employment
Act, Act
75 of
1997, or
BCEA and
the Labour
Relations Act,
Act 66
of 1995,
or LRA.
Compliance with
COVID-19
regulations remains
regulated by
the National
Institute of
Occupational
Health, or
NIOH, and
the Occupational
Health Surveillance
System, or
OHSS, the
Centre for
Scientific Industrial
Research, or
CSIR and
the National
Institute for
Communicable Diseases,
or
NICD.
People
are ultimately
the most
important
assets in
any organization,
therefore successfully
managing health
and safety
in the
workplace remains paramount. Successfully managing health and safety in the workplace relies
on commitment, consultation, and co-
operation.
In order to maintain OHSA compliance, we ensure that:
•
Internal health and safety policies remain regularly updated and accessible
to all staff;
•
All departments/branches keep a summary of applicable Health and Safety legislation and display a
summary of such at their
respective premises for ease of reference;
•
Each of
our branches
has a
designated health
and safety
representative, a
first aider
and fire
marshal tasked
with ensuring
compliance as well as being able to assist in an emergency situation when required, each of whom is trained every two years
as per stipulated regulations.
•
Every
branch
manager
is
a
delegated
assistant
to
our
Chief
Executive
Officer:
Southern
Africa
who
ensures
OHSA
compliance and
that employees
have the
necessary knowledge
and understanding
of applicable
health and
safety rules and
procedures.
•
Quarterly inspections are
conducted by delegated officials
at the respective branches
so as to report
on any non-compliance
or health and safety issues which need tending to.
•
Quarterly meetings are conducted with our National Health and Safety Officer to
report in on company-wide compliance and
any health and safety issues which require tending to.
•
Managers are trained in in the correct reporting procedures and proper
incident/ accident investigation.
Our Executive Officers
The table below presents our executive officers, their
ages and their titles:
Name
Age
Title
Chris G.B. Meyer
50
Group Chief Executive Officer and Director
Alex M.R. Smith
52
Chief Financial Officer,
Treasurer, Secretary,
and Director
Lincoln C. Mali
53
Chief Executive Officer: Southern Africa
Chris
G.B.
Meyer
has
been
our
Group
Chief
Executive
Officer
of
since
July
1,
2021.
Prior to
joining
Net1, Mr.
Meyer
was
the Head of
Corporate &
Investment Banking
and Joint
Managing Director
at Investec
Bank Plc,
an LSE-listed
specialist bank
and
wealth
manager,
having
served
in
many
different
roles
within
the Investec
Group
since
2001.
He
was
also
an
executive
director
for various
international
and
regional
subsidiaries
of
Investec
Bank
Plc.
Mr.
Meyer
is
a member
of
the
South
African
Institute
of
Chartered Accountants,
holds an MSc
Finance from
the London
Business School and
a Post Graduate
Diploma in
Accounting from
the University of Cape Town.
7
Alex M.R. Smith
has been our
Chief Financial Officer,
Treasurer and
Secretary since March 1,
2018. Prior to
joining Net1, Mr.
Smith was employed
by Allied Electronics
Corporation Limited, or
Altron, a JSE-listed
company, from 2006 to 2018
and, from August
2008 until
February 2018,
served as a
director and
its Chief Financial
Officer.
Prior to joining
Altron, Mr.
Smith worked in
various
positions at
PricewaterhouseCoopers
in Edinburgh,
Scotland and
Johannesburg
from 1991
to 2005.
Mr.
Smith holds
a Bachelor
of
Law (Honours) degree from the University of Edinburgh
and is a member of the Institute of Chartered Accountants of Scotland.
Lincoln
C.
Mali
has
been
our
Chief
Executive
Officer:
Southern
Africa
since
May
1,
2021.
Mr.
Mali
is
a
financial
services
executive with over 25 years in the
industry. Until April 2021, he was the Head of Group Card
and Payments at Standard Bank Group,
and previously
served in many
different roles
within that organization
since 2001. Mr.
Mali chaired the
board of directors
of Diners
Club South Africa until
April 2021, and was
a member of the Central
and Eastern Europe, Middle
East and Africa Business
Council
for Visa. Mr.
Mali holds Bachelor of Arts (BA) and Bachelor of Laws (LLB) degrees from Rhodes University,
an MBA from Henley
Management College, various diplomas and attended an Advanced
Management Program at Harvard Business School.
Financial Information about Geographical Areas and Operating Segments
Note 20
to our
audited consolidated
financial statements
included in
this annual
report contains
detailed financial
information
about
our
operating
segments
for
fiscal
2021,
2020
and
2019.
Revenues
based
on
the
geographic
location
from
which
the
sale
originated and geographic location where long-lived assets are
held for the years ended June 30,
are presented in the table below:
Revenue
(R)
Long lived assets
2021
2020
2019
2021
2020
2019
$'000
$'000
$'000
$'000
$'000
$'000
South Africa
127,468
139,258
150,793
50,754
68,521
141,235
South Korea
-
-
-
-
-
149,390
Liechtenstein (Bank Frick)
-
-
-
-
29,739
47,240
India (MobiKwik)
-
-
-
76,297
26,993
26,993
Rest of the world
3,318
5,041
9,842
6,962
9,119
9,739
Total
130,786
144,299
160,635
134,013
134,372
374,597
(R) South
Africa and
total amounts
for 2020
and 2019
have been
restated by
$ 6,698
and $
5,592, respectively,
to correct
the
misstatement discussed in Note 1 to our audited consolidated financial
statements.
Corporate history
Net1 was incorporated in Florida in May 1997. In
2004, Net1 acquired Net1 Applied Technology
Holdings Limited, or Aplitec,
a public company listed on the Johannesburg Stock Exchange, or JSE. In 2005, Net1 completed an initial public
offering and listed on
the NASDAQ Stock Market. In 2008, Net1 listed on the JSE
in a secondary listing, which enabled the former Aplitec shareholders (as
well as South African residents generally) to hold Net1 common stock directly.
Available information
We
maintain a website
at www.net1.com.
Our annual report on
Form 10-K, quarterly reports
on Form 10-Q, current
reports on
Form 8-K, and
amendments to those
reports, as well
as our proxy statements,
are available free
of charge
through the “SEC filings”
portion of our website, as soon
as reasonably practicable after they are filed
with the SEC. The information contained
on, or accessible
through, our website is not incorporated into this Annual Report on Form
10-K.
The SEC
maintains a
website at
www.sec.gov
that contains
reports, proxy
and information
statements, and
other information
regarding issuers that file electronically with the SEC.
8
ITEM 1A. RISK FACTORS
OUR OPERATIONS
AND FINANCIAL
RESULTS
ARE SUBJECT
TO VARIOUS
RISKS AND
UNCERTAINTIES,
INCLUDING
THOSE
DESCRIBED
BELOW,
THAT
COULD
ADVERSELY
AFFECT
OUR
BUSINESS,
FINANCIAL
CONDITION, RESULTS
OF OPERATIONS,
CASH FLOWS, AND THE TRADING PRICE OF OUR COMMON
STOCK
Risks Relating to Our Business
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.
Our 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
3, which
has a limited
impact on
our businesses.
However,
the pandemic
did impact our
insurance business during fiscal 2021 as we
experienced a higher level of benefit
claims. Should there be further increases
in mortality
rates across our customer base, we may see an increase in funeral policy
claim payouts.
Some of
our employees
continue to
work from
home following
the publication
of government-supported
initiatives to
combat
the spread
of COVID-19.
As a result
of the work
from home environment,
we face additional
challenges providing
employees with
secure
remote
access
to
computer
networks
as
well
as
initiating
and
accepting
instructions
via
e-mail
or
other
electronic
media.
Although the
government initiatives are
not mandatory,
we believe that
our business activities
may be
adversely impacted if
stricter
restrictions are reintroduced to combat the spread of the pandemic.
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.
As of September 7, 2021,
the government reported that 13.9
million
doses had been administered and approximately 10.2 million people (26%
of the adult population)
were fully vaccinated. The pace of
the government’s
vaccination rollout
program is seen
as critical to
the re-opening
of the South
African economy.
Failure to achieve
rollout targets
could result
in further
COVID-19 outbreaks,
with detrimental
consequences for
the South
African economy,
and our
business.
Following a
comprehensive strategic review,
we have
decided to
prioritize Southern
Africa as our
core
market. Our
future success,
and our
ability to
return to
profitability and
positive cash
flow is
substantially
dependent on our ability to implement this strategy successfully.
Our board conducted an extensive review
of our business strategy and operations
in July 2020, and decided
to focus on our
South
African operations
and other
business opportunities
in South
Africa and,
to a
lesser extent,
the rest
of the
African continent,
and to
exit or
reduce our
presence in
other geographies.
Our future success
will depend
on our
ability to
effectively and
efficiently deploy
the significant levels of cash
generated from our dispositions. Therefore,
we cannot assure you that we will
be able to implement our
new strategy successfully and return to profitability and positive
cash flow.
Even if we do return to profitability, achieving net income does not necessarily
ensure positive cash flows. Future periods of net
losses
from
operations
could
result
in
negative
cash
flow
and
may
hamper
ongoing
operations
or
prevent
us
from
sustaining
or
expanding our business. We cannot assure you that we will achieve, sustain or increase profitability in the future and if we do not, our
business will be materially and adversely affected.
Additionally,
our
reputation
in South
Africa has
been
tarnished
as a
result
of public
accusations,
which
accusations
we have
publicly denied and believe
have no merit,
against us for
illegally providing our
services and defrauding social
welfare grant recipients.
We have
attempted to refute these allegations
and have appointed a
public relations firm to
assist us in communicating
effectively to
the public
and our
stakeholders
that our
business practices
comply
with South
African law
and
are fair
to the
social welfare
grant
recipients who
purchase the financial
services products
that we offer.
If we are
unable to communicate
this persuasively,
our ability
to successfully execute our new strategy may be adversely affected.
We
face
challenges
in
transforming
our
South
African
operations
to
a
business-to-consumer
model
through our various bank account products and ATM infrastructure.
Following the conclusion of our contract with
SASSA, we refocused our resources and technology
on the provision of financial
inclusion services
to our target
market and
currently have an
established base
of approximately
one million
customers. Our strategy
involves expanding this base to at least three million customers over the next three years. While we believe that our financial services
offerings are convenient and cost-effective, the success of our strategy will depend on the extent to which we successfully market our
offering
to
grow
the
customer
base.
9
Factors that
may prevent
us from
successfully
operating
and further
expanding
our South
African
financial services
business
include, but are not limited to:
•
insufficient adoption and utilization of our products and
services;
•
inability to access sufficient funding for our ATM
infrastructure;
•
increased competition in the
marketplace and restrictions imposed
by SASSA or
the South African
government on the
manner
in which grant recipients may transact;
•
political interference and changes in the regulatory environment;
•
further civil unrest similar to that experienced in July 2021;
•
loss of key technical and operations staff; and
•
logistical and communications challenges.
We may undertake acquisitions
that could
increase our
costs or
liabilities or
be disruptive
to our
business.
Acquisitions are
an integral part
of our new
growth strategy
as we seek
to expand our
business and deploy
our technologies
in
new markets
in Southern
Africa. However,
we may
not be
able to
locate suitable
acquisition
candidates at
prices that
we consider
appropriate.
If
we
do
identify an
appropriate
acquisition
candidate,
we
may
not be
able to
successfully
negotiate
the
terms
of
the
transaction, finance it or,
if the
transaction occurs, integrate the
new business into
our existing business.
These transactions may
require
debt financing or additional equity financing, resulting in additional
leverage or dilution of ownership.
Acquisitions of businesses
or other material
operations and the
integration of these
acquisitions or their
businesses will require
significant attention
from members
of our senior
management team,
which may
divert their
attention from
our day-to-day
business.
The difficulties
of integration
may be
increased by
the necessity
of integrating
personnel with
disparate business
backgrounds
and
combining
different
corporate cultures.
We
also may
not be
able to
retain key
employees or
customers
of an
acquired business
or
realize
cost
efficiencies
or
synergies
or
other
benefits
that
we
anticipated
when
selecting
our
acquisition
candidates.
Acquisition
candidates may have liabilities or adverse operating issues that we fail
to discover through due diligence prior to the acquisition.
We
may
need
to record
write-downs
from future
impairments of
goodwill or
other intangible
assets, which
could reduce
our
future
reported
earnings.
During
fiscal
2020
and
2019,
we
recognized
impairment
losses
of
$6.3
million
and
$14.4
million,
respectively.
A prolonged economic
slowdown or lengthy
or severe recession
in South Africa
or elsewhere could
harm
our operations.
A prolonged economic
downturn or recession
in South Africa
could materially
impact our results
from operations, particularly
in light
of the
COVID-19 pandemic,
recent social
unrest in
South
Africa and
our strategic
decision
to focus
on our
South African
operations.
Economic
confidence
in
South
Africa,
our
main operating
environment,
is currently
low and,
as a
result, the
risk
of a
prolonged
economic
downturn
is
enhanced,
which
could
have
a
negative
impact
on
mobile
phone
operators,
our
cardholders
and
retailers
and/or
reduce
the
level
of
transactions
we
process,
the
take-up
of
the
financial
services
we
offer
and
the
ability
of
our
customers
to
repay
our
microloans
or
to
pay
their
insurance premiums.
If
financial
institutions
and
retailers
experience
decreased
demand for their products and services, our hardware, software and related
technology sales could decrease.
Our investment in MobiKwik
subjects us to certain
risks, including the possibility
of fluctuations in the
carrying value based on readily determinable fair values. In addition, our ability to dispose of our interest in
MobiKwik on acceptable terms, or at all, may be limited under certain circumstances.
We
have elected to
account for our investment
in MobiKwik 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 because it does
not
have a readily determinable fair value. The determination of the fair value of an investment requires us to make significant judgments
and estimates and we are required to
base our estimates on assumptions which we
believe to be reasonable, but these
assumptions may
be unpredictable and inherently
uncertain. The value of
our investment in MobiKwik
as of June 30, 2021
was $76.3 million and was
determined based
on a
share issuance
concluded
by MobiKwik
in June
2021, implying
a fair
value per
share of
$245.50. We
have
recorded a non-cash fair value adjustment of $49.3 million during
the year ended June 30, 2021.
We
may
need to
record a
write-down of
the carrying
value of
our investment
in MobiKwik
in the
future (i)
if it
is unable
to
successfully complete its contemplated initial public offering, (ii) due to fluctuations in its market price upon listing, including during
the 12 month
lock up period
after its initial
public offering,
or (iii) if
it has not
listed, there is
an observable
transaction indicating
a
fair value per
share which is
lower than our
June 30, 2021
price per share.
Furthermore, it may
be difficult
to dispose of some
or all
of our investment on acceptable terms, if at all, if MobiKwik fails to list.
10
Our
ability
to
fund
our
ATM
network
requires
that
we
continue
to
have
access
to
sufficient
lending
facilities, which require compliance with restrictive and financial covenants.
The expansion
of our
ATM
network, along
with an
increase in
our consumer
banking client
base, necessitates
access to
large
amounts of
cash to
stock the
ATMs
and maintain
uninterrupted service
levels. We
have credit
facilities from
South African
banks
which includes security arrangements as
well as restrictive and
financial covenants. The security arrangements
and covenants included
in our lending facilities 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 the covenants
in South Africa,
we could be
in default and
the indebtedness
could be accelerated.
If
this 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.
We may not be able to extend the terms
of these debt facilities or
refinance them, in each case, on
commercially reasonable terms
or at all. Our
ability to continue the
uninterrupted operation of
our ATM
network will be adversely
impacted by our failure
to renew
our debt facilities, any adverse change to the terms
of our credit facilities, or a
significant reduction in the amounts available under our
credit facilities,
or our
failure to
increase our
facilities if
required. We
may also
suffer reputational
damage if
our service
levels are
negatively impacted due to the unavailability of cash.
We may be unable to recover the carrying value of certain
Cell C airtime that we own
which is subject to
resale restrictions.
We
own a
substantial amount
of Cell
C airtime
inventory ($16.4
million translated
at exchange
rates applicable
as of June
30,
2021). In support
of Cell C’s
liquidity position,
we are limiting
our resale of
this airtime to
our own distribution
channels until such
time as Cell C’s recapitalisation
process is concluded, which exposes us to market risk for this inventory.
Due to wholesale discounts
in the distribution
market for this
airtime, it
is not readily
saleable in
the current
market without
realising a loss.
In light
of this, we
recorded a
loss of
$1.3 million
during fiscal
2020, related
to this
airtime inventory.
Whilst no
further losses
were recorded
in fiscal
2021,
we may
be required
to record
further
losses in
the future
or we
may
be unable
to recover
the carrying
value
of this
airtime
inventory
as a
result of
the business
failure
of Cell
C. Failure
to recover
the carrying
value of
this inventory
may
have a
material
adverse effect on our results of operations or financial
condition.
Our
microlending
loan
book
exposes
us
to
credit
risk
and
our
allowance
for
doubtful
finance
loans
receivable may not be sufficient to absorb future write-offs.
All of
our microfinance
loans made
are for
a period
of six
months or
less. We
have created
an allowance
for doubtful
finance
loans receivable related to this book. When creating the
allowance, management considered factors including the period of the
finance
loan
outstanding,
creditworthiness
of
the
customers
and
the
past
payment
history
of
the
borrower.
We
consider
this
policy
to
be
appropriate as it takes into account factors such as historical bad debts, current economic trends and changes in
our customer payment
patterns. However, additional allowances may be required should the ability of our customers to make payments when due deteriorate
in the future.
In particular,
we cannot predict
the impact the
COVID-19 pandemic
may have on
collections, though
to date we
have
not
experienced
any
material
deterioration
in collection
rates.
A significant
amount
of
judgment
is required
to
assess
the
ultimate
recoverability of these microfinance loan receivables.
We may face competition from other
companies that offer innovative
payment technologies and payment
processing,
which
could
result
in
the
loss
of
our
existing
business
and
adversely
impact
our
ability
to
successfully market additional products and services.
Our primary competitors in
the payment processing market
include other independent processors,
as well as
financial institutions,
independent
sales
organizations,
new
digital
and
fintech
entrants
and,
potentially
card
networks.
Many
of
our
competitors
are
companies who
are larger
than we
are and
have greater
financial and
operational resources
than we
have. These
factors may
allow
them to offer better pricing
terms or incentives to customers, which
could result in a loss of our potential
or current customers and/or
force us to lower our prices. Either of these actions could have a significant
effect on our revenues and earnings.
11
Our
future
success
will
depend
in
part
on
our
ability
to
attract,
integrate,
retain
and
incentivize
key
personnel
and
a
sufficient
number
of
skilled
employees,
particularly
in
the
technical,
sales
and
senior
management areas.
Our group has undergone a significant change in management over the last twelve months, with various long-serving executives
having resigned from the organization. Therefore, we are in the process of building a new
management team with the right experience
and skills to execute on our new strategic direction. Further, in order to succeed in
our product development and marketing efforts, we
need to identify, attract, motivate and retain sufficient numbers of qualified technical and sales personnel. As a result, we must attract,
retain and motivate a number of highly-qualified and experienced employees and an inability
to hire and retain such employees would
adversely
affect
our
ability
to
enhance
our
existing
intellectual
property,
to
introduce
new
generations
of
technology
and
to
keep
abreast of
current developments
in technology.
We
may face
difficulty
in managing
the transition
to a
new management
team and
assimilating
our
newly-hired
personnel,
which
may
adversely
affect
our
business.
Competitors
may
attempt
to
recruit
our
top
management and employees.
In order to attract
and retain personnel
in a competitive
marketplace, we must
provide competitive pay
packages, including cash
and equity-based compensation
and the volatility in
our stock price may
from time to time
adversely affect
our ability to recruit or
retain employees. We
do not maintain any
“key person” life insurance policies.
If we fail to attract, integrate,
retain and
incentivize key
personnel and
skilled employees,
our ability
to manage
and grow
our business
could be
harmed and
our
product development and marketing activities could be negatively affected.
System failures, including breaches in the security of our system, could harm our business.
We
may experience
system failures
from time
to time,
and any
lengthy interruption
in the availability
of our
back-end system
computers could
harm our business and
could subject us
to the scrutiny
of our customers.
Frequent or persistent
interruptions in our
services could
cause current
or potential
customers and
users to
believe that
our systems
are unreliable,
leading them
to avoid
our
technology altogether,
and could permanently harm
our reputation and brands.
These interruptions would increase
the burden on our
staff,
which,
in
turn,
could
delay
our
introduction
of
new
applications
and
services.
Finally,
because
our
customers
may
use
our
products for critical transactions, any system
failures could result in damage
to our customers’ businesses. These
customers could seek
significant compensation from us
for their losses. Even if
unsuccessful, this type of claim could
be time-consuming and costly for
us
to address.
Although our systems
have been designed
to reduce downtime in
the event of outages
or catastrophic occurrences,
they remain
vulnerable
to
damage
or
interruption
from
earthquakes,
floods,
fires,
power
loss,
telecommunication
failures,
terrorist
attacks,
computer viruses, computer denial-of-service attacks and similar events. Some
of our systems are not
fully redundant, and our disaster
recovery planning may not be sufficient for all eventualities.
Protection against fraud is of key
importance to the purchasers and end
users of our solutions. We
incorporate security features,
including encryption
software, biometric
identification and
secure hardware,
into our solutions
to protect
against fraud in
electronic
transactions and
to provide for
the privacy
and integrity of
cardholder data.
Our solutions may
be vulnerable to
breaches in security
due to
defects in
the security
mechanisms, the
operating system
and applications
or the
hardware platform.
Security vulnerabilities
could
jeopardize
the
security
of
information
transmitted
using
our
solutions.
If
the
security
of
our
solutions
is
compromised,
our
reputation and marketplace acceptance
of our solutions may be adversely
affected, which would cause our
business to suffer,
and we
may become subject to damage claims. We
have not yet experienced any significant security breaches
affecting our business.
Despite any precautions we may take, the occurrence of a natural disaster or other unanticipated problems with our system
could
result in lengthy interruptions
in our services. Our current
business interruption insurance may
not be sufficient to
compensate us for
losses that may result from interruptions in our service as a result of system failures.
Cash
Paymaster
Services,
or
CPS,
has
been
placed
into
liquidation.
While
no
claim
has
been
made
against Net1 for CPS’ obligations, we cannot provide assurance that no such claim will be made.
CPS has significant obligations and ongoing litigation related to its SASSA contract and has been placed into liquidation. While
no claim
has been made
against Net1 to
be held liable
for CPS’
current obligations
or any future
obligations under
any future
court
judgments, and while we do not believe that there would be a legitimate legal basis for any such claims, we cannot assure you that no
such claim
will be
made against
us. If
SASSA or
another
third party
were to
seek and
ultimately succeed
in obtaining
a judgment
against us in respect of CPS’ liabilities, any such judgment would have
a material adverse effect on our financial condition, results of
operations and cash flows.
12
Defending
our
intellectual
property
rights
or
defending
ourselves
in
infringement
suits
that
may
be
brought against us is expensive and time-consuming and may not be successful.
Litigation to
enforce our
patents, trademarks
or other
intellectual property
rights or
to protect
our trade
secrets could
result in
substantial costs and may not be successful. Any loss of, or inability to protect, intellectual property in our technology could diminish
our competitive advantage and also seriously harm our business. In addition, the laws of certain foreign countries may not protect our
intellectual property
rights to
the same
extent as
do the
laws in
countries where
we currently
have patent
protection. Our
means of
protecting our intellectual property rights in countries where we currently have patent or trademark protection, or any other country in
which we operate, may not be
adequate to fully protect our intellectual property rights.
Similarly, if third parties claim that we infringe
their intellectual property rights, we may be required to incur significant
costs and devote substantial resources to the defense of such
claims,
to
discontinue
using
and
selling
any
infringing
technology
and
services,
to
expend
resources
to
develop
non-infringing
technology or
to purchase
licenses or
pay royalties
for other
technology.
In addition,
if we
are unsuccessful
in defending
any such
third-party
claims, we
could
suffer
costly judgments
and
injunctions
that could
materially
adversely
affect
our business,
results of
operations or financial condition.
We
may
incur
material
losses
in
connection
with
our
distribution
of
cash
through
our
payment
infrastructure in South Africa.
Many
cardholders
use our
services to
access cash
using
their debit
cards.
We
use armored
vehicles
and
our own
fixed ATM
infrastructure to
deliver large
amounts of
cash to rural
areas across
South Africa
to enable these
cardholders to
receive this cash.
In
some cases, we also store the cash that will be delivered by the armored vehicles in depots overnight or over the weekend to facilitate
delivery to these rural areas. We cannot insure against certain risks of loss or theft of cash
from our delivery vehicles, ATMs or depots
and we
will therefore
bear the
full cost
of certain
uninsured losses
or theft
in connection
with the
cash handling
process, and
such
losses could
materially and
adversely affect
our financial
condition, cash
flows and results
of operations.
We
have not
incurred any
material losses resulting from cash distribution in recent
years, but there is no assurance
that we will not incur
any such material losses
in the future.
We depend upon third-party suppliers, making us vulnerable to supply shortages and price fluctuations,
which could harm our business.
We obtain our smart
cards, ATMs, POS devices and
the other
hardware we use
in our
business from a
limited number of
suppliers,
and
do
not
manufacture
this
equipment
ourselves.
We
generally
do
not
have
long-term
agreements
with
our
manufacturers
or
component suppliers. If our
suppliers become unwilling or unable
to provide us with adequate supplies
of parts or products when we
need them, or if they increase
their prices, we may not
be able to find alternative
sources in a timely manner
and could be faced with
a critical shortage.
This could harm
our ability to
implement new systems
and cause
our revenues
to decline.
Even if we
are able to
secure alternative
sources in a
timely manner,
our costs could
increase. A supply
interruption, such
as the current
global shortage of
semiconductors, or
an increase
in demand
beyond current
suppliers’ capabilities
could harm
our ability
to distribute
our equipment
and thus to
acquire a new
source of customers
who use our
technology.
Any interruption in
the supply of
the hardware necessary
to
operate our technology, or our inability to obtain substitute equipment at
acceptable prices in a timely
manner, could impair our ability
to meet the demand of our customers, which would have an adverse effect
on our business.
Our Smart Life business exposes us to risks typically experienced by life assurance companies.
Smart Life is a life insurance company and exposes us to risks typically experienced by life assurance
companies. Some of these
risks
include
the
extent
to
which
we
are
able
to
continue
to
reinsure
our
risks
at
acceptable
costs,
reinsurer
counterparty
risk,
maintaining regulatory capital adequacy, solvency and
liquidity requirements, our ability
to price our
insurance products appropriately,
the risk
that actual
claims experience
may exceed
our estimates, the
ability to
recover policy
premiums from
our customers
and the
competitiveness of the South African insurance market. If we are unable to maintain our desired level of reinsurance
at prices that we
consider acceptable, we would have to either
accept an increase in our exposure risk
or reduce our insurance writings.
If our reinsurers
are unable
to meet
their commitments
to us
in a
timely manner,
or at
all, we may
be unable
to discharge
our obligations
under our
insurance contracts. As such, we are exposed to counterparty risk,
including credit risk, of these reinsurers.
Our
product
pricing
includes
long
-
term
assumptions
regarding
investment
returns,
mortality,
morbidity,
persistency
and
operating
costs
and
expenses
of
the
business.
Using
the
wrong
assumptions
to
price
our
insurance
products
could
materially
and
adversely affect our financial
position, results of
operations and cash flows.
If our actual
claims experience is
higher than our
estimates,
particularly in
the light
of the
COVID-19 pandemic,
our financial
position, results
of operations
and cash
flows could
be adversely
affected. Finally, the South African
insurance industry is
highly competitive. Many
of our competitors
are well-established, represented
nationally and market similar products and we therefore may not be able
to effectively penetrate the South African insurance market.
13
Risks Relating to Operating in South Africa and Other Foreign Markets
Operating in South Africa and other emerging markets subjects
us to greater risks than those we would
face if
we
operated
in
more developed
markets.
For
example, we
saw
significant
disruption
from the
civil
unrest experienced in early July 2021.
Emerging
markets
such
as
South
Africa,
as
well
as
some
of
the
other
markets
in
which
we
have
investments
or
operations,
including
African
countries
outside
South
Africa
and
countries in
Asia,
are
subject
to
greater
risks
than
more
developed
markets.
While we
focus our
business primarily
on emerging
markets because
that is
where we
perceive the
greatest opportunities
to market
our products and services successfully, the political, economic and
market conditions in many of
these markets present risks that
could
make it more difficult to operate our business successfully.
Some of these risks include:
•
political, legal and economic instability,
including higher rates of inflation and currency fluctuations;
•
high levels of corruption, including bribery of public officials;
•
loss due to civil strife, acts of war or terrorism, guerrilla activities and insurrection;
•
a lack of well-developed
legal systems which could
make it difficult for us
to enforce our intellectual
property and contractual
rights;
•
logistical, utilities (including electricity and water supply) and communications
challenges;
•
potential adverse changes in laws and regulatory practices, including
import and export license requirements and restrictions,
tariffs, legal structures and tax laws;
•
difficulties in staffing and managing operations
and ensuring the safety of our employees;
•
restrictions on the right to convert or repatriate currency or export assets;
•
greater risk of uncollectible accounts and longer collection cycles;
•
indigenization and empowerment programs;
•
exposure to liability under the UK Bribery Act; and
•
exposure to liability under U.S. securities and foreign trade laws, including the Foreign Corrupt Practices Act, or FCPA,
and
regulations established by the U.S. Department of Treasury’s
Office of Foreign Assets Control, or OFAC.
Many of these
countries and
regions are in
various stages of
developing institutions
and political, legal
and regulatory
systems
that are characteristic of democracies. However, institutions in these countries
and regions may not yet
be as firmly established as
they
are in
democracies in
the developed
world. Many
of these
countries and
regions are
also in the
process of
transitioning to
a market
economy and, as
a result, are experiencing
changes in their
economies and their
government policies that
can affect our
investments
in these countries and regions.
Moreover,
the
procedural
safeguards
of
the
new
legal
and
regulatory
regimes
in
these
countries
and
regions
are
still
being
developed and, therefore, existing
laws and regulations may be
applied inconsistently.
In some circumstances, it may
not be possible
to obtain
the legal
remedies
provided under
those laws
and regulations
in a
timely manner.
As these
political,
economic and
legal
environments remain subject to continuous development, investors in these countries and regions face uncertainty as to the
security of
their investments.
If
we
do
not
achieve
applicable
Broad-Based
Black
Economic
Empowerment
objectives in
our
South
African businesses, we
may be subject
to fines and
we risk losing
our government and/or
private contracts.
In addition,
it is
possible that
we may
be required
to increase
the Black
shareholding of
our company
in a
manner that
could dilute
your ownership
and/or change
the companies
from which
we purchase
goods or
procure services (to companies with a better BEE Contributor Status Level).
The legislative framework for the promotion of Broad-Based Black Economic Empowerment, or BEE, in South Africa has been
established through
the Broad-Based
Black Economic
Empowerment
Act, No.
53 of
2003, as
amended from
time to
time, and
the
Amended
BEE
Codes
of
Good
Practice,
2013,
or
BEE
Codes,
and
any
sector-specific
codes
of
good
practice,
or
Sector
Codes,
published pursuant
thereto. Sector
Codes are
fully binding
between and
among businesses
operating in
a sector
for which
a Sector
Code has been
published. Achievement
of BEE objectives
is measured by
a scorecard which
establishes a weighting
for the various
elements. Scorecards
are independently
reviewed by
accredited BEE
verification agencies
which issue
a certificate
that presents
an
entity’s
BEE Contributor
Status Level.
This BEE
verification process
must be
conducted on
an annual
basis, and
the resultant
BEE
compliance certificate is only valid for a period of 12 months.
Certain of our South African businesses are subject to either the
Information, Communications and Technology
Sector Code, or
ICT Sector Code,
or the Financial
Services Sector Code,
or the FS
Sector Code. The
ICT Sector Code
and the FS Sector
Code have
been
amended
and
aligned
with
the
new
BEE
Codes
and
were
promulgated
in
November
2016
and
December
2017,
respectively.
14
The BEE scorecard includes
a component relating to management
control, which serves to determine
the participation of Black
people at
various levels
of management
within a
measured entity
(including,
inter alia
, at
the board
level, Executive
Management,
Senior Management,
Middle Management
and Junior
Management). The
BEE Codes
and/or Sector
Codes define
the terms
"
Senior
Management
", "
Middle Management
" and "
Junior Management
" as those
occupational categories as
determined in accordance
with
the Employment Equity Regulations. Annexure EEA9 to the Employment Equity Regulations sets out the various occupational levels
which are determined in
accordance with the relevant
grading systems applied by
the measured entity and
referred to in said
Annexure.
Employment equity legislation seeks
to drive the
alignment of the
workforce with the
racial composition of
South Africa and
accelerate
the achievement
of employment
equity targets,
introducing monetary
fines for
non-achievement.
Failing to
meet these
targets
may
expose us to fines.
We
have taken a
number of actions
as a company
to increase empowerment
of Black (as
defined under applicable
regulations)
South Africans. However,
it is possible that these actions
may not be sufficient
to enable us to achieve applicable
BEE objectives. In
that event,
in order to
avoid risking the
loss of our
government and private
contracts, we
may have
to seek to
comply through
other
means, including by
selling or placing additional
shares of Net1 or of
our South African subsidiaries
to Black South Africans
(either
directly or indirectly). Such sales or placements of shares could have a dilutive impact on
your ownership interest, which could cause
the market price of our stock to decline.
We
expect that
our BEE Contributor
Status Level will
be important
in order for
us to remain
competitive in
the South African
marketplace and we continually seek ways to improve our BEE Contributor Status Level, especially the ownership element (so-called
“equity
element”)
thereof.
We
have
entered
into various
BEE
transactions
in the
past
in an
effort
to improve
our
score,
including
transactions in which we
issued equity to
BEE partners. It
is possible that
we may find
it necessary to
issue additional equity
to improve
our BEE
Contributor Status
Level, in
which case
we cannot
predict what
the dilutive
effect of
such a
transaction would
be on
your
ownership or how
it would affect the market price of our stock.
Fluctuations in
the value
of the
South African
rand have
had, and
will continue
to have,
a significant
impact
on
our
reported
results
of
operations,
which
may
make
it
difficult
to
evaluate
our
business
performance between reporting periods and may also adversely affect our stock price.
The South
African rand,
or ZAR,
is the
primary operating
currency for
our business
operations while
our financial
results are
reported in U.S. dollars. Therefore, any depreciation in
the ZAR against the U.S. dollar, would negatively impact
our reported revenue
and net
income. The
U.S. dollar/ZAR
exchange rate
has historically
been volatile
and we
expect this
volatility to
continue (refer
to
Item
7—“Management’s
Discussion
and
Analysis
of
Financial
Condition
and
Results
of
Operations—Currency
Exchange
Rate
Information.”).
Due
to
the
significant
fluctuation
in
the
value
of
the
ZAR
and
its
impact
on
our
reported
results,
you
may
find
it
difficult to
compare our results
of operations between
financial reporting periods
even though we
provide supplemental information
about our
results of
operations determined
on a
ZAR basis.
Similarly,
depreciation in
the ZAR
may negatively
impact the
prices at
which our stock trades.
We generally do not engage in any currency hedging
transactions intended to reduce the
effect of fluctuations in foreign currency
exchange rates on our results of
operations, other than economic hedging
using forward contracts relating
to our inventory purchases
which are settled in U.S.
dollars or euros. We
cannot guarantee that we will
enter into hedging transactions
in the future or,
if we do,
that these transactions will successfully protect us against currency fluctuations
.
South Africa’s
high levels of
poverty, unemployment
and crime may
increase our costs
and impair our
ability to maintain a qualified workforce
While South Africa has a highly developed financial and legal infrastructure, it also has high levels of crime and unemployment,
relative to peer
countries in Africa
and other emerging
economies, and there
are significant differences
in the level
of economic and
social development among its people,
with large parts of the population,
particularly in rural areas, having
limited access to adequate
education, healthcare, housing and other
basic services, including water
and electricity. In addition, South Africa has
a high prevalence
of HIV/AIDS and tuberculosis. Government policies aimed at alleviating and redressing the disadvantages suffered by the majority of
citizens
under
previous
governments
may
increase
our
costs and
reduce
our
profitability,
all of
which
could
negatively
affect
our
business.
These
problems
may
prompt
emigration
of
skilled
workers,
hinder
investment
into
South
Africa
and
impede
economic
growth. As a result, we may have difficulties attracting
and retaining qualified employees.
15
We
may
not
be
able
to
effectively
and
efficiently
manage
the
electricity
supply
disruptions
in
South
Africa,
which
could
adversely
affect
our
results
of
operations,
financial
position,
cash
flows
and
future
growth.
Our businesses in
South Africa are
dependent on electricity
generated and supplied
by the state-owned
utility,
Eskom, in order
to operate, and Eskom has been unable to generate and supply the amount of electricity required which has resulted in significant and
often unpredictable electricity
supply disruptions. Eskom
has implemented a
number of short-
and long-term mitigation
plans to correct
these issues but supply disruptions continue to occur regularly and with
no predictability. Eskom requires significant funding from the
South African
government in
order to
continue to
operate. As
part of
our business
continuity programs,
we have
installed back
-up
diesel generators in order for us to continue to operate our core data processing facilities in the event of intermittent disruptions to our
electricity supply. We have to perform regular monitoring and maintenance of these generators and
also source and manage diesel
fuel
levels. We may
also be required to replace these generators on a more frequent basis due to the additional
burden placed on them.
Our results of
operations, financial position,
cash flows and
future growth could
be adversely affected
if Eskom is unable
raise
sufficient funding to operate
and/or commission new electricity-generating
power stations in accordance with its
plans, or at all, or if
we are unable to effectively and efficien
tly test, maintain, source fuel for, and replace, our generators
.
The
economy
of
South
Africa
is
exposed
to
high
rates
of
inflation,
interest
and
corporate
tax,
which
could
increase
our
operating
costs
and
thereby
reduce
our
profitability.
Furthermore,
the
South
African
government requires additional
income to fund
future government
expenditures and may
be required,
among
other things, to increase
existing income taxes rates,
including the corporate
income tax rate,
amend existing
tax legislation or introduce additional taxes.
The economy of
South Africa in the
past has been, and
in the future may
continue to be, characterized
by rates of inflation
and
interest that
are substantially
higher than
those prevailing
in the United
States and
other highly-developed
economies. High
rates of
inflation could increase our South African-based costs and decrease our operating margins. High interest rates increase the cost of our
debt financing, though conversely they
also increase the amount of
income we earn on
any cash balances. The
South African corporate
income tax
rate, of
28%, is
higher than
the U.S.
federal income
tax rate,
of 21%.
The South
African government
has announced
a
number of programs and initiatives
that may require funding from a
variety of sources, including from
an increase in existing tax
rates,
including the corporate income
tax rate; amendments
to existing South
African tax legislation;
or through the
introduction of additional
taxes.
An
increase
in
the
effective
South
African
corporate
income
tax
rate
will
adversely
impact
our
profitability
and
cash
flow
generation.
Risks Relating to Government Regulation
The
South
African
National
Credit
Regulator,
or
NCR,
has
applied
to
cancel
the
registration
of
our
subsidiary, Moneyline
Financial Services (Pty) Ltd, or
Moneyline, as a credit
provider. If
the registration is
cancelled, we may not be able to provide loans to our customers.
Moneyline
provides
microloans
to
our
EPE
cardholders.
Moneyline
is
a
registered
credit
provider
under
the
South
African
National Credit
Act, or
NCA, and
is required
to comply
with the
NCA in
the operation
of its lending
business. In
September 2014,
based on an
investigation it conducted,
the NCR applied
to the National
Consumer Tribunal
to cancel Moneyline’s
registration.
The
NCR has alleged, among other things, that Moneyline
contravened the NCA by including child support
grants and foster child grants
in the affordability assessments performed by Moneyline prior to granting credit to these borrowers,
and that the procedures followed
and
documentation
maintained
by
Moneyline
are
not
in
accordance
with
the
NCA.
We
believe
that
Moneyline
has
conducted
its
business
in
compliance
with
NCA
and
we
are
opposing
the
NCR’s
application. However,
if
the
NCR’s
application
is
successful,
Moneyline would be prohibited from operating its microlending business, which could have a material adverse effect on our results
of
operations and cash flows.
We
are required to
comply with
certain laws
and regulations, including
economic and trade
sanctions,
which could adversely impact our future growth.
We
are
subject
to U.S.
and
other
trade
controls,
economic sanctions
and
similar
laws and
regulations,
including
those in
the
jurisdictions
where
we
operate.
Our
failure
to
comply
with
these
laws
and
regulations
could
subject
us
to
civil,
criminal
and
administrative
penalties
and
harm
our
reputation.
These
laws and
regulations
place
restrictions
on
our
operations,
trade
practices,
partners
and
investment
decisions.
In particular,
our operations
are subject
to U.S.
and
foreign
trade
control laws
and
regulations,
including various export controls and economic sanctions programs, such as those administered by OFAC. We monitor compliance in
accordance with
the 10
principles as
set out
in the
United Nations
Global Compact
Principles, the
Organisation
for Economic
Co-
operation and
Development recommendations
relating to
corruption, and
the International
Labor Organization
Protocol in
terms of
certain of the items to be
monitored. As a result of doing business
in foreign countries and with foreign
partners, we are exposed to a
heightened
risk
of
violating
trade
control
law
s
as
well
as
sanctions
regulations.
16
Violations
of
trade
control
laws and
sanctions
regulations
are
punishable
by civil
penalties,
including
fines,
denial
of export
privileges,
injunctions,
asset seizures,
debarment
from
government
contracts
and revocations
or restrictions
of licenses,
as well
as
criminal fines and imprisonment.
We have
developed policies and procedures as
part of a company-wide compliance
program that is
designed to
assist our compliance
with applicable
U.S. and international
trade control laws
and regulations,
including trade controls
and sanctions programs administered
by OFAC,
and provide regular training
to our employees to create
awareness about the risks of
violations of trade
control laws and
sanctions regulations and
to ensure compliance
with these laws
and regulations.
However, there
can be no assurance that all of our employees, consultants,
partners, agents or other associated persons will not act in violation
of our
policies and these laws and regulations, or that our policies and procedures will
effectively prevent us from violating these regulations
in every transaction
in which we
may engage, or
provide a defense
to any alleged
violation. In particular,
we may be
held liable for
the actions that our
local, strategic or joint venture
partners take inside or outside
of the United States, even
though our partners may
not be
subject to
these laws.
Such a
violation, even
if our
policies prohibit
it, could
materially and
adversely affect
our reputation,
business,
results
of
operations
and
financial
condition.
Our
expansion
in
developing
countries,
and
our
development
of
new
partnerships and joint venture relationships, could increase the
risk of OFAC violations
in the future.
In addition,
our payment
processing activities
are subject
to extensive
regulation. Compliance
with the requirements
under the
various regulatory regimes may cause
us to incur significant
additional costs and failure to
comply with such requirements could
result
in the shutdown of the non-complying facility,
the imposition of liens, fines and/or civil or criminal liability.
We
are
required
to
comply
with
anti-corruption
laws
and
regulations,
including
the
FCPA
and
UK
Bribery Act, in the
jurisdictions in which we
operate our business, which could
adversely impact our future
growth.
The FCPA prohibits
us from providing anything of value to foreign
officials for the purposes of obtaining or retaining business,
or
securing
any
improper
business
advantage,
and
requires
us
to
keep
books
and
records
that
accurately
and
fairly
reflect
our
transactions.
As part
of
our
business,
we
may
deal
with
state-owned
business
enterprises,
the
employees
of
which
are
considered
foreign
officials
for
purposes of
the FCPA.
The UK
Bribery
Act includes
provisions
that extend
beyond bribery
of foreign
public
officials and also apply to
transactions with individuals not employed
by a government and
the act is also
more onerous than the FCPA
in a number of other respects, including
jurisdiction, non-exemption of facilitation
payments and penalties. Some of the international
locations in which we operate or have investments lack a developed
legal system and have higher than normal levels of corruption.
Any
failure
by
us
to
adopt
appropriate
compliance
procedures
and
ensure
that
our
employees,
agents
and
business
partners
comply with
the anti-corruption
laws and
regulations could
subject us
to substantial
penalties, and
the requirement
that we
comply
with these laws could
put us at a
competitive disadvantage against
companies that are not
required to comply.
For example, in many
emerging
markets,
there
may be
significant
levels
of official
corruption,
and
thus, bribery
of public
officials
may
be
a commonly
accepted cost
of doing
business. Our
refusal to
engage in
illegal behavior,
such as
paying bribes,
may result
in us not
being able
to
obtain business that we
might otherwise have been able
to secure or possibly
even result in unlawful,
selective or arbitrary action
being
taken against us.
Violations of anti-corruption laws and regulations are punishable by civil penalties, including fines, as well as criminal fines and
imprisonment. We
have developed policies
and procedures as part
of a company-wide
compliance program that
is designed to assist
our
compliance
with
applicable
U.S.
and
international
anti-corruption
laws
and
regulations,
and
provide
regular
training
to
our
employees
to comply
with these
laws and
regulations.
However,
there
can be
no assurance
that all
of
our employees,
consultants,
partners, agents or other
associated persons will not take
actions in violation of our
policies or these laws and
regulations, or that our
policies and procedures
will effectively prevent
us from violating these
regulations in every
transaction in which
we may engage, or
provide a defense to any alleged violation. In particular,
we may be held liable for the actions that our local, strategic
or joint venture
partners take inside or outside of the United States, even
though our partners may not be subject to these laws. Such a violation,
even
if our policies prohibit it, could materially and adversely affect
our reputation, business, results of operations and financial condition.
We
do not
have a South
African banking
license and, therefore,
we provide our
EPE solution
through
an arrangement with
a third-party bank,
which limits our
control over this
business and the
economic benefit
we derive from it.
If this arrangement were
to terminate, we would
not be able to operate
our EPE business
without alternate means of access to a banking license.
The
South
African
retail
banking
market
is highly
regulated.
Under
current
law
and
regulations,
our
EPE
business
activities
require us to be
registered as a
bank in South Africa
or to have
access to an existing
banking license. We are not currently so
registered,
but we have
an agreement with
Grindrod Bank that
enables us to
implement our EPE
program in compliance
with the relevant
laws
and regulations. If this agreement were to be terminated, we would not be able to operate these services unless we were able to obtain
access to a banking license through alternate means. We are also dependent
on Grindrod Bank to defend us against attacks from other
South African banks who may regard our products as
disruptive to their funds transfer or other businesses
and may seek governmental
or other
regulatory intervention.
Furthermore, we
have to
comply with
the strict
anti-money laundering
and customer
identification
regulations of the South African
Reserve Bank, or SARB,
when we open new bank
accounts for our customers and
when they transact.
Failure to effectively implement and monitor responses to these regulations
may result in significant fines or prosecution of Grindrod
Bank
and
ourselves.
17
In
addition,
the
South
African
Financial
Advisory
and
Intermediary
Services
Act,
2002,
requires
persons
who
act
as
intermediaries between financial product suppliers and consumers
in South Africa to register
as financial service providers. Smart
Life
was granted an
Authorized Financial Service
Provider, or
FSP,
license on June
9, 2015, and
Moneyline Financial Services
(Pty) Ltd
and Net1 Mobile Solutions
(Pty) Ltd were each
granted FSP licenses on
July 11, 2017.
If our FSP licenses are
cancelled, we may be
stopped from continuing our financial services businesses in South Africa.
Furthermore, the proposed
Conduct of Financial
Institutions Bill will make
significant changes to
the current licensing
regime.
The second
draft of
the Conduct
of Financial
Institutions Bill
was published
for public
comment on
29 September
2020. While
the
proposals currently
indicate that
existing licenses
will be converted,
if we are
not successful in
our efforts
to obtain
a conversion
of
the existing
licenses or
cannot comply
with the
new conduct
standards to
be published
at the
same time
under the
Financial Sector
Regulation Act, No. 9 of 2017, we may be stopped from continuing
our financial services businesses in South Africa.
We
may
be
subject
to
regulations
regarding
privacy,
data
use
and/or
security,
which
could
adversely
affect our business.
We are
subject to regulations in
a number of the countries
in which we operate relating
to the processing (which
includes,
inter
alia
, the collection, use, retention, security and transfer) of
personal information about the people (whether natural or juristic)
who use
our products
and services.
The interpretation
and application
of user
data protection
laws are
in a
state of
flux. These
laws may
be
interpreted
and
applied
inconsistently
from
country
to
country
and
our
current
data
protection
policies
and
practices
may
not
be
consistent with those interpretations and applications.
Complying with these varying requirements could cause us
to incur substantial
costs or require us to change our business practices in a manner
adverse to our business and any failure, or perceived
failure, by us to
comply with any regulatory requirements or
international privacy or consumer protection-related laws and
regulations could result in
proceedings
or
actions
against
us
by
governmental
entities
or
others,
subject
us
to
significant
penalties
and
negative
publicity.
In
addition, as
noted above,
we are
subject to
the possibility
of security
breaches, which
themselves may
result in
a violation
of these
laws.
Amendments to
the NCA
were signed into
law in
South Africa
in August 2019.
Compliance with
these
amendments may adversely impact our micro-lending operations in South Africa.
In August 2019, the National Credit Amendment Bill, or debt-relief bill, was signed into law in South Africa.
The effective date
of
the
debt-relief
bill
has
not yet
been
announced.
We
believe
that
the
debt-relief
bill
will restrict
the
ability
of
financial
services
providers to provide lending products
to certain low-income earners and
will increase the cost
of credit to these
consumers. As a result,
compliance with the debt-relief bill may adversely
impact our micro-lending operations in South Africa. Furthermore,
we expect that
it will take
us, and other
financial services providers,
some time to
fully understand,
interpret and
implement this new
legislation in
our
lending
processes
and
practices.
Non-compliance
with
the
provisions
of
this
new
legislation
may
result
in
financial
loss
and
penalties, reputational loss or other administrative punishment.
Risks Relating to our Common Stock
We
may
be
deemed
to
be
an
investment
company
under
the
Investment
Company
Act
of
1940,
or
Investment Company Act.
We
are an operating
company whose business
is focused on developing
and offering payment
solutions, transaction processing
services and financial technologies across
multiple industries directly and through
our wholly-owned subsidiaries. Our conduct,
public
filings and
announcements
hold us
out
as such
an operating
company
and
do not
hold
us out
as being
engaged
in the
business of
investing, reinvesting or trading in
securities. However, we own certain assets
that may be deemed
to be “investment securities”
within
the meaning
of Section
3(a)(2) of
the Investment
Company Act.
We
acquired these
assets pursuant
to our
former business
strategy,
which
involved
entering
into
strategic
partnership
arrangements
with
other
companies
in
a
number
of
emerging
and
developing
economies.
When we
acquired
minority
interests in
these companies,
we would
typically have
board
representation
or rights
with
regard to significant decisions.
During fiscal
2021, after
a comprehensive
strategic review,
we shifted our
strategy to focus
primarily on
our Southern African
operations and other business opportunities in Southern Africa and determined
to exit or reduce our presence in other geographies. In
furtherance
of
this
strategy
and
also
due
to
the
enormous
uncertainties
and
disruptions
caused
by
the
COVID-19
pandemic,
we
cancelled our option
to acquire an
additional 35% interest
in Bank Frick
(which would have
increased our interest
to 70%) and
disposed
of the 35% that we
owned. Further,
during fiscal 2020, we sold
KSNET,
our wholly-owned Korean
subsidiary,
as well as other non-
core
businesses,
which
resulted
in
a
large
infusion
of
cash
which
we
have
not
yet
deployed
into
our
operating
businesses.
These
dispositions and the Bank
Frick transactions, when combined with
the fluctuating value of those
of our assets that may
be deemed to
be investment securities,
could cause us
to be deemed
to be an investment
company within the
meaning of Section
3(a)(1)(C) of the
Investment Company Act. Regardless of the value of these assets at any particular time, we believe we should be viewed as primarily
engaged
in
a
business
other
than
i
nvesting,
reinvesting,
owning,
holding,
or
trading
in
securities.
18
If we are deemed
an investment company
and not entitled to
an exception or
exemption from registration
under the Investment
Company Act, we would have to register as
an investment company, modify our asset profile or otherwise change our business so that
it falls outside
the definition
of an investment
company under the
Investment Company
Act. Registering
as an investment
company
pursuant to
the Investment
Company Act
could, among
other things,
materially limit
our ability
to borrow
funds or
engage in
other
transactions and
otherwise would
subject us
to substantial
and costly
regulation. Failure
to register,
if required,
would significantly
impair our ability to continue to engage in our business and would have a material
adverse impact on our business and operations.
Our stock price has been and may continue to be volatile.
Our stock price has periodically experienced significant volatility. During the 2021 fiscal year, our stock
price ranged from a low
of $2.87 to a high of $6.62. We
expect that the trading price of our common stock may
continue to be volatile as a result of a number
of factors, including, but not limited to the following:
•
any adverse developments in litigation or regulatory actions in which
we are involved;
•
fluctuations
in currency exchange rates, particularly the U.S. dollar/ZAR exchange rate;
•
announcement of additional BEE transactions, especially one involving the issuance or
potential issuance of equity securities
or dilution or sale of our existing business in South Africa;
•
quarterly variations in our operating results;
•
significant fair value adjustments or impairment in respect of investments
or intangible assets;
•
announcements of acquisitions or disposals;
•
the timing of, or delays in the commencement, implementation
or completion of major projects;
•
large purchases or sales of our common stock; and
•
general conditions in the markets in which we operate.
Additionally,
shares of
our common
stock can
be expected
to be
subject to
volatility resulting
from purely
market forces
over
which
we
have
no
control.
If
our
business
development
plans
are
successful,
we
may
require
additional
financing
to
continue
to
develop
and
exploit
existing
and
new
technologies,
to
expand
into
new
markets
and
to
make
acquisitions,
all
of
which
may
be
dependent upon our ability to obtain financing through debt and equity
or other means.
The put
right we granted
to the IFC
Investors on the
occurrence of certain
triggering events may
have
adverse impacts on us.
In May
2016, we
issued an
aggregate of
9,984,311
shares of
our common
stock to
the IFC Investors,
of which,
as of
June 30,
2021,
the
IFC
Investors
held
7,881,142
shares.
We
granted
the
IFC
Investors
certain
rights,
including
the
right
to
require
us
to
repurchase
any
share held
by the
IFC
Investors
pursuant
to
the
May
2016 transaction
upon
the occurrence
of specified
triggering
events,
which
we refer
to as
a
“put
right.”
The put
price
per share
will be
the higher
of the
price
per
share paid
to us
by
the IFC
Investors and
the volume-weighted
average price
per share prevailing
for the 60
trading days preceding
the triggering
event, except
that with respect
to a put right
triggered by rejection
of a bona
fide offer,
the put price
per share will
be the highest
price offered
by
the offeror.
If a put triggering event occurs, it could adversely
impact our liquidity and capital resources. In addition,
the existence of
the put right could also affect whether or on what terms a third party might in the future offer to purchase our company.
Our response
to any such offer could also be complicated, delayed or
otherwise influenced by the existence of the put right.
Approximately
36%
of
our
outstanding
common
stock
is
owned by
two shareholders.
The
interests of
these shareholders may conflict with those of our other shareholders.
There is a concentration of ownership
of our outstanding common stock because
approximately 36% of our outstanding common
stock is owned by two
shareholders. Based on their most
recent SEC filings disclosing
ownership of our shares, Value Capital Partners
(Pty) Ltd, or VCP,
and IFC Investors, beneficially own approximately 22% and 14% of our outstanding
common stock, respectively.
VCP has agreed, pursuant to an Amended Cooperation Agreement dated December 9, 2020, to refrain from acquiring more than
24.9% of our outstanding common stock or taking certain
actions, including acting in concert with others, that
could result in a change
of control
of the
Company.
These restrictions
remain in
effect through
to the
business day
immediately following
our 2022
annual
meeting of shareholders.
The interests of
VCP and the
IFC Investors may
be different
from or conflict
with the interests
of our other
shareholders. As a
result of the significant combined ownership by VCP and the IFC Investors, subject
to the limitations applicable to VCP contained in
the
Amended
Cooperation
Agreement,
they
may
be
able, if
they
act
together,
to
significantly
influence
the
voting
outcome
of
all
matters requiring
shareholder approval.
This concentration
of ownership
may have
the effect
of delaying
or preventing
a change
of
control
of
our
company,
thus
depriving
shareholders
of
a
premium
for
their
shares,
or
facilitating
a
change
of
control
that
other
shareholders
may
oppose.
19
We may seek to raise
additional financing by
issuing new securities
with terms or
rights superior to
those
of shares of our common stock, which could adversely affect the market price of such shares.
We
may require
additional financing
to fund future
operations, including
expansion in
current and new
markets, programming
development and acquisition,
capital costs and
the costs of any
necessary implementation of
technological innovations or
alternative
technologies, or
to fund
acquisitions. Because
of the
exposure to
market risks
associated with
economies in
emerging markets,
we
may not be able
to obtain financing on favorable
terms or at all.
If we raise additional funds
by issuing equity securities, the
percentage
ownership of our current
shareholders will be reduced,
and the holders of the new
equity securities may have
rights superior to those
of the holders of shares of common stock,
which could adversely affect the market price and
voting power of shares of common stock.
If we raise additional
funds by issuing debt
securities, the holders of
these debt securities would
similarly have some rights
senior to
those of
the holders
of shares
of common
stock, and
the terms
of these
debt securities
could impose
restrictions on
operations and
create a significant interest expense for us.
Issuances
of significant
amounts
of stock
in the
future
could potentially
dilute
your equity
ownership
and adversely affect the price of our common stock.
We
believe that
it is necessary
to maintain
a sufficient
number of
available authorized
shares of our
common stock
in order
to
provide
us
with
the flexibility
to
issue
shares
for
business
purposes
that
may
arise
from time
to
time.
For example,
we
could
sell
additional shares to
raise capital
to fund our
operations or to
acquire other businesses,
issue shares in
a BEE
transaction, issue additional
shares under our
stock incentive plan
or declare a
stock dividend. Our
board may authorize
the issuance of
additional shares of
common
stock
without
notice
to,
or
further
action
by,
our
shareholders,
unless
shareholder
approval
is
required
by
law
or
the
rules
of
the
NASDAQ Stock Market. The issuance of additional shares could
dilute the equity ownership of our current
shareholders and any such
additional shares would likely be freely tradable, which could adversely
affect the trading price of our common stock.
Failure to maintain effective internal control over financial
reporting in accordance with Section 404
of
the Sarbanes-Oxley Act, especially
over companies that we may
acquire, could have a material
adverse effect
on our business and stock price.
Under Section 404
of the Sarbanes-Oxley
Act of 2002,
or Sarbanes, we
are required to
furnish a management
certification and
auditor attestation regarding the
effectiveness of our internal
control over financial reporting.
We are
required to report, among other
things, control deficiencies that constitute a “material weakness”
or changes in internal control that
materially affect, or are reasonably
likely
to
materially
affect,
internal
control
over
financial
reporting.
A
“material
weakness”
is
a
deficiency,
or
a
combination
of
deficiencies, in internal control
over financial reporting such
that there is
a reasonable possibility
that a material
misstatement of annual
or interim financial statements will not be prevented or detected on
a timely basis.
The
requirement
to
evaluate
and
report
on
our
internal
controls
also
applies
to
companies
that
we
acquire.
Some
of
these
companies may not
be required
to comply with
Sarbanes prior
to the
time we
acquire them.
The integration of
these acquired
companies
into our internal
control over financial
reporting could require significant
time and resources
from our management
and other
personnel
and may increase our compliance costs.
If we fail to successfully
integrate the operations of these
acquired companies into our internal
control over financial reporting, our internal control over financial reporting
may not be effective.
While
we
continue
to
dedicate
resources
and
management
time
to
ensuring
that
we
have
effective
controls
over
financial
reporting, failure to
achieve and maintain
an effective internal
control environment could
have a material
adverse effect on
the market’s
perception of our business and our stock price.
You
may
experience
difficulties
in
effecting
service
of
legal
process,
enforcing
foreign
judgments
or
bringing
original
actions
based
upon
U.S.
laws,
including
federal
securities
laws
or
other
foreign
laws,
against us or certain of our directors and officers and experts.
While Net1
is incorporated
in the state
of Florida,
United States,
the company
is headquartered
in Johannesburg,
South Africa
and substantially all of the company’s assets are located outside the United States. In addition, the majority of Net1’s
directors and all
its officers reside outside of the
United States and the majority
of our experts, including our
independent registered public accountants,
are based in South Africa.
As a result, even though
you could effect service
of legal process upon Net1,
as a Florida corporation, in
the United States, you
may not be able to collect any judgment obtained against Net1
in the United States, including any judgment based on the
civil liability
provisions of
U.S. federal
securities laws,
because substantially
all of
our assets
are located
outside the
United States.
Moreover,
it
may not be possible for you to
effect service of legal process upon the majority
of our directors and officers or upon our
experts within
the
United
States or
elsewhere
outside
South
Africa
and
any
judgment
obtained
against any
of
our
foreign
directors,
officers
and
experts
in
the
United
States,
including
one
based
on
the
civil
liability
provisions
of
the
U.S.
federal
securities
laws,
may
not
be
collectible
in
th
e
United
States
and
may
not
be
enforced
by
a
South
African
court.
20
South Africa
is not
a party
to any
treaties regarding
the enforcement
of foreign
commercial judgments,
as opposed
to foreign
arbitral awards.
Accordingly,
a foreign judgment
is not directly
enforceable in
South Africa, but
constitutes a cause
of action
which
may be enforced by South African courts provided that:
•
the court which pronounced the judgment had international jurisdiction and
competence to entertain the case according to
the
principles recognized by South African law with reference to the jurisdiction
of foreign courts;
•
the judgment is final and conclusive (that is, it cannot be altered by the court
which pronounced it);
•
the judgment
has not lapsed;
•
the recognition
and enforcement
of the
judgment by
South African
courts would
not be
contrary to
public policy
in South
Africa, including
observance of the
rules of natural
justice which require
that no award
is enforceable
unless the defendant
was duly served with documents initiating proceedings, that he or she was given a fair opportunity to be heard and that he or
she enjoyed the right to be legally represented in a free and fair trial before an impartial tribunal;
•
the judgment was not obtained by improper or fraudulent means;
•
the
judgment
does
not
involve
the
enforcement
of
a
penal
or
foreign
revenue
law
or
any
award
of
multiple
or
punitive
damages; and
•
the enforcement of
the judgment is
not otherwise precluded
by the provisions
of the Protection
of Business Act
99 of 1978
(as amended), of the Republic of South Africa.
It has been the policy
of South African courts to award
compensation for the loss or damage
actually sustained by the person
to
whom the compensation is awarded. South African courts have awarded compensation to shareholders who have suffered damages as
a result
of a
diminution in
the value
of their
shares based
on various
actions by
the corporation
and its
management. Although
the
award of punitive
damages is generally
unknown to the
South African legal
system, that does
not mean that
such awards are
necessarily
contrary to public policy.
Whether a judgment
was contrary to
public policy
depends on the
facts of each
case. Exorbitant,
unconscionable, or
excessive
awards will generally be contrary to public policy. South African courts cannot
enter into the merits of a foreign judgment and cannot
act as a court of appeal or review over the foreign court. Further, if a foreign judgment is enforced by a South African
court, it will be
payable
in South
African currency.
Also, under
South
Africa’s
exchange
control laws,
the approval
of SARB
is required
before a
defendant resident in South Africa may pay money to a non-resident plaintiff in satisfaction of a foreign judgment enforced by a court
in South Africa.
It is
doubtful
whether an
original
action based
on United
States federal
securities laws
may
be brought
before South
African
courts. A plaintiff who
is not resident in South Africa
may be required to provide security
for costs in the event of proceedings
being
initiated in
South Africa.
Furthermore, the
Rules of
the High
Court of
South Africa
require that
documents executed
outside South
Africa must be authenticated for the purpose of use in South African courts. In reaching the foregoing conclusions in respect of South
Africa, we consulted with our South African legal counsel, Cliffe
Dekker Hofmeyr Inc.
21
ITEM 1B.
UNRESOLVED
STAFF COMMENTS
None.
ITEM
2.
PROPERTIES
We lease our corporate
headquarters facility which consists of approximately 93,000 square feet in Johannesburg,
South Africa.
We also lease properties throughout South Africa, including a 12,088 square foot manufacturing facility in Lazer Park, Johannesburg,
257 financial services branches, 76
financial service express stores and
40 satellite branches. We
also lease additional office
space in
Johannesburg,
Cape Town
and Durban,
South Africa;
and Gaborone,
Botswana. These
leases expire
at various
dates through
2024,
assuming the exercise of options to extend. We
believe
that we have adequate facilities for our current business operations.
22
ITEM
3.
LEGAL
PROCEEDINGS
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
are appealing 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 will be heard on October 27, 2021. If we are successful, it will
dispose of the
application. If we
do not
prevail, then
the NCR’s application will
be set
down before
the Consumer
Tribunal for argument
on the main issues raised by the NCR, as dealt with above. We
cannot predict the outcome of this litigation.
Withdrawal of legal proceedings against a PG
Purchasing customer regarding non-payment of working capital
finance
loans receivable
In January
2019, we
filed a
Petition with
the District
Court of
Dallas County,
Texas
(“Texas
district court
lawsuit”), naming
Permian
Crude
Transport,
LP,
f/k/a
Permian
Crude
Transport,
LLC,
d/b/a
Permian
Transport
&
Trading
(“PCT”),
and
Centurion
Marketing, LLC
d/b/a Jupiter Marketing
& Trading,
LLC (“Centurion”
and collectively
with PCT,
“PCT/Centurion”) as
defendants
regarding
the
recovery
of
working
capital
finance
loans
receivable
made
to
PCT/Centurion
by
our
wholly-owned
subsidiary,
PG
Purchasing. This lawsuit was in its initial stages and trial was
set for December 2, 2019. However, the Texas district court lawsuit was
administratively closed
following PCT’s
filing for bankruptcy
in June 2019
and Centurion’s
filing for bankruptcy
in July 2019.
The
Texas district court
lawsuit may be re-opened if the PCT/Centurion bankruptcy matters are lifted.
However,
on December 3,
2020, we filed
a notice with
the United States
Bankruptcy Court
for the Northern
District of Texas,
Dallas Division
withdrawing
our claim
as we
do not
believe we
will be
able to
successfully
recover
all or
a part
of the
receivable
outstanding within a reasonable period of time and without further undue
cost and effort.
Litigation related to CPS
As
a
result
of
significant
obligations
relating
to,
and
ongoing
litigation
arising
out
of,
CPS’
SASSA
contract,
including
the
exhaustion of CPS’ legal appeals
against a court judgment to repay
additional SASSA implementation costs, CPS has
been placed into
liquidation. As a result, CPS’ provisional liquidators are currently in control of all of CPS’ affairs.
No other Net1 group company is a
party to any of these proceedings and we are no longer involved in the management
of these matters.
There are no other material pending legal proceedings, other than
ordinary routine litigation incidental to our business, to which
we are a party or of which any of our property is the subject.
23
ITEM
4.
MINE
SAFETY
DISCLOSURES
Not applicable.
24
PART
II
ITEM
5.
MARKET
FOR
REGISTRANT’S
COMMON
EQUITY,
RELATED
STOCKHOLDER
MATTERS AND ISSUER PURCHASES
OF EQUITY SECURITIES
Market information
Our common stock is listed on
The NASDAQ Global Select Market, or
Nasdaq, in the United States under
the symbol “UEPS”
and on the JSE in South Africa under the symbol “NT1.” The Nasdaq is our principal
market for the trading of our common stock.
Our transfer
agent in
the United
States is
Computershare Shareowner
Services LLC,
480 Washington
Blvd, Jersey
City,
New
Jersey,
07310. According
to the
records of
our transfer
agent, as
of September
3, 2021,
there were
9 shareholders
of record
of our
common stock.
We
believe that
a substantially
greater number
of beneficial
owners of
our common
stock hold
their shares
though
banks, brokers,
and other financial
institutions (i.e. “street
name”). Our transfer
agent in South
Africa is JSE
Investor Services (Pty)
Ltd, 13th Floor, Rennie House, 19
Ameshoff Street, Braamfontein, 2001, South Africa.
Dividends
We
have not
paid any
dividends on
shares of our
common stock
during our
last two
fiscal years
and presently
intend to
retain
future earnings to finance the expansion of the
business. We do not anticipate
paying any cash dividends in the foreseeable
future. The
future dividend policy will depend on our earnings, capital requirements, debt commitments, expansion plans, financial condition and
other relevant factors.
Issuer purchases of equity securities
On
February
5,
2020,
our
board
of
directors
approved
the
replenishment
of
our
existing
share
repurchase
authorization
to
repurchase up to an aggregate of $100 million of common stock. The authorization has no expiration date. We
did not repurchase any
shares of our common stock during fiscal 2021.
25
Share performance graph
The chart
below compares
the five-year
cumulative return,
assuming the
reinvestment of
dividends, where
applicable, on
our
common stock with that of the S&P 500 Index and the NASDAQ Industrial Index. This graph assumes $100
was invested on June 30,
2016, in each of our common stock, the companies in the S&P 500 Index, and the
companies in the NASDAQ Industrial
Index.
26
ITEM
6.
SELECTED
FINANCIAL
DATA
The following
selected historical
consolidated financial
data should be
read together
with Item 7—“Management’s
Discussion
and Analysis
of Financial
Condition and
Results of
Operations” and
Item 8—“Financial
Statements and
Supplementary Data”.
The
following
selected historical
financial
data as
of June
30,
2021 and
2020,
and for
the three
years ended
June 30,
2021, have
been
derived
from our
audited consolidated
financial
statements inclu
ded
elsewhere
in this
Annual
Report
on Form
10-K. The
selected
historical consolidated financial data
presented below as of June
30, 2019, 2018 and 2017
and for the years ended
June 30, 2018 and
2017, have been derived from our audited consolidated financial statements, which
are not included herein, and have been restated as
noted below, which restatement
is unaudited. The selected historical financial data as of each date and for each period presented have
been prepared in
accordance with U.S.
GAAP.
These historical results
are not necessarily
indicative of results
to be expected
in any
future period.
As
discussed
in
Note
1
to
our
audited
consolidated
financial
statements
included
in
Item
8—“Financial
Statements
and
Supplementary
Data,”
our
historical
audited
consolidated
financial
statements
have
been corrected
to give
effect
to
a restatement.
Accordingly,
certain of
the selected
consolidated financial
data presented
in the
table below
has been
corrected to
give effect
to the
restatement as indicated.
Consolidated Statements of Operations Data
(in thousands, except per share data)
Year
ended June 30,
2021
2020
(R)(1)
2019
(R)
2018
2017
(as restated)
(as restated)
Revenue
(3)
$
130,786
$
144,299
$
160,635
$
459,575
$
456,663
Cost of goods sold, IT processing, servicing and
support
96,248
102,308
124,104
243,554
236,179
Selling, general and administration
(2) (4)
84,063
75,256
144,920
130,822
124,086
Depreciation and amortisation
4,347
4,647
12,103
10,473
12,679
Impairment loss
-
6,336
14,440
20,917
-
Operating (loss) income
(53,872)
(44,248)
(134,932)
53,809
83,719
Change in fair value of equity securities
49,304
-
(167,459)
32,473
-
Termination
fee paid to cancel Bank Frick option
-
17,517
-
-
-
Interest income
2,416
2,805
5,424
16,845
20,014
Interest expense
2,982
7,641
9,860
8,569
2,174
Impairment of Cedar Cellular note
-
-
12,793
-
-
(Loss) Income before income tax expense (benefit)
(5,619)
(65,016)
(319,443)
94,558
101,559
Income tax expense (benefit)
7,560
2,656
(5,072)
45,106
38,175
(Loss) income from equity accounted investments
(5)
(24,878)
(29,542)
1,258
1,810
2,814
Net (loss) income from continuing operations
(38,057)
(97,214)
(313,113)
51,262
66,198
Gain (loss) on disposal of discontinued operation, net
of tax
-
12,454
(9,175)
-
-
Net (loss) income attributable to Net1 - continuing
operations
$
(38,057)
$
(97,214)
$
(311,761)
$
52,142
$
64,504
(Loss) Income from continuing operations per share:
Basic
$
(0.67)
$
(1.70)
$
(5.49)
$
0.92
$
1.18
Diluted
$
(0.67)
$
(1.70)
$
(5.49)
$
0.92
$
1.17
(R) Refer to Note 1 to the audited consolidated financial statements for
additional information regarding the restatement.
(1) Includes
the impact
of the
COVID-19
pandemic lockdown
restrictions,
which directly
impacted elements
of the
business from
March 27, 2020 to June 1, 2020.
(2) Impacted by expiration of SASSA contract in September 2018.
(3) Revenue for the year
ended June 30, 2019,
includes revenue that has
been reversed of $19.7
million (ZAR 277.6 million)
as a result
of the September
2019 Supreme Court ruling,
and selling, general and
administration includes $14.3
million (ZAR 201.8
million) of
expenses related to the Supreme Court ruling.
(4) Includes
an allowance
for doubtful
financial loans
receivable of
$28.8 million
in fiscal
2019 and
a separation
payment of
$8.0
million paid to our former chief executive officer
in fiscal 2017.
(5) Includes impairments of
$21.1 million and
$33.8 million in
fiscal 2021 and
2020,
respectively, as discussed in Note
8 to our
audited
consolidated
financial
statements.
27
Additional Operating Data:
(in thousands, except percentages)
Year
ended June 30,
2021
(1)
2020
(1)
2019
(1)
2018
(1)
2017
(1)
Cash flows (used in) provided by operating activities
$
(58,371)
$
(46,045)
$
(4,460)
$
132,305
$
97,161
Cash flows provided by (used in) investing activities
47,775
223,117
64,476
180,748
(114,071)
Cash flows (used in) provided by financing activities
$
(13,081)
$
(48,838)
$
(24,714)
$
(473,479)
$
40,469
Operating (loss) income margin
(2)
(41.2%)
(30.7%)
(84.0%)
11.7%
15.9%
(1) Cash flows provided by (used in) investing activities include movements in settlement assets and cash flows (used in) provided by
financing activities include movement in settlement liabilities.
(2) Fiscal 2021 operating
loss margin was
(41.2%). Fiscal 2020 operating
loss margin was
(25.4%) before impairment losses
(refer
to Note
9 of
our audited
consolidated financial
statements for
a full
description of
fiscal 2020
and 2019
impairment losses).
Fiscal
2019 operating loss margin
was
(71.1%) before retrenchment costs,
the impact of the SASSA implementation
costs accrual (refer to
Note 12 of
our audited consolidated
financial statements),
and impairment losses.
Fiscal 2018 operating
income margin
was
18.0%
before the impairment
loss and an allowance
for doubtful finance
loans receivable.
Fiscal 2017 operating income
margin was 18.0%
before the separation payment of $8.0 million paid to our former chief
executive officer.
Consolidated Balance Sheet Data:
(in thousands)
Year
ended June 30,
2021
2020
2019
2018
2017
Cash, cash equivalents and restricted cash
$
223,765
$
232,485
$
95,460
$
57,607
$
210,396
Total current
assets before settlement assets
293,851
311,292
153,285
169,619
369,241
Equity-accounted investments
10,004
65,836
148,427
83,234
25,935
Goodwill
29,153
24,169
37,316
52,799
75,598
Intangible assets
357
612
2,228
9,405
13,666
Total assets
428,330
453,678
670,247
1,214,532
1,448,829
Total current
liabilities before settlement obligations
52,024
63,288
155,808
94,090
54,957
Total long-term
debt
-
-
-
5,469
-
Total equity
$
275,980
$
290,213
$
317,342
$
638,827
$
596,074
28
ITEM
7.
MANAGEMENT’S
DISCUSSION
AND
ANALYSIS
OF
FINANCIAL
CONDITION
AND
RESULTS
OF OPERATIONS
The
following
discussion
and
analysis
should
be
read
in
conjunction
with
Item
6—“Selected
Financial
Data”
and
Item
8—
“Financial Statements and Supplementary Data.” In addition to historical consolidated financial information, the following discussion
and analysis contains forward-looking statements that involve
risks, uncertainties and assumptions. See Item
1A— “Risk Factors” and
“Forward Looking Statements.”
Overview
We are a provider of financial technology,
or fintech, products and services to unbanked and underbanked individuals and small
businesses, predominantly
in South Africa.
We
have developed and
own most of
our payment technologies,
and where possible,
we
utilize
this
technology
to provide
financial
and value
-added
services
to our
customers
by including
them into
the formal
financial
system.
Sources of Revenue
We
generate our
revenues by
charging
transaction fees
to merchants,
financial service
providers, utility
providers, bill
issuers
and
cardholders;
by
providing
loans
and
insurance
products
and
by
selling
hardware,
licensing
software
and
providing
related
technology services.
We
have
structured
our
business
and
our
business
development
efforts
around
several
related
but
separate
approaches
to
deploying our technology.
In our most
basic approach, we
act as a
supplier, selling
our equipment, software,
and related technology
to a customer. The revenue
and costs associated with this approach are reflected in our technology segment.
We
have
found
that
we
have
greater
revenue
and
profit
opportunities,
however,
by
acting
as
a
service
provider
instead
of
a
supplier. In this approach
we own and operate the technology and apply it in a system ourselves, charging
one-time and ongoing fees
for the use of the system either on a fixed or ad valorem basis. This
is the case in South Africa, where we provide bank
accounts on a
monthly fee basis, and charge fees on an
ad valorem basis for goods and
services purchased. Usage of our bank accounts
also provides
our customers
with access
to short-term
loans and
life insurance
products. The
revenue and
costs associated
with this
approach are
reflected in our processing and financial services segments.
In South
Africa, we also
generate fees from
debit and credit
card transaction
processing, the provision
of value-added
services
such as bill payments, mobile top-up and prepaid utility sales, and from
providing a payroll transaction management service (up until
the disposal of this business
in December 2019). The revenue
and costs associated with these
services are reflected in our
processing
and technology segments.
Developments during Fiscal 2021
Leadership changes
On July 1, 2021,
Mr. Chris
G.B. Meyer joined us
as Group CEO, following
the resignation of
Mr. Herman
G. Kotzé in August
2020. Mr.
Alex M.R. Smith, our
current CFO, assumed
the role of interim
Group CEO, from
Mr. Kotze’s
resignation through to
the
appointment of Mr. Chris G.B. Meyer
.
On May 1, 2021, Mr. Lincoln
Mali joined us as CEO of Net1 Southern Africa, a new position within our
organization.
On March
15, 2021,
Mr.
Nunthakumarin Pillay
resigned his
position as
Managing Director:
Southern Africa
after 21
years of
service to our
company in order
to pursue other
opportunities. Mr.
N. Pillay’s
last day of
employment was
April 30, 2021.
We
have
reorganized certain of
our internal
business reporting lines
following the resignation
of Mr. N.
Pillay, which did not
impact our business
or processes significantly.
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.
29
Customer additions
have improved significantly
since June 2021,
following the launch
of a targeted
marketing campaign.
This
momentum
was impacted
by the
civil unrest
in July
2021, referred
to above;
however,
we experienced
strong additions
in August
2021. We recorded gross customer additions of approximately 167,000 during fiscal 2021, with approximately
43,000 recorded in the
fourth
quarter,
while
net
additions
amounted
to
approximately
84,000
customers
during
fiscal
2021,
with
approximately
23,000
recorded
in
the
fourth
quarter.
Gross
and
net
additions
for
the
first
two
calendar
months
of
fiscal
2022
were
75,000
and
61,000
respectively. We
continue to see delays in the transfer of income for a significant portion of these customers, which means we are not
seeing the full benefit of this customer growth in
our financial performance. To date, only approximately 50% of these gross customer
additions have become active and commenced transacting on their
account.
Processing Activities in South Africa
Our processing activities in South Africa are focused around
our ATM network, which largely services a consumer base, and our
transaction processing for businesses, anchored around our EasyPay offering. As articulated in respect of our revised strategy, we aim
to grow our business to business, or B2B,
operations through the servicing of small and micro enterprises. We continue to see a steady
growth in the number of customers utilizing our
ATM infrastructure over the last quarter, though transaction volumes were lower than
the previous quarter.
Our B2B operations
performed broadly in
line with expectations
with volumes lower
than the previous
quarter
in
line
with
expected
seasonal
trends.
Opportunities
related
to
the
expansion
of
the
processing
business
into
the
small
and
micro
enterprises space have been identified and are being progressed.
Impact of COVID-19
Our 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 3, which has a
limited impact on our 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.
Business and operations
Our operations
largely operated
as normal
during fiscal
2021. Most
of the
impact of
the pandemic
on our
operations resulted
from
the
indirect
effect
of
lower
economic
activity
in
the
South
African
economy.
Our
loan
business
was
able
to
originate
loans
normally and we
have not seen
any deterioration in
collection levels over
the period. Our
insurance business has
seen a higher
level
of benefit claims
during fiscal 2021.
We
continue to incur direct
expenditure on the
purchase of sanitizers,
masks and gloves for
our
employees and for the use of customers in our branches, but this is not significant
in the context of our cost base.
Employees
Regrettably,
five
of
our
employees
passed
away
during
fiscal 2021
due
to
COVID-19,
as well
as
our
chairman
Mr.
Jabu
A.
Mabuza.
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.
Together
with
our
existing
cash
reserves, we also believe that our credit facilities are sufficient to fund our ATM
network. We do not believe there will be any further
significant adverse effects
on our liquidity
from the pandemic,
unless there is a
resumption of
the higher level
of restrictions seen in
April and May 2020 in South
Africa. We believe that our South African insurance business is
adequately capitalized and do not expect
to have to provide additional funding to the business in the foreseeable future.
Financial position and impairments
Except for the impact on Finbond’s
business during fiscal 2021, we do not
believe that the pandemic has significantly
impacted
the carrying value of our long-lived assets and equity method investments
to date.
Control environment
We do not
expect the pandemic to have a significant impact on our internal control environment.
30
While we have not incurred significant disruptions thus
far from the COVID-19 outbreak, we are
unable to accurately predict the
impact that
COVID-19 will
have due
to numerous
uncertainties, including
the severity
of the
disease, the
duration of
the outbreak,
actions that
may be
taken by
governmental authorities,
the impact
on our
customers and
other factors
identified in
Part I,
Item 1A.
“Risk
Factors—
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”. We will continue to evaluate the nature and extent of the impact to our 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 our 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, or BASA, estimates that total damage to banking infrastructure
amounted to ZAR 1.6 billion. The South African Special
Risks
Insurance Association,
or 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
and terrorism and
public disorders, estimates
that the total
damage to property across South Africa will be in the order of between
ZAR 19.0 to ZAR 20.0 billion.
We
suffered damage
at 19 of our branches
and to 173 ATMs.
The disruption and
related closure of
branches has also
impacted
our efforts to grow EPE customer
numbers. We have also seen an impact on
transaction volumes at our ATMs with July 2021 volumes
13% lower than June 2021, and August 2021 3% lower than July 2021.
We
estimate it will cost
approximately ZAR 40
.0 million to repair
our branches and damaged
ATMs
and to replace ATMs
that
have been completely destroyed. We believe that these losses suffered through destruction of property will be fully covered under our
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 banks’
ATMs will be waived for August
and September 2021.
We estimate that we will
forgo transaction
fee revenue of approximately ZAR 6.0. million during the first quarter
of fiscal 2022 as a result of this decision.
MobiKwik
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 have increased the carrying value of our investment in MobiKwik, refer to “— Critical Accounting
Policies—Recoverability of equity-accounted investments and
other equity securities” below.
Status of Cell C recapitalization
We
continued
to
carry
the
value
of
our
Cell
C
investment
at
$0
(zero)
as
of
June
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
makin
g
steady
progress
towards
its
recapitalization.
Disposal of Bank Frick and wind-down of IPG
Bank Frick – In line with our new strategic direction, on February 3, 2021, we entered into a share sale agreement with the Frick
Family Foundation,
or KFS, to sell
our entire interest,
or 35%, in Bank
Frick to KFS for
$30 million. Refer
to Note 8
to our audited
consolidated financial statements for additional information related
to this transaction.
IPG – The
process to close
our IPG business
is well-advanced and
all processing activities
ceased by the
third quarter of
fiscal
2021,
with most employees leaving the
organization during the second quarter of
fiscal 2021. We are largely complete with the
closure
and do
not expect
to incur
any further
significant cash
costs. A
number of
the statutory
IPG entities have
been deregistered
and we
only have routine liquidation and deregistration processes to follow for the
remaining existing entities.
Restatement of revenue and cost of goods sold, IT processing, servicing and support
In November
2020, we
identified an
error with
respect to
the recognition
of certain
revenue and
related cost
of goods
sold, IT
processing,
servicing
and
support
during
our
assessment
and
systems
development
of new
products.
The
error did
not impact
our
operating income (loss), net income (loss), balance sheet or cash flows. We determined that the error impacted reported results for the
period from July 1,
2018 to September 30,
2020. The error impacted our
reported results and we
have restated our audited
consolidated
statement of
operations and
certain note
presentation for
fiscal 2020
and 2019,
refer to
Note 1
to our
audited consolidated
financial
statements
for
additional
information
.
31
The table below
presents the unaudited
impact of the restatement
on our revenue
and related cost of
goods sold, IT processing,
servicing and support for the first quarter of fiscal 2021, fiscal 2020 and 2019,
including each fiscal quarter within those fiscal years:
Table 1
Revenue (quarter information
unaudited)
Cost of goods sold, IT processing,
servicing and support (quarter
information unaudited)
As
reported
Correction
As restated
As
reported
Correction
As restated
$ ’000
$ ’000
$ ’000
$ ’000
$ ’000
$ ’000
Fiscal 2021:
Q1 2021
37,113
(1,977)
35,136
28,437
(1,977)
26,460
Fiscal 2020:
Year
ended 2020
150,997
(6,698)
144,299
109,006
(6,698)
102,308
Q4 2020
25,978
(1,427)
24,551
22,400
(1,427)
20,973
Q3 2020
36,514
(1,900)
34,614
25,783
(1,900)
23,883
Q2 2020
40,567
(1,649)
38,918
28,395
(1,649)
26,746
Q1 2020
47,938
(1,722)
46,216
32,428
(1,722)
30,706
Fiscal 2019
Year
ended 2019
166,227
(5,592)
160,635
129,696
(5,592)
124,104
Q4 2019
17,053
(1,692)
15,361
26,225
(1,692)
24,533
Q3 2019
36,586
(1,371)
35,215
29,423
(1,371)
28,052
Q2 2019
42,042
(1,948)
40,094
27,291
(1,948)
25,343
Q1 2019
70,546
(581)
69,965
46,757
(581)
46,176
The
restatement
only
impacted
revenue
allocated
to
our
Processing
operating
segment.
Refer
to
“Presentation
of
quarterly
revenue and
operating (loss)
income by
segment for
fiscal 2020
and 2019”
below for
additional information
regarding our
restated
operating segments for fiscal 2020 and 2019, including each fiscal quarter
within those fiscal years.
Critical Accounting Policies
Our audited 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.
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.
Management
believes
that
the
following
accounting policies
are critical due
to the degree
of estimation required
and the impact
of these policies
on the understanding
of the
results of our operations and financial condition.
Valuation
of investment in Cell C
We have elected to measure
our investment in
Cell C, an
unlisted equity security, at fair
value using the
fair value option.
Changes
in
the
fair
value
of
this
equity
security
are
recognized
in
the
caption
“change
in
fair
value
of
equity
securities”
in
our
audited
consolidated statements of operations. The tax impact related to the change
in fair value of equity securities is included in income tax
expense in our audited
consolidated statements of operation.
The determination of
the fair value of this
equity security requires us
to
make significant judgments
and estimates.
We base our estimates
on assumptions we
believe to be
reasonable but that
are unpredictable
and inherently uncertain. Refer
to Note 5
of our audited consolidated
financial statements regarding the
valuation inputs and
sensitivity
related to our investment in Cell C.
We used a discounted cash flow model to determine the fair value of our investment in Cell C as of June 30, 2021 and 2020,
and
valued Cell
C at
$0.0 (zero)
as of
each of
June 30,
2021 and
2020. We
changed certain
valuation assumptions
when preparing
our
December 31, 2020, valuation compared with our June 30, 2020, valuation
and we have used these new valuation assumptions in our
June 30, 2021, valuation.
For the June 30, 2021, valuation, we incorporated the payments under the lease liabilities into the cash flow
forecasts instead of
including the June 30,
2021, carrying value
in net debt and
assumed that the deferred
tax asset would be
utilized
over the forecast period instead of including the
fair value of the deferred tax asset as of June
30, 2020, in the valuation. For the June
30, 2020, valuation, we included the carrying value of the lease liabilities within net debt and included the June
30, 2020, fair value of
the
deferred
tax
asset
in
the
valuation.
32
We utilized
the latest approved business
plan provided by Cell C
management for the period
ended December 31, 2025, for
the
June 30,
2020 valuation
and the
period ended
December 31,
2024 for
the June
30, 2020
valuation, and
the following
key valuation
inputs were used:
Weighted Average
Cost of Capital:
Between 16% and 24% over the period of the forecast
Long-term growth rate:
3% (3% as of June 30, 2020)
Marketability discount:
10%
Minority discount:
15%
Net adjusted external debt - June 30, 2021:
(1)
ZAR 11.2 billion ($0.8 billion), no
lease liabilities included
Net adjusted external debt - June 30, 2020:
(2)
ZAR 15.8 billion ($0.9 billion), includes ZAR4.4 billion of lease
liabilities
Deferred tax (incl, assessed tax losses) - June 30, 2020:
(2)
ZAR 2.9 billion ($167.3 million)
(1) translated from ZAR to U.S. dollars at exchange rates applicable
as of June 30, 2021.
(2) translated from ZAR to U.S. dollars at exchange rates applicable
as of June 30, 2020.
We
believe the
Cell C
business plan
is reasonable
based on
the current
performance and
the expected
changes in
the business
model. Refer to the sensitivity analysis included
in Note 5 to our audited consolidated financial
statements related to our valuation of
Cell C as of June 30, 2021.
Recoverability of equity-accounted investments and other equity securities
We
review
our
equity-accounted
investments
and
other
equity
securities
for
impairment
whenever
events
or
circumstances
indicate that the carrying amount of the investment may not
be recoverable. In performing this review, we are required to estimate the
fair value
of our
equity-accounted investments
and other
equity securities.
The determination
of the
fair value
of these
investments
requires us to make significant judgments and estimates.
We
performed impairment assessments
during fiscal 2021
and 2020,
for certain of our
equity-accounted investments following
the
identification
of
certain
impairment
indicators.
The
results
of
our
impairment
tests
during
fiscal
2021
and
2020,
resulted
in
impairments
of $21.1
million and
$33.8
million,
respectively,
related
to our
equity-accounted
investments.
These impairments
are
discussed in Note 8 to our audited consolidated financial statements.
We did not identify any impairment indicators during fiscal 2019
and therefore did not recognize any impairment losses related to our equity-accounted
investments during that year.
For fiscal 2021, in determining the fair value of certain of our equity-accounted investments, we have considered (i) for Finbond
specifically,
as it is listed on the
Johannesburg Stock Exchange,
its market price as of the impairment
assessment date, adjusted for
a
liquidity
discount
of
15%,
and
(ii)
the
net
asset
value
of
the
equity-accounted
investment
being
assessed
as
a
proxy
of
fair
value
because reasonable cash flow forecasts were not available.
For fiscal
2020, in
determining the
fair value
of certain
of our
equity-accounted investments,
we have
considered (i)
for DNI
specifically, the fair value
of consideration received
on April
1, 2020, adjusted
for the
accumulated foreign currency
translation reserve,
(ii) dividend discount models based on projected cash flows, adjusted for identified risks,
(iii) various multiples applicable to peer and
industry comparables of
certain of our equity-accounted
investments, and (iv) the
net asset value of
the equity-accounted investment
being assessed as a proxy of fair value because reasonable cash flow forecasts
are not available.
We
base our estimates on
assumptions we believe to
be reasonable but that
are unpredictable and inherently
uncertain. The fair
value of our investment in Finbond is sensitive to movements in its market price, which is quoted in ZAR, because we use the market
price as the
basis of our
valuation. We
have no other
significant equity accounted
investments as of
June 30, 2021,
because we sold
our interest in Bank Frick in February 2021 and our interest in DNI in April 2020.
Other equity securities include our investments in MobiKwik and CPS. These equity securities do not have readily determinable
fair
values
and
therefore
we
have
elected
to
measure
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.
If
we
identify an impairment indicator related
to these equity
securities, we are required
to assess the
carrying value of these
equity securities
against their fair value. We did not identify any impairment indicators during each of fiscal 2021, 2020 and
2019 and therefore did not
recognize any impairment losses related to these equity securities during
those years.
The determination of the fair value of an investment requires
us to make significant judgments and estimates. We are required to
base our estimates on assumptions which would believe
to be reasonable,
but these assumptions may be unpredictable and inherently
uncertain.
33
During the year
ended June 30,
2021, MobiKwik
entered into a
number of separate
agreements with new
shareholders to raise
additional capital
through the issuance
of additional
shares. Specifically,
we used the
following transactions
as the basis
for our fair
value
adjustments
to our
investment in
MobiKwik
during the
year
ended June
30, 2021:
(i) in
early November
2020, $135.54
per
share; March 2021, $170.33 per
share;
and June 2021, $245.50 per
share. We considered each of these transactions to
be an observable
price change in
an orderly transaction for
similar or identical equity
securities issued by MobiKwik.
Accordingly,
the carrying value
of our investment
in MobiKwik increased
from $27.0 million
as of June
30, 2020, to
$76.3 million as of
June 30, 2021.
The change
in the fair value
of MobiKwik for the
year ended June 30,
2021, of $49.3
million, is included in
the caption “Change in
fair value of
equity securities” in our audited consolidated statement of operations for
the year ended June 30, 2021.
Business Combinations and the Recoverability of Goodwill
A component of our
growth strategy has been
to acquire and integrate businesses
that complement our
existing operations. The
purchase price
of an acquired
business is allocated
to the tangible
and intangible
assets acquired
and liabilities assumed
based upon
their estimated fair value
at the date of
purchase. The difference between the
purchase price and the
fair value of the
net assets acquired
is recorded
as goodwill.
In determining
the fair
value of
assets acquired
and liabilities
assumed
in a
business combination,
we use
various
recognized
valuation
methods,
including
present
value
modeling.
Further,
we
make
assumptions
using
certain
valuation
techniques, including discount rates and timing of future cash flows.
We review the carrying value of goodwill
annually or more frequently if circumstances indicating impairment have occurred. In
performing this review,
we are required to estimate
the fair value of goodwill that
is implied from a valuation of
the reporting unit to
which the goodwill
has been allocated
after deducting
the fair values of
all the identifiable
assets and liabilities
that form part
of the
reporting unit.
The determination
of the fair
value of a
reporting unit requires
us to make
significant judgments
and estimates. In
determining
the fair value of reporting units for fiscal 2021 and 2020,
we considered country and entity-specific growth rates, future expected cash
flows
to
be
used
in
our
discounted
cash
flow
model,
and
the
weighted-average
cost
of
capital
applicable
to
peer
and
industry
comparables of the reporting units.
We base
our estimates on assumptions we
believe to be reasonable but
that are unpredictable
and
inherently uncertain. In addition, we make
judgments and assumptions in allocating assets
and liabilities to each of
our reporting units.
In determining the fair value of reporting
units in our previous fiscal years
to 2019,
we considered the EBITDA and the EBITDA
multiples applicable to
peer and industry
comparables of the reporting
units. We
based our estimates
on assumptions we
believed to
be reasonable but that are
unpredictable and inherently uncertain. In addition,
we made judgments and
assumptions in allocating assets
and liabilities to each of our reporting units.
The results of our impairment tests during fiscal 2021
indicated that the fair value of our reporting units exceeded
their carrying
values and therefore our reporting units
were not at risk
of potential impairment. The results of
our impairment tests during fiscal
2020
indicated that the
fair value of
our reporting units
exceeded their carrying
values, with the
exception of the
$5.6 million of
goodwill
impaired during fiscal 2020, as discussed in Note 9 to our audited consolidated
financial statements.
Intangible Assets Acquired Through Acquisitions
The
fair values
of the
identifiable
intangible
assets acquired
through
acquisitions
were determined
by management
using
the
purchase method of
accounting. We
completed acquisitions during
fiscal 2018 where we
identified and recognized intangible
assets.
We have used the relief from royalty method, the multi-period excess earnings
method, the income approach and the cost approach
to
value
acquisition-related
intangible assets.
In so
doing,
we made
assumptions
regarding
expected
future
revenues and
expenses
to
develop the underlying forecasts, applied contributory asset charges, discount rates, exchange rates, cash tax charges
and useful lives.
As of
June
30,
2021,
we
do not
have
any
significant
intangible
assets, however,
this ba
lance
could
increase
following
a
business
combination.
The valuations were based on information available at the
time of the acquisition and the expectations and
assumptions that were
deemed reasonable by us. No assurance can be given, however,
that the underlying assumptions or events associated with such assets
will occur as
projected. For these
reasons, among others,
the actual cash
flows may vary
from forecasts
of future cash
flows. To
the
extent actual cash
flows vary,
revisions to the
useful life or impairment
of intangible assets may
be necessary.
For instance, in fiscal
2019,
we
recorded
an
impairment
loss
of
$5.3
million
related
to
intangible
assets
acquired
(customer
relationships)
in
the
DNI
acquisition as a result of Cell C entering into a roaming arrangement with another South African mobile telecommunications network
provider which extended Cell C’s network
coverage. This arrangement impacted the identified customer relationship
recognized.
Deferred Taxation
We
estimate
our
tax
liability
through
the
calculations
done
for
the
determination
of
our
current
tax
liability,
together
with
assessing
temporary differences
resulting
from the
different
treatment of
items for
tax and
accounting
purposes.
These differences
result
in
deferred
tax
assets
and
liabilities
which
are
disclosed
on
our
balance
sheet.
34
Management then
has to assess
the likelihood
that deferred tax
assets are more
likely than not
to be realized
in the foreseeable
future. A valuation allowance is
created if it is determined
that a deferred tax asset will not
be realized in the foreseeable future.
Any
change to the valuation allowance
would be charged or
credited to income in the period
such determination is made. In
assessing the
need for a valuation allowance,
historical levels of income, expectations
and risks associated with estimates
of future taxable income
and
ongoing
prudent
and
practicable
tax
planning
strategies
are
considered.
During
fiscal
2021,
2020
and
2019,
respectively,
we
recorded a net increase of $1.5 million, $13.4 million and $78.2 million
to our valuation allowance. As of June 30, 2021 and 2020, the
valuation allowance related to deferred tax assets was $118.8 and
$106.4 million, respectively.
Stock-based Compensation
Management is required to make estimates and assumptions related to our valuation and recording
of stock-based compensation
charges under
current accounting standards.
These standards require
all share-based compensation
to employees to
be recognized in
the
statement
of
operations
based on
their
respective
grant date
fair
values
over
the requisite
service
periods
and
also
requires
an
estimation of forfeitures when calculating compensation expense.
We utilize the Cox Ross
Rubinstein binomial model to
measure the fair
value of stock
options granted to
employees and directors.
We
have also utilized
a bespoke adjusted
Monte Carlo simulation discounted
cash flow model to
measure the fair value
of restricted
stock with market
conditions granted to
employees and directors.
The stock-based compensation
cost related to
these valuations has
been
recognized
on
a
straight-line
basis.
These
valuation
models
require
estimates
of
a
number
of
key
valuation
inputs
including
expected volatility, expected dividend yield, expected term and
risk-free interest rate. Our
management has estimated forfeitures based
on
historic
employee
behavior
under
similar
compensation
plans.
The
fair
value
of
stock
options
is
affected
by
the
assumptions
selected. The fair value calculation is especially sensitive to
our valuation assumption with respect to expected volatility. For instance,
a 5%
increase (to
67%) or
decrease (to
57%) in
the expected
volatility used
(of 62%)
to value
stock options
granted in
November
2020, would result in a charge that was 7% higher (if
67% were used) or 7% lower (if 57% were used). Net
stock-based compensation
expense from continuing operations was $0.3 million, $1.7 million and $0.4
million for fiscal 2021, 2020 and 2019, respectively.
Accounts Receivable and Allowance for Doubtful Accounts Receivable
We
maintain an allowance
for doubtful accounts
receivable related to
our Processing and Technology
segments with respect to
sales or rental of
hardware, support and maintenance services provided; or
sale of licenses to
customers; or the provision of
transaction
processing services to our customers; or our working capital financing provided.
Our
policy
is
to
regularly
review
the
aging
of
outstanding
amounts
due
from
customers
and
adjust
the
provision
based
on
management’s estimate of
the recoverability of the amounts outstanding.
Management
considers
factors including
period outstanding,
creditworthiness
of the
customers, past
payment
history and
the
results of discussions by our credit
department with the customer. We consider this policy to be appropriate taking into account
factors
such as
historical bad
debts, current
economic trends
and changes
in our
customer payment
patterns. Additional
provisions may
be
required should the
ability of our customers
to make payments when
due deteriorate in
the future. Judgment is
required to assess the
ultimate recoverability of these receivables, including ongoing evaluation
of the creditworthiness of each customer.
Microlending
We
maintain
an
allowance
for
doubtful
finance
loans
receivable
related
to
our
Financial
services
segment
with
respect
to
microlending loans provided to
our customers. Our
policy is to
regularly review the
ageing of outstanding
amounts due from
borrowers
and adjust the provision based on management’s estimate of the recoverability of finance loans receivable. We write off microlending
loans and related service fees if a borrower is in arrears with repayments for more
than three months or dies.
Management considers factors including the period of the microlending loan outstanding, creditworthiness
of the customers and
the past payment history and trends
of its established microlending book. We consider this policy to
be appropriate taking into account
factors such
as historical
bad debts,
current economic
trends and
changes in
our customer
payment patterns.
Additional allowances
may be
required should
the ability of
our customers
to make payments
when due deteriorate
s
in the
future. A
significant amount
of
judgment
is
required
to
assess
the
ultimate
recoverability
of
these
finance
loan
receivables,
including
ongoing
evaluation
of
the
creditworthiness of each customer.
Revenue – variation in transaction price following September 2019 Supreme Court ruling
In
fiscal
2019,
the
Supreme
Court
denied
our
appeal
and
we
have
recorded
a
liability
of
$34.0
million
as of
June
30,
2019,
c
omprising
a
revenue
refund
of
$19.7
million
(ZAR
277.6
million),
and
other
expenses
totaling
$14.3
million
(ZAR
201.8
million).
35
Management considered a component of the $34.0
million to be refunded to SASSA, specifically the ZAR 277.6
million ($19.7
million) of revenue
recorded in fiscal 2014
related to a
June 2012 agreement,
to be a variation
in the price
charged to SASSA
under
our February 2012
SASSA contract. Even
though it is
an involuntary refund
to be paid
to SASSA, the
Supreme Court ruled
that we
were not
entitled to charge
SASSA for the
additional enrolments
performed because,
in the courts
view,
the February 2012
contract
contained all the performance obligations
and pricing parameters related to the enrolment
of all beneficiaries, and not just cardholder
recipients, and we should not have sought a recovery of
implementation costs in fiscal 2014 from SASSA for the
additional enrolment
services provided under the June 2012 agreement. As noted above, management does not agree with
the findings of the courts and has
had to exercise its judgment
in determining whether the reversal
of revenue represents a price variation
(accounted for as a reduction
in revenue in fiscal 2019) or a nonreciprocal transfer.
Recent Accounting Pronouncements
Recent accounting pronouncements adopted
Refer
to
Note
2 of
our
audited consolidated
financial
statements for
a full
description
of recent
accounting
pronouncements,
including the dates of adoption and effects on financial
condition, results of operations and cash flows.
Recent accounting pronouncements not yet adopted as of June 30, 2021
Refer to Note 2
of our audited consolidated
financial statements for
a full description of
recent accounting pronouncements
not
yet adopted as of June 30, 2021, including the expected dates of adopti
on and effects on financial condition, results of operations
and
cash flows.
Currency Exchange Rate Information
Actual exchange rates
The actual exchange rates for and at the end of the periods presented
were as follows:
Table 2
June 30,
2021
2020
2019
ZAR : $ average exchange rate
15.4146
15.6775
14.1926
Highest ZAR : $ rate during period
17.6866
19.0569
15.4335
Lowest ZAR : $ rate during period
13.4327
13.8973
13.1528
Rate at end of period
14.3010
17.3326
14.0840
36
Translation Exchange Rates
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 years ended June 30,
2021, 2020 and 2019,
vary slightly from the averages shown in the table above. The
translation rates we use in presenting our results of operations are the rates
shown in the following table:
Table 3
June 30,
2021
2020
2019
Income and expense items: $1 = ZAR
15.7162
17.5686
14.2688
Balance sheet items: $1 = ZAR
14.3010
17.3326
14.0840
Results of operations
The
discussion
of our
consolidated overall
results of
operations is
based on
amounts
as reflected
in our
audited 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 audited consolidated financial statements, and supplementally in ZAR, because ZAR is the functional currency of the
entities which contribute the majority of our results 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 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 audited consolidated financial statements is included in Note 20
to those statements.
We deconsolidated CPS from June
1, 2020 and
its results are
excluded from that
date. We disposed of our
South Korean operation
in the third quarter of
fiscal 2020 and it
has been presented as a discontinued
operation for fiscal 2020
and 2019. We
used the equity
method to account for DNI in fiscal 2020 and accounted
for DNI as a discontinued operation in fiscal 2019. We
disposed of FIHRST
during the second quarter of fiscal 2020 and its contribution
to our reported results is excluded from December
1, 2019. Refer also to
Note 23,
Note 8 and Note 24 to the audited consolidated financial statements for additional
information regarding these transactions.
We
analyze our
business and operations
in terms of
three inter-related
but independent operating
segments: (1) Processing,
(2)
Financial services and
(3) Technology.
In addition, corporate
and corporate office
activities that are
impracticable to ascribe directly
to
any
of
the
other
operating
segments,
as
well
as
any
inter
-
segment
eliminations,
are
included
in
Corporate/Eliminations
.
37
Fiscal 2021 Compared to Fiscal 2020
The following factors had
a significant influence on
our results of
operations during fiscal 2021
as compared with
the same period
in the prior year:
●
Lower revenue:
Our revenues decreased
19% in ZAR primarily due to
fewer prepaid airtime and hardware
sales and lower
transaction and account fee revenue, which was partially offset by
modestly higher lending and insurance revenue;
●
Ongoing operating
losses:
Operating
costs were
largely in
line with
the prior
period in
ZAR due
to the
largely fixed
cost
nature of the costs base. As a result, we continue to experience operating losses because of depressed
revenues;
●
Non-cash increase in fair value of MobiKwik:
We recorded a non-cash fair value gain during the year to date of fiscal 2021
of $49.3 million related to the change in fair value of MobiKwik; and
●
Foreign exchange movements:
The U.S. dollar
was
11% weaker
against the ZAR during
fiscal 2021, which
impacted our
reported results.
Consolidated overall results of operations
This discussion is based on the amounts prepared in accordance with U.S. GAAP.
The following tables show the changes in the items comprising our statements of
operations, both in U.S. dollars and in ZAR:
Table 4
In U.S. Dollars
Year
ended June 30,
2021
2020
(R)(1)
(as restated)
$ %
$ ’000
$ ’000
change
Revenue
130,786
144,299
(9%)
Cost of goods sold, IT processing, servicing and support
96,248
102,308
(6%)
Selling, general and administration
84,063
75,256
12%
Depreciation and amortization
4,347
4,647
(6%)
Impairment loss
-
6,336
nm
Operating loss
(53,872)
(44,248)
22%
Change in fair value of equity securities
49,304
-
nm
Loss on disposal of Bank Frick
472
-
nm
Loss on disposal of equity-accounted investment
13
-
nm
Gain on disposal of FIHRST
-
9,743
nm
Loss on disposal of DNI
-
1,010
nm
Loss on deconsolidation of CPS
-
7,148
nm
Termination
fee paid to cancel Bank Frick option
-
17,517
nm
Interest income
2,416
2,805
(14%)
Interest expense
2,982
7,641
(61%)
Net loss before tax
(5,619)
(65,016)
(91%)
Income tax expense
7,560
2,656
185%
Net loss before loss from equity-accounted investments
(13,179)
(67,672)
(81%)
Loss from equity-accounted investments
(24,878)
(29,542)
(16%)
Net loss from continuing operations
(38,057)
(97,214)
(61%)
Net income from discontinued operations
-
6,402
nm
Gain from disposal of discontinued operations, net of tax
-
12,454
nm
Net loss
(38,057)
(78,358)
(51%)
Net (loss) income attributable to us
(38,057)
(78,358)
(51%)
Continuing
(38,057)
(97,214)
(61%)
Discontinued
-
18,856
nm
(R) Refer to Note 1 to the audited consolidated financial statements
for additional information regarding the restatement.
(1) Refer to Note 24 to the audited consolidated financial statements
for discontinued operations disclosures.
38
Table 5
In South African Rand
Year
ended June 30,
2021
2020
(R)(1)
(as restated)
ZAR %
ZAR ’000
ZAR ’000
change
Revenue
2,055,459
2,535,131
(19%)
Cost of goods sold, IT processing, servicing and support
1,512,653
1,797,408
(16%)
Selling, general and administration
1,321,151
1,322,142
(0%)
Depreciation and amortization
68,318
81,641
(16%)
Impairment loss
-
111,315
nm
Operating loss
(846,663)
(777,375)
9%
Change in fair value of equity securities
774,872
-
nm
Loss on disposal of Bank Frick
7,418
-
nm
Loss on disposal of equity-accounted investment
204
-
nm
Gain on disposal of FIHRST
-
171,171
nm
Loss on disposal of DNI
-
17,744
nm
Loss on deconsolidation of CPS
-
125,580
nm
Termination
fee paid to cancel Bank Frick option
-
307,749
nm
Interest income
37,970
49,280
(23%)
Interest expense
46,866
134,242
(65%)
Net loss before tax
(88,309)
(1,142,239)
(92%)
Income tax expense
118,814
46,662
155%
Net loss before loss from equity-accounted investments
(207,123)
(1,188,901)
(83%)
Loss from equity-accounted investments
(390,988)
(519,012)
(25%)
Net loss from continuing operations
(598,111)
(1,707,913)
(65%)
Net income from discontinued operations
-
112,474
nm
Gain from disposal of discontinued operations, net of tax
-
218,799
nm
Net loss
(598,111)
(1,376,640)
(57%)
Net (loss) income attributable to us
(598,111)
(1,376,640)
(57%)
Continuing
(598,111)
(1,707,913)
(65%)
Discontinued
-
331,273
nm
(R) Refer to Note 1 to the audited consolidated financial statements
for additional information regarding the restatement.
(1)
Refer to Note 24 to the audited consolidated financial statements
for discontinued operations disclosures.
The decrease
in revenue
was primarily
due to
fewer prepaid
airtime and
hardware sales
and lower
transaction and
account fee
revenue, which was partially offset by modestly higher
lending and insurance revenue.
The decrease in cost of goods sold, IT processing, servicing and
support was primarily due to lower cost of prepaid airtime
sales,
which was partially offset by higher costs related to transaction
fees and an increase in insurance-related claims experience.
In ZAR,
the decrease
in selling,
general and
administration expense
was primarily
due to the
impact of
currency weakness
($/
ZAR) on U.S.
dollar-denominated expenses measured in ZAR
and lower stock-based compensation
charges,
which was partially
offset
by the
year-over-year
impact
of inflationary
increases on
employee-related
expenses, and
allowances
for doubtful
loans receivable
from equity-accounted investments created during fiscal 2021.
Depreciation
and amortization
decreased
primarily
due to
lower overall
depreciation
related to
tangible assets
that were
fully
depreciated during the year to date of fiscal 2021.
During fiscal 2020, we recorded
an impairment loss of $5.6
million related to the
impairment of a portion of
our EasyPay business
unit’s
allocated goodwill
and a $0.7
million impairment
loss related to
our Maltese e-money
license. Refer to
Note 9 of
our audited
consolidated financial statements for additional information regarding
these impairment losses.
Our
operating
loss margin
for
fiscal
2021
and
2020
was
(41.2%)
and
(30.7%),
respectively.
We
discuss
the
components
of
operating (loss) income margin under “—Results of operations
by operating segment.”
The change in fair value of equity securities during fiscal 2021 represents a non-cash fair value gain related to MobiKwik. There
was no
change in
the fair
value of
equity securities
during fiscal
2020. We
continue to
carry our
investment in
Cell C
at $0
(zero).
Refer to Note 8 to
our audited consolidated financial
statements for the methodology
and inputs used in the
fair value calculation for
MobiKwik
and
Note
5
for
the
methodology
and
inputs
used
in
the
fair
value
calculation
for
Cell
C.
39
We
recorded
a
loss
of
$0.5
million
related
to
the
disposal
of
Bank
Frick
during
fiscal
2021,
refer
to
Note
8
to
our
audited
consolidated financial statements for additional information regarding
this transaction.
We
recorded a
gain of
$9.7 million
related to
the disposal
of FIHRST
during fiscal
2020, which
was partially
offset by
a $1.0
million loss on
the disposal of
our remaining
interest in DNI
and a $7.1
million loss on
the deconsolidation
of CPS. We
also paid a
termination fee of $17.5 million in respect of our decision not to exercise
our option to acquire control of Bank Frick
Interest on surplus cash decreased to $2.4 million (ZAR
38.0 million) from $2.8 million (ZAR 49.3 million),
due primarily to the
higher average daily
cash balances following
the increase in
our cash reserves
as a result
of the disposal
of certain business
in fiscal
2020, which was more than offset by lower rates of interest earned
on surplus cash.
Interest expense
decreased to
$3.0 million
(ZAR 46.9
million) from
$7.6 million
(ZAR 134.2
million), primarily
as a result
of
lower borrowings,
a reduction
in South
African interest
rates and
lower utilization
of our
ATM
facilities because
we used
our cash
reserves to fund our ATMs.
Fiscal 2021 tax expense was $7.6 million (ZAR 118.8 million) compared
to $2.7 million (ZAR 46.7 million) in fiscal 2020.
Our
effective tax
rate for fiscal
2021 was impacted
by the tax
effect on the
change in the
fair value of
our equity securities,
which is at a
lower tax rate than
the South African statutory
rate, the tax charge
related to our profitable
South African operations,
non-deductible
expenses, the
on-going
losses incurred
by certain
of our
South African
businesses and
the associated
valuation
allowances created
related to the deferred tax assets recognized regarding net operating losses incurred by these entities, which was partially offset by the
reversal of the deferred tax liability related to one of our equity-accounted
investments following its impairment.
Fiscal 2020
tax expense
was $2.7
million (ZAR
46.7 million)
compared to
$(5.1) million
(ZAR (72.4)
million) in
fiscal 2019.
Our effective tax rate for fiscal 2020,
was impacted by the tax-neutral disposals of FIHRST
and DNI, the tax-neutral deconsolidation
of CPS,
non-deductible
impairment
losses, the
option
termination
fee paid,
the ongoing
losses incurred
by IPG
and
certain
of our
South African businesses and the associated valuation allowances created related to the deferred tax
assets recognized regarding those
net operating losses, other non-deductible expenses, including
certain corporate transactions-related expenditure, and
the tax expense
recorded by our profitable businesses, primarily in South Africa.
The disposal of certain of our equity-accounted investments in the last two fiscal
years, as well as a number of impairments, has
adversely impacted the comparability of our loss from equity-accounted investments. We disposed of our investment in Bank Frick in
fiscal
2021
and
disposed
of
our
investment
in
DNI
in
fiscal
2020.
The
largest
impairment
recorded
in
fiscal
2021
related
to
our
investment in Finbond
following a slow-down
in its business activity
and lower traded
share price. The
largest impairment recorded
in fiscal
2020 related
to our investment
in Bank
Frick following
our decision
not to
exercise our
option to
take control
of the
bank.
Refer to Note
8 to
our audited
consolidated financial statements
for additional information
regarding our equity-accounted
investments,
including disclosure
regarding the disposals
and impairments. Finbond
is listed on
the Johannesburg
Stock Exchange and
reports its
six-month
results
during
our
first
half
and
its
annual
results
during
our
fourth
quarter.
The
table
below
presents
the
relative
loss
(earnings) from our equity accounted investments:
Table 6
Year
ended June 30,
2021
2020
$ %
$ ’000
$ ’000
change
Bank Frick
1,156
(17,273)
nm
Share of net income
1,156
1,421
(19%)
Amortization of intangible assets, net of deferred tax
-
(433)
nm
Impairment
-
(18,261)
nm
Finbond
(22,009)
1,840
nm
Share of net (loss) income
(4,359)
1,840
nm
Impairment
(17,650)
-
nm
DNI
-
(9,744)
nm
Share of net income
-
4,676
nm
Amortization of intangible assets, net of deferred tax
-
(1,350)
nm
Impairment
-
(13,070)
nm
Other
(4,025)
(4,365)
(8%)
Share of net loss
(531)
(1,865)
(72%)
Impairment
(3,494)
(2,500)
40%
Total
loss from equity-accounted investment
(24,878)
(29,542)
(16%)
40
Results of operations by operating segment
The composition of revenue and the contributions of our business activities to
operating (loss) income are illustrated below:
Table 7
In U.S. Dollars
(R)
Year
ended June 30,
2021
2020
% of
(as restated)
% of
%
Operating Segment
$ ’000
total
$ ’000
total
change
Revenue:
Processing
82,435
63%
91,786
64%
(10%)
IPG
1,693
1%
3,310
2%
(49%)
All other
80,742
62%
88,476
62%
(9%)
Financial services
38,996
30%
46,870
32%
(17%)
Technology
17,751
14%
18,071
13%
(2%)
Subtotal: Operating segments
139,182
106%
156,727
109%
(11%)
Corporate/Eliminations
(8,396)
(6%)
(12,428)
(9%)
(32%)
Consolidated revenue
130,786
100%
144,299
100%
(9%)
Operating (loss) income:
Processing
(34,283)
64%
(33,836)
76%
1%
IPG
(10,727)
20%
(12,348)
28%
(13%)
All other
(23,556)
44%
(21,488)
48%
10%
Financial services
(8,429)
16%
(3,621)
8%
133%
Technology
2,627
(5%)
2,815
(6%)
(7%)
Subtotal: Operating segments
(40,085)
74%
(34,642)
78%
16%
Corporate/eliminations
(13,787)
26%
(9,606)
22%
44%
Consolidated operating loss
(53,872)
100%
(44,248)
100%
22%
(R) Consolidated revenue-Processing-All others for fiscal 2020
has been restated for the error described in 1 to the audited consolidated
financial statements.
There was no impact on operating loss as a result
of the restatement.
Table 8
In South African Rand
(R)
Year
ended June 30,
2021
2020
% of
(as restated)
% of
%
Operating Segment
ZAR ’000
total
ZAR ’000
total
change
Revenue:
Processing
1,295,565
63%
1,612,552
64%
(20%)
IPG
26,608
1%
58,153
2%
(54%)
All other
1,268,957
62%
1,554,399
62%
(18%)
Financial services
612,869
30%
823,440
32%
(26%)
Technology
278,978
14%
317,482
13%
(12%)
Subtotal: Operating segments
2,187,412
106%
2,753,474
109%
(21%)
Corporate/Eliminations
(131,953)
(6%)
(218,343)
(9%)
(40%)
Consolidated revenue
2,055,459
100%
2,535,131
100%
(19%)
Operating (loss) income:
Processing
(538,798)
64%
(594,451)
76%
(9%)
IPG
(168,587)
20%
(216,937)
28%
(22%)
All other
(370,211)
44%
(377,514)
48%
(2%)
Financial services
(132,472)
16%
(63,616)
8%
108%
Technology
41,286
(5%)
49,456
(6%)
(17%)
Subtotal: Operating segments
(629,984)
74%
(608,611)
78%
4%
Corporate/eliminations
(216,679)
26%
(168,764)
22%
28%
Consolidated operating loss
(846,663)
100%
(777,375)
100%
9%
(R) Consolidated revenue-Processing-All others for fiscal 2020
has been restated for the error described in 1 to the audited consolidated
financial statements.
There was no impact on operating loss as a result
of the restatement.
41
Processing
Excluding IPG,
segment revenue
decreased primarily
due to
fewer prepaid
airtime sales
and lower
volume-driven transaction
fees. Excluding
IPG, Processing
operating loss
has been
impacted by
lower revenue
and by
an increase
in transaction-based
costs.
Operating
loss for
fiscal
2020 includes
a $1.3
million
inventory
write-down
related
to prepaid
airtime
inventory.
Fiscal 2020
also
includes the impact of the
$5.6 million EasyPay goodwill impairment
loss. IPG incurred an
operating loss but is
in the process of
being
closed down.
Our operating
loss margin
for fiscal 2021
and 2020 was
(41.6%) and
(36.9%),
respectively.
Our operating
loss and operating
loss margin for fiscal 2020 excluding the goodwill impairment
of $5.6 million was $26.9 million and
(25.4%), respectively.
Financial services
Segment revenue
decreased due
to lower
account fee
revenue, whilst
lending and
insurance revenues
were moderately
higher
compared
to the
prior period.
The segment
incurred an
operating loss
compared
with fiscal
2020 primarily
due to
the reduction
in
account fee revenue as well as higher employee-related costs and
an increase in insurance claims experience.
Our operating loss margin for fiscal 2021 and 2020 was
(21.6%) and
(7.7%),
respectively.
Technology
Segment revenue decreased due to fewer hardware sales compared with fiscal 2021. Operating income for fiscal
2021 was lower
than fiscal 2020 due lower revenues, however,
margins on the sale of various product lines have remained consistent year over
year.
Our operating income margin for the Technology
segment was
14.8% and
15.6% during fiscal 2021 and 2020, respectively.
Corporate/ Eliminations
Our corporate expenses generally
include acquisition-related intangible asset
amortization; expenses incurred related
to corporate
actions;
expenditure
related
to
compliance
with
the
Sarbanes-Oxley
Act
of
2002;
non-employee
directors’
fees;
employee
and
executive bonuses; stock-based compensation; legal fees; audit fees; directors and officer’s
insurance premiums; telecommunications
expenses; and elimination entries.
Our corporate expenses increased
primarily due to allowances for
doubtful loans receivable from
equity-accounted investments
created during
fiscal 2021,
higher legal
fees, and
foreign exchange
losses, which
were partially
offset
by lower
audit fees
in fiscal
2021 and an unrealized foreign exchange gain recognized in fiscal 2020.
Fiscal 2020 Compared to Fiscal 2019
The following factors had
a significant influence on
our results of
operations during fiscal 2020
as compared with
the same period
in the prior year:
●
Decline in revenue:
Excluding the impact
of the 2019
SASSA implementation
fee reversal, our
revenues declined
11% in
ZAR primarily due to
the expiration of our
SASSA contract, the decline
in EPE account numbers
driven by SASSA’s
auto-
migration of accounts
to SAPO, a reduction
in EPE-related financial
and value-added services and
transaction fees due to
a
smaller customer
base, and
the impact
of the
pandemic, which
was partially
offset by
higher terminal
and prepaid
airtime
sales;
●
Ongoing operating losses:
We continue to experience operating
losses primarily in
South Africa as
a result
of lower revenues,
coupled with a high fixed-cost infrastructure, despite a significant reduction in this cost base over the last two years.
We also
recorded impairment losses of $6.3 million and $14.4 million,
during fiscal 2020 and 2019, respectively;
●
Fiscal 2019 implementation costs to be refunded to SASSA of $34.0 million:
During fiscal 2019, we recorded an accrual of
$34.0 million related to the September 2019 Supreme Court
ruling comprising a revenue refund of $19.7 million (ZAR
277.6
million), accrued interest of $11.4 million (ZAR 161.0 million), unclaimed indirect taxes of $2.8 million (ZAR 39.4 million)
and estimated costs of $0.1 million (ZAR 1.4 million);
●
Corporate transactions:
In fiscal
2020 we
recorded a
gain of
$9.7 million
related to
the disposal
of FIHRST
in December
2019, which
was partially
offset by
a $1.0 million
loss on
the disposal of
our remaining
interest in
DNI and a
$7.1 million
loss on the deconsolidation of CPS. We also paid a termination
fee of $17.5 million in respect of our decision not to exercise
our option to acquire control of Bank Frick. In fiscal 2019, we recorded a fair
value adjustment loss of $167.5 million related
to our investment in Cell C equity and a $12.8 million impairment of our Cedar
Cellular note; and
●
Adverse foreign exchange
movements:
The U.S. dollar
appreciated
23% against the
ZAR compared to
the same period
in
fiscal
2019,
which
adversely
impacted
our
reported
results
.
42
The following tables show the changes in the items comprising our statements of
operations, both in U.S. dollars and in ZAR:
Table 9
In U.S. Dollars
Year
ended June 30,
2020
(R)(1)
2019
(R)(1)
(as restated)
(as restated)
$ %
$ ’000
$ ’000
change
Revenue
144,299
160,635
(10%)
Cost of goods sold, IT processing, servicing and support
102,308
124,104
(18%)
Selling, general and administration
75,256
144,920
(48%)
Depreciation and amortization
4,647
12,103
(62%)
Impairment loss
6,336
14,440
(56%)
Operating loss
(44,248)
(134,932)
(67%)
Change in fair value of equity securities
-
(167,459)
nm
Gain on disposal of FIHRST
9,743
-
nm
(Loss) Gain on disposal of DNI
(1,010)
177
nm
Loss on deconsolidation of CPS
7,148
-
nm
Termination
fee paid to cancel Bank Frick option
17,517
-
nm
Interest income
2,805
5,424
(48%)
Interest expense
7,641
9,860
(23%)
Impairment of Cedar Cellular note
-
12,793
nm
Loss before income tax expense (benefit)
(65,016)
(319,443)
(80%)
Income tax expense (benefit)
2,656
(5,072)
nm
Net loss before (loss) earnings from equity-accounted investments
(67,672)
(314,371)
(78%)
(Loss) Earnings from equity-accounted investments
(29,542)
1,258
nm
Net loss from continuing operations
(97,214)
(313,113)
(69%)
Net income from discontinued operations
6,402
13,630
(53%)
Gain (Loss) from disposal of discontinued operations, net of tax
12,454
(9,175)
nm
Net loss
(78,358)
(308,658)
Less (Add) net income (loss) attributable to non-controlling interest
-
2,349
nm
Continuing
-
(1,352)
nm
Discontinued
-
3,701
nm
Net (loss) income attributable to us
(78,358)
(311,007)
(75%)
Continuing
(97,214)
(311,761)
(69%)
Discontinued
18,856
754
2,401%
(R) Refer to Note 1 to the audited consolidated financial statements
for additional information regarding the restatement. There was
no impact on operating
loss as a result of the restatement.
(1)
Refer to Note 24 to the audited consolidated financial statements
for discontinued operations disclosures.
43
Table 10
In South African Rand
(US GAAP)
Year
ended June 30,
2020
(R)(1)
2019
(R)(1)
(as restated)
(as restated)
ZAR %
ZAR ’000
ZAR ’000
change
Revenue
2,535,131
2,292,181
11%
Cost of goods sold, IT processing, servicing and support
1,797,408
1,770,902
1%
Selling, general and administration
1,322,142
2,067,935
(36%)
Depreciation and amortization
81,641
172,704
(53%)
Impairment loss
111,315
206,052
(46%)
Operating loss
(777,375)
(1,925,412)
(60%)
Change in fair value of equity securities
-
(2,389,556)
nm
Gain on disposal of FIHRST
171,171
-
nm
(Loss) Gain on disposal of DNI
(17,744)
2,526
nm
Loss on deconsolidation of CPS
125,580
-
nm
Termination
fee paid to cancel Bank Frick option
307,749
-
nm
Interest income
49,280
77,398
(36%)
Interest expense
134,242
140,697
(5%)
Impairment of Cedar Cellular note
-
182,550
nm
Loss before income tax expense (benefit)
(1,142,239)
(4,558,291)
(75%)
Income tax expense (benefit)
46,662
(72,375)
nm
Net loss before (loss) earnings from equity-accounted investments
(1,188,901)
(4,485,916)
(73%)
(Loss) Earnings from equity-accounted investments
(519,012)
17,951
nm
Net loss from continuing operations
(1,707,913)
(4,467,965)
(62%)
Net income from discontinued operations
112,474
194,493
(42%)
Gain (Loss) from disposal of discontinued operations, net of tax
218,799
(130,923)
nm
Net loss
(1,376,640)
(4,404,395)
Less (Add) net income (loss) attributable to non-controlling interest
-
33,519
nm
Continuing
-
(19,292)
nm
Discontinued
-
52,811
nm
Net (loss) income attributable to us
(1,376,640)
(4,437,914)
(69%)
Continuing
(1,707,913)
(4,448,673)
(62%)
Discontinued
331,273
10,759
2,979%
(R) Refer to Note 1 to the audited consolidated financial statements
for additional information regarding the restatement. There was
no impact on operating
loss as a result of the restatement.
(1)
Refer to Note 24 to the audited consolidated financial statements
for discontinued operations disclosures.
Excluding the impact
of the
2019 SASSA
implementation fee reversal,
the decrease in
revenue was
primarily due to
the expiration
of our SASSA contract, the decline in EPE account numbers
driven by SASSA’s
auto-migration of accounts to SAPO, a reduction
in
EPE-related financial
and value-added
services and transaction
fees due to
a smaller customer
base, and the
impact of the
pandemic
which was partially offset by higher terminal and prepaid
airtime sales.
The decrease in
cost of goods
sold, IT processing,
servicing and support
was primarily due
to fewer SASSA
Grindrod-account
grant recipients utilizing the South African National Payment System
which resulted in lower transaction costs incurred by
us, which
was partially offset by higher costs related to terminal and prepaid
airtime sales.
The decrease in selling, general and administration expense was primarily due to lower fixed costs (including premises and staff
costs) incurred
during fiscal 2020
largely as
a result of
the extensive cost
cutting delivered
over the
last 18 months.
Our fiscal 2019
expense includes
an increase
in our
allowance for
doubtful finance
loans receivable
of approximately
$23.4 million
(resulting from
SASSA’s
auto-migration of EPE accounts) and the payment of $5.2 million
(ZAR 73.7 million) of retrenchment packages.
Depreciation and amortization decreased primarily due to lower overall amortization of intangible assets that are fully amortized
and tangible assets that are fully depreciated during fiscal 2020.
During fiscal 2020,
we recorded an
impairment loss of
$5.6 million related
to the impairment
of a portion
of our EasyPay
business
unit’s allocated goodwill and a
$0.7 million impairment loss
related to our
Maltese e-money license.
During fiscal 2019, we
recognized
an impairment loss of approximately $14.4 million, which
included $7.0 million related to the entire
amount of IPG goodwill and $6.2
million primarily
related to
the impairment
of goodwill
recognized pursuant
to the
2004 Aplitec
transaction. Refer
to Note
9 of
our
audited
consolidated
financial
statements
for
additional
information
regarding
thes
e
impairment
losses.
44
Our
operating
loss margin
for fiscal
2020
and 2019
was
(30.7%)
and
(84.0%), respectively.
We
discuss the
components
of
operating (loss) income margin under “—Results of operations
by operating segment.”
The change in fair value of
equity securities represents a non-cash
fair value adjustment loss related
to Cell C of $167.5 million
during fiscal 2019. The
fiscal 2019 adjustment was caused
by the challenges faced
by Cell C’s
business at that time.
Refer to Note 5
of our audited consolidated financial statements for the methodology
and inputs used in the fair value calculation.
We
recorded a
gain of
$9.7 million
related to
the disposal
of FIHRST
during fiscal
2020, which
was partially
offset by
a $1.0
million loss on
the disposal of
our remaining
interest in DNI
and a $7.1
million loss on
the deconsolidation
of CPS. We
also paid a
termination fee of $17.5 million in respect of our decision not to exercise
our option to acquire control of Bank Frick
Interest on surplus cash decreased to $2.8 million (ZAR
49.3 million) from $5.4 million (ZAR 77.4 million),
due primarily to the
lower average daily cash balances and cash used to fund the operating losses in
the South African operations.
Interest expense decreased to $7.6 million (ZAR 134.2 million from $9.9 million (ZAR 140.7 million), due to
a reduction in our
long-term South African
debt, which
was partially offset
by interest
expense related to
cash borrowed to
stock our
ATMs and utilization
of our overdraft facilities.
During fiscal 2019, we recorded an impairment loss of $12.8 million related to our Cedar Cellular note as discussed in Note
8
of
our audited consolidated financial statements.
Fiscal 2020
tax expense
was $2.7
million (ZAR
46.7 million)
compared to
$(5.1) million
(ZAR (72.4)
million) in
fiscal 2019.
Our effective tax rate for fiscal 2020,
was impacted by the tax-neutral disposals of FIHRST
and DNI, the tax-neutral deconsolidation
of CPS,
non-deductible
impairment
losses, the
option
termination
fee paid,
the ongoing
losses incurred
by IPG
and
certain
of our
South African businesses and the associated valuation allowances created related to the deferred tax
assets recognized regarding those
net operating losses, other non-deductible expenses, including
certain corporate transactions-related expenditure, and
the tax expense
recorded by our profitable businesses, primarily in South Africa.
Our effective tax rate
for fiscal 2019
was adversely impacted
by the valuation allowances
created related to
the deferred tax
assets
recognized in respect of net operating losses incurred by
our South African businesses, the non-deductible impairment losses, the
DNI
disposal gain, and other
non-deductible expenses, including transaction
-related expenditure and non-deductible
interest on our South
African long-term debt facility.
The deferred tax impact
of the change in the
fair value of our investment
in Cell C also impacted the
effective rate
for fiscal 2019,
as this amount
is recorded at
a lower rate (at
a capital gains
rate) than the
South African statutory
rate.
During fiscal 2019, we reversed the entire deferred tax liability of approximately $6.1 million
recorded as of June 30, 2018, as a
result
of the decrease in the carrying
value of Cell C to
below the initial cost. In
addition, the June 30, 2019, carrying
value of our investment
in Cell C is less than its
initial cost which results
in a capital gains tax benefit for
tax purposes. However,
we do not expect to realize
any significant capital gains
in the foreseeable future and
have provided a valuation allowance
of $31.7 million related to this
capital
gains
tax
benefit
deferred
tax
asset.
45
DNI was accounted for using the equity method during fiscal 2020. The accounting for DNI as a discontinued operation in fiscal
2019,
as well
as a
number
of impairments,
has adversely
impacted the
comparability of
our (loss)
earnings from
equity-accounted
investments during fiscal 2020. The largest
impairment was in respect of
our investment in Bank
Frick and followed from our
decision
not to exercise our option to take control of the bank. Finbond is listed on the Johannesburg Stock Exchange and reports its six-month
results during our first half
and its annual results during our fourth
quarter. The
table below presents the relative earnings
(loss) from
our equity accounted investments:
Table 11
Year
ended June 30,
2020
2019
$ ’000
$ ’000
$ % change
Bank Frick
(17,273)
(1,542)
1,020%
Share of net income
1,421
1,109
28%
Amortization of intangible assets, net of deferred tax
(433)
(567)
(24%)
Impairment
(18,261)
-
nm
Other
-
(2,084)
nm
DNI
(9,744)
865
nm
Share of net income
4,676
1,380
239%
Amortization of intangible assets, net of deferred tax
(1,350)
(515)
162%
Impairment
(13,070)
-
nm
Finbond
1,840
2,619
(30%)
Other
(4,365)
(684)
538%
Share of net loss
(1,865)
(684)
173%
Impairment
(2,500)
-
nm
Total
(loss) earnings from equity-accounted investments
(29,542)
1,258
nm
Results of operations by operating segment
The composition of revenue and the contributions of our business activities to
operating income are illustrated below:
Table 12
In U.S. Dollars
(R)
Year
ended June 30,
2020
2019
(as restated)
% of
(as restated)
% of
%
Operating Segment
$ ’000
total
$ ’000
total
change
Revenue:
Processing
91,786
64%
118,088
74%
(22%)
IPG
3,310
2%
8,157
5%
(59%)
All other
88,476
61%
109,931
68%
(20%)
Financial services
46,870
32%
57,034
36%
(18%)
Technology
18,071
13%
20,115
13%
(10%)
Subtotal: Operating segments
156,727
172%
195,237
196%
(20%)
Corporate/Eliminations
(12,428)
(72%)
(34,602)
(96%)
(64%)
Consolidated revenue
144,299
100%
160,635
100%
(10%)
Operating (loss) income:
Processing
(33,836)
76%
(51,575)
38%
(34%)
IPG
(12,348)
28%
(16,101)
12%
(23%)
All other
(21,488)
49%
(35,474)
26%
(39%)
Financial services
(3,621)
8%
(30,068)
22%
(88%)
Technology
2,815
(6%)
(5,294)
4%
nm
Subtotal: Operating segments
(34,642)
155%
(86,937)
102%
(60%)
Corporate/eliminations
(9,606)
(55%)
(47,995)
(2%)
(80%)
Consolidated operating loss
(44,248)
100%
(134,932)
100%
(67%)
(R) Consolidated
revenue-Processing-All others for
fiscal 2020
and 2019
has been
restated for
the error
described in
1 to
the audited
consolidated financial
statements.
There
was
no
impact
on
operating
loss
as
a
result
of
the
restatement.
46
Table 13
In South African Rand
(R)
Year
ended June 30,
2020
2019
(as restated)
% of
(as restated)
% of
%
Operating Segment
$ ’000
total
$ ’000
total
change
Revenue:
Processing
1,612,552
64%
1,685,057
74%
(4%)
IPG
58,153
2%
116,397
5%
(50%)
All other
1,554,399
62%
1,568,660
69%
(1%)
Financial services
823,440
32%
813,846
36%
1%
Technology
317,482
13%
287,031
13%
11%
Subtotal: Operating segments
2,753,474
109%
2,785,934
122%
(1%)
Corporate/Eliminations
(218,343)
(9%)
(493,753)
(22%)
(56%)
Consolidated revenue
2,535,131
100%
2,292,181
100%
11%
Operating (loss) income:
Processing
(594,451)
76%
(735,949)
38%
(19%)
IPG
(216,937)
28%
(229,753)
12%
(6%)
All other
(377,514)
48%
(506,196)
26%
(25%)
Financial services
(63,616)
8%
(429,055)
22%
(85%)
Technology
49,456
(6%)
(75,543)
4%
nm
Subtotal: Operating segments
(608,611)
78%
(1,240,547)
64%
(51%)
Corporate/eliminations
(168,764)
22%
(684,865)
36%
(75%)
Consolidated operating loss
(777,375)
100%
(1,925,412)
100%
(60%)
(R) Consolidated
revenue-Processing-All others for
fiscal 2020
and 2019
has been
restated for
the error
described in
1 to
the audited
consolidated financial
statements. There was no impact on operating loss as a result
of the restatement.
Processing
The decrease
in segment
revenue was
primarily due
to the
substantial decrease
in the
number of
SASSA grant
recipients paid
under our
SASSA contract
as the
contract expired
at the
end of
the first
quarter of
fiscal 2019
and the
significant reduction
in the
number of SASSA
grant recipients with
SASSA-branded cards
linked to Grindrod
bank accounts as
well as a
lower number of
EPE
accounts.
These decreases were partially offset by higher transaction revenue as a result of increased usage
of our ATMs and EasyPay
and
higher
prepaid
airtime
sales. The
reduction
in
the
operating
loss reflects
the
cost
reductions
that
occurred
during
fiscal
2020.
Operating
loss for
fiscal
2020 included
a
$5.6 million
impairment
loss.
for
Operating
loss for
fiscal
2019 included
a $1.1
million
impairment loss and retrenchment costs of $4.7 million (ZAR 65.9
million).
Our operating
loss margin
for fiscal 2020
and 2019 was
(36.9%) and
(43.7%),
respectively.
Our operating
loss and operating
loss margin for fiscal
2020 excluding the goodwill
impairment of $5.6 million
was $26.9 million
and
(25.4%), respectively. Excluding
the impairment losses of $8.2 million and restructuring costs of $4.7 million, the segment operating loss and operating loss
margin for
fiscal 2019 were $38.7 million and
(25.4%), respectively.
Financial services
Segment
revenue
for
fiscal
2020
decreased
due
to
lower
account
fee,
lending
and
insurance
revenues
compared
to
the
prior
period. Fiscal 2019
includes an allowance
for doubtful finance
loans receivable of
$23.4 million recognized
in the second quarter
of
fiscal 2019, restructuring costs of $1.6 million and expenses incurred to
maintain and expand our financial service infrastructure.
Our operating loss margin for fiscal 2020 and 2019 was
(7.7%) and
(52.7%), respectively.
Technology
Segment revenue decreased
primarily due to
fewer prepaid airtime
and value-added services
sales. However,
operating income
for fiscal 2020 improved compared with fiscal 2019 due to improved margins on the sale of various product lines within the segment.
Operating loss for this operating segment for fiscal 2019 included and impairment
loss of $6.2 million.
Our
operating
income
(loss)
margin
for
the
Technology
segment
was
15.6%
and
(26.3%)
during
fiscal
2020
and
2019,
respectively.
Excluding the
impairment loss
of $6.2
million,
the segment
operating income
and operating
income margin
for fiscal
2019
were
$1.0
million
and
4.7%
,
respectively.
47
Corporate/Eliminations
Our corporate
expenses increased
primarily due
to the
accrual of
$14.3 million
related to
the September
2019 Supreme
Court
ruling,
a
$5.3
million
impairment
loss
as
well
as
higher
acquired
intangible
asset
amortization,
non-employee
director
expenses,
tran
saction
-
related
expenditures
and
external
service
provider
fees,
and
were
partially
offset
by
the
reversal
of
stock
-
based
compensation charges of $1.9 million related to forfeiture of awards. Corporate/ Eliminations for fiscal 2019, also includes the
impact
of the reversal of revenue related to the September 2019 Supreme Court ruling.
Presentation of Quarterly Revenue and Operating (Loss) Income by Segment for Fiscal 2020 and 2019
The tables
below present
quarterly revenue
and operating
(loss) income
generated by
our three
reportable segments
for fiscal
2020 and
2019, and
reconciliations to
consolidated revenue
and operating
(loss) income,
as well
as the
U.S. dollar/
ZAR exchange
rates applicable per fiscal quarter and year:
Table 14
Fiscal 2020
(R)
In United States Dollars
Quarter 1
Quarter 2
Quarter 3
Quarter 4
F2020
$ '000
$ '000
$ '000
$ '000
$ '000
Revenues
Processing
28,295
25,022
22,078
16,391
91,786
IPG
793
432
1,164
921
3,310
All Other
27,502
24,590
20,914
15,470
88,476
Financial services
14,168
12,268
11,683
8,751
46,870
Technology
and Other
7,209
4,890
4,040
1,932
18,071
Subtotal: Operating segments
49,672
42,180
37,801
27,074
156,727
Corporate/Eliminations
(3,456)
(3,262)
(3,187)
(2,523)
(12,428)
Total
46,216
38,918
34,614
24,551
144,299
Operating (loss) income
Processing
(5,505)
(5,848)
(12,394)
(10,089)
(33,836)
IPG
(1,973)
(2,920)
(3,175)
(4,280)
(12,348)
All Other
(3,532)
(2,928)
(9,219)
(5,809)
(21,488)
Financial services
345
(1,249)
(1,701)
(1,016)
(3,621)
Technology
and Other
1,145
589
945
136
2,815
Subtotal: Operating segments
(4,015)
(6,508)
(13,150)
(10,969)
(34,642)
Corporate/Eliminations
(2,421)
(3,912)
(1,062)
(2,211)
(9,606)
Total
(6,436)
(10,420)
(14,212)
(13,180)
(44,248)
Income and expense items: $1 = ZAR
14.7520
14.6022
15.3667
17.2810
17.5686
(R) Revenues-Processing-All others has been restated
for the error described in Note 1
to the audited consolidated financial statements.
There was no impact on
operating
loss
as
a
result
of
the
restatement.
48
Table 15
Fiscal 2019
(R)
In United States Dollars
Quarter 1
Quarter 2
Quarter 3
Quarter 4
F2019
$ '000
$ '000
$ '000
$ '000
$ '000
Revenues
Processing
45,658
26,807
21,959
23,664
118,088
IPG
2,404
2,300
1,892
1,561
8,157
All Other
43,254
24,507
20,067
22,103
109,931
Financial services
25,442
11,779
10,550
9,263
57,034
Technology
and Other
4,748
4,796
5,277
5,294
20,115
Subtotal: Operating segments
75,848
43,382
37,786
38,221
195,237
Corporate/Eliminations
(5,883)
(3,288)
(2,571)
(22,860)
(34,602)
Total
69,965
40,094
35,215
15,361
160,635
Operating (loss) income
Processing
(7,091)
(23,481)
(15,431)
(5,572)
(51,575)
IPG
(2,238)
(9,425)
(1,877)
(2,561)
(16,101)
All Other
(4,853)
(14,056)
(13,554)
(3,011)
(35,474)
Financial services
4,038
(25,144)
(4,477)
(4,485)
(30,068)
Technology
and Other
210
335
164
(6,003)
(5,294)
Subtotal: Operating segments
(2,843)
(48,290)
(19,744)
(16,060)
(86,937)
Corporate/Eliminations
(4,492)
(3,175)
(4,032)
(36,296)
(47,995)
Total
(7,335)
(51,465)
(23,776)
(52,356)
(134,932)
Income and expense items: $1 = ZAR
14.8587
14.3236
14.1703
14.2884
14.2695
(R) Revenues-Processing-All others has been restated
for the error described in Note 1
to the audited consolidated financial statements.
There was no impact on
operating loss as a result of the restatement.
Liquidity and Capital Resources
At June
30,
2021, our
cash and
cash equivalents
were $198.6
million
and comprised
of U.S.
dollar-denominated
balances of
$169.8 million, ZAR-denominated balances of ZAR 0.4 billion ($26.5
million), and other currency deposits, primarily Botswana
pula,
of $2.3 million, all amounts translated at exchange rates
applicable as of June 30, 2021. The
decrease in our unrestricted cash balances
from June 30, 2020, was primarily due to the payment of Federal income taxes, weak trading activities
and an increase in our lending
book, which was partially offset by the receipt of the outstanding proceeds related to the sale of our South Korean business, receipt of
proceeds related to the disposal of
Bank Frick and the receipt of the
outstanding loan related to the
disposal of our remaining interest
in DNI.
We generally
invest any surplus cash held by
our South African operations in overnight
call accounts that we maintain at
South
African banking institutions,
and any surplus
cash held by
our non-South African
companies in
U.S. dollar-denominated money market
accounts.
Historically,
we have financed
most of our
operations, research and
development, working capital,
and capital expenditures,
as
well
as
acquisitions
and
strategic
investments,
through
internally
generated
cash
and
our
financing
facilities.
When
considering
whether to borrow under our financing
facilities, we consider the cost
of capital, cost of financing, opportunity cost
of utilizing surplus
cash
and
availability
of
tax
efficient
structures
to
moderate
financing
costs.
49
Available short-term
borrowings
Summarized below are our short-term facilities available and utilized
as of June 30, 2021:
Table 16
RMB
Nedbank
$ ’000
ZAR ’000
$ ’000
ZAR ’000
Total
short-term facilities available, comprising:
Overdraft restricted as to use
(1)
83,910
1,200,000
17,481
250,000
Total overdraft
83,910
1,200,000
17,481
250,000
Indirect and derivative facilities
(2)
-
-
10,947
156,556
Total
short-term facilities available
83,910
1,200,000
28,428
406,556
Utilized short-term facilities:
Overdraft restricted as to use
(1)
14,245
203,726
-
-
Indirect and derivative facilities
(2)
-
-
10,947
156,556
RMB interest rate, based on South African prime rate
-
7.00%
-
-
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 Nedbank to various third parties on our behalf.
Restricted cash
We
have
credit facilities
with RMB
and
Nedbank
in order
to access
cash to
fund our
ATMs
in South
Africa. Our
cash, cash
equivalents and restricted
cash presented in our
audited consolidated statement
of cash flows as of
June 30, 2021, includes
restricted
cash of approximately $25.2 million related to cash withdrawn
from our various debt facilities to fund ATMs.
This cash may only be
used to
fund ATMs
and
is considered
restricted
as to
use and
therefore is
classified as
restricted
cash on
our audited
consolidated
balance sheet.
We
have also
entered into
cession and
pledge agreements
with Nedbank
related to
certain of
our Nedbank
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 audited
consolidated statement of cash flows as of June 30, 2021,
includes restricted cash of approximately $10.9 million that has been ceded
and pledged.
Cash flows from operating activities
Net cash used in operating activities during fiscal 2021 was $58.4 million (ZAR 917.4 million) compared to $46.0 million (ZAR
808.9 million) during fiscal
2020. Excluding the impact
of income taxes, our cash
used in operating activities during
the year to date
of fiscal 2021 was impacted by
the cash losses incurred by the
majority of our continuing operations and the
payment of a $3.6 million
settlement (refer
to Note 8).
Our net cash
used in operating
activities during
the year to
date of fiscal
2020 includes the
contribution
from our South Korean operations for eight months of $14.6 million (refer to
Note 24).
Net cash used in operating
activities during fiscal 2020 was $46.0
million (ZAR 808.9 million) compared
to $4.5 million (ZAR
63.6 million)
generated during
fiscal 2019.
The change
is primarily
due to
weaker trading
activity during
fiscal 2020
compared
to
2019, the payment of $17.5 million termination fee to cancel our Bank Frick option, as well as the
purchase of Cell C prepaid airtime
that is subject to sale restrictions,
which was partially offset by the
net unwind in our lending book following
the temporary COVID-
19 restrictions imposed on our lending activities in the latter half
of fiscal 2020.
During fiscal 2021,
we made our first
provisional South African
tax payment of
$0.9 million (ZAR 12.7
million) related to our
2021 tax year. During fiscal 2021,
we also made our second provisional South African tax payment of $0.2 million (ZAR 2.9 million)
related to our
2021 tax year
and made an additional
tax payment of
$0.2 million (ZAR 3.4
million) related to
our 2020 tax year.
We
also paid taxes totaling $15.4 million in other tax jurisdictions, primarily
in the U.S.
During fiscal 2020,
we made our first
provisional South African
tax payment of
$0.8 million (ZAR 11.9
million) related to our
2020 tax year. During fiscal 2020,
we also made our second provisional South African tax payment of $0.5 million (ZAR 8.0 million)
related to our 2020 tax year and made an additional
tax payment of $0.8 million (ZAR 11.6
million) related to our 2019 tax year.
We
also
paid
taxes
totaling
$4.3
million
in
other
tax
jurisdictions,
primarily
South
Korea.
50
During fiscal 2019,
we made our first
provisional South African
tax payment of
$6.5 million (ZAR 92.0
million) related to our
2019 tax year. During fiscal 2019,
we also made our
second provisional South African tax
payment of $0.8 million
(ZAR 11.0 million)
related to
our 2019
tax year and
made an
additional tax payment
of $1.4 million
(ZAR 20.9 million)
related to our
2018 tax year
in
South Africa. We
also paid taxes totaling $4.7 million in other tax jurisdictions, primarily South
Korea.
Taxes paid during
fiscal 2021, 2020 and 2019 were as follows:
Table 17
Year
ended June 30,
2021
2020
2019
2021
2020
2019
$
$
$
ZAR
ZAR
ZAR
‘000
‘000
‘000
‘000
‘000
‘000
First provisional payments
853
825
6,450
12,680
11,934
91,994
Second provisional payments
209
470
752
2,907
8,038
10,952
Taxation paid related
to prior years
205
782
1,426
3,423
11,620
20,880
Tax refund received
(13)
(1,339)
(254)
(225)
(19,245)
(3,864)
Total South African
taxes paid
1,254
738
8,374
18,785
12,347
119,962
Foreign taxes paid
15,354
4,263
4,736
256,616
62,302
66,519
Total
tax paid
16,608
5,001
13,110
275,401
74,649
186,481
We do not expect to make any additional provisional income tax payments in South Africa related to our 2021 tax
year in the first
quarter of fiscal 2022.
Cash flows from investing activities
Cash used in investing activities for fiscal 2021 included
capital expenditures of $4.3 million (ZAR 67.3 million), primarily due
to the
acquisition of
motor vehicles,
which largely
comprises a
fleet of
customized mobile
ATMs
used to
deliver a
service to
rural
communities, computer equipment and leasehold
improvements in South Africa. In February 2021, we disposed
of our investment in
Bank Frick and received $18.6 million of the $30.0 million sales proceeds, the remainder of which will be received in fiscal 2022 and
2023.
We
received $20.1
million
in September
2020 related
to the
sale of
our South
Korean business
in fiscal
2020 following
the
successful refund
application of
the amounts
withheld and paid
to the South
Korean tax authorities
pursuant to
that transaction.
We
received $6.0 due on the deferred sale proceeds related to fiscal 2020 sale of DNI, which has now been paid in full. We
also extended
loan funding of $1.0 million to V2 and $0.2 million to Revix.
During fiscal
2020,
we paid approximately
$5.9 million (ZAR
104.3 million),
related to capital
expenditures, primarily
related
to the acquisition of
ATMs
and computer equipment
in South Africa, leasehold
improvements in Malta and
processing equipment in
South Korea to maintain operations. During fiscal 2020, we received a net $192.6 million from the sale of our
South Korean business,
paid transaction costs
related to this disposal
of $7.5 million, and
received $10.9 million from
the sale of FIHRST.
We
also received
$42.5 million related
to the sale of the
majority of our remaining
interest in DNI. We
also made a further equity
contribution of $2.5
million to V2, extended loan funding of $1.5 million
to our equity-accounted investments, and received $4.3 million from DNI
related
to the settlement of a ZAR 60.0 million loan outstanding as of June 30, 2019.
During fiscal
2019, we paid
approximately $9.4
million (ZAR 134.5
million), related
to capital expenditures,
primarily related
to the acquisition of ATMs
in South Africa and the expansion of
our branch network. We
also paid $2.5 million for a 50% interest in
V2 Limited,
acquired customer
bases in
DNI for
$1.4 million,
made a
further equity
contribution of
$1.1 million
to MobiKwik
and
received $1.0 million from Finbond related to the settlement of a ZAR 15.0 million
loan outstanding.
Cash flows from financing activities
During fiscal 2021, we utilized approximately $360.1
million from our South African overdraft facilities to fund
our ATMs
and
repaid $365.4 million of these facilities.
During fiscal 2020,
we utilized approximately
$672.4 million from
our South African overdraft
facilities, primarily to
fund our
ATMs,
and repaid $721.0 million of these facilities.
We utilized
approximately $14.8 million of our borrowings
to fund the purchase
of Cell C prepaid airtime
that was subject to sale restrictions.
We repaid
the amount in full, paying $14.5
million, with the difference
of
$0.3
million
reflecting
the
impact
of
changes
in
ZAR
against
the
U.S
dollar.
We
also
repaid
$26.9
million
of
our
Bank
Frick
overdraft and utilized $17.4 million of this overdraft to fund our operations.
During
fiscal 2019,
we utilized
approximately
$822.8 million
from our
overdraft
facilities, primarily
to fund
our ATMs,
and
repaid $741.0 million of these facilities. We
also utilized approximately $14.6 million of DNI’s
revolving credit facility to lend funds
to Cell C to finance the
acquisition and/or requisition of telecommunication towers and other
specific uses pre-approved by the lender.
We
also
made
scheduled
South African
debt
facility payments
of $31.8
million,
repaid $4.9
million
under DNI’s
revolving
credit
facility and paid non-refundable origination
fees of approximately $0.4 million related
to the credit facilities. We
also paid dividends
of
approximately
$4.1
million
to
certain
of
our
non
-
controlling
interests,
principally
in
DNI.
51
Contractual Obligations
The following table sets forth our contractual obligations as of June
30, 2021:
Table 18
Payments due by Period, as of June 30, 2021 (in $ ’000s)
Total
Less than 1
year
2-3 years
3-5 years
Thereafter
Short-term credit facilities for ATM
funding
(A)
14,245
14,245
-
-
-
Operating lease liabilities, including imputed interest
(B)
5,187
3,117
1,870
200
-
Purchase obligations
2,463
2,463
-
-
-
Capital commitments
315
315
-
-
-
Other long-term obligations reflected on our balance
sheet
(C)(D)
2,576
-
-
-
2,576
Total
24,786
20,140
1,870
200
2,576
(A)
– Refer to Note 11 to our audited consolidated financial
statements.
(B)
– Refer to Note 7 to our audited consolidated financial statements.
(C)
– Includes policyholder liabilities of $2.6
million related to our insurance business. All amounts are translated at exchange
rates applicable as of June 30, 2021.
(D)
– We
have excluded cross-guarantees in
the aggregate amount of $10.9
million issued as of June 30,
2021, to Nedbank to
secure guarantees it has
issued to third parties
on our behalf as the
amounts that will be
settled in cash are not
known and
the timing of any payments is uncertain.
Off-Balance Sheet Arrangements
We have no off
-balance sheet arrangements.
Capital Expenditures
Capital expenditures for the years ended June 30, 2021, 2020 and
2019 were as follows:
Table 19
Year
ended June 30,
2021
2020
2019
2021
2020
2019
$
$
$
ZAR
ZAR
ZAR
‘000
‘000
‘000
‘000
‘000
‘000
Processing
1,173
4,297
4,419
18,435
75,492
63,054
Financial services
174
138
1,142
2,735
2,424
16,295
Technology
2,938
-
181
46,174
-
2,583
Total
4,285
4,435
5,742
67,344
77,916
81,932
Our capital expenditures
for fiscal 2021,
2020 and 2019, are
discussed under “—Liquidity
and Capital Resources—Cash
flows
from investing activities.”
All of our capital
expenditures for the past
three fiscal years were
funded through internally-generated funds. We had outstanding
capital commitments
as of June 30,
2021, of $0.3
million. We
expect to fund
these expenditures through
internally-generated funds.
In addition
to these
capital expenditures,
we expect
that capital
spending for
fiscal 2022
will also
primarily relate
to expanding
our
operations in South Africa.
52
ITEM 7A. QUANTITATIVE
AND QUALITATIVE
DISCLOSURES ABOUT MARKET RISK
We seek to manage our exposure to currency exchange, translation, interest rate, customer concentration, credit, and equity price
and liquidity risks as discussed below.
Currency Exchange Risk
We
are
subject
to
currency
exchange
risk
because
we
purchase
inventories
that we
are required
to
settle in
other
currencies,
primarily
the
euro
and
U.S.
dollar.
We
have
used
forward
contracts
to
limit
our
exposure
in
these
transactions
to
fluctuations
in
exchange rates between the ZAR, on the one hand, and the U.S. dollar and
the euro, on the other hand.
The Company’s outstanding
foreign exchange contracts as of June 30, 2021 were as follows:
Table 20
Notional amount ('000)
Strike price
Fair market
Maturity
EUR
6
USD
1.1911
USD
1.1859
July 2, 2021
The Company had no outstanding foreign exchange contracts as of June
30, 2020.
Translation Risk
Translation risk relates to the risk that our
results of operations will vary significantly as
the U.S. dollar is our
reporting currency,
but
we
earn
most
of
our
revenues
and
incur
most
of
our
expenses
in
ZAR.
The
U.S.
dollar
to
ZAR
exchange
rate
has
fluctuated
significantly over the past three years. As
exchange rates are outside our control,
there can be no assurance
that future fluctuations will
not adversely affect our results of operations and financial
condition.
Interest Rate Risk
As a result of our normal
lending activities, our operating
results are exposed to fluctuations
in interest rates, which we
manage
primarily through our
regular financing activities.
We generally maintain limited
investments in
cash equivalents and
have occasionally
invested in marketable securities.
We have short
-term borrowings which attract interest at rates that fluctuate
based on changes in the South African prime interest
rate. The following table illustrates the effect on our
annual expected interest charge, translated at exchange rates
applicable as of June
30, 2021,
as a
result of
changes in
the South
African prime
interest rate,
assuming hypothetical
short-term borrowings
of ZAR
1.0
billion as
of June
30, 2021.
The effect
of a
hypothetical 1%
(i.e. 100
basis points)
increase and
a 1% decrease
in the
South African
prime interest rate as of June 30, 2021, are shown. The selected 1% hypothetical change does not reflect what could be considered the
best or worst case scenarios.
Table 21
As of June 30, 2021
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)
4,895
1%
5,594
(1%)
4,195
Credit Risk
Credit risk
relates to the
risk of
loss that we
would incur
as a
result of non-performance
by counterparties.
We
maintain credit
risk
policies
with
regard
to
our
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
our
management
deems
appropriate.
With
respect to
credit risk
on financial
instruments, we
maintain 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.
53
Microlending Credit Risk
We are
exposed to credit risk in our microlending
activities, which provide unsecured short-term
loans to qualifying customers.
We manage this risk by performing an
affordability test for each prospective
customer and assigning a
“creditworthiness score”, which
takes into account a variety of factors such as other debts and total expenditures
on normal household and lifestyle expenses.
Equity Securities Price Risk
Equity price risk relates to the risk
of loss that we would incur as
a result of the volatility in the exchange
-traded price of equity
securities that
we hold
and the
risk that
we may
not be
able to
liquidate these
securities. As
of June
30, 2021,
we did
not have
any
equity
securities
that
were
exchange-traded
and
held
as
available
for
sale.
Historically,
exchange-traded
equity
securities
held
as
available for
sale were
expected to
be held
for an
extended period
of time
and we
were not
concerned with
short-term equity
price
volatility
with
respect
to
these
securities
provided
that
the
underlying
business,
economic
and
management
characteristics
of
the
company remain sound.
The market price of these exchange-traded equity securities may fluctuate for a variety of reasons and,
consequently, the amount
we may obtain in a subsequent sale of these securities may significantly
differ from the reported market value.
Equity Securities Liquidity Risk
Liquidity risk
relates to the
risk of
loss that we
would incur
as a result
of the lack
of liquidity
on the
exchange on
which these
securities are listed. We may
not be able to sell some or all of these securities at one time, or
over an extended period of time without
influencing the exchange traded price, or at all.
We monitor these investments for impairment and make appropriate reductions in carrying value when an impairment is deemed
to be other-than-temporary.
We
have invested
in approximately
31.5% of
the issued
share capital
of Finbond
which are
exchange-traded equity
securities,
however, from April 1, 2016, we have accounted for them using the equity method. The fair value of these securities of $29
.9 million
as of June 30, 2021, represented approximately 7.0% of our total assets, including
these securities.
54
ITEM
8.
FINANCIAL
STATEMENTS
AND
SUPPLEMENTARY
DATA
Our
audited
consolidated
financial
statements,
together
with the
report of
our
independent
registered
public
accounting
firm,
appear on pages F-1 through F-82 of this Annual Report on Form 10-K.
55
ITEM
9.
CHANGES
IN
AND
DISAGREEMENTS
WITH
ACCOUNTANTS
ON
ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
ITEM 9A. CONTROLS
AND PROCEDURES
Evaluation of disclosure controls
and procedures
Under the supervision and with the participation of
our management, including our Group Chief Executive Officer and our
Chief
Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such
term is defined under Rule 13a-15(e)
under the Securities Exchange
Act of 1934, as
amended (the “Exchange Act”).
Based on this evaluation,
our Group Chief Executive
Officer and Chief Financial Officer concluded
that our disclosure controls and procedures were effective as of
June 30, 2021.
Internal Control over Financial Reporting
Internal control over financial reporting is a process designed by, or under the supervision of,
our Group Chief Executive Officer
and Chief Financial
Officer, or
persons performing similar
functions, and effected
by our board of
directors, management, and
other
personnel, to provide
reasonable assurance regarding
the reliability of
financial reporting and
the preparation of
financial statements
for external purposes in accordance with U.S. GAAP.
Internal control over financial reporting includes
those policies and procedures that
(1) pertain to the
maintenance of records that,
in reasonable detail, accurately and fairly
reflect the transactions and dispositions of
our assets; (2) provide reasonable assurance
that
transactions are recorded as
necessary to permit preparation
of financial statements in accordance
with U.S. GAAP,
and that receipts
and expenditures of the company are being made only in accordance with authorizations of our officers and directors; and (3) provide
reasonable assurance regarding
prevention or timely detection
of unauthorized acquisition, use
or disposition of our
assets that could
have a material effect on our audited consolidated financial statements.
Inherent Limitations in Internal Control
over Financial Reporting
Internal control over financial reporting cannot provide absolute assurance of achieving
financial reporting objectives because of
its inherent
limitations.
Internal
control
over
financial reporting
is a
process
that involves
human
diligence
and
compliance
and
is
subject
to
lapses
in
judgment and
breakdowns
resulting
from human
failures.
Internal
control over
financial
reporting
also
can be
circumvented by collusion or improper
management override. Because of such
limitations, there is a risk that
material misstatements
may not
be prevented
or detected
on a
timely basis
by internal
control over
financial reporting.
However,
these inherent
limitations
are known features of the financial reporting
process. Therefore, it is possible to design into the process
safeguards to reduce, though
not eliminate, this risk.
Management’s
Report on Internal Control Over Financial
Reporting
Management, including
our Group Chief
Executive Officer and
our Chief Financial
Officer, is
responsible for establishing
and
maintaining
adequate
internal
control
over
our
financial
reporting.
Management
conducted
an
evaluation
of
the
effectiveness
of
internal control over financial reporting based on criteria established in Internal Control – Integrated Framework
(2013) issued by the
Committee
of Sponsoring
Organizations
of the
Treadway
Commission
(COSO). Based
on this
evaluation, management
concluded
that our internal control over financial reporting was effective as of
June 30, 2021. Deloitte & Touche (South Africa), our independent
registered public accounting firm, has issued an audit report on our internal
control over financial reporting.
Changes in Internal Control over Financial
Reporting
There were no changes in our internal control over financial reporting during the most recent fiscal quarter ended June 30, 2021,
that have materially affected, or are reasonably
likely to materially affect, our internal control over financial reporting.
Remediation and testing of material weakness
We identified a material weakness in fiscal 2019 whereby the control over the review of the accounting for non-routine complex
transactions was deemed ineffective and concluded
to represent a material weakness in the Company’s
internal control over financial
reporting. In fiscal 2020, we enhanced this control through the
re-design and establishment of a specific in-house accounting technical
review executed
by senior
members of
our finance
team with
the necessary
competency and
experience, supplemented
by external
expertise as deemed necessary in addition to our Chief Financial Offic
er.
We did
not have sufficient evidence
that the material weakness was fully
remediated as of June 30, 2021.
However, the review
control described above operated effectively
during fiscal 2021 and therefore, management has concluded
that the material weakness
has been remediated as of June 30, 2021.
56
REPORT OF INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM
To the shareholders
and the Board of Directors of Net 1 UEPS Technologies,
Inc.
Opinion on Internal Control over Financial Reporting
We
have
audited
the
internal
control
over
financial
reporting
of
Net
1
UEPS
Technologies,
Inc.
and
subsidiaries
(the
“Company”)
as of
June 30,
2021,
based
on criteria
established
in
Internal
Control
— Integrated
Framework (2013)
issued by
the
Committee
of
Sponsoring
Organizations
of
the
Treadway
Commission
(COSO).
In
our
opinion,
the
Company
maintained,
in
all
material
respects,
effective
internal
control
over
financial
reporting
as
of
June
30,
2021,
based
on
criteria
established
in
Internal
Control — Integrated Framework (2013)
issued by COSO.
We
have
also audited,
in accordance
with the
standards of
the Public
Company Accounting
Oversight Board
(United States)
(PCAOB), the
consolidated
financial statements
as of
and for
the year
ended June
30, 2021,
of the
Company and
our report
dated
September 13, 2021, expressed an unqualified opinion on those financial
statements.
Basis for Opinion
The
Company’s
management
is
responsible
for
maintaining
effective
internal
control
over
financial
reporting
and
for
its
assessment of
the effectiveness
of internal
control over
financial reporting,
included in
the accompanying
Management’s
Report on
Internal Control over Financial Reporting. Our responsibility
is to express an
opinion on the Company’s internal control over financial
reporting based
on our
audit. We
are a
public accounting
firm registered
with the
PCAOB and
are required
to be
independent with
respect to the
Company in accordance
with the U.S.
federal securities laws and
the applicable rules
and regulations of
the Securities
and Exchange Commission and the PCAOB.
We conducted
our audit in accordance with
the standards of the PCAOB. Those
standards require that we
plan and perform the
audit to
obtain reasonable
assurance about
whether effective
internal control
over financial
reporting was
maintained in
all material
respects. Our audit
included obtaining an understanding
of internal control over
financial reporting, assessing
the risk that a
material
weakness
exists,
testing
and
evaluating
the
design
and
operating
effectiveness
of
internal
control
based
on
the
assessed
risk,
and
performing such
other procedures as
we considered
necessary in
the circumstances.
We
believe that our
audit provides a
reasonable
basis for our opinion.
Definition and Limitations of Internal Control over
Financial Reporting
A
company’s
internal
control
over
financial
reporting
is
a
process
designed
to
provide
reasonable
assurance
regarding
the
reliability of financial reporting
and the preparation
of financial statements
for external purposes
in accordance with generally
accepted
accounting principles. A company’s
internal control over financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and
fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted
accounting principles, and that
receipts and expenditures of the
company are being made only
in
accordance
with
authorizations
of
management
and
directors
of
the
company;
and
(3)
provide
reasonable
assurance
regarding
prevention or timely detection of
unauthorized acquisition, use, or disposition
of the company’s assets that could have
a material effect
on the financial statements.
Because
of
its
inherent
limitations,
internal
control
over
financial
reporting
may
not
prevent
or
detect
misstatements.
Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions, or that the degree of compliance with the policies
or procedures may deteriorate.
/s/ Deloitte & Touche
Deloitte & Touche
Registered Auditors
Johannesburg, South Africa
September 13, 2021
57
ITEM 9B.
OTHER INFORMATION
None.
58
PART
III
ITEM
10.
DIRECTORS,
EXECUTIVE
OFFICERS
AND
CORPORATE
GOVERNANCE
Information
about
our
executive
officers
is
set
out
in
Part
I,
Item
1
under
the
caption
“Our
Executive
Officers.”
The
other
information required
by this
Item is incorporated
by reference
to the
sections of
our definitive
proxy statement
for our
2021 annual
meeting of shareholders entitled “Board of Directors and Corporate
Governance” and “Additional Information.”
ITEM
11.
EXECUTIVE
COMPENSATION
The information required by this Item is incorporated by reference to the sections of our definitive
proxy statement for our 2021
annual meeting of shareholders entitled
“Executive Compensation,” “Board of
Directors and Corporate Governance—Compensation
of Directors” and “—Remuneration Committee Interlocks and Insider Participation.”
ITEM
12.
SECURITY
OWNERSHIP
OF
CERTAIN
BENEFICIAL
OWNERS
AND
MANAGEMENT
AND RELATED STOCKHOLDER
MATTERS
The information required by this Item is incorporated by reference to the sections of our definitive
proxy statement for our 2021
annual
meeting
of
shareholders
entitled
“Security
Ownership
of
Certain
Beneficial
Owners
and
Management”
and
“Equity
Compensation Plan Information.”
ITEM
13.
CERTAIN
RELATIONSHIPS
AND
RELATED
TRANSACTIONS,
AND
DIRECTOR
INDEPENDENCE
The information required by this Item is incorporated by reference to the sections of our definitive
proxy statement for our 2021
annual
meeting
of
shareholders
entitled
“Certain
Relationships
and
Related
Transactions”
and
“Board
of
Directors
and
Corporate
Governance.”
ITEM
14.
PRINCIPAL
ACCOUNTANT
FEES
AND
SERVICES
The information required by this Item is incorporated by reference to the sections of our definitive
proxy statement for our 2021
annual meeting of shareholders entitled “Audit and Non-Audit Fees.”
59
PART
IV
ITEM
15.
EXHIBITS
AND
FINANCIAL
STATEMENT
SCHEDULES
a)
The
following
documents
are
filed
as
part
of
this
report
1. Financial Statements
The following financial statements are included on pages F-1 through F-82
.
Report of the Independent Registered Public Accounting Firm –
Deloitte & Touche (South Africa)
F-2
Consolidated balance sheets as of June 30, 2021 and 2020
F-4
Consolidated statements of operations for the years ended June 30, 2021,
2020 (as restated) and 2019 (as
restated)
F-5
Consolidated statements of comprehensive (loss) income for the years ended June 30, 2021, 2020 and 2019
F-6
Consolidated statements of changes in equity for the years ended June 30, 2021, 2020 and 2019
F-7
Consolidated statements of cash flows for the years ended June 30, 2021, 2020 and 2019
F-10
Notes to the consolidated financial statements
F-11
2. Financial Statement Schedules
Financial statement schedules have been
omitted since they are
either not required, not
applicable, or the information
is otherwise
included.
(b) Exhibits
Incorporated by Reference Herein
Exhibit
No.
Description of Exhibit
Included
Herewith
Form
Exhibit
Filing Date
3.1
Amended and Restated Articles of Incorporation
8-K
3.1
December 1, 2008
3.2
Amended and Restated By-Laws of Net 1 UEPS
Technologies, Inc.
8-K
3.2
May 14, 2020
4.1
Form of common stock certificate
S-1
4.1
June 20, 2005
4.2
Description of registrant’s securities
X
10.1*
Form of Restricted Stock Agreement
10-K
10.13
August 23, 2012
10.2*
Form of Stock Option Agreement
10-K
10.14
August 23, 2012
10.3*
Form of Restricted Stock Agreement (non-employee
directors)
10-K
10.15
August 23, 2012
10.4*
Form of Indemnification Agreement
10-K
10.32
August 25, 2016
10.5*
Form of non-employee director agreement
10-K
10.5
August 24, 2017
10.6*
Amended and Restated 2015 Stock Incentive Plan of
Net 1 UEPS Technologies, Inc.
14A
A
October 2, 2015
10.7*
Contract of Employment, effective March 1, 2018,
between Net1 Applied Technologies South Africa
Proprietary Limited and Alexander Michael Ramsay
Smith
8-K
10.80
March 1, 2018
10.8*
Restrictive Covenants Agreement, effective March 1,
2018, between Net1 Applied Technologies South
Africa Proprietary Limited and Alexander Michael
Ramsay Smith
8-K
10.81
March 1, 2018
10.9*
Employment Agreement, effective March 1, 2018,
between Net 1 UEPS Technologies, Inc. and
Alexander Michael Ramsay Smith
8-K
10.82
March 1, 2018
10.10*
Restrictive Covenants Agreement, effective March 1,
2018, between Net 1 UEPS Technologies, Inc. and
Alexander Michael Ramsay Smith
8-K
10.83
March 1, 2018
60
10.11*
Contract of Employment, effective February 5, 2021,
between Net1 Applied Technologies South Africa
Proprietary Limited and Lincoln Mali
8-K
10.1
February 11, 2021
10.12*
Restrictive Covenants Agreement, effective February
5, 2021, between Net1 Applied Technologies South
Africa Proprietary Limited and Lincoln Mali
8-K
10.2
February 11, 2021
10.13*
Contract of Employment, dated as of June 30, 2021,
between Net1 Applied Technologies South Africa
(Pty) Ltd and Christopher Guy Butt Meyer
8-K
10.1
June 30,
2021
10.14*
Restrictive Covenants Agreement, dated as of June
30, 2021, between Net1 Applied Technologies South
Africa (Pty) Ltd and Christopher Guy Butt Meyer
8-K
10.2
June 30,
2021
10.15*
Employment Agreement, dated as of June 30, 2021,
between Net 1 UEPS Technologies, Inc. and
Christopher Guy Butt Meyer
8-K
10.3
June 30,
2021
10.16*
Restrictive Covenants Agreement, dated as of June
30, 2021, between Net 1 UEPS Technologies, Inc.
and Christopher Guy Butt Meyer
8-K
10.4
June 30,
2021
10.17*
Consulting Agreement, dated August 5, 2020, by and
between the Company and Ali Mazanderani
8-K
10.2
August 5, 2020
10.18*
Separation and Release of Claims Agreement, dated
August 5, 2020, by and between the Company and
Herman G. Kotzé
8-K
10.1
August 5, 2020
10.19
Agreement of Lease, Memorandum of an agreement
entered into by and between Buzz Trading 199 (Pty)
Ltd and Net 1 Applied Technologies South Africa
(Pty) Ltd dated May 7, 2013
10-Q
10.25
May 9, 2013
10.20
Addendum to the Lease Agreement made and entered
into by and between Buzz Trading 199 (Pty) Ltd and
Net 1 Applied Technologies South Africa (Pty) Ltd
dated November 18, 2016
10-Q
10-60
May 4, 2017
10.21
Proposed Agreement of Lease between Buzz Trading
199 (Pty) Ltd and Net 1 Applied Technologies South
Africa Limited dated October 12, 2017
10-Q
10.79
February 8, 2018
10.22
Relationship Agreement dated December 10, 2013
between Net 1 UEPS Technologies, Inc., Net 1
Applied Technologies South Africa (Proprietary)
Limited, Business Venture Investments No 1567
(Proprietary) Limited (RF) and Mosomo Investment
Holdings (Proprietary) Limited.
8-K
10.25
December 10, 2013
10.23
Facility Letter between Nedbank Limited and Net1
Applied Technologies South Africa Limited and
certain of its subsidiaries dated as of December 13,
2013 and First Addendum thereto dated as of
December 18, 2013
8-K
10.27
December 19, 2013
10.24
Letter from Nedbank Limited to Net1 Applied
Technologies South Africa Proprietary Limited and
certain of its subsidiaries, dated December 7, 2016
8-K
10.50
December 9, 2016
10.25
Addendum dated January 31, 2014, to the
Relationship Agreement between Net 1 UEPS
Technologies, Inc., Net 1 Applied Technologies
South Africa (Proprietary) Limited, Business Venture
Investments No 1567 (Proprietary) Limited (RF) and
Mosomo Investment Holdings (Proprietary) Limited.
10-Q
10.28
February 6, 2014
61
10.26
Second Addendum dated March 14, 2014, to the
Relationship Agreement between Net 1 UEPS
Technologies, Inc., Net 1 Applied Technologies
South Africa (Proprietary) Limited, Business Venture
Investments No 1567 (Proprietary) Limited (RF) and
Mosomo Investment Holdings (Proprietary) Limited.
8-K
10.30
March 18, 2014
10.27
Subscription and Sale of Shares Agreement dated
August 27, 2014, between Net 1 UEPS Technologies,
Inc., Net 1 Applied Technologies South Africa
(Proprietary) Limited, Business Venture Investments
No 1567 (Proprietary) Limited (RF), Mosomo
Investment Holdings (Proprietary) Limited and Cash
Paymaster Services (Proprietary) Ltd
10-Q
10.29
November 6, 2014
10.28
Subscription Agreement, dated April 11, 2016,
among the Company and the IFC Investors
8-K
10.31
April 12, 2016
10.29
Policy Agreement, dated April 11, 2016, among the
Company and the IFC Investors
8-K
10.32
April 12, 2016
10.30
Cooperation Agreement, dated May 13, 2020, by and
between Net 1 UEPS Technologies, Inc. and VCP
(Proprietary) Limited.
8-K
10.1
May 14, 2020
10.31
Amendment No. 1 to Cooperation Agreement, dated
December 9, 2020, by and between Net 1 UEPS
Technologies, Inc. and Value Capital Partners (Pty)
Ltd
8-K
10.1
December 10, 2020
10.32
Cell C Shareholders Agreement, dated as of June 19,
2017, by and between Albanta Trading 109
Proprietary Limited, the parties identified on
Schedule 1.1.55 thereto, The Prepaid Company
Proprietary Limited, Net1 Applied Technologies
South Africa Proprietary Limited, Cedar Cellular
Investment 1 (RF) Proprietary Limited, Magnolia
Cellular Investment 2 (RF) Proprietary Limited,
Yellowwood Cellular Investment 3 (RF) Proprietary
Limited, and Cell C Proprietary Limited
8-K
10.69
June 26, 2017
10.33
Senior Facility E Agreement, dated September 26,
2018, among Net1 Applied Technologies South
Africa Proprietary Limited, FirstRand Bank Limited
(acting through its Rand Merchant Bank division), as
lender, and FirstRand Bank Limited (acting through
its Rand Merchant Bank division), as agent.
8-K
10.96
October 2, 2018
10.34
Third Amendment and Restatement Agreement, dated
September 4, 2019, among Net1 Applied
Technologies South Africa Proprietary Limited, Net 1
UEPS Technologies, Inc., the parties listed in Part I of
Schedule 1 thereto, as the original guarantors,
FirstRand Bank Limited (acting through its Rand
Merchant Bank division), as an arranger, Nedbank
Limited (acting through its Corporate and Investment
Banking division), as an arranger, the parties listed in
Part II of Schedule 1 thereto, as the original lenders,
FirstRand Bank Limited (acting through its Rand
Merchant Bank division), as agent and Main Street
1692 (RF) Proprietary Limited, as debt guarantor.
8-K
10.102
September 13, 2019
62
10.35
Senior Facility F Agreement, dated September 4,
2019, among Net1 Applied Technologies South
Africa Proprietary Limited, FirstRand Bank Limited
(acting through its Rand Merchant Bank division) as a
lender, Nedbank Limited (acting through its
Corporate and Investment Banking division), as a
lender, and FirstRand Bank Limited (acting through
its Rand Merchant Bank division), as agent.
8-K
10.103
September 13, 2019
10.36
Pledge and Cession in Security, dated September 4,
2019, given by Net1 Applied Technologies South
Africa Proprietary Limited, as cedent, in favor of
Main Street 1692 (RF) Proprietary Limited, as
cessionary in respect of certain Shares.
8-K
10.104
September 13, 2019
10.37
Share Purchase Agreement, dated February 3, 2021,
between Net1 Holdings LI AG, Kuno Frick
Familienstiftung and, as Object of Sale, Bank Frick &
Co. AG
8-K
10.1
February 9, 2021
10.38
Release and Indemnity Agreement, dated February 3,
2021, between Net 1 UEPS Technologies, Inc.,
Masterpayment Ltd, Masterpayment AG, Summit
Payment Services AG, Ceevo Financial Services
(Malta) Limited, Kuno Frick Familienstiftung and
Bank Frick & Co. AG
8-K
10.2
February 9, 2021
10.39
Security Pledge and Cession, dated February 3, 2021,
given by Kuno Frick Familienstiftung in favour of
Net1 Holdings LI AG, with the main holder being,
Bank Frick & Co. AG
8-K
10.3
February 9, 2021
14
Code of Ethics
X
21
Subsidiaries of Registrant
X
23
Consent of Independent Registered Public
Accounting Firm
X
31.1
Certification of Principal Executive Officer pursuant
to Rules 13a-14(a) and 15d-14(a) under the Securities
Exchange Act of 1934, as amended
X
31.2
Certification of Principal Financial Officer pursuant
to Rules 13a-14(a) and 15d-14(a) under the Securities
Exchange Act of 1934, as amended
X
32
Certification pursuant to 18 USC Section 1350
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 Interactive Data File (formatted as inline
XBRL and continued in Exhibit 101)
X
* Indicates a management contract or compensatory plan or arrangement.
ITEM
1
6
.
FORM
10
-
K
SUMMARY
None.
63
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NET 1 UEPS TECHNOLOGIES, INC.
By: /s/ Chris G.B. Meyer
Chris G.B. Meyer
Group Chief Executive Officer and Director
Date: September 13, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended,
this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on
the dates indicated.
NAME
TITLE
DATE
/s/ Kuben Pillay
Chairman of the Board and Director
September 13, 2021
Kuben Pillay
/s/ Chris G.B. Meyer
Group Chief Executive Officer and Director (Principal
Executive Officer)
September 13, 2021
Chris G.B. Meyer
/s/ Alex M.R. Smith
Chief Financial Officer, Treasurer,
Secretary and
Director (Principal Financial and Accounting Officer)
September 13, 2021
Alex M.R. Smith
/s/ Antony C. Ball
Director
September 13, 2021
Antony C. Ball
/s/ Nonkululeko N. Gobodo
Director
September 13, 2021
Nonkululeko N. Gobodo
/s/ Ian O. Greenstreet
Director
September 13, 2021
Ian O. Greenstreet
/s/ Javed Hamid
Director
September 13, 2021
Javed Hamid
/s/ Lincoln C. Mali
Director
September 13, 2021
Lincoln C. Mali
/s/ Ali Mazanderani
Director
September 13, 2021
Ali Mazanderani
/s/ Monde Nkosi
Director
September 13, 2021
Monde Nkosi
/s/ Ekta Singh-Bushell
Director
September 13, 2021
Ekta Singh-Bushell
F-1
NET 1 UEPS TECHNOLOGIES, INC.
LIST OF CONSOLIDATED
FINANCIAL STATEMENTS
Report of the Independent Registered Public Accounting Firm – Deloitte & Touche (South Africa)
F-2
Consolidated balance sheets as of June 30, 2021 and 2020
F-4
Consolidated statements of operations for the years ended June 30, 2021, 2020 (as restated) and 2019 (as restated)
F-5
Consolidated statements of comprehensive (loss) income for the years ended June 30, 2021, 2020 and 2019
F-6
Consolidated statements of changes in equity for the years ended June 30, 2021, 2020 and 2019
F-7
Consolidated statements of cash flows for the years ended June 30, 2021, 2020 and 2019
F-10
Notes to the consolidated financial statements
F-11
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders
and the Board of Directors of Net 1 UEPS Technologies,
Inc.
Opinion on the Financial Statements
We
have
audited
the
accompanying
consolidated
balance
sheets
of
Net
1
UEPS
Technologies,
Inc.
and
subsidiaries
(the
"Company") as of
June 30, 2021 and
2020, the related
consolidated statements of
operations, comprehensive (loss)
income, changes
in equity,
and cash flows, for each of the
three years in the period ended
June 30, 2021, and the related notes
(collectively referred to
as the "financial statements").
In our opinion, the
financial statements present
fairly, in
all material respects, the
financial position of
the Company as of June 30, 2021 and 2020, and the results of its operations and its cash flows for each of the three
years in the period
ended June 30, 2021, in conformity with accounting principles generally
accepted in the United States of America.
We
have
also audited,
in accordance
with the
standards of
the Public
Company Accounting
Oversight Board
(United States)
(PCAOB), the Company's internal
control over financial reporting
as of June
30, 2021, based
on criteria established in
Internal Control
— Integrated Framework (2013)
issued by the Committee of
Sponsoring Organizations of the
Treadway Commission and
our report
dated September 13, 2021, expressed an unqualified opinion
on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements
are the responsibility
of the Company's
management. Our
responsibility is to express
an opinion on
the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required
to
be
independent
with
respect
to
the
Company
in
accordance
with
the
U.S.
federal
securities
laws
and
the
applicable
rules
and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance
with the standards of the PCAOB. Those standards require
that we plan and perform the
audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement, whether
due to error or
fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due
to error or fraud, and performing
procedures that respond to those risks. Such
procedures included examining, on a test
basis, evidence
regarding the amounts and
disclosures in the financial statements.
Our audits also included evaluating
the accounting principles used
and significant estimates made by
management, as well as evaluating
the overall presentation of the financial
statements. We
believe
that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical
audit matter
communicated below
is a matter
arising from
the current-period
audit of
the financial
statements that
was communicated
or required
to be
communicated
to
the audit
committee
and
that (1)
relates
to
accounts
or disclosures
that
are
material to the
financial statements and
(2) involved our
especially challenging, subjective, or
complex judgments. The
communication
of
critical
audit
matters
does
not
alter
in
any
way
our
opinion
on
the
financial
statements,
taken
as
a
whole,
and
we
are
not,
by
communicating the critical
audit matter
below, providing a separate
opinion on the
critical audit
matter or
on the
accounts or
disclosures
to which it relates.
Other long-term assets – Investment in MobiKwik – Refer to note 8 of the consolidate
d
financial statements
Critical Audit Matter Description
The investment
in MobiKwik
is measured
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.
The investment in
MobiKwik was remeasured
during the current financial
year due to three
separate transactions that
occurred
during the
fiscal year which
were each
individually considered
to represent an
observable price change
in an orderly
transaction for
similar
or
identical
equity
securities
issued
by
MobiKwik.
The
change
in
fair value
of
equity
securities
resulted
in
an
increase
of
approximately
$49
million
during
the
fiscal
year
across
the
three
transactions.
There
is
subjectivity
in
determining
whether
each
transaction constitutes an observable price or not.
We identified
the Company's valuation of the investment in MobiKwik as a critical audit matter because of the judgments made
by management to evaluate whether
each transaction represents an observable
price change in an orderly transaction
for the identical
investment in
MobiKwik. A
high degree
of auditor
judgment and
an increased
extent of
audit effort
was required
when performing
audit procedures to evaluate the appropriateness of management's conclusions.
F-3
How the Critical Audit Matter Was
Addressed in the Audit
Our principal
audit procedures
related to
the evaluation
of whether
each transaction
constitutes an
observable price
change or
not
that resulted in a change in fair value of the investment in MobiKwik and
included the following, among others:
●
We
evaluated management’s
application
of the
accounting criteria
relating to
whether the
observable
price changes
result
from an orderly
transaction between market
participants in which the
fair value of the
consideration received is
readily determinable
or observable and included public searches for corroborating or contradictory
information.
●
We obtained and read the contractual
agreements between MobiKwik and
the respective buyers and
other relevant documents
for each transaction.
●
We
evaluated
management’s
conclusion
that
none
of
the
transactions
occurred
in
circumstances
that
may
indicate
that
a
transaction is not orderly or with related parties.
●
We tested the effectiveness
of controls over the review of the accounting for non-routine complex
transactions.
/s/ Deloitte & Touche
Deloitte & Touche
Registered Auditors
Johannesburg, South Africa
September 13, 2021
We have served
as the Company's auditor since 2004.
NET 1 UEPS TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
as of June 30, 2021 and 2020
F-4
June 30,
June 30,
2021
2020
(In thousands, except share data)
ASSETS
CURRENT ASSETS
Cash and cash equivalents
$
198,572
$
217,671
Restricted cash related to ATM funding
(Note 11)
25,193
14,814
Accounts receivable, net and other receivables (Note 3)
26,583
43,068
Finance loans receivable, net (Note 3)
21,142
15,879
Inventory (Note 4)
22,361
19,860
Total current assets before settlement assets
293,851
311,292
Settlement assets
466
8,014
Total current assets
294,317
319,306
PROPERTY,
PLANT AND EQUIPMENT, NET (Note 6)
7,492
6,656
OPERATING LEASE RIGHT-OF-USE
(Note 7)
4,519
5,395
EQUITY-ACCOUNTED INVESTMENTS
(Note 8)
10,004
65,836
GOODWILL (Note 9)
29,153
24,169
INTANGIBLE ASSETS, NET (Note 9)
357
612
DEFERRED INCOME TAXES
622
358
OTHER LONG-TERM ASSETS, including reinsurance assets (Note 8 and 10)
81,866
31,346
TOTAL ASSETS
428,330
453,678
LIABILITIES
CURRENT LIABILITIES
Short-term credit facilities for ATM funding (Note 11)
14,245
14,814
Short-term credit facilities (Note 11)
-
-
Accounts payable
7,113
6,287
Other payables (Note 12)
27,588
23,779
Operating lease liability - current (Note 7)
2,822
2,251
Income taxes payable
256
16,157
Total current liabilities before settlement obligations
52,024
63,288
Settlement obligations
466
8,015
Total current liabilities
52,490
71,303
DEFERRED INCOME TAXES
10,415
1,859
OPERATING LEASE LIABILITY - LONG TERM (Note 7)
1,890
3,312
OTHER LONG-TERM LIABILITIES, including insurance policy liabilities (Note 10)
2,576
2,012
TOTAL LIABILITIES
67,371
78,486
REDEEMABLE COMMON STOCK (Note 13)
84,979
84,979
EQUITY
COMMON STOCK (Note 13)
Authorized:
200,000,000
with $
0.001
par value;
Issued and outstanding shares, net of treasury - 2021:
56,716,620
; 2020:
57,118,925
80
80
PREFERRED STOCK
Authorized shares:
50,000,000
with $
0.001
par value;
Issued and outstanding shares, net of treasury:
2021:
-
; 2020:
-
-
-
ADDITIONAL PAID-IN-CAPITAL
301,959
301,489
TREASURY SHARES, AT
COST: 2021:
24,891,292
; 2020:
24,891,292
(286,951)
(286,951)
ACCUMULATED OTHER
COMPREHENSIVE LOSS (Note 14)
(145,721)
(169,075)
RETAINED EARNINGS
406,613
444,670
TOTAL NET1 EQUITY
275,980
290,213
NON-CONTROLLING INTEREST
-
-
TOTAL EQUITY
275,980
290,213
TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND SHAREHOLDERS’ EQUITY
$
428,330
$
453,678
See accompanying notes to consolidated financial statements.
NET 1 UEPS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT
OF OPERATIONS
for the years ended June 30, 2021, 2020 and 2019
F-5
2021
2020
2019
(as
restated)
(A)
(as
restated)
(A)
(In thousands, except per share data)
REVENUE (Note 15)
$
130,786
$
144,299
$
160,635
Services rendered
95,398
110,627
137,339
Loan-based fees received
20,511
19,955
27,525
Sale of goods
14,877
13,717
15,480
Variation
of price related to SASSA Revenue
-
-
(19,709)
EXPENSE
Cost of goods sold, IT processing, servicing and support
96,248
102,308
124,104
Selling, general and administration
84,063
75,256
144,920
Depreciation and amortization
4,347
4,647
12,103
Impairment loss (Note 9)
-
6,336
14,440
OPERATING LOSS
(53,872)
(44,248)
(134,932)
CHANGE IN FAIR VALUE
OF EQUITY SECURITIES (Note 5 and 8)
49,304
-
(167,459)
LOSS ON DISPOSAL OF BANK FRICK (Note 8)
472
-
-
LOSS ON DISPOSAL OF EQUITY-ACCOUNTED INVESTMENT (Note 8)
13
-
-
GAIN ON DISPOSAL OF FIHRST (Note 23)
-
9,743
-
(LOSS) GAIN ON DISPOSAL OF DNI (Note 8)
-
(1,010)
177
LOSS ON DECONSOLIDATION
OF CPS (Note 23)
-
7,148
-
TERMINATION
FEE PAID TO CANCEL BANK FRICK OPTION (Note 8)
-
17,517
-
INTEREST INCOME
2,416
2,805
5,424
INTEREST EXPENSE
2,982
7,641
9,860
IMPAIRMENT OF CEDAR CELLULAR NOTE (Note 8)
-
-
12,793
LOSS BEFORE INCOME TAX EXPENSE (BENEFIT)
(5,619)
(65,016)
(319,443)
INCOME TAX EXPENSE (BENEFIT) (Note 17)
7,560
2,656
(5,072)
LOSS BEFORE (LOSS) INCOME FROM EQUITY-ACCOUNTED INVESTMENTS
(13,179)
(67,672)
(314,371)
(LOSS) INCOME FROM EQUITY-ACCOUNTED INVESTMENTS (Note 8)
(24,878)
(29,542)
1,258
NET LOSS FROM CONTINUING OPERATIONS
(38,057)
(97,214)
(313,113)
NET INCOME FROM DISCONTINUED OPERATIONS (Note 23)
-
6,402
13,630
GAIN (LOSS) ON DISPOSAL OF DISCONTINUED OPERATION, net of tax (Note 23)
-
12,454
(9,175)
NET LOSS
(38,057)
(78,358)
(308,658)
LESS (ADD): NET INCOME (LOSS) ATTRIBUTABLE
TO NON-CONTROLLING
INTEREST
-
-
2,349
Continuing
-
-
(1,352)
Discontinued
-
-
3,701
NET (LOSS) INCOME ATTRIBUTABLE
TO NET1
(38,057)
(78,358)
(311,007)
Continuing
(38,057)
(97,214)
(311,761)
Discontinued
$
-
$
18,856
$
754
Net (loss) earnings per share, in United States dollars
(Note 18):
Basic (loss) earnings attributable to Net1 shareholders
$
(0.67)
$
(1.37)
$
(5.48)
Continuing
$
(0.67)
$
(1.70)
$
(5.49)
Discontinued
$
-
$
0.33
$
0.01
Diluted (loss) earnings attributable to Net1 shareholders
$
(0.67)
$
(1.37)
$
(5.48)
Continuing
$
(0.67)
$
(1.70)
$
(5.49)
Discontinued
$
-
$
0.33
$
0.01
(A) - Certain amounts have been restated to correct the misstatement discussed in Note 1.
See Notes to audited Consolidated Financial Statements
NET 1 UEPS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT
OF COMPREHENSIVE (LOSS) INCOME
for the years ended June 30, 2021, 2020 and 2019
F-6
2021
2020
2019
(In thousands)
Net loss
$
(38,057)
$
(78,358)
$
(308,658)
Other comprehensive income (loss), net of taxes:
Movement in foreign currency translation reserve
27,178
(35,070)
(26,148)
Movement in foreign currency translation reserve related to equity
-accounted
investments (Note 14)
(1,967)
2,227
4,251
Release of foreign currency translation reserve related to disposal of
Bank Frick
(Note 8
and Note 14)
(2,462)
-
-
Release of foreign currency translation reserve related to liquidation of subsidiaries
(Note 14)
605
-
-
Release of foreign currency translation reserve related to deconsolidation
of CPS
(Note 23 and Note 14)
-
32,451
-
Release of foreign currency translation reserve related to disposal of Net1
Korea
(Note 23 and Note 14)
-
14,228
-
Release of foreign currency translation reserve related to disposal of
DNI (Note 23,
Note 8 and Note 14)
-
11,323
5,679
Release of foreign currency translation reserve related to disposal of FIHRST
(Note
23 and Note 14)
-
1,578
-
Total other comprehensive
income (loss), net of taxes
23,354
26,737
(16,218)
Comprehensive loss
(14,703)
(51,621)
(324,876)
Add comprehensive income attributable to non-
controlling interest
-
-
2,407
Comprehensive loss attributable to Net1
$
(14,703)
$
(51,621)
$
(322,469)
See accompanying notes to consolidated financial statements
NET 1 UEPS TECHNOLOGIES, INC.
Consolidated Statement of Changes in Equity for the year ended June 30,
2019 (dollar amounts in thousands)
F-7
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
Balance – July
1, 2018
81,577,217
$
80
(24,891,292)
$
(286,951)
56,685,925
$
276,201
$
834,035
$
(184,350)
$
639,015
$
95,911
$
734,926
$
107,672
Restricted stock granted
148,000
148,000
-
-
Stock-based compensation charge (Note
16)
2,319
2,319
2,319
Reversal of stock-based compensation
charge (Note 16)
(265,500)
(265,500)
(1,926)
(1,926)
(1,926)
Stock-based compensation charge related
to equity-accounted investment
117
117
117
Acquisition of non-controlling interest
286
286
466
752
Dividends paid to non-controlling
interest
-
(4,104)
(4,104)
Deconsolidation of DNI (Note 23)
-
(89,866)
(89,866)
Net (loss) income
(311,007)
(311,007)
2,349
(308,658)
Other comprehensive loss (Note 14)
(11,462)
(11,462)
(4,756)
(16,218)
Balance – June 30, 2019
81,459,717
$
80
(24,891,292)
$
(286,951)
56,568,425
$
276,997
$
523,028
$
(195,812)
$
317,342
$
-
$
317,342
$
107,672
NET 1 UEPS TECHNOLOGIES, INC.
Consolidated Statement of Changes in Equity for the year ended June 30, 2020 (dollar amounts in thousands)
F-8
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
Balance – July
1, 2019
81,459,717
$
80
(24,891,292)
$
(286,951)
56,568,425
$
276,997
$
523,028
$
(195,812)
$
317,342
$
-
$
317,342
$
107,672
Restricted stock granted
568,000
568,000
-
-
Stock-based compensation charge (Note
16)
1,873
1,873
1,873
Reversal of stock-based compensation
charge (Note 16)
(17,500)
(17,500)
(145)
(145)
(145)
Stock-based compensation charge
related to equity-accounted investment
(Note 8)
71
71
71
Transfer from redeemable common
stock to additional paid-in-capital (Note
13)
22,693
22,693
22,693
(22,693)
Net loss
(78,358)
(78,358)
-
(78,358)
Other comprehensive income (Note 14)
26,737
26,737
-
26,737
Balance – June 30, 2020
82,010,217
$
80
(24,891,292)
$
(286,951)
57,118,925
$
301,489
$
444,670
$
(169,075)
$
290,213
$
-
$
290,213
$
84,979
NET 1 UEPS TECHNOLOGIES, INC.
Consolidated Statement of Changes in Equity for the year ended June 30, 2021 (dollar amounts in thousands)
F-9
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 years ended June 30, 2021 (dollar amounts
in thousands)
Balance – July 1,
2020
82,010,217
$
80
(24,891,292)
$
(286,951)
57,118,925
$
301,489
$
444,670
$
(169,075)
$
290,213
$
-
$
290,213
$
84,979
Restricted stock granted
254,560
254,560
-
-
-
Exercise of stock options
17,335
17,335
53
53
53
Stock-based compensation charge (Note
16)
1,430
1,430
1,430
Reversal of stock-based compensation
charge (Note 16)
(674,200)
(674,200)
(1,086)
(1,086)
(1,086)
Stock-based compensation charge
related to equity-accounted investment
(Note 8)
(25)
(25)
(25)
Proceeds from disgorgement of
shareholders' short-swing profits (Note
22)
98
98
98
-
Net loss
(38,057)
(38,057)
-
(38,057)
Other comprehensive income (Note 14)
23,354
23,354
-
23,354
Balance – June 30, 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
See accompanying notes to consolidated financial statements.
NET 1 UEPS TECHNOLOGIES, INC.
CONSOLIDATED STATEMENT
OF CASHFLOWS
for the years ended June 30, 2021, 2020 and 2019
F-10
2021
2020
2019
(In thousands)
Cash flows from operating activities
Net loss
$
(38,057)
$
(78,358)
$
(308,658)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
4,347
13,299
37,349
Impairment loss (Note 23 and Note 9)
-
6,336
19,745
Movement in allowance for doubtful accounts receivable
110
743
32,786
Fair value adjustment related to financial liabilities
840
(340)
73
Loss (Profit) on disposal of property, plant and equipment
480
(127)
(486)
Stock-based compensation charge (Note 16)
344
1,728
393
Inventory net realizable value adjustment (Note 4)
-
1,298
-
Change in fair value of equity securities (Note 5 and 8)
(49,304)
-
167,459
Loss on disposal of Bank Frick (Note 23)
472
-
-
Loss on disposal of equity-accounted investment (Note 23)
13
-
-
(Gain) Loss on disposal of discontinued operation (Note 23)
-
(12,454)
9,175
Gain on disposal of FIHRST (Note 23)
-
(9,743)
-
Loss on deconsolidation of CPS (Note 23)
-
7,148
-
Loss (Gain) on disposal of DNI (Note 23)
-
1,010
(177)
Interest payable
(1)
1,758
237
Facility fee amortized
-
-
321
Interest on Cedar Cellular note (Note 8)
-
-
(2,397)
Impairment of Cedar Cellular note (Note 8)
-
-
12,793
Loss (Earnings) from equity-accounted investments (Note 8)
24,878
29,542
(1,273)
Movement in allowance for doubtful loans to equity-accounted investments
4,739
1,035
-
Dividends received from equity-accounted investments
194
3,549
1,318
Implementation costs to be refunded to SASSA (Note 12)
-
-
34,039
Decrease in accounts receivable, pre-funded social welfare grants receivable and finance
loans receivable
3,751
8,818
11,663
Decrease (Increase) in inventory
1,279
(19,328)
4,042
Decrease in accounts payable and other payables
(335)
(139)
(14,538)
(Decrease) Increase in taxes payable
(17,210)
(1,427)
3,428
Increase (Decrease) in deferred taxes
5,089
(393)
(11,752)
Net cash used in operating activities
(58,371)
(46,045)
(4,460)
Cash flows from investing activities
Capital expenditures
(4,285)
(5,938)
(9,416)
Proceeds from disposal of property, plant and equipment
571
578
1,045
Proceeds from disposal of Net1 Korea, net of cash disposed (Note 23)
20,114
192,619
-
Transaction costs paid related to disposal of Net1 Korea (Note 23)
-
(7,458)
-
Proceeds from disposal of equity-accounted investment - Bank Frick (Note 8)
18,568
-
-
Proceeds from disposal of DNI as equity-accounted investment (Note 8 and Note 19)
6,010
42,477
-
Transaction costs paid related to disposal of DNI as equity-accounted investment (Note 8)
-
(1,010)
-
Loans to equity-accounted investment (Note 8)
(1,238)
(1,230)
-
Repayment of loans by equity-accounted investments
134
4,268
1,029
Proceeds from disposal of subsidiaries, net of cash disposed (Note 23 and Note 19)
-
10,895
(2,114)
Deconsolidation of CPS - cash disposed (Note 23)
-
(328)
-
Investment in equity-accounted investments (Note 8)
-
(2,500)
(2,989)
Acquisition of intangible assets
-
-
(1,384)
Investment in MobiKwik
-
-
(1,056)
Return on investment
-
-
284
Net change in settlement assets
7,901
(9,256)
79,077
Net cash provided by investing activities
47,775
223,117
64,476
Cash flows from financing activities
Proceeds from bank overdraft (Note 11)
360,083
689,763
822,754
Repayment of bank overdraft (Note 11)
(365,440)
(747,935)
(740,969)
Proceeds from disgorgement of shareholders' short-swing profits (Note 22)
124
-
-
Proceeds from exercise of stock options
53
-
-
Long-term borrowings utilized (Note 11)
-
14,798
14,613
Repayment of long-term borrowings (Note 11)
-
(14,503)
(37,357)
Guarantee fee
-
(148)
(394)
Finance lease capital repayments
-
(69)
-
Acquisition of non-controlling interests
-
-
(180)
Dividends paid to non-controlling interest
-
-
(4,104)
Net change in settlement obligations
(7,901)
9,256
(79,077)
Net cash used in financing activities
(13,081)
(48,838)
(24,714)
Effect of exchange rate changes on cash
14,957
(17,260)
(3,845)
Net (decrease) increase in cash, cash equivalents and restricted cash
(8,720)
110,974
31,457
Cash, cash equivalents and restricted cash – beginning of period
232,485
121,511
90,054
Cash, cash equivalents and restricted cash – end of period (Note 19)
$
223,765
$
232,485
$
121,511
See accompanying notes to consolidated financial statements
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-11
1.
DESCRIPTION
OF
BUSINESS
AND
BASIS
OF
PRESENTATION
Description of Business
Net 1 UEPS Technologies, Inc. (“Net1” and
collectively with its consolidated subsidiaries, the “Company”) was incorporated in
the
State
of
Florida
on
May 8,
1997.
The
Company
is a
provider
of financial
technology,
or fintech,
products
and
services to
the
unbanked and
underbanked primarily
in South
Africa and
neighboring
countries. Its
universal electronic
payment system
(“UEPS”)
uses biometrically
secure smart
cards that
operate in
real-time but
offline, which
allows users
to enter
into transactions
at any
time
with
other
card
holders
in
even
the
most
remote
areas.
The
Company
also
develops
and
provides
secure
transaction
technology
solutions and services,
and offers transaction
processing and financial
solutions. The Company’s
technology is widely used
in South
Africa today,
where it provides financial services (banking, lending and insurance
products), processes debit and credit card payment
transactions on behalf
of retailers through
its EasyPay system
and processes value-added
services such as
bill payments and
prepaid
electricity for the major bill issuers and local councils in South Africa.
Basis of presentation
The
accompanying
consolidated
financial
statements
include
subsidiaries
over
which
Net1
exercises
control
and
have
been
prepared in accordance with accounting principles generally accepted
in the United States of America (“GAAP”).
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
3, 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.
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 impacts
the Company’s
reported results
and the
Company has
restated its consolidated
statement of
operations and certain
note presentation, primarily
Note 15 (Revenue)
and Note
20 (Operating segments) for the years ended June 30, 2020 and 2019,
to correct for the error.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-12
1.
DESCRIPTION
OF
BUSINESS
AND
BASIS
OF
PRESENTATION
(continued)
Restatement of financial statements (continued)
Related to overstatement of revenue and cost of goods
sold, IT processing, servicing and support (continued)
The
tables below
present
the impact
of the
restatement
on the
Company’s
consolidated
statement
of
operations
for
the years
ended June 30, 2020 and 2019
:
Consolidated statement of operations
Year
ended June 30, 2020
As reported
Correction
As restated
(in thousands)
Revenue
$
150,997
$
(6,698)
$
144,299
Cost of goods sold, IT processing, servicing and support
$
109,006
$
(6,698)
$
102,308
Year
ended June 30, 2019
As reported
Correction
As restated
(in thousands)
Revenue
$
166,227
$
(5,592)
$
160,635
Cost of goods sold, IT processing, servicing and support
$
129,696
$
(5,592)
$
124,104
Related to overstatement of revenue and cost
of goods sold, IT processing, servicing and support
(continued)
The table below presents
the impact of the restatement on the affected lines in the Processing
and Total columns
included in the
revenue note (Note 15) for the years ended June 30, 2020 and 2019:
Years
ended
June 30, 2020
June 30, 2019
Processing
Total
Processing
Total
Processing fees - as restated
$
55,992
$
60,895
$
82,995
$
83,090
As reported
62,690
67,593
88,587
88,682
Correction
(6,698)
(6,698)
(5,592)
(5,592)
South Africa - as restated
50,951
55,854
73,153
73,248
As reported
57,649
62,552
78,745
78,840
Correction
(6,698)
(6,698)
(5,592)
(5,592)
Rest of world
$
5,041
$
5,041
$
9,842
$
9,842
Total revenue,
derived from the following geographic locations - as
restated
$
83,628
$
144,299
$
107,422
$
160,635
As reported
90,326
150,997
113,014
166,227
Correction
(6,698)
(6,698)
(5,592)
(5,592)
South Africa - as restated
78,587
139,258
97,580
150,793
As reported
85,285
145,956
103,172
156,385
Correction
(6,698)
(6,698)
(5,592)
(5,592)
Rest of world
$
5,041
$
5,041
$
9,842
$
9,842
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-13
1.
DESCRIPTION
OF
BUSINESS
AND
BASIS
OF
PRESENTATION
(continued)
Restatement of financial statements (continued)
Related to overstatement of revenue and cost of goods
sold, IT processing, servicing and support (continued)
The table
below presents
the impact
of the restatement
on the Processing
operating segment
revenue included
in the operating
segment note (Note 20) for the years ended June 30, 2020 and 2019:
Revenue (as restated)
Reportable
Segment
Corporate/
Eliminations
Inter-
segment
From
external
customers
Processing - as restated
$
91,786
$
-
$
8,158
$
83,628
As reported
98,484
-
8,158
90,326
Correction
(6,698)
-
-
(6,698)
Total for the year
ended June 30, 2020 - as restated
156,727
-
12,428
144,299
As reported
163,425
-
12,428
150,997
Correction
(6,698)
-
-
(6,698)
Processing - as restated
$
118,088
$
-
$
10,666
$
107,422
As reported
123,680
-
10,666
113,014
Correction
(5,592)
-
-
(5,592)
Total for the year
ended June 30, 2019 - as restated
195,237
(19,709)
14,893
160,635
As reported
200,829
(19,709)
14,893
166,227
Correction
$
(5,592)
$
-
$
-
$
(5,592)
2.
SIGNIFICANT
ACCOUNTING
POLICIES
Principles of consolidation
The financial
statements of
entities which
are controlled
by Net1,
referred to
as subsidiaries,
are consolidated.
Inter-company
accounts and transactions are eliminated upon consolidation.
The Company, if it is the primary beneficiary,
consolidates entities which are considered to be variable interest entities (“VIE”).
The primary beneficiary is considered
to be the entity that will absorb
a majority of the entity's expected losses,
receive a majority of
the entity's expected residual returns, or both. No entities were required to be consolidated as a result of these requirements during the
years ended June 30, 2021, 2020 and 2019.
Business combinations
The
Company
accounts
for
its
business
acquisitions
under
the
acquisition
method
of
accounting.
The
total
value
of
the
consideration paid
for acquisitions is
allocated to
the underlying
net assets acquired,
based on their
respective estimated fair
values.
The Company uses a number
of valuation methods to
determine the fair value of
assets and liabilities acquired,
including discounted
cash
flows,
external
market
values,
valuations
on
recent
transactions
or
a
combination
thereof,
and
believes
that
it
uses
the
most
appropriate
measure
or
a
combination
of
measures
to
value
each
asset
or
liability.
The Company
recognizes
measurement-period
adjustments in the reporting period in which the adjustment amounts are determined.
Use of estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions
that
affect
the
reported
amounts
of
assets
and
liabilities
and
disclosure
of
contingent
assets
and
liabilities
at
the
date
of
the
financial
statements
and
the reported
amounts
of
revenues
and
expenses during
the reporting
period.
Actual results
could
differ
from
those
estimates.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-14
2.
SIGNIFICANT
ACCOUNTING
POLICIES
(continued)
Translation of foreign
currencies
The primary functional currency of the consolidated entities is the South African Rand (“ZAR”) and its reporting currency is the
U.S. dollar.
Assets and
liabilities are
translated at
the exchange
rates in
effect at
the balance
sheet date.
Revenues and
expenses are
translated at
average rates
for the
period. Translation
gains and
losses are
reported in
accumulated other
comprehensive income
in
total
equity.
The Company
releases the
foreign
currency
translation
reserve
included
in accumulated
other
comprehensive
income
attributable to a foreign entity upon sale or complete, or
substantially complete, liquidation of the investment in that foreign entity and
includes the release in the gain or loss reported
related to the sale or liquidation of the foreign entity.
Foreign exchange transactions are translated at the spot rate ruling at the date of the transaction. Monetary items are translated at
the closing
spot rate
at the
balance sheet
date. Transactional
gains and
losses are
recognized
in selling,
general and
administration
expense on the Company’s consolidated
statement of operations for the period.
Cash, cash equivalents and restricted cash
Cash and cash equivalents
include cash on hand and
funds deposited in bank accounts
with financial institutions that
are liquid,
unrestricted
and readily
available. Cash
that is
restricted
as to
use is
classified as
restricted
cash and
includes cash
in certain
bank
accounts that have been ceded to Nedbank Limited
(“Nedbank”) as well as cash drawn under the Company’s
borrowings and used to
fund its ATMs,
refer to Note 11.
Allowance for doubtful accounts receivable
Allowance for doubtful finance loans receivable
The
Company
regularly
reviews the
ageing
of outstanding
amounts
due
from
borrowers
and
adjusts
the
allowance
based
on
management’s
estimate
of
the
recoverability
of
the
finance loans
receivable.
The
Company
writes
off
microlending
finance
loans
receivable and
related service
fees and
interest if
a borrower
is in
arrears with
repayments for
more than
three months
or dies.
The
Company
writes
off
working
capital
finance
receivables
and
related
fees
when
it
is
evident
that
reasonable
recovery
procedures,
including where deemed necessary,
formal legal action, have failed.
Allowance for doubtful accounts receivable
A specific
provision is
established where
it is considered
likely that all
or a portion
of the amount
due from customers
renting
point of sale (“POS”) equipment, receiving support and maintenance or transaction services or purchasing licenses or SIM cards from
the Company
will not
be recovered.
Non-recoverability is
assessed based
on a
review by
management of
the ageing
of outstanding
amounts, the location and the payment history of the customer in relation
to those specific amounts.
Inventory
Inventory
is valued
at the
lower of
cost and
net realizable
value. Cost
is determ
ined on
a first-in,
first-out basis
and includes
transport and handling costs.
Property,
plant and equipment
Property,
plant and
equipment are
shown at
cost less accumulated
depreciation. Property,
plant and
equipment are
depreciated
on the straight-line basis at rates
which are estimated to amortize the
assets to their anticipated residual values
over their useful lives.
Within the following asset classifications, the
expected economic lives are approximately:
Computer
equipment
3
to
8
years
Office
equipment
2
to
10
years
Vehicles
3
to
8
years
Furniture
and
fittings
3
to
10
years
The gain or loss arising
on the disposal or retirement
of an asset is determined
as the difference between
the sales proceeds and
the
carrying
amount
of
the
asset
and
is
recognized
in
income.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-15
2.
SIGNIFICANT
ACCOUNTING
POL
ICIES
(continued)
Leases
The Company determines whether an arrangement is a lease at
inception. Operating leases are included in operating lease right-
of-use assets (“ROU”),
operating lease liability
- current, and
operating lease liability
– long term
in its consolidated
balance sheets.
The Company
does not
have any
significant finance
leases as
of June
30, 2021
and 2020,
respectively,
but its
policy is
to include
finance leases in property and equipment, other payables,
and other long-term liabilities in its consolidated balance sheets.
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
of 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.
The Company does not recognize right-of-use assets and lease liabilities for lease arrangements with a term of twelve months or
less. The Company
accounts for all
components in a
lease arrangement as
a single combined
lease component. Costs
incurred in the
adaptation of leased properties to
serve the requirements of
the Company (leasehold improvements) are
capitalized and amortized over
the shorter of the estimated useful life of the asset and the remaining term of
the lease.
Equity-accounted investments
The Company 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.
In addition, when an investment qualifies for the equity
method (as a result of an increase in the level of ownership
interest or degree
of influence),
the cost
of acquiring
the additional
interest in
the investee
is added
to the
current basis
of the
Company’s
previously
held interest and the equity method would be applied
subsequently from the date on which the
Company obtains the ability to exercise
significant influence over the investee.
The Company
releases a
pro rata
portion of
the foreign
currency translation
reserve related
to an
equity-accounted investment
that is
included
in accumulated
other comprehensive
income to
earnings upon
the sale
of a
portion of
its ownership
interest in
the
equity-accounted
investment.
The
release
of
the
pro
rata
portion
of
the
foreign
currency
translation
reserve
is
included
in
the
measurement of
the gain
or loss
on sale
of a
portion of
the Company’s
ownership interest
in the
equity-accounted investment.
The
Company does not recognize cumulative losses in excess of its investment or
loans in an equity-accounted investment except if it has
an obligation to provide additional financial support.
Dividends received from an equity-accounted investment reduce the carrying value
of the Company’s investment. The Company
has elected to classify distributions received from equity method investees using the nature of the distribution approach.
This election
requires the Company to evaluate
each distribution received on
the basis of the source of
the payment and classify the
distribution as
either
operating
cash
inflows
or
investing
cash
inflows.
The
Company
reviews
its
equity-accounted
investments
for
impairment
whenever events or circumstances indicate that the carrying amount of
the investment may not be recoverable.
Goodwill
Goodwill
represents
the
excess
of
the
purchase
price
of
an
acquired
enterprise
over
the
fair
values
of
the
identifiable
assets
acquired and liabilities assumed. The Company tests for impairment
of goodwill on an annual basis and at any other time if events
or
circumstances change that would more likely than not reduce the fair
value of the reporting unit goodwill below its carrying amount.
Circumstances that
could trigger
an impairment test
include but are
not limited to:
a significant adverse
change in the
business
climate or legal
factors; an adverse
action or assessment
by a regulator;
unanticipated competition; loss
of key personnel;
the likelihood
that a reporting unit or
significant portion of a reporting
unit will be sold
or otherwise disposed; and results
of testing for recoverability
of a significant asset group within a reporting unit. If goodwill is allocated to a reporting unit
and the carrying amount of the reporting
unit exceeds
the fair value
of that reporting
unit, an impairment
loss is recorded
in the statement
of operations.
Measurement of
the
fair value
of a reporting
unit is based
on one
or more
of the following
fair value
measures: the amount
at which the
unit as a
whole
could be
bought or sold
in a current
transaction between
willing parties; present
value techniques
of estimated
future cash flows;
or
valuation
techniques
based
on
mul
tiples
of
earnings
or
revenue,
or
a
similar
performance
measure.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-16
2.
SIGNIFICANT
ACCOUNTING
POLICIES
(continued)
Intangible assets
Intangible assets are shown at
cost less accumulated amortization. Intangible assets
are amortized over the following useful
lives:
Customer
relationships
1
to
15
years
Software
and
unpatented
technology
3
to
5
years
FTS
patent
10
years
Exclusive
licenses
7
years
Trademarks
3
to
20
years
Intangible assets
are periodically
evaluated for
recoverability,
and those
evaluations take
into account
events or
circumstances
that warrant revised estimates of useful lives or that indicate that impairment
exists.
Debt and equity securities
Debt securities
The Company is required to
classify all applicable debt securities
as either trading securities, available for
sale or held to
maturity
upon investment in the security.
Trading
Debt securities
acquired by
the Company
which it
intends
to sell
in the
short-term
are classified
as trading
securities and
are
initially measured
at fair
value. These
debt securities
are subsequently
measured at
fair value
and realized
and unrealized
gains and
losses
from
these
trading
securities
are
included
in
the
Company’s
consolidated
statement
of
operations.
Classification
of
a
debt
security as a trading
security is not precluded
simply because the Company
does not intend to sell
the security in the
short term. The
Company had no debt securities that were classified as trading securities as of
June 30, 2021 and 2020,
respectively.
Available for sale
Debt
securities
acquired
by the
Company
that
have
readily
determinable
fair values
are classified
as available
for
sale if
the
Company has not classified them as trading securities or if it does not
have the ability or positive intent to hold the debt security until
maturity.
The Company is
required to make
an election to
account for these
debt securities as
available for
sale. These available
for
sale debt securities
are initially measured
at fair value. These
debt securities are
subsequently measured at
fair value with unrealized
gains
and
losses
from
available
for
sale
investments
in
debt
securities
reported
as
a
separate
component
of
accumulated
other
comprehensive income, net of deferred income
taxes, in shareholders’ equity. The Company had no
debt securities that were classified
as available for sale securities as of June 30, 2021 and 2020, respectively.
Held to maturity
Debt securities acquired by the Company which it has the ability and the positive intent to hold to maturity are classified as held
to maturity debt securities. The Company is required to make an election to classify these debt securities as held to maturity and these
securities are carried at amortized cost. The amortized cost
of held to maturity debt securities
is adjusted for amortization of premiums
and accretion of discounts to maturity.
Interest received from the held to
maturity security together with this amortization
is included
in interest income in the Company’s consolidated statement of operations. The Company had a
held to maturity security as of June
30,
20
2
1
and
20
20
,
respectively,
refer
to
Note
8
.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-17
2.
SIGNIFICANT
ACCOUNTING
POLICIES
(continued)
Debt and equity securities (continued)
Debt securities (continued)
Impairment of debt securities
The Company’s
available for sale
and held
to maturity debt
securities with unrealized
losses are reviewed
quarterly to identify
other-than-temporary impairments in value.
With regard to available for sale and held to maturity debt securities, the Company considers (i) the ability and intent to hold the
debt security for a
period of time to
allow for recovery of
value (ii) whether it
is more likely than
not that the Company
will be required
to sell the debt security;
and (iii) whether it
expects to recover the
entire carrying amount of
the debt security.
The Company records
an impairment
loss in its
consolidated statement
of operations representing
the difference between
the debt securities
carrying value
and the current fair value as
of the date of the impairment
if the Company determines that
it intends to sell the debt
security or if that
it is
more likely
than not
that it
will be
required to
sell the
debt security
before recovery
of the
amortized cost
basis. However,
the
impairment loss
is split
between a
credit loss
and a
non-credit loss
for debt
securities that
the Company
determines that
it does
not
intend to sell or that it is more likely than not that it will
not be required to sell the debt securities before the recovery of the amortized
cost basis. The credit loss portion, which is measured as the difference
between the debt security’s cost
basis and the present value of
expected future cash flows,
is recognized in the Company’s
consolidated statement of operations.
The non-credit loss portion,
which
is measured
as the
difference between
the debt
security’s
cost basis and
its current
fair value,
is recognized
in other
comprehensive
income, net of applicable taxes.
Equity securities
Equity
securities
are
measured
at
fair
value.
Changes
in
the
fair
value
of
equity
securities
are
recorded
in
the
Company’s
consolidated statement
of operations within
the caption titled
“change in fair
value of equity
securities”. The
Company may elect
to
measure equity securities without readily determinable fair
values at its 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 (“cost minus
changes
in observable
prices equity
securities”). Changes
in the fair
value of
the Company’s
cost minus
changes in
observable prices
equity
securities during the year ended June 30, 2021,
are discussed in Note 8. There were
no changes in the fair value
of the Company’s cost
minus
changes
in
observable
prices
equity
securities
during
the
year
ended
June
30,
2020.
The
Company
performs
a
qualitative
assessment on
a quarterly
basis and
recognizes an
impairment loss
if there
are sufficient
indicators that
the fair
value of
the equity
security is less than its carrying value.
Policy reserves and liabilities
Reserves for policy benefits and claims payable
The Company determines its reserves for policy benefits under
its life insurance products using a model which estimates claims
incurred
that have
not been
reported
and
total
present
value
of disability
claims-in-payment
at
the balance
sheet
date. This
model
allows for
best estimate
assumptions based
on experience
(where sufficient)
plus prescribed
margins,
as required
in the
markets in
which these products are offered, namely South Africa.
The best estimate assumptions include (i) mortality and morbidity assumptions reflecting the company’s
most recent experience
and (ii) claim reporting delays reflecting Company specific and industry experience. Most of the disability claims-in-payment reserve
is
reinsured
and
the
reported
values
were
based
on
the
reserve
held
by
the
relevant
reinsurer.
The
values
of
matured
guaranteed
endowments are increased by late payment interest (net of the asset manageme
nt fee and allowance for tax on investment income).
Deposits on investment contracts
For
the
Company’s
interest
-
sensitive
life
contracts,
liabilities
approximate
the
policyholder’s
account
value.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-18
2.
SIGNIFICANT
ACCOUNTING
POLICIES
(continued)
Reinsurance contracts held
The Company enters into reinsurance
contracts with reinsurers under
which the Company is compensated
for the entire amount
or a portion of losses arising on one or more of the insurance contracts it issues.
The expected benefits to which the Company is entitled
under its reinsurance contracts held are recognized as reinsurance assets.
These assets consist
of short-term
balances due from
reinsurers (classified within
Accounts receivable,
net and other
receivables) as
well as long-term receivables (classified within other long-term assets) that are dependent on the expected claims and benefits arising
under the
related reinsurance
contracts. Amounts
recoverable from
or due
to reinsurers
are measured
consistently with
the amounts
associated with the reinsured contracts and
in accordance with the terms of each reinsurance contract. Reinsurance assets are assessed
for impairment at
each balance sheet
date. If there
is reliable
objective evidence that
amounts due may
not be recoverable,
the Company
reduces the carrying amount of the reinsurance asset to its recoverable amount and recognizes that impairment loss in its consolidated
statement of operations. Reinsurance premiums are recognized
when due for payment under each reinsurance contract.
Redeemable common stock
Common stock
that is
redeemable (1)
at a
fixed or
determinable price
on a
fixed or
determinable date,
(2) at
the option
of the
holder, or (3) upon the occurrence of an
event that is not solely
within the control of Company is
presented outside of total Net1 equity
(i.e. permanent equity). Redeemable common stock is initially recognized at issuance
date fair value and the Company does not
adjust
the issuance date fair value if redemption is not
probable. The Company re-measures the redeemable
common stock to the maximum
redemption
amount
at
the
balance
sheet
date
once
redemption
is
probable.
Reduction
in
the
carrying
amount
of
the
redeemable
common
stock is
only appropriate
to the
extent that
the Company
has previously
recorded increases
in the
carrying
amount of
the
redeemable equity instrument as the redeemable common stock may be not be carried at an amount that is less than the initial amount
reported outside of permanent equity.
Redeemable common stock is reclassified as permanent equity when presentation outside
permanent equity is no longer required
(if, for example, a redemption
feature lapses, or there
is a modification of the
terms of the instrument). The
existing carrying amount
of the redeemable common
stock is reclassified to permanent
equity at the date of
the event that caused the
reclassification and prior
period consolidated financial statements are not adjusted.
Revenue recognition
The
Company
recognizes
revenue
upon
transfer
of
control
of
promised
products
or
services
to
customers
in
an
amount
that
reflects
the
consideration
the
Company
expects
to
receive
in
exchange
for
those
products
or
services.
The
Company
enters
into
contracts that can include various combinations of products and services, which are generally capable of being distinct and accounted
for as separate performance obligations. Revenue is recognized net of allowances
for returns and any taxes collected from customers,
which are subsequently remitted to governmental authorities.
Nature of products and services
Processing fees
The Company
earns processing
fees from
transactions processed
for its
customers. The
Company provides
its customers
with
transaction processing services that
involve the collection, transmittal
and retrieval of
all transaction data
in exchange for
consideration
upon completion of
the transaction. In
certain instances, the
Company also provides
a funds collection
and settlement service
for its
customers. The Company considers these services as a single performance obligation.
The Company’s contracts specify a transaction
price for
services provided.
Processing revenue
fluctuates based
on the
type and
the volume
of transactions
processed. Revenue
is
recognized on the completion of the processed transaction.
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’s
contracts specify
a transaction
price for
each service
provided (for
instance, ATM
withdrawal, balance
enquiry,
etc.). Processing
revenue fluctuates
based on
the type
and volume
of transactions
performed
by the
customer.
Revenue is
recognized
on
the
completion
of
the
processed
transaction.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-19
2.
SIGNIFICANT
ACCOUNTING
POLICIES
(continued)
Revenue recognition (continued)
Nature of products and services (continued)
Account holder fees
The Company
provides bank accounts
to customers
and this service
is underwritten
by a regulated
banking institution
because
the Company is
not a bank. The
Company charges its
customers a fixed
monthly bank account
administration fee for
all active bank
accounts regardless of
whether the account
holder has transacted
or not.
The Company recognizes
account holder fees
on a monthly
basis on all active bank accounts. Revenue from account holder’s
fees fluctuates based on the number of active bank accounts.
Lending revenue
The Company
provides short-term
loans to customers
in South Africa
and charges
up-front initiation fees
and monthly service
fees. Initiation fees are recognized
using the effective interest rate
method, which requires the utilization of
the rate of return implicit
in the loan,
that is, the
contractual interest
rate adjusted
for any
net deferred
loan fees or
costs, premium,
or discount
existing at the
origination or acquisition of the loan. Monthly service fee revenue is recognized under the contractual terms of the loan. The monthly
service fee amount is fixed upon initiation and does not change over the
term of the loan.
Technology
products
The Company supplies hardware and licenses for its customers to use the Company’s
technology. Hardware includes the sale of
POS devices, SIM cards and other consumables which can
occur on an ad hoc
basis. The Company recognizes revenue from hardware
at the transaction price specified
in the contract as the hardware is
delivered to the customer.
Licenses include the right to use
certain
technology developed by the Company and the associated revenue
is recognized ratably over the license period.
Insurance revenue
The Company writes
life insurance contracts, and
policy holders pay
the Company a
monthly insurance premium at
the beginning
of each month. Premium revenue
is recognized on a monthly basis net
of policy lapses. Policy lapses are provided
for on the basis of
expected non-payment of policy premiums.
Welfare
benefit distribution fees
The Company provided
a welfare benefits distribution
service in South Africa
to a customer under
a contract which expired
on
September
30,
2018.
The
Company
was
required
to
distribute
social
welfare
grants
to
identified
recipients
using
an
internally
developed
payment platform
at designated
distribution
points (pay
points) which
enabled the
recipients
to access
their grants.
The
contract specified a
fixed fee per
account for one
or more grants
received by a
recipient. The Company
recognized revenue for
each
grant recipient paid at the fixed fee.
Telecom
products and services
Through DNI, the Company entered into
contracts with mobile networks in
South Africa to distribute subscriber identity
modules
(“SIM”) cards on their behalf. The Company was entitled to receive consideration based on the activation of each SIM as well as from
a percentage of
the value loaded onto
each SIM. The Company
recognizes revenue from these
services once the
criteria specified for
activation had
been met
as well
as when
it was
entitled to
its consideration
related to
the value
loaded onto
the SIM.
Revenue from
contracts with
mobile networks
fluctuates based
on the
number of
SIMs activated
as well
as on
the value
loaded onto
the SIMs.
As
described in Note 23,
the Company disposed of its controlling interest in DNI on March 31, 2019.
The
Company
purchases
airtime
for
resale
to
customers.
The
Company
recognizes
revenue
as
the
airtime
is
delivered
to
the
customer.
Revenue
from
the
resale
of
airtime
to
customers
fluctuates
based
on
the
volume
of
airtime
sold.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-20
2.
SIGNIFICANT
ACCOUNTING
POLICIES
(continued)
Revenue recognition (continued)
Significant judgments and estimates
The Company was
subject to a
court process regarding
the determination of
the price to
be charged for
welfare benefit distribution
services provided
from April
1, 2018
to September
30, 2018.
In December
2018, the
Constitutional Court
of South
Africa clarified
that it was not required to ratify the price and stated that the parties should reach an agreement on the price, failing which they should
approach
the
lower
courts
in
South
Africa.
The
Company
had
initiated
discussions
with
SASSA,
but
the
parties
had
not
reached
agreement regarding the pricing for services provided through September 30, 2018. Management determined, under previous revenue
guidance, that
there was
no evidence
of an
arrangement at
a fixed
and determinable
price other
than that
noted in
the court
ordered
extension provided
in March
2018 and
did not
record any
additional revenue
related to
the services
provided from
April 1,
2018 to
June 30, 2018, and recorded revenue at the rate specified in the contract. Upon adoption of the new revenue guidance on July 1, 2018,
the Company determined that it was unable to estimate
the amount of revenue that it is entitled to receive
because no agreement with
SASSA had been
reached at
that date. Accordingly,
the Company did
not record any
additional revenue during
the year ended
June
30, 2020 and 2019,
respectively, related to the price
to be charged for
welfare benefit distribution services
provided through September
30, 2018. The Company recorded
revenue at the rate
specified in the contract.
The Company expected to
record any additional revenue
once there was agreement between the Company and SASSA on the fee.
However, agreement had not been reached by May 31, 2020,
and following
the deconsolidation of
CPS, refer to
Note 23, any
additional revenue earned
by CPS after
June 1, 2020,
would not be
included in the Company’s consolidated
financial statements and therefore this matter is no longer considered an area of judgment
.
Accounts Receivable, Contract Assets and Contract Liabilities
The
Company
recognizes
accounts
receivable
when
its
right
to
consideration
under
its
contracts
with
customers
becomes
unconditional. The Company has no contract assets or contract liabilities.
Research and development expenditure
Research and
development
expenditure is
charged to
net income
in the
period in
which it
is incurred.
During the
years ended
June 30, 2021,
2020 and 2019, the
Company incurred research
and development expenditures
of $
0.3
million, $
1.6
million and $
0.7
million, respectively.
Computer software development
Product
development
costs in
respect
of
software
intended
for
sale
to
licensees
are
expensed
as
incurred
until
technological
feasibility is attained.
Technological
feasibility is attained
when the Company’s
software has completed
system testing and has
been
determined to be viable for
its intended use. The time between
the attainment of technological feasibility
and completion of software
development is generally short with immaterial amounts of development
costs incurred during this period.
Costs in
respect of
the development
of software
for the
Company’s
internal use
are expensed
as incurred,
except to
the extent
that
these
costs
are
incurred
during
the
application
development
stage.
All
other
costs
including
those
incurred
in
the
project
development and post-implementation stages are expensed as incurred.
Income taxes
The
Company
provides
for
income taxes
using
the asset
and
liability
method.
This
approach recognizes
the amount
of taxes
payable
or
refundable
for
the
current
year,
as
well
as
deferred
tax
assets
and
liabilities
for
the
future
tax
consequence
of
events
recognized in the financial statements and tax returns. Deferred
income taxes are adjusted to reflect the effects of
changes in tax laws
or enacted tax rates.
The Company measured its South African
income taxes and deferred income taxes for
the years ended June 30, 2021, 2020 and
2019, using the enacted statutory tax rate in South Africa of
28
%.
In establishing the appropriate deferred tax asset valuation allowances, the Company assesses the realizability of its deferred tax
assets, and based on all available evidence, both
positive and negative, determines whether it is more likely than
not that the deferred
tax
assets
or
a
portion
thereof
will
be
realized.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-21
2.
SIGNIFICANT
ACCOUNTING
POLICIES
(continued)
Income taxes (continued)
Reserves for uncertain tax positions are recognized in the financial statements
for positions which are not considered more likely
than not
of being
sustained based
on the
technical merits
of the
position on
audit by
the tax
authorities. For
positions that
meet the
more
likely
than
not standard,
the measurement
of the
tax benefit
recognized
in the
financial statements
is based
upon
the largest
amount of tax benefit that, in management’s judgement, is greater than 50% likely of being realized
based on a cumulative probability
assessment
of
the
possible
outcomes.
The
Company’s
policy
is
to
include
interest
related
to
unrecognized
tax
benefits
in
interest
expense and penalties in selling, general and administration in the consolidated
statements of operations.
The Company has elected the period cost method
and records U.S. inclusions in taxable income related to
global intangible low
taxed income (“GILTI”)
as a current-period expense when incurred.
Stock-based compensation
Stock-based compensation represents the
cost related to
stock-based awards granted.
The Company measures
equity-based stock-
based compensation cost at
the grant date, based on
the estimated fair value of
the award, and recognizes the
cost as an expense on
a
straight-line basis (net of estimated forfeitures) over the requisite
service period. In respect of awards with only service
conditions that
have a graded
vesting schedule, the
Company recognizes compensation
cost on a straight-line
basis over the
requisite service period
for the
entire award.
The forfeiture
rate is
estimated using
historical trends
of the
number of
awards forfeited
prior to
vesting. The
expense is recorded in
the statement of operations and
classified based on the recipients’
respective functions. The Company
records
deferred tax
assets for awards
that result in
deductions on the
Company’s
income tax returns,
based on the
amount of compensation
cost recognized and the Company’s
statutory tax rate in the jurisdiction
in which it will receive a deduction.
Differences between the
deferred tax
assets recognized
for financial
reporting purposes
and the
actual tax
deduction reported
on the
Company’s
income tax
return are recorded in taxation expense in the statement of operations.
Equity instruments issued to third parties
Equity instruments issued
to third parties represents
the cost related to
equity instruments granted.
The Company measures this
cost at the grant date, based on the
estimated fair value of the award, and recognizes the cost as
an expense on a straight-line basis (net
of estimated forfeitures) over
the requisite service period. The
forfeiture rate is estimated based
on the Company’s
expectation of the
number of
awards that will
be forfeited
prior to vesting.
The Company
records deferred tax
assets for equity
instrument awards that
result
in
deductions
on
the
Company’s
income
tax
returns,
based
on
the
amount
of
equity
instrument
cost
recognized
and
the
Company’s
statutory
tax
rate
in
the
jurisdiction
in
which
it
will
receive
a
deduction.
Differences
between
the
deferred
tax
assets
recognized for financial reporting purposes and the actual tax deduction reported on the Company’s
income tax return are recorded in
the statement of operations.
Settlement assets and settlement obligations
Settlement assets comprise (1) cash received from credit card
companies (as well as other types of
payment services) which have
business relationships
with merchants
selling goo
ds and
services via
the internet
that are
the Company’s
customers
and
on whose
behalf it
processes the
transactions between
various parties,
(2),
up until
the sale
of FIHRST,
refer to
Note 23,
cash received
from
customers on whose behalf the Company processes payroll payments that the Company will disburse to
customer employees, payroll-
related payees and other payees designated by the
customer, and (3),
up until the expiration of the SASSA contract on September 30,
2018, cash
received from
the South
African government
that the
Company holds
pending disbursement
to recipient
cardholders of
social welfare grants.
Settlement obligations comprise (1)
amounts that the Company
is obligated to disburse
to merchants selling goods
and services
via the internet that are the
Company’s customers and on whose behalf it processes the
transactions between various parties and settles
the funds
from the credit
card companies
to the
Company’s
merchant customers,
(2), up until
the sale of
FIHRST,
amounts that
the
Company
is obligated to pay to customer employees, payroll-related payees and other payees designated
by the customer, and (3), up
until the
expiration of
the SASSA
contract on
September
30, 2018,
amounts that
the Company
is obligated
to disburse
to recipient
cardholders of social welfare grants.
The balances
at each reporting
date may vary
widely depending on
the timing of
the receipts and
payments of these
assets and
obligations.
Recent accounting pronouncements adopted
There
were
no
new
accounting
pronouncements
adopted
by
the
Company
during
the
year
ended
June
30,
2021.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-22
2.
SIGNIFICANT
ACCOUNTING
POLICIES
(continued)
Recent accounting pronouncements not yet adopted
as of June 30, 2021
In June 2016, the Financial Accounting Standards Board (“FASB”) issued guidance regarding
Measurement of Credit Losses on
Financial Instruments
. The guidance
replaces the
incurred loss impairment
methodology in
current GAAP
with a methodology
that
reflects expected credit losses and
requires consideration of a
broader range of reasonable and
supportable information to inform credit
loss estimates. For
trade and
other receivables,
loans, and
other financial
instruments, an entity
is required
to use a
forward-looking
expected loss
model rather
than the incurred
loss model for
recognizing credit
losses, which reflects
losses that are
probable. Credit
losses relating to available
for sale debt
securities will also be
recorded through an allowance
for credit losses rather
than as a
reduction
in the
amortized
cost basis
of the
securities. This
guidance is
effective
for the
Company beginning
July 1,
2023.
The Company
is
currently assessing the
impact of this
guidance on its
financial statements and
related disclosures, but
does not expect
the impact on
its financial results to be material.
In August 2018, the FASB issued guidance
regarding
Disclosure Framework: Changes to the Disclosure Requirements
for Fair
Value
Measurement.
The guidance modifies the disclosure requirements related to fair value measurement. This guidance is effective
for the Company beginning July 1, 2021. Early adoption is permitted. The Company is currently assessing the impact of this
guidance
on its financial statement’s disclosure.
In November
2019,
the FASB
issued guidance
regarding
Financial
Instruments—Credit
Losses (Topic
326),
Derivatives and
Hedging
(Topic
815),
and
Leases
(Topic
842).
The
guidance
provides
a
framework
to
stagger
effective
dates
for
future
major
accounting
standards
and
amends
the
effective
dates
for
certain
major
new
accounting
standards
to
give
implementation
relief
to
certain types
of entities,
including Smaller
Reporting Companies.
The Company
is a Smaller
Reporting Company.
Specifically,
the
guidance changes some effective
dates for certain
new standards on
the following topics
in the FASB Codification, namely Derivatives
and Hedging
(ASC 815);
Leases (ASC
842); Financial
Instruments —
Credit Losses
(ASC 326);
and Intangibles
— Goodwill
and
Other
(ASC
350).
The
guidance
defers
the
adoption
date
of
guidance
regarding
Measurement
of
Credit
Losses
on
Financial
Instruments
by the Company
from July 1,
2020 to July 1,
2023, and defers
the adoption guidance
regarding
Disclosure Framework:
Changes to the Disclosure Requirements
for Fair Value
Measurement
by the Company from July 1, 2020 to July 1, 2021.
In January 2020, the FASB issued guidance regarding
Clarifying the Interactions Between Topic 321, Topic
323, and Topic 815.
The guidance
clarifies that an
entity should
consider observable
transactions that
require an
entity to either
apply or
discontinue the
equity
method
of
accounting
for
the
purposes
of
applying
the
measurement
alternative
in
accordance
with
U.S
GAAP
guidance
immediately
before
applying
or
upon
discontinuing
the
equity
method.
The
guidance
also
clarifies
that,
when
determining
the
accounting for certain forward
contracts and purchased options an
entity should not consider,
whether upon settlement or exercise,
if
the
underlying
securities
would
be
accounted
for
under
the equity
method
or
fair
value
option.
This
guidance
is
effective
for
the
Company beginning July 1, 2021. Early
adoption is permitted. The Company is currently assessing the
impact of this guidance on its
financial statement’s disclosure.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-23
3.
ACCOUNTS RECEIVABLE,
net AND OTHER RECEIVABLES
and FINANCE LOANS RECEIVABLE,
net
Accounts receivable, net and other receivables
The Company’s
accounts receivable,
net, and other
receivables as of
June 30,
2021, and June
30, 2020,
are presented in
the
table below:
June 30,
June 30,
2021
2020
Accounts receivable, trade, net
$
10,493
$
8,458
Accounts receivable, trade, gross
10,760
8,711
Allowance for doubtful accounts receivable, end of period
267
253
Beginning of period
253
661
Reversed to statement of operations
(183)
(155)
Charged to statement of operations
233
181
Utilized
(59)
(151)
Deconsolidation
-
(178)
Foreign currency adjustment
23
(105)
Current portion of amount outstanding related to sale of interest in Bank Frick
(Note 8)
7,500
-
Loans provided to Carbon, net of allowance: 2021: $
3,000
; 2020: $
-
-
3,000
Taxes refundable
related to sale of Net1 Korea (Note 23)
-
19,796
Loan provided to DNI
-
2,756
Other receivables
8,590
9,058
Total accounts receivable,
net
$
26,583
$
43,068
Accounts receivable,
trade, gross
includes amounts
due from
customers from
the provision
of transaction
processing services,
from the
sale of hardware,
software licenses and
SIM cards and
rentals from POS
equipment. The
Company did not
record any bad
debt expense during the
year ended June 30,
2021 and 2020, respectively
and bad debts incurred
were written off against the
allowance
for doubtful accounts receivable.
Current portion
of amount
outstanding related
to sale
of interest
in Bank
Frick represents
the amount
due by
the purchaser
in
October 2021 related to the sale of Bank Frick, refer to Note 8 for additional information
regarding the sale.
Taxes
refundable related to
sale of Net1 Korea
relates to the disposal
of KSNET as discussed
in Note 23 and
the entire amount
outstanding, or approximately $
20.1
million (KRW
23.8
billion), was received in September 2020.
The
current
portion
of
amount
outstanding
related
to
sale
of
remaining
interest
in
DNI
as
of
June
30,
2020,
relates
to
the
transaction completed in
April 2020 (refer
to Note 8). On
October 26, 2020, DNI
settled the full
amount outstanding of
$
5.7
million
related to
the sale
of the
remaining interest
in DNI,
including the
amounts included
in other
long-term assets,
refer to
Note 6.
The
Company received $
0.3
million on September 30, 2020, for total receipts of $
6.0
million.
The loan 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 new
repayment terms
as of
June 30,
2021. However,
the Company acknowledges
the unexpected and
ongoing challenges
facing Carbon and
determined in June
2021 to
create an allowance for doubtful loans receivable due to these circumstances
and ongoing consolidated losses incurred by Carbon.
Other
receivables
include
prepayments,
deposits
,
income
taxes
receivable
and
other
receivables.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-24
3.
ACCOUNTS
RECEIVABLE,
net
an
d
OTHER
RECEIVABLES
and
FINANCE
LOANS
RECEIVABLE,
net
(continued)
Finance loans receivable, net
The Company’s finance
loans receivable, net, as of June 30, 2021, and June 30, 2020, is presented in the table
below:
June 30,
June 30,
2021
2020
Microlending finance loans receivable, net
$
21,142
$
15,879
Microlending finance loans receivable, gross
23,491
17,737
Allowance for doubtful finance loans receivable, end of period
2,349
1,858
Beginning of period
1,858
3,199
Reversed to statement of operations
(1,004)
(492)
Charged to statement of operations
2,060
1,211
Utilized
(967)
(1,451)
Foreign currency adjustment
402
(609)
Working
capital finance loans receivable, net
-
-
Working
capital finance loans receivable, gross
-
5,800
Allowance for doubtful finance loans receivable, end of period
-
5,800
Beginning of period
5,800
5,800
Utilized
(5,800)
-
Total accounts receivable,
net
$
21,142
$
15,879
Total
finance
loans
receivable,
net,
comprises
microlending
finance
loans
receivable
related
to
the
Company’s
microlending
operations in South Africa.
Gross microlending finance loans receivable as of June 30, 2021, was
higher than as of June 30, 2020,
partially due to the impact
of COVID-19 on the Company’s
microlending business in 2020.
The Company was unable to originate loans in April and
early May
2020, and therefore the lending book
reduced significantly as customers made
scheduled repayments. South Africa was placed
under
an adjusted Level 4 lockdown towards the end of June 2021, due to an increase in COVID-19 infections, however, this did not impact
the gross lending book for June 2021 because the majority of loan originations
are made within the first two weeks of a month.
The
Company
created
an allowance
for
doubtful
working
capital finance
loans
receivable related
to
a
receivable
due from
a
customer based
in the
United States
during the
year ended
June 30,
2018. The
Company commenced
legal proceedings
against the
customer in 2018.
The customer is
engaged in bankruptcy
proceedings. In December
2020, the Company
withdrew its claim
lodged
in the bankruptcy
proceedings because it
did not believe
it would recover
the receivable via
these proceedings, or
via any other
process.
In
December
2020,
the
Company
utilized
the
entire
allowance
for
doubtful
working
capital
finance
loans
receivable
against
the
outstanding receivable.
4.
INVENTORY
The Company’s inventory
comprised the following categories as of June 30, 2021, and 2020.
June 30,
June 30,
2021
2020
Finished goods
$
22,361
$
15,618
Finished goods subject to sale restrictions
-
4,242
$
22,361
$
19,860
Finished goods subject to sale
restrictions represents airtime inventory
purchased in March 2020, that
could only be sold by the
Company from October 1, 2020. As of June 30, 2021, finished goods includes $
16.5
million of airtime inventory that was previously
classified
as
finished
goods
subject
to
sale
restr
ictions
.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-25
4.
INVENTORY
(continued)
In support of Cell C’s liquidity position, the Company has limited the resale of this airtime through its distribution channels
until
such time as
Cell C’s
recapitalisation process
is concluded. In
light of the
dynamics in
the wholesale
airtime inventory
market as of
June
30,
2020,
the
Company
believed
the
net
realizable
value
of
certain
airtime
inventory
held
as
of
June
30,
2020,
measured
at
amounts reflecting
existing market conditions,
was below its cost.
Accordingly,
the Company recorded
a loss of $
1.3
million during
the year
ended June
30, 2020, related
to this airtime
inventory.
The Company
believes that
these market
dynamics in
the wholesale
airtime inventory market continue as of June 30, 2021, but no further
adjustment is necessary.
5.
FAIR
VALUE
OF
FINANCIAL
INSTRUMENTS
Fair value of financial instruments
Initial recognition and measurement
Financial instruments
are recognized
when the
Company becomes
a party
to the
transaction. Initial
measurements are
at cost,
which includes transaction costs.
Risk management
The Company
manages its
exposure to
currency exchange,
translation, interest
rate, customer
concentration, credit
and equity
price and liquidity risks as discussed below.
Currency exchange risk
The Company is subject to currency exchange
risk because it purchases inventories that it
is required to settle in
other currencies,
primarily
the euro
and U.S.
dollar.
The Company
has used
forward
contracts in
order to
limit its
exposure
in these
transactions
to
fluctuations in exchange rates between the
South African rand (“ZAR”), on
the one hand, and the
U.S. dollar and the euro,
on the other
hand.
Translation risk
Translation risk relates to
the risk that
the Company’s results of operations
will vary significantly
as the U.S.
dollar is its
reporting
currency, but it earns a significant amount of its revenues and incurs a significant amount of its expenses in ZAR and,
prior to the sale
of its Korean
business, in Korean
won (“KRW”). The U.S.
dollar to both
the ZAR and
KRW exchange rates has
fluctuated significantly
over the past
three years. The
Company’s
translation risk exposure
to KRW
was eliminated following
the disposal of
Net1 Korea in
March
2020,
refer
to
Note
23,
and
receipt
of
all
cash
outstanding
related
to
the
transaction.
As
exchange
rates
are
outside
the
Company’s
control, there
can be no
assurance that
future fluctuations
will not
adversely affect
the Company’s
results of
operations
and financial condition.
Interest rate risk
As a result of its
normal borrowing activities, the Company’s operating results are exposed to fluctuations in
interest rates, which
it manages primarily through regular financing activities. The Company generally maintains investments in cash equivalents and held
to maturity investments and has occasionally invested in marketable
securities.
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
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.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-26
5.
FAIR
VALUE
OF
FINANCIAL
INSTRUMENTS
(continued)
Risk management (continued)
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 traded price, or
at all.
Financial instruments
Fair value
is defined
as the price
that would
be received
upon sale
of an
asset or
paid upon
transfer of
a liability
in an orderly
transaction between
market participants
at the
measurement date
and in
the principal
or most
advantageous market
for that
asset or
liability. The
fair value should be calculated
based on assumptions that market
participants would use in pricing
the asset or liability,
not on assumptions specific to the entity. In addition, the fair value of liabilities should include consideration of non-performance risk
including the Company’s own credit
risk.
Fair value measurements and inputs are categorized into a
fair value hierarchy which prioritizes the inputs into
three levels based
on the
extent to
which inputs used
in measuring
fair value
are observable
in the
market. Each fair
value measurement
is reported in
one of the three levels which is determined by the lowest level input that is significant
to the fair value measurement in its entirety.
These levels are:
●
Level 1 – inputs are based upon unadjusted quoted prices for identical instruments
traded in active markets.
●
Level 2 – inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar
instruments in
markets that
are not
active, and
model-based valuation
techniques for
which all
significant assumptions
are
observable
in the
market or
can be
corroborated
by observable
market
data for
substantially the
full term
of the
assets or
liabilities.
●
Level
3
–
inputs
are
generally
unobservable
and
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.
The following
section describes
the valuation
methodologies the
Company uses
to measure
its significant
financial assets
and
liabilities
at
fair
value.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-27
5.
FAIR
VALUE
OF
FINANCIAL
INSTRUMENTS
(continued)
Financial instruments (continued)
Asset measured at fair value using significant unobservable inputs – investment
in Cell C
The Company’s Level
3 asset represents an
investment of
75,000,000
class “A” shares in
Cell C, a significant
mobile telecoms
provider in South Africa. The Company used a discounted cash flow model developed
by the Company to determine the fair value of
its investment
in Cell
C as
of June
30, 2021
and 2020,
and valued
Cell C
at $
0.0
(zero) at
June 30,
2021 and
2020. The
Company
believes the Cell C business plan utilized in
the Company’s valuation is reasonable based on the current performance and
the expected
changes in
Cell C’s
business model.
The Company
changed certain
valuation assumptions
when preparing
the December
31, 2020,
valuation compared with the June 30, 2020, valuation, and these updated assumptions have been used for the June 30, 2021 valuatio
n
as well. Similar to the approach taken for December 31, 2020, the June 30, 2021, valuation incorporated the payments under the lease
liabilities into the cash flow forecasts instead of including the carrying value in net debt and assumed that the
deferred tax asset would
be utilized over the forecast period instead of including the fair value of the deferred
tax asset in the valuation. For the June 30, 2020,
valuation, the Company
included the carrying
value of the lease
liabilities within net
debt and included
the fair value of
the deferred
tax asset
in the
valuation.
The Company
utilized the
latest approve
d
business plan
provided by
Cell C
management for
the period
ended December 31, 2025, for the June 30, 2021,
valuation and the period ended December 31, 2024 for the June 30, 2020 valuation.
The following key valuation inputs were used as of June 30, 2021 and 2020:
Weighted Average
Cost of Capital ("WACC"):
Between
16
% and
24
% over the period of the forecast
Long-term growth rate:
3
% (
3
% as of June 30, 2020)
Marketability discount:
10
%
Minority discount:
15
%
Net adjusted external debt - June 30, 2021:
(1)
ZAR
11.2
billion ($
0.8
billion), no lease liabilities included
Net adjusted external debt - June 30, 2020:
(2)
ZAR
15.8
billion ($
0.9
billion), includes ZAR
4.4
billion of lease liabilities
Deferred tax (incl, assessed tax losses) - June 30,
2020:
(2)
ZAR
2.9
billion ($
167.3
million)
(1) translated from ZAR to U.S. dollars at exchange rates applicable as of
June 30, 2021.
(2) translated from ZAR to U.S. dollars at exchange rates applicable as of
June 30, 2020.
The fair value
of Cell C
as of June
30, 2021,
utilizing the discounted
cash flow valuation
model developed
by the Company
is
sensitive to the following inputs: (i) the ability of Cell C
to achieve the forecasts in their business case; (ii) the weighted
average cost
of capital
(“WACC”)
rate used;
and (iii)
the minority
and marketability
discount used.
Utilization of
different inputs,
or changes
to
these inputs, may result in a significantly higher or lower fair value measurement.
The following table presents the impact on the carrying
value of the Company’s Cell C investment
of a
3.0
% increase and
2.0
%
decrease in the WACC rate and the
EBITDA margins used in
the Cell C valuation
on June 30, 2021,
all amounts translated at
exchange
rates applicable as of June 30, 2021:
Sensitivity for fair value of Cell C investment
3.0% increase
(A)
2.0% decrease
(A)
WACC
rate
$
-
$
3,055
EBITDA margin
$
4,873
$
-
(A) the carrying value of
the Cell C investment is not
impacted by a
1.0
% increase or a
1.0
% decrease and therefore
the impact
of a
3.0
% increase and a
2.0
% decrease is presented.
The fair value of
the Cell C shares as
of June 30, 2021,
represented approximately
0
% of the Company’s
total assets, including
these shares. The Company
expects to hold these
shares for an extended
period of time and
that there will be
short-term equity price
volatility
with
respect
to
these
shares
particularly
given
the
current
situation
of
Cell
C’s
business.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-28
5.
FAIR
VALUE
OF
FINANCIAL
INSTRUMENTS
(continued)
Financial instruments (continued)
Liability measured at fair value using significant unobservable inputs – DNI contingent
consideration
The salient terms
of the Company’s
investment in DNI
is described in
Note 23.
Under the terms of
its subscription agreements
with DNI, the Company agreed to pay to DNI an additional amount of up to
ZAR
400.0
million ($
27.6
million, translated at exchange
rates applicable as
of June
30, 2019),
in cash,
subject to the
achievement of certain
performance targets by
DNI. The Company
expected
to pay the additional
amount during the first
quarter of the year
ended June 30, 2020,
and recorded an amount
of ZAR
373.6
million
($
27.2
million), in long-term liabilities as of
June 30, 2018, which amount
represented the present value of
the ZAR 400.0 million to
be paid (amounts
translated at the exchange
rate applicable as of
June 30, 2018, respectively).
As described in Note
23 and Note 19,
the Company settled the ZAR
400
million ($
27.6
million) due to DNI as of March 31, 2019. The Company recorded accreted interest
during the year ended June 30, 2019, of
$
1.8
million (ZAR
26.4
million, translated at the applicable average exchange rates during the
periods specified).
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’s outstanding
foreign exchange contracts are as follows:
As of June 30, 2021
Notional amount ('000)
Strike price
Fair market
Maturity
EUR
5.7
USD
1.1911
USD
1.1859
July 02, 2021
The Company had
no
outstanding foreign exchange contracts as of June 30, 2020.
The following table presents the
Company’s assets measured
at fair value on a recurring basis as of
June 30, 2021, 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
$
-
$
-
$
-
$
-
Related to insurance business:
Cash, cash equivalents and
restricted cash (included in other
long-term assets)
381
-
-
381
Fixed maturity investments
(included in cash and cash
equivalents)
3,158
-
-
3,158
Total assets at fair value
$
3,539
$
-
$
-
$
3,539
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-29
5.
FAIR
VALUE
OF
FINANCIAL
INSTRUMENTS
(continued)
Financial instruments (continued)
The following table presents the
Company’s assets measured
at fair value on a recurring basis as of
June 30, 2020, according to
the fair value hierarchy:
Quoted Price in
Active Markets
for Identical
Assets
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Assets
Investment in Cell C
$
-
$
-
$
-
$
-
Related to insurance business
Cash and cash equivalents
(included in other long-term
assets)
490
-
-
490
Fixed maturity investments
(included in cash and cash
equivalents)
4,198
-
-
4,198
Total assets at fair value
$
4,688
$
-
$
-
$
4,688
There have been no transfers in or out of Level 3 during the years ended June
30, 2021, 2020 and 2019,
respectively.
There was
no
movement in the carrying value of assets measured at fair value on a recurring basis, and categorized within Level
3, during the years ended June 30, 2021 and
2020. Summarized below is the movement in the
carrying value of assets measured at fair
value on a recurring basis, and categorized within Level 3, during the year
ended June 30, 2021:
Carrying value
Assets
Balance as of June 30, 2020
$
-
Foreign currency adjustment
(1)
-
Balance as of June 30, 2021
$
-
(1) The
foreign currency
adjustment represents
the effects
of the
fluctuations of
the South
African rand
and the U.S.
dollar on
the carrying value.
Summarized below is the movement in the carrying value of
assets and liabilities measured at fair value on a recurring basis,
and
categorized within Level 3, during the year ended June 30, 2020:
Carrying value
Assets
Balance as at June 30, 2019
$
-
Foreign currency adjustment
(1)
-
Balance as of June 30, 2020
$
-
(1) The
foreign currency
adjustment represents
the effects
of the
fluctuations of
the South
African rand
and the U.S.
dollar on
the carrying value.
Trade, finance loans and other receivables
Trade,
finance loans
and other
receivables originated
by the
Company
are stated
at cost
less allowance
for doubtful
accounts
receivable. The fair value
of trade, finance loans
and other receivables approximates their
carrying value due to
their short-term nature.
Trade and other payables
The
fair
values
of
trade
and
other
payables
approximates
their
carrying
amounts,
due
to
their
short
-
term
nature.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-30
5.
FAIR
VALUE
OF
FINANCIAL
INSTRUMENTS
(continued)
Financial instruments (continued)
Assets and liabilities 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
8
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.
6.
PROPERTY,
PLANT
AND
EQUIPMENT,
net
Summarized below
is the cost,
accumulated depreciation
and carrying amount
of property,
plant and
equipment as of
June 30,
2021 and 2020:
June 30,
June 30,
2021
2020
Cost
Computer equipment
$
33,476
$
26,575
Furniture and office equipment
7,492
7,732
Motor vehicles
5,059
1,873
$
46,027
$
36,180
Accumulated depreciation:
Computer equipment
29,662
22,810
Furniture and office equipment
6,587
5,101
Motor vehicles
2,286
1,613
$
38,535
$
29,524
Carrying amount:
Computer equipment
3,814
3,765
Furniture and office equipment
905
2,631
Motor vehicles
2,773
260
$
7,492
$
6,656
7
.
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 and, until
its closure, its
transaction processing
activities in Malta.
The Company’s
operating leases have
a remaining lease
term of between
one year
to
six years
. The Company’s
lease of property
in
Malta included
five
separate
one year
options to extend the lease, which
effectively extended the lease
term from
three years
to
eight
years
. At lease inception,
the Company expected
to exercise these options
and these options
were included as
part of its right-of-use
assets and liabilities. The
Company has exited this
lease following the closure
of its Malta operations during
the year ended June
30,
2021. 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
the years
ended
June 30,
2021 and
2020, was
$
4.1
million
and $
3.6
million,
respectively.
The Company does not have any significant leases that have not commenced as of
June 30, 2021.
The Company
has 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 years
ended June
30,
2021
and
20
20
,
was
$
4.1
million
and
$
4.2
million
,
respectively
.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-31
7
.
LEASES
(continued)
The following
table presents
supplemental
balance sheet
disclosure related
to our
right-of-use assets
and our
operating leases
liabilities as of June 30, 2021 and 2020:
June 30,
June 30,
2021
2020
Right-of-use assets obtained in exchange for lease obligations
Weighted average
remaining lease term (years)
2.77
3.94
Weighted average
discount rate
9.6
%
9.3
%
Maturities of operating lease liabilities
2022
$
3,117
2023
1,278
2024
592
2025
200
2026
-
Thereafter
-
Total undiscounted
operating lease liabilities
5,187
Less imputed interest
475
Total operating lease liabilities,
included in
4,712
Operating lease right-of-use lease liability - current
2,822
Right-of-use operating lease liability - long-term
$
1,890
Operating lease payments related to premises and equipment were $
10.6
million for the year ended June 30, 2019.
8
.
EQUITY
-
ACCOUNTED
INVESTMENTS
AND
OTHER
LONG
-
TERM
ASSETS
Equity-accounted investments
The Company’s ownership
percentage in its equity-accounted investments as of June 30, 2021 and 2020, was as follows:
June 30,
June 30,
2021
2020
Finbond Group Limited (“Finbond”)
31
%
31
%
Carbon Tech Limited
(“Carbon”), formerly OneFi Limited
25
%
25
%
SmartSwitch Namibia (Pty) Ltd (“SmartSwitch Namibia”)
50
%
50
%
Revix (“Revix”)
15
%
25
%
Bank Frick & Co AG (“Bank Frick”)
-
35
%
V2 Limited (“V2”)
-
50
%
Walletdoc Proprietary
Limited (“Walletdoc”)
-
20
%
Finbond
As of June 30, 2021,
the Company owned
268,820,933
shares in Finbond representing approximately
31.47
% of its issued and
outstanding ordinary
shares. Finbond
is listed
on the
Johannesburg
Stock Exchange
and its
closing price
on June
30, 2021,
the last
trading day
of the
month, was
ZAR
1.59
per share.
The market
value of
the Company’s
holding in
Finbond on
June 30,
2021, was
ZAR
427.4
million ($
29.9
million translated at
exchange rates applicable
as of June 30,
2021). On or about
March 9, 2020,
Finbond
repurchased
47
million of
its shares
for ZAR
2.91123
per share,
or a
total consideration
of ZAR
136.8
million, in
cash, from
other
Finbond shareholders
which resulted
in an
increase in
the Company’s
shareholding in
Finbond. On
August 2,
2019, the
Company,
pursuant to its election, received an additional
1,148,901
shares in Finbond as a capitalization share issue in lieu of a dividend.
Finbond published its
half-year results to
August 2020 in
October 2020, which
included the financial
impact of the
COVID-19
pandemic
on
its reported
results during
that
reporting
period.
Finbond
incurred
losses during
the
six
months
to
August 2020,
and
experienced a slow-down in
its lending activities. Finbond reported
that its lending activities 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)
to September
30, 2020, and
the weakness
in its
traded share
price continued
post September
30,
2020.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-32
8.
EQUITY
-
ACCOUNTED
INVESTMENTS
AND
OTHER
LONG
-
TERM
ASSETS
(continued)
Equity-accounted investments (continued)
Finbond
The
Company
considered
the
combination
of
the
slow-down
in
business
activity
and
the
lower
share
price
as
impairment
indicators. The
Company performed
an impairment
assessment of
its holding
in Finbond
as of
September 30,
2020. The
Company
recorded
an
impairment
loss
of
$
16.8
million
during
the
quarter
ended
September
30,
2020,
related
to
the
other-than-temporary
decrease in Finbond’s value, which represented the difference between the
determined fair value of the
Company’s interest in Finbond
and the Company’s carrying value (before
the impairment). There is limited trading in Finbond shares on the JSE because it has
three
shareholders that
own approximately
90
% of
its issued
and outstanding
shares between
them. The
Company calculated
a fair
value
per share for Finbond by applying a liquidity discount of
15
% to the September 30, 2020, Finbond closing price of ZAR
1.04
.
The Company performed a
further impairment assessment of
its holding in
Finbond as of
December 31, 2020, following
a modest
further decline
in its
market price
during the
quarter ended December
31, 2020.
The Company
recorded an
impairment loss
of $
0.8
million
during
the
quarter
ended
December
31,
2020,
related
to
the
other-than-temporary
decrease
in
Finbond’s
value,
which
represented the difference between the determined fair value of the Company’s interest in Finbond and the Company’s
carrying value
(before the
impairment). The
Company calculated
a fair
value per
share for
Finbond by
applying a
liquidity discount
of
15
% to the
December 31,
2020, Finbond
closing price
of ZAR
0.99
. The
total impairment
charge for
the year
ended June
30, 2021,
was $
17.7
million.
Bank Frick
On February 3, 2021,
the Company, through its wholly-owned subsidiary, Net1 Holdings LI AG
(“Net1 LI”), entered into
a share
sales agreement
with the Frick
Family Foundation
(“KFS”) to sell
its entire interest,
or
35
%, in Bank
Frick to KFS
for $
30
million.
Net1 and certain entities within
the IPG group also entered
into an indemnity and release
agreement with KFS and Bank
Frick under
which
the
parties
agreed
to
terminate
all
existing
arrangements
with
Bank
Frick
and
settle all
liabilities
related
to
the
Company’s
activities with Bank Frick
through the payment of
$
3.6
million to KFS. The Company
received $
15.0
million, net, on closing, which
comprised $
18.6
million less the
$
3.6
million due to
KFS to terminate
all existing arrangements
with Bank Frick
and settle all
liabilities
related to IPG’s
activities with Bank
Frick. The Company included
the $
18.6
million within cash flows
from investing activities and
the $
3.6
million within
cash flows from
operating activities
in the
consolidated statement
of cash
flows for
the year
ended June 30,
2021. The outstanding balance due by KFS is expected
to be paid as follows: (i) $
7.5
million on October 30, 2021, which is included
in the caption accounts receivable, net and other receivables in the Company’s consolidated balance sheet as of June 30,
2021, and (ii)
the remaining amount, of $
3.9
million on July 15, 2022, which is included in the caption other long-term assets, including reinsurance
assets in
the Company’s
consolidated
balance sheet
as of
June 30,
2021. The
parties entered
into a
security
and pledge
agreement
under which KFS pledged the Bank Frick shares purchased as security for
the amounts outstanding under the share sales agreement.
The Company incurred transaction costs of approximately $
0.04
million.
The following table presents the calculation of the loss on disposal of Bank Frick
on February 3, 2021:
February 3,
2021
Loss on sale of Bank Frick:
Consideration received in cash on February 3, 2021
$
18,600
Consideration received with note on February 3, 2021, refer to (Note 3) and
other long-term assets below
11,400
Less: transaction costs
(42)
Less: carrying value of Bank Frick
(32,892)
Add: release of foreign currency translation reserve from accumulated other
comprehensive loss
2,462
Loss on sale of Bank Frick
(1)
$
(472)
(1)
The Company does not
expect to pay taxes related
to the sale of Bank
Frick because the base
cost of its investment
exceeds
the sales consideration received. The Company does not
believe that it will be able
to utilize any capital loss, if
any, generated because
Net1
LI
does
not
own
any
other
capital
assets.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-33
8.
EQUITY
-
ACCOUNTED
INVESTMENTS
AND
OTHER
LONG
-
TERM
ASSETS
(continued)
Equity-accounted investments (continued)
Bank Frick
Payment of option termination fee in April 2020
On October 2, 2019, the Company exercised its option to
acquire an additional
35
% interest in Bank Frick from the
Frick Family
Foundation. The
Company had
agreed to
pay an
amount, the
“Option Price
Consideration”, for
an additional
35
% interest
in Bank
Frick, which represented the higher of CHF
46.4
million ($
46.5
million at exchange rates on October 2, 2019) or
35
% of 15 times the
average
annual
normalized
net
income
of
the
Bank
over
the
two
years
ended
December
31,
2018.
The
shares
would
have
only
transferred on payment
of the Option
Price Consideration,
which was expected
to occur on
the later of
(i) 180 days
after the date
of
exercise
of
the
option;
(ii)
in
the
event
of
any
regulatory
approvals
being
required,
10
days
after
receipt
of
approval
(either
unconditionally or on
terms acceptable to
both parties); and (iii)
10 days after
the date on which
the Option Price
Consideration was
agreed or
finally determined.
On April
9, 2020,
the Company,
through its
wholly owned
subsidiary,
Net1 Holdings
LI AG,
entered
into a termination agreement
pursuant to which the
option to acquire a
further
35
% of Bank Frick was
cancelled. On April 15,
2020,
the Company paid a termination fee of CHF
17.0
million ($
17.5
million) to the Frick Family to cancel the option.
Bank Frick impairment recorded
during the year ended June 30, 2020
The Company
considered the
termination of
the exercise
of the
option to
acquire a
further
35
% of
Bank Frick
an impairment
indicator. The
Company recorded an impairment loss
of $
18.3
million during the quarter ended
March 31, 2020, related to the other-
than-temporary decrease in Bank Frick’s value, which represented the difference between the determined fair value of the Company’s
interest
in
Bank
Frick
and
the
Company
carrying
value
(before
the
impairment).
The
Company,
with
the
assistance
of
external
consultants,
considered
a
multiple
based
valuation
approach
in
respect
of
the
March
31,
2020
balance
sheet
date. The
Company
believes that
a price
to book
methodology
is the
most appropriate
for a
valuing a
bank, but
also took
into account
a price
earnings
approach to support the primary methodology. An appropriate peer group was selected based on the activities of Bank Frick and, after
applying a
regression analysis
to compensate
for differences
in the
return on
equity in
the peer
group, a
price to
book ratio
of
1.15
times was determined, but
the multiple ranged from
0.7
times to
4.7
times. The Company determined
to use a price to
book multiple
of approximately
0.9
times to value its investment in Bank Frick
as of March 31, 2020. The Company used a
multiple at the lower end
of the
peer group
range as
a result
of Bank
Frick’s
size (based
on net
asset value)
and product
mix relative
to the
peer group.
The
Company’s
35
% portion
of approximately
0.9
times Bank
Frick’s
March 31,
2020, net
asset value
was lower
than the
Company’s
carrying value in Bank Frick as of March 31, 2020. On April 13,
2020, the Company received a cash dividend of approximately CHF
1.3
million ($
1.3
million).
V2 Limited
In August
2019, the Company
made a further
equity contribution
of $
1.3
million to V2
Limited (“V2”)
and in January
2020 it
made its final committed equity
contribution of $
1.3
million bringing the total
equity contribution to $
5.0
million. For its
quarter ended
March 2020,
the Company recorded
an impairment loss
of $
2.5
million, related
to the other-than-temporary
decrease in V2’s
value.
The Company believed
that V2’s
March 2020 net
asset value represented
its fair value
because it did
not have supportable
forecasts
available
at
that
time
to
apply
other
valuation
models,
including
a
discounted
cash
flow.
The
carrying
value
of
the
Company’s
investment in V2 (before the impairment) was higher than its portion of V2’s
net asset value and therefore the Company recorded the
impairment loss. In December
2020, the Company no
longer expected to recover its
carrying value in V2 and
impaired its remaining
interest in
V2, recording
an impairment
loss of
$
0.5
million during
the nine
months ended
March 31,
2021. The
Company sold
its
investment in V2 on April 22, 2021, for
one
dollar.
The
Company
had
also
committed
to
provide
V2
with
a
working
capital
facility
of
$
5.0
million,
which
was
subject
to
the
achievement of certain pre-defined objectives, and in June 2020 it provided $
0.5
million to V2 under this facility. In September 2020,
the Company and
V2 agreed to reduce
the $
5.0
million working capital
facility to $
1.5
million. In October
2020, V2 drew down
the
remaining available $
1.0
million of the working
capital facility.
The Company created
an allowance for
doubtful loans receivable
of
$
1.5
million
during
the
year
ended
June
30,
2021,
related
to
the
full
amount
outsta
nding
as
of
June
30,
2021.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-34
8.
EQUITY
-
ACCOUNTED
INVESTMENTS
AND
OTHER
LONG
-
TERM
ASSETS
(continued)
Equity-accounted investments (continued)
Carbon
The Company recorded
an impairment loss
of $
2.9
million during the
fourth quarter of
fiscal 2021, related
to the other-
than-temporary decrease in Carbon’s value. As of June 30, 2021, Carbon had a negative net book value and incurred an operating loss
during
the
twelve
months
to
June
30,
2021.
The
Company
considered
these
operating
losses
and
the
negative
net
book
value
as
impairment indicators and performed an impairment
assessment as of June 30, 2021.
The Company considered a variety of valuation
techniques, including
the revenue multiple
and price to
book ratio techniques,
and determined to
value its interest
in Carbon
using a
price
to book
ratio.
The Company
included
the price
to book
ratio of
a number
of African
banks
and digital
banks in
its peer
set.
However, as Carbon had a negative book value as of June 30,
2021, the result would always be nil regardless of the
price to book ratio
of
the
peer
group.
Therefore,
the
Company
concluded
that
its
investment
in
Carbon
had
a
fair
value
of
$
0
(nil)
and
impaired
the
carrying value in Carbon to $
0
(nil).
Walletdoc
In November 2020, the Company’s
subsidiary, Net1 SA, signed
an agreement with Walletdoc
under which Walletdoc
agreed to
repay the loan due to Net1 SA in full and Net1 SA agreed to dispose of its entire interest
in Walletdoc to Walletdoc.
DNI
As of
June 30,
2019, the
Company owned
30
% of
the voting
and economic
rights of
DNI. In
February 2020,
the Company’s
ownership percentage in
DNI reduced from approximately
30
% to
27
% following the issuance
by DNI of additional
ordinary no par
value shares. The Company did not acquire additional ordinary shares in DNI
and therefore its ownership percentage was diluted. The
terms
and
conditions
of
the
option
referred
to
below
were
unaffected
by
the
additional
issuance
by
DNI.
The
Company
sold
its
remaining interest in DNI in April 2020.
Sale of remaining interest
in April 2020
In May
2019, Net1 Applied
Technologies South Africa Proprietary
Limited (“Net1 SA”)
granted an
option to DNI,
or its
nominee,
to acquire
the
30,394,765
DNI shares
Net1 SA
held. The
option strike
price was
calculated as
ZAR
2.827
billion ($
158.0
million,
translated
at exchange
rates applicable
as of
March 31,
2020) less
any
special distribution
made by
DNI multiplied
by Net1
SA’s
retained interest (i.e.
assuming no special
distribution, the strike
price for the
retained interest was
ZAR
859.3
million, or $
48.0
million,
translated at exchange
rates applicable as
of June 30,
2020).
It was permissible
for the call
option to be
split into smaller
denominations,
but Net1 SA could not
be left with less than
20
% unless the whole remaining
interest was disposed of.
DNI was entitled to nominate
another party to
exercise the call
option in the
place of DNI,
provided that the
nominated party
acquired call options
representing at
least
2.5
% of DNI’s voting and participation
interests.
The option was
exercised on March 31,
2020. DNI nominated
MIC Investment Holdings Proprietary
Limited (“MIC”) to
exercise
a
portion
of
the
option
to
acquire
26,886,310
of
the
30,394,765
DNI
shares
for
ZAR
760.0
million
($
42.5
million,
translated
at
exchange rates
applicable as of
March 31, 2020)
from Net1 SA.
The transaction
closed on April
1, 2020 and
MIC settled the
option
consideration in cash. On March 31, 2020, and together with the
MIC transaction, DNI exercised a portion
of the option to acquire the
remaining
3,508,455
DNI shares from
Net1 SA for
ZAR
99.2
million ($
5.5
million, translated at
exchange rates applicable as
of March
31, 2020) through the issue of a note to Net1 SA. The transaction also closed
on April 1, 2020.
The note
was unsecured. The
note principal
was repayable
in
18
equal monthly installments
of ZAR
5.5
million ($
0.3
million,
translated at exchange rates applicable
as of June 30, 2020) commencing
on October 31, 2020. Interest was
charged at a fixed rate of
7.25
% per annum and accrued monthly from October 1, 2020 and was repayable together with the principal payments. The Company
adjusted the
12-month JIBAR
interest rate
of
6.33
% quoted
by Rand
Merchant Bank
by
0.30
% to
derive a
24-month rate
of
6.63
%
which was
used to
determine
the present
value of
the ZAR
99.2
million note.
The present
value of
the note
as of
March 31,
2020,
using the
derived interest
rate and
the expected
cash repayments
was ZAR
95.7
million ($
5.4
million, translated
at exchange
rates
applicable as of March 31, 2020). The portion of the note that was expected to be repaid during the twelve months following June 30,
2020, was
included in
accounts receivable,
net and
other receivables
in the
consolidated balance
sheet as
of June
30, 2020
(refer to
Note 3). The remaining amount (the long-term portion) was included in other
long-term assets in the consolidated balance sheet as of
June 30, 2020 (refer also to the section “Other long-term assets” below)
.
Th
e
Company
incurred
transaction
costs
of
approximately
$
1.0
million
.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-35
8.
EQUITY
-
ACCOUNTED
INVESTMENTS
AND
OTHER
LONG
-
TERM
ASSETS
(continued)
Equity-accounted investments (continued)
DNI
Sale of remaining interest
in April 2020
The following table presents the calculation of the loss on disposal of DNI on
April 1, 2020:
April 1
2020
Consideration received in cash on April 1, 2020 -
26,886,310
shares
$
42,477
Consideration received with note on April 1, 2020 - present value of note
-
3,508,455
shares
5,354
Less: transaction costs
(1,010)
Less: carrying value of DNI
(36,508)
Less: release of foreign currency translation reserve from accumulated other
comprehensive loss
(11,323)
Loss on sale of DNI before tax
(1,010)
Taxes related to sale of
DNI
-
Capital gains tax related to sale of DNI
(1)
2,475
Utilization of capital loss carryforwards
(1)
(2,475)
Loss on disposal of DNI after tax
$
(1,010)
(1) Net1 SA recorded a valuation allowance related to capital losses previously generated but
not utilized. The Company utilized
approximately $
12.0
million of these unutilized capital losses as a result of the disposal of its remaining interest in DNI in April 2020
and, therefore, the equivalent portion of the valuation allowance
created was released.
Sale of 8% in May 2019
On
May
3,
2019,
Net1
SA
entered
into
a
transaction
with
FirstRand
Bank
Limited,
acting
through
its
Rand
Merchant
Bank
division
(“RMB”),
in
terms
of
which
Net1
SA
reduced
its
shareholding
in
DNI
from
38
%
to
30
%
through
the
sale
of
7,605,235
ordinary “A” shares
in DNI for a transaction
consideration of ZAR
215.0
million ($
15.0
million) (the “RMB Disposal”).
The parties
used a cashless
settlement process on
closing. The transaction
closed on May
3, 2019, and the
Company used the
proceeds from the
sale of
these DNI
shares and
ZAR
15.0
million of
its existing
cash reserves
to settle
its outstanding
long-term borrowings
of ZAR
230.0
million in full.
The following table presents the calculation of the gain on disposal of the 8%
retained interest in DNI on May 3, 2019:
May 3,
2019
May 3, 2019 fair value of consideration received
$
15,011
Less: equity-method interest sold
(14,996)
Less: released from accumulated other comprehensive loss – foreign
currency translation reserve (as restated)
(Note 1 and Note 14)
162
May 2019 gain recognized on disposal, before tax
177
Capital loss related to disposal
(1)
-
Gain recognized on disposal, after tax, as of May 3, 2019
$
177
(1)
The disposal
of the
8
% interest
in DNI
resulted
in a
capital loss
for
tax purposes
of approximately
$
23.9
million and
the
Company provided a
valuation allowance of
$
23.9
million against this capital
loss because it did
not have any
capital gains to offset
against this amount at the time.
DNI impairments recorded
during the year ended June 30, 2020
During year ended June 30, 2020, the Company recorded impairment losses of $
13.1
million. These impairment losses included
(i) an
amount of
$
11.5
million related
to the difference
between the
fair value
of consideration
received on
April 1, 2020
following
the
sale
of
its remaining
interest,
and
the
carrying
value
of DNI
as of
March
31,
2020,
which
included
$
11.3
million
included
in
accumulated other
comprehensive loss as
of March 31,
2020, and (ii)
an amount of
$
1.6
million representing
the excess of
recorded
earnings from DNI over
its carrying value, calculated
as the amount that
the Company could receive pursuant
to the call option
granted
to
DNI
in
May
2019
.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-36
8.
EQUITY
-
ACCOUNTED
INVESTMENTS
AND
OTHER
LONG
-
TERM
ASSETS
(continued)
Equity-accounted investments (continued)
Summarized below is the movement in equity-accounted investments during the years ended 2021 and 2020,
which includes the
investment in equity and the investment in loans provided to equity-accounted
investees:
Finbond
Bank Frick
DNI
Other
(1)
Total
Investment in equity
Balance as of June 30, 2019
$
32,611
$
47,240
$
61,030
$
7,398
$
148,279
Acquisition of shares
274
-
-
2,500
2,774
Stock-based compensation
71
-
-
-
71
Comprehensive (loss) income:
4,067
(17,273)
(9,744)
(4,365)
(27,315)
Other comprehensive income
2,227
-
-
-
2,227
Equity accounted (loss) earnings
1,840
(17,273)
(9,744)
(4,365)
(29,542)
Share of net income (loss)
1,857
1,421
4,676
(1,865)
6,089
Amortization of acquired intangible
assets
-
(569)
(1,874)
-
(2,443)
Deferred taxes on acquired intangible
assets
-
136
524
-
660
Dilution resulting from corporate
transactions
(17)
-
-
-
(17)
Impairment
-
(18,261)
(13,070)
(2,500)
(33,831)
Dividends received
(274)
(1,308)
(1,787)
(454)
(3,823)
Sale of DNI
-
-
(36,508)
-
(36,508)
Foreign currency adjustment
(2)
(5,873)
1,080
(12,991)
(478)
(18,262)
Balance as of June 30, 2020
30,876
29,739
-
4,601
65,216
Stock-based compensation
(25)
-
-
-
(25)
Comprehensive (loss) income:
(23,976)
1,156
-
(4,025)
(26,845)
Other comprehensive income
(1,967)
-
-
-
(1,967)
Equity accounted (loss) earnings
(22,009)
1,156
-
(4,025)
(24,878)
Share of net income (loss)
(4,359)
1,156
-
(531)
(3,734)
Impairment
(17,650)
-
-
(3,494)
(21,144)
Dividends received
-
-
-
(194)
(194)
Sale of DNI
-
(32,892)
-
(13)
(32,905)
Foreign currency adjustment
(2)
2,947
1,997
-
(187)
4,757
Balance as of June 30, 2021
$
9,822
$
-
$
-
$
182
$
10,004
Investment in loans:
Balance as of June 30, 2019
$
-
$
-
$
-
$
148
$
148
Loans granted
-
-
-
1,230
1,230
Allowance for doubtful loans
-
-
-
(730)
(730)
Foreign currency adjustment
(2)
-
-
-
(28)
(28)
Balance as of June 30, 2020
-
-
-
620
620
Loans repaid
-
-
-
(134)
(134)
Loans granted
-
-
-
1,238
1,238
Allowance for doubtful loans
-
-
-
(1,738)
(1,738)
Foreign currency adjustment
(2)
-
-
-
14
14
Balance as of June 30, 2021
$
-
$
-
$
-
$
-
$
-
Equity
Loans
Total
Carrying amount as of :
June 30, 2020
$
65,216
$
620
$
65,836
June 30, 2021
$
10,004
$
-
$
10,004
(1) Includes Carbon, SmartSwitch Namibia, V2 and Walletdoc;
(2)
The
foreign
currency
adjustment
represents
the
effects
of
the
fluctuations
of
the
Swiss
franc,
ZAR,
Nigerian
naira
and
Namibian
dollar,
against
the
U.S.
dollar
on
the
carrying
value.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-37
8.
EQUITY
-
ACCOUNTED
INVESTMENTS
AND
OTHER
LONG
-
TERM
ASSETS
(continued)
Summary financial information of equity-accounted
investments
Summarized
below
is the
financial
information
of
equity-accounted
investments
(during
the
Company’s
reporting
periods
in
which investments were carried using the equity-method, unless otherwise noted)
as of the stated reporting period of the investee and
translated at the applicable closing or average foreign exchange
rates (as applicable):
Finbond
(1)
Bank Frick
(2)
DNI
Other
(3)
Balance sheet, as of
February 28
June 30
June 30
Various
Current assets
(4)
2021
$
n/a
$
n/a
$
n/a
$
24,066
2020
n/a
n/a
n/a
19,910
Long-term assets
2021
289,260
n/a
n/a
4,977
2020
294,734
1,042,366
n/a
6,145
Current liabilities
(4)
2021
n/a
n/a
n/a
26,983
2020
n/a
n/a
n/a
7,824
Long-term liabilities
2021
208,043
n/a
n/a
5,732
2020
189,159
940,948
n/a
18,076
Non-controlling interest
2021
13,574
n/a
n/a
-
2020
15,795
-
n/a
(73)
Statement of operations, for the period ended
February 28
June 30
(2)
June 30
(5)
Various
Revenue
2021
95,847
35,641
n/a
6,404
2020
161,378
37,864
68,983
7,862
2019
174,177
41,126
15,898
33,707
Operating income (loss)
2021
(18,980)
3,860
n/a
(2,413)
2020
17,483
4,815
24,563
(5,064)
2019
20,355
3,633
5,814
(753)
Income (loss) from continuing operations
2021
(15,466)
3,303
n/a
(2,539)
2020
14,449
4,053
17,092
(5,116)
2019
17,761
3,169
4,306
(915)
Net income (loss)
2021
(17,889)
3,303
n/a
(2,539)
2020
6,433
4,053
15,772
(5,014)
2019
$
9,385
$
3,169
$
4,481
$
(1,029)
(1) Finbond balances included were derived from its publicly
available information and presented for its years ended February;
(2) Bank Frick
disposed of in February
2021. Statement of operations
information for Bank
Frick is for the
period from July 1,
2020 to January 31, 2021, and the full twelve months for both fiscal 2020
and 2019.
(3) Includes
Carbon, SmartSwitch
Namibia, Revix,
Walletdoc
and V2,
as appropriate.
Balance sheet
information
for Carbon,
SmartSwitch Namibia, Revix and
V2 is as of June 30,
2021 and 2020,
and Walletdoc
as of February 29, 2021 and
February 28,
2020,
respectively.
Statement of
operations information
for Carbon,
SmartSwitch Namibia,
Revix, and
V2 for
the year
ended
June 30, and Walletdoc
for the year ended February 28/29 (as appropriate);
(4) Bank Frick and Finbond are banks and do not present current and
long-term assets and liabilities. All assets and liabilities of
these two entities are included under the long-term caption;
(5) Statement of operations information for DNI is for the period from July 1,
2019 to March 31, 2020, and April 1, 2019 to
June
30,
2019.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-38
8.
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 June 30,
2021, and June 30, 2020:
June 30,
June 30,
2021
2020
Total equity investments
$
76,297
$
26,993
Investment in
11
% (2020:
12
%) of MobiKwik
(1)
76,297
26,993
Investment in
15
%
of Cell C, at fair value (Note 5)
-
-
Investment in
87.50
% of CPS (Note 23)
(1)(2)
-
-
Total held to maturity
investments
-
-
Investment in
7.625
% of Cedar Cellular Investment 1 (RF) (Pty) Ltd
8.625
% notes
-
-
Long-term portion of amount due related to sale of interest in Bank Frick
(3)
3,890
-
Long-term portion of amount due from DNI related to sale of remaining interest
in DNI
-
2,857
Policy holder assets under investment contracts (Note 10)
381
490
Reinsurance assets under insurance contracts (Note 10)
1,298
1,006
Total other long-term
assets
$
81,866
$
31,346
(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 interest in Bank Frick represents the amount due by the purchaser
in July
2022.
MobiKwik
The Company
signed a
subscription agreement
with MobiKwik,
which is
one of
India’s
largest independent
mobile payments
networks,
with over
100
million
users and
2.3
million merchants.
Pursuant
to the
subscription
agreement,
the Company
agreed
to
make an equity investment of up
to $
40.0
million in MobiKwik over a
24
-month period. The Company made
an initial $
15.0
million
investment in
August 2016 and
a further $
10.6
million investment in
June 2017, under
this subscription agreement.
During the year
ended June 30, 2019, the
Company paid $
1.1
million to subscribe for additional
shares in MobiKwik. As of
June 30, 2021 and 2020,
respectively, the
Company owned approximately
11
% and
12
% of MobiKwik’s issued share capital.
During the year
ended June 30,
2021, MobiKwik
entered into a
number of separate
agreements with new
shareholders to
raise
additional capital through the issuance of additional shares. Specifically, the Company used the following transactions as the basis for
its fair value
adjustments to
its investment in
MobiKwik during
the year ended
June 30, 2021:
(i) in early
November 2020,
$
135.54
per share; March 2021,
$
170.33
per share; and June
2021, $
245.50
per share. The Company
considered each of these
transactions to
be an observable
price change in an
orderly transaction for
similar or identical equity
securities issued by MobiKwik.
The Company
used the
November 2020
valuation as
the basis
for its
adjustment to
increase the
carrying value
in its
investment in
MobiKwik by
$
15.1
million from $
27.0
million to $
42.1
million as of December 31, 2020. The Company
used the March 2021 valuation as the basis
for its adjustment to increase
the carrying value in
its investment in MobiKwik
by $
10.8
million from $
42.1
million to $
52.9
million
as of March 31,
2021. The Company used
the June 2021 valuation
as the basis for its
adjustment to increase the
carrying value in its
investment in
MobiKwik by
$
24.0
million from
$
52.9
million to $
76.3
million as
of June 30,
2021. The
change in
the fair
value of
MobiKwik for the year ended June 30, 2021, of $
49.3
million, is included in the caption “Change in fair value of equity securities” in
the consolidated statement of operations for the year ended June 30,
2021.
Cell C
On
August
2,
2017,
the
Company,
through
its
subsidiary,
Net1SA,
purchased
75,000,000
class
“A”
shares
of
Cell
C
for
an
aggregate purchase price of ZAR
2.0
billion ($
151.0
million) in cash. The Company funded the transaction
through a combination of
cash and a
borrowing facility.
Net1 SA has
pledged, among other
things, its entire
equity interest in
Cell C as
security for the
South
African facilities described in Note 11 used to partially fund the acquisition of Cell C. The Company’s
investment in Cell is carried at
fair
value.
Refer
to
Note
5
for
additional
information
regarding
changes
in
the
fair
value
of
Cell
C.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-39
8.
EQUITY
-
ACCOUNTED
INVESTMENTS
AND
OTHER
LONG
-
TERM
ASSETS
(continued)
Other long-term assets (continued)
CPS
The Company deconsolidated its investment in CPS in May
2020, refer to Note 23. As of June 30, 2021 and 20
20, respectively,
the Company owned
87.5
% of CPS’ issued share capital.
Cedar Cellular
No
interest income from the Cedar Cellular note was recorded during the years ended June 30, 2021 and 2020, respectively. The
Company recognized interest income of $
2.4
million related to the Cedar Cellular notes during the year ended June 30, 2019. Interest
on this investment will only
be paid, at Cedar Cellular’s
election, on maturity
in August 2022. The
Company’s effective
interest rate
on the Cedar Cellular note was
24.82
% as of June 30, 2019.
The Company does
not expect to
recover the amortized
cost basis of
the Cedar Cellular
notes due to
a reduction in
the amount
of future cash flows expected to be collected from the
debt security compared to previous expectations. The Company does not
expect
to generate any cash flows from the debt security at
maturity in August 2022 or prior to the maturity date
due to the current challenges
facing the business and the uncertainties over the future value of the current equity in Cell C. Accordingly, the Company believes it is
unlikely that
Cedar Cellular will
generate sufficient
cash inflows to
settle any outstanding
accumulated interest
and principal due
to
the note holders on maturity in August 2022.
The Company cannot
calculate an effective
interest rate on the
Cedar Cellular note
because the carrying
value is currently zero
($
0.0
million) as of June 30, 2021 and 2020. The Company
therefore cannot calculate the present value of the
expected cash flows to
be collected
from the
debt security
by discounting
these cash
flows at the
interest rate
implicit in
the security
upon acquisition
(at a
rate of
24.82
%) because there are no future cash flows to
discount. The present value of the expected cash flows of zero
($
0.0
million)
is less than
the amortized
cost basis recorded
of $
12.8
million (before the
cumulative 2019 impairments
for the year
ended June 30,
2019). Accordingly,
the Company
recorded an
other-than-temporary
impairment related
to a
credit loss
of $
12.8
million during
the
year
ended June
30, 2019.
The impairment
of $
12.8
million is
included
in the
caption “Impairment
of Cedar
Cellular note”
in the
consolidated statement of operations for the year ended June 30,
2019.
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:
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
Summarized below are the components of the Company’s
equity securities without readily determinable fair value and held to
maturity investments as of June 30, 2020:
Cost basis
Unrealized
holding
Unrealized
holding
Carrying
gains
losses
value
Equity securities:
Investment in MobiKwik
$
26,993
$
-
$
-
$
26,993
Investment in CPS
-
-
-
-
Held to maturity:
Investment in Cedar Cellular notes
-
-
-
-
Total
$
26,993
$
-
$
-
$
26,993
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-40
8.
EQUITY
-
ACCOUNTED
INVESTMENTS
AND
OTHER
LONG
-
TERM
ASSETS
(continued)
Contractual maturities of held to maturity investments
Summarized below is the contractual maturity of the Company’s
held to maturity investment as of June 30, 2021:
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 Company by Cedar Cellular, namely,
Cedar Cellular’s investment in Cell C.
(2) The cost basis is zero ($
0.0
million).
9.
GOODWILL
AND
INTANGIBLE
ASSETS
,
net
Goodwill
Summarized below is the movement in the carrying value of goodwill
for the years ended June 30, 2021, 2020 and 2019:
Gross value
Accumulated
impairment
Carrying value
Balance as of July 1, 2018
$
73,572
$
(20,773)
$
52,799
Impairment loss
-
(14,440)
(14,440)
Foreign currency adjustment
(1)
(1,099)
56
(1,043)
Balance as of June 30, 2019
72,473
(35,157)
37,316
Impairment loss
-
(5,589)
(5,589)
Disposal of FIHRST (Note 23)
(599)
-
(599)
Deconsolidation of CPS (Note 23)
(1,346)
1,346
-
Foreign currency adjustment
(1)
(7,334)
375
(6,959)
Balance as of June 30, 2020
63,194
(39,025)
24,169
Liquidation of subsidiaries
(2)
(26,629)
26,629
-
Foreign currency adjustment
(1)
6,384
(1,400)
4,984
Balance as of June 30, 2021
$
42,949
$
(13,796)
$
29,153
(1)
– The foreign
currency adjustment represents
the effects
of the fluctuations
between the South
African Rand and
the Euro,
and the U.S. dollar on the carrying value.
(2) – The Company deconsolidated the goodwill and accumulated impairment
related to entities it substantially liquidated
during the year ended June 30, 2021.
Impairment loss
The Company assesses the carrying
value of goodwill for impairment
annually, or
more frequently,
whenever events occur and
circumstances change indicating potential impairment. The Company
performs its annual impairment test as at June 30 of each year.
Year ended
June 30, 2021
The
Company
did
no
t
impair
any
goodwill
during
the
year
ended
June
30,
2021.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-41
9.
GOODWILL
AND
INTANGIBLE
ASSETS
,
net
(continued)
Goodwill (continued)
Impairment loss (continued)
Year ended
June 30, 2020 (continued)
During the
third quarter
of fiscal
2020, the
Company performed
an impairment
analysis and
recognized an
impairment loss
of
$
5.6
million, related to goodwill allocated to its EasyPay business within its South
African transaction processing operating segment.
The impairment loss resulted from a reassessment of the business’s growth
prospects given the challenging economic environment in
South Africa. The impairment
is included within the
caption impairment loss in the
consolidated statement of operations
for the year
ended June 30, 2020.
In order to determine the amount of the EasyPay goodwill impairment, the estimated fair value of EasyPay’s business assets and
liabilities were compared
to the carrying value
of its assets and liabilities.
The Company used a
discounted cash flow model
in order
to determine the
fair value of
EasyPay.
Based on this
analysis, the Company
determined that the
carrying value of
EasyPay’s assets
and liabilities exceeded their fair value at the reporting date.
Year ended
June 30, 2019
During the second quarter of fiscal 2019, the Company performed an impairment analysis and recognized an impairment
loss of
approximately
$
8.2
million,
of
which
approximately
$
7.0
million
related
to
goodwill
allocated
to
its
IPG
business
within
its
international
transaction
processing
operating
segment
and
$
1.2
million
related
to
goodwill
within
its
South
African
transaction
processing operating segment.
Given the consolidation
and restructuring of
IPG over the
period to December
31, 2018, several
business
lines were terminated or meaningfully reduced, resulting in lower than expected revenues, profits and cash flows. IPG’s new business
initiatives were still in their infancy,
and it was expected to generate lower cash flows than initially forecast.
In order to determine the amount of the
IPG goodwill impairment, the estimated fair value of
the Company’s IPG business assets
and liabilities was compared to the carrying value of IPG’s
assets and liabilities. The Company used a discounted cash flow model
in
order to determine
the fair value
of IPG. The
allocation of the
fair value of
IPG required the
Company to make
a number of
assumptions
and estimates about the fair value of assets and liabilities where the fair values were not readily available or observable. Based on this
analysis, the Company determined that the carrying value of IPG’s assets and liabilities exceeded their fair value at the reporting date.
The
Company
also identified
and
recognized an
impairment loss
of $
6.2
million related
to goodwill
allocated
to its
financial
inclusion
and
applied
technologies
operating
segment
as
a
result
of
its
June
30,
2019,
annual
impairment
test.
The
June
2019
impairment loss resulted from on-going losses incurred in the latter half
of the fiscal year that were greater than, and were
incurred for
a longer duration, than initially expected.
The estimated fair value of
the business assets and liabilities
were compared to the
carrying value of the assets and
liabilities of
the reporting
unit within
the financial
inclusion and
applied technologies
operating segment
in order
to determine
the $
6.2
million
goodwill impairment. The Company
used an EV/EBITDA multiple valuation model to determine the fair value
of the reporting unit.
The allocation of the fair value of
the reporting unit required the Company to make
a number of assumptions and estimates about
the fair value of assets and liabilities where the fair values were not readily available or observable. Based on this analysis, except for
the impairments
recognized, the
Company determined
that the
carrying value
of the
reporting unit’s
assets and
liabilities exceeded
their fair value at the reporting date.
In the event
that there is
deterioration in the
Company’s operating
segments, or in
any other of
the Company’s
businesses, this
may
lead
to
additional
impairments
in
future
periods
.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-42
9.
GOODWILL
AND
INTANGIBLE
AS
SETS
,
net
(continued)
Goodwill (continued)
Refer to Note 20 for additional information regarding changes to
the Company’s reportable segments during the year ended June
30, 2021. Goodwill has been allocated to the Company’s
reportable segments as follows:
Processing
Financial services
Technology
Carrying value
Balance as of July 1, 2018
$
28,614
$
-
$
24,185
$
52,799
Impairment loss
(8,191)
-
(6,249)
(14,440)
Foreign currency adjustment
(1)
(558)
-
(485)
(1,043)
Balance as of June 30, 2019
19,865
-
17,451
37,316
Impairment loss
(5,589)
-
-
(5,589)
Disposal of FIHRST (Note 23)
(599)
(599)
Foreign currency adjustment
(1)
(3,688)
-
(3,271)
(6,959)
Balance as of June 30, 2020
9,989
-
14,180
24,169
Foreign currency adjustment
(1)
1,978
-
3,006
4,984
Balance as of June 30, 2021
$
11,967
$
-
$
17,186
$
29,153
(1)
– The
foreign currency
adjustment represents
the effects
of the
fluctuations between
the South
African rand
and the Euro,
and the U.S. dollar on the carrying value.
Intangible assets
Impairment loss
The Company
assesses the carrying
value of
intangible assets
for impairment
whenever events
occur or
circumstances change
indicating that
the carrying
amount of
the intangible
asset may
not be
recoverable. Except
as discussed
below,
no
intangible assets
have been impaired during the years ended June 30, 2021, 2020 and 2019,
respectively.
Year ended
June 30, 2020
During
the third
quarter of
fiscal 2020
,
the Company
determined
that its
indefinite-lived
intangible
asset, a
Maltese e-money
license, of
$
0.7
million was
impaired. The
facts and
circumstances leading
up to
the impairment
include the
losses incurred
by the
Company’s
IPG business
unit. In
fiscal 2019,
IPG formulated
a plan
to return
to profitability,
however,
it missed
a number
of key
deliverable deadlines and
was reformulating its growth
plans following the decision
not to acquire a controlling
stake in Bank Frick.
The impairment is included within the caption impairment loss to the consolidated statement of operations for the year ended June 30,
2020
.
The
intangible
asset
was
not
allocated
to
an
operating
segment
and
is
included
within
corporate/
eliminations
(refer
to
Note
20
).
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-43
9.
GOODWILL
AND
INTANGIBLE
ASSETS
,
net
Intangible assets (continued)
Carrying value and amortization of intangible assets
Summarized below is the carrying value and accumulated amortization of the intangible assets as of June 30, 2021, and June 30,
2020:
As of June 30, 2021
As of June 30, 2020
Gross
carrying
value
Accumulated
amortization
Net
carrying
value
Gross
carrying
value
Accumulated
amortization
Net
carrying
value
Finite-lived intangible assets:
Customer relationships
$
10,340
$
(10,340)
$
-
$
19,064
$
(18,806)
$
258
Software and unpatented
technology
1,726
(1,726)
-
3,931
(3,931)
-
FTS patent
2,679
(2,679)
-
2,211
(2,211)
-
Trademarks
2,015
(1,658)
357
2,731
(2,377)
354
Total finite-lived
intangible
assets
$
16,760
$
(16,403)
357
$
27,937
$
(27,325)
612
Indefinite-lived intangible assets:
Financial institution licenses
(1)
-
-
Total indefinite
-lived
intangible assets
-
-
Total intangible
assets
$
357
$
612
(1)
The Company
deconsolidated the
Malta e-money
licence following
the substantial
liquidation of
its Malta
business during
the year ended June 30, 2021.
Aggregate
amortization
expense
on
the
finite-lived
intangible
assets for
the
years
ended
June
30,
2021,
2020
and
2019,
was
approximately $
0.4
million, $
0.3
million and $
7.1
, respectively.
Future estimated annual amortization expense for
the next five fiscal
years and thereafter, assuming exchange rates that
prevailed
on June
30, 2021,
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
$
72
Fiscal 2023
72
Fiscal 2024
71
Fiscal 2025
71
Fiscal 2026
71
Total future
estimated annual amortization expense
$
357
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-44
10
.
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 years
ended June 30, 2021 and 2020:
Reinsurance
Assets
(1)
Insurance
contracts
(2)
Balance as of July 1, 2019
$
1,163
$
(1,880)
Increase in policy holder benefits under insurance contracts
509
(3,024)
Claims and policyholders’ benefits under insurance contracts
(449)
3,182
Foreign currency adjustment
(3)
(217)
352
Balance as of June 30, 2020
1,006
(1,370)
Increase in policy holder benefits under insurance contracts
711
8,032
Claims and policyholders’ benefits under insurance contracts
(632)
(8,383)
Foreign currency adjustment
(3)
213
(290)
Balance as of June 30, 2021
$
1,298
$
(2,011)
(1) Included in other long-term assets (refer to Note 8);
(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 large insurance contracts, however,
if
the reinsurer is unable to meet its obligations, the Company retains the liability.
The value of insurance contract liabilities is based on
the best
estimate assumptions
of future
experience plus
prescribed margins,
as required
in the
markets in
which these
products are
offered, namely
South Africa. The
process of deriving
the best estimates
assumptions plus
prescribed margins
includes assumptions
related to claim reporting delays (based on average industry experience).
Assets and policyholder liabilities under investment contracts
Summarized below is the movement in assets
and policyholder liabilities under investment contracts during the years
ended June
30, 2021 and 2020:
Assets
(1)
Investment
contracts
(2)
Balance as of July 1, 2019
$
619
$
(619)
Increase in policy holder benefits under investment contracts
17
(17)
Claims and decrease in policyholders’ benefits under investment contracts
(29)
29
Foreign currency adjustment
(3)
(117)
117
Balance as of June 30, 2020
490
(490)
Increase in policy holder benefits under investment contracts
13
(13)
Claims and decrease in policyholders’ benefits under investment contracts
(227)
227
Foreign currency adjustment
(3)
105
(105)
Balance as of June 30, 2021
$
381
$
(381)
(1) Included in other long-term assets (refer to Note 8);
(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.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-45
11
.
BORROWINGS
South Africa
The amounts below have been translated at exchange rates applicable
as of the dates specified.
July 2017 Facilities, as amended, comprising long-term borrowings (all repaid)
and a short-term facility (Facility E)
On July 21, 2017, Net1 SA entered into a Common Terms Agreement, Subordination Agreement, Security Cession & Pledge and
certain ancillary loan documents (collectively, the “Original Loan Documents”) with RMB, a South African corporate and investment
bank,
and Nedbank
Limited (acting
through
its Corporate
and
Investment
Banking division),
an African
corporate and
investment
bank (collectively, the “Lenders”). Since 201
7, these agreements have been amended to add additional facilities. Facilities A, B, C, D
and F have been repaid and cancelled. As of June 30, 2021, the only remaining available facility is an overdraft facility (“Facility E”).
Available short-term facility - Facility
E
On September 26, 2018, Net1 SA further revised its amended
July 2017 Facilities agreement with RMB to include Facility E, an
overdraft facility
of up
to ZAR
1.5
billion ($
104.5
million, translated
at exchange
rates applicable
as of
June 30,
2021) to
fund the
Company’s ATMs. The Facility E overdraft
facility was
subsequently reduced to
ZAR
1.2
billion ($
83.9
million, translated at
exchange
rates applicable as of June 30, 2021) in September 2019.
On August 2, 2021, Net1 SA and RMB entered into a Letter of Amendment
to increase Facility
E from ZAR
1.2
billion to ZAR
1.4
billion ($
97.9
million, translated at
exchange rates
applicable as of
June 30,
2021). Interest on the
overdraft facility is payable
on the first
day of month following
utilization of the facility
and on the
final maturity
date based on the
South African prime rate.
The overdraft facility amount
utilized must be repaid
in full within one
month of utilization
and at least
90
% of the
amount utilized must
be repaid
within
25 days
. The overdraft
facility is secured
by a pledge
by Net1 SA
of,
among
other
things,
cash
and
certain
bank
accounts
utilized
in
the
Company’s
ATM
funding
process,
the
cession
of
Net1
SA’s
shareholding in
Cell C, the
cession of
an insurance
policy with Senate
Transit Underwriters
Managers Proprietary
Limited, and any
rights and
claims Net1
SA has against
Grindrod Bank
Limited. As
at June
30, 2021,
the Company
had utilized
approximately ZAR
0.2
billion ($
14.2
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
prime rate on
June 30, 2021,
was 7.00%.
Repaid and cancelled facilities - Facility A, B, C, D and F
As part of
the Original
Loan Documents
concluded on
July 21, 2017,
Net1 SA also
entered into
Senior Facility A
Agreement,
Senior Facility B Agreement and Senior Facility C Agreement,
pursuant to which, among other things, Net1 SA borrowed
ZAR
1.25
billion to finance
a portion of its investment
in Cell C and
to fund its on-going
working capital requirements.
On March 8, 2018,
the
Company amended its South African long-term facility to include an additional term loan, Facility D, of up to ZAR
210.0
million. All
amounts under these facilities were repaid in full during the year ended
June 30, 2019.
On September 4,
2019, Net1 SA
further amended
the July 2017
Facilities agreement,
which included adding
Main Street 1692
(RF) Proprietary Limited (“Debt Guarantor”), a South African company incorporated for the sole purpose of holding collateral for the
benefit of
the Lenders
and acting
as debt
guarantor.
The covenants
were also
amended and
now include
customary covenants
that
require Net1 SA to maintain
a specified total asset
cover ratio and restrict the
ability of Net1 SA,
and certain of its subsidiaries
to make
certain distributions with
respect to their capital
stock, prepay other debt,
encumber their assets, incur
additional indebtedness, make
investment above specified levels, engage in certain business combinations
and engage in other corporate activities. Net1 also agreed
that in
the event
of any
sale of
KSNET,
Inc., it
would deposit
a portion
of the
proceeds in
an amount
of the
USD equivalent
of the
Facility F
loan and
the Nedbank
general banking
facility commitment
into a
bank account
secured in
favor of
the Debt
Guarantor.
Net1 SA also entered
into a pledge and
cession agreement with the
Debt Guarantor pursuant to
which, among other things,
Net1 SA
agreed to
cede its
shareholdings in
Cell C,
DNI and
Net1 FIHRST
Holdings (Pty)
Ltd to
the Debt
Guarantor.
The shareholdings
in
DNI and Net 1 FIHRST Holdings (Pty) Ltd were released pursuant
to the transactions to dispose of these investments.
On September 4, 2019, Net1 SA further amended its
amended July 2017 Facilities agreement with RMB and
Nedbank to include
a facility (“Facility F”) of up to ZAR
300.0
million ($
17.3
million, translated at exchange rates applicable as of June 30, 2020) for the
sole purpose of funding the acquisition of airtime
from Cell C. Net1 SA could not dispose
of the airtime acquired from Cell C before
April 1, 2020, without the prior consent of RMB, Absa Bank Limited and Investec Asset Management Proprietary Limited. Facility F
comprised (i)
a first
Senior Facility
F loan
of ZAR
220.0
million (ii)
a second
Senior Facility
F loan
of ZAR
80.0
million, or
such
lesser amount
as may
be agreed
by the
facility agent.
The first
loan was
utilized on
September 5,
2019, while
the second
loan was
never utilized.
Facility F
was required
to be
repaid in
full within
nine months
following the
first utilization
of the
facility.
Net1 SA
was required to prepay Facility F subject to customary prepayment terms. Interest on Facility F was based on JIBAR plus a margin of
5.50
% per annum and was due in full on repayment of the loan. The
margin on the Facility F increased by 1% on November
1, 2019,
because
the
Company
had
not
disposed
of
its
remaining
shareholding
in
DNI
and
FIHRST
by
that
date.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-46
11
.
BORROWINGS
(continued)
South Africa (continued
July
2017
Facilities,
as
amended,
comprising
long-term
borrowings
(all
repaid)
and
a
short-term
facility
(Facility
E)
(continued)
Repaid and cancelled facilities - Facility A, B, C, D and F (continued)
Net1 SA
paid a
non-refundable
structuring
fee of
ZAR
2.2
million
($
0.1
million)
to the
Lenders
in September
2019, and
the
Company expensed this amount in full during the
first quarter of fiscal 2020. The
Company settled the facility in full on
April 1, 2020,
utilizing a portion of the proceeds received from the sale of its remaining stake
in DNI, and the facility was cancelled.
Nedbank facility, comprising short-term facilities
As of June 30, 2021, the aggregate amount of
the Company’s short-term South African credit facility with Nedbank Limited was
ZAR
406.6
million ($
28.4
million). The
credit facility
comprises an
overdraft facility
of up
to ZAR
250.0
million ($
17.5
million),
which may only be used to
fund mobile ATMs and indirect and derivative facilities of up to ZAR
156.6
million ($
10.9
million), which
include guarantees, letters of credit and forward exchange contracts.
On November 2, 2020, the Company amended its short
-term South African credit facility with Nedbank Limited
to increase the
indirect
and
derivative
facilities
component
of
the
facility
from
ZAR
150.0
million
to
ZAR
159.0
million.
On
June
1,
2021,
the
Company
further
amended
its short-term
South
African
credit facility
with Nedbank
Limited
to reduce
the indirect
and derivative
facilities component of the facility
from ZAR
159.0
million to ZAR
157.0
million, and to cancel its ZAR
50
million general banking
facility.
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 and also provided a
the cession of Net1
SA’s
shareholding in Cell C.
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 ($
10.9
million translated
at exchange
rates applicable
as of June
30, 2021),
are included within
the caption restricted
cash related
to ATM
funding and
credit
facilities on the Company’s consolidated
balance sheet as of June 30, 2021.
The Company
has also
ceded all
of its
title and
interest in
an insurance
policy issued
by Fidelity
Risk Proprietary
Limited as
security for its repayment obligations under the facility.
A commitment fee of
0.35
% per annum is payable on the monthly unutilized
amount of the
overdraft portion of
the short-term facility. The Company
is required to
comply with customary non-financial
covenants,
including, without
limitation, covenants
that restrict
its ability
to dispose
of or
encumber its assets,
incur additional
indebtedness or
engage in certain business combinations.
The short-term facility
provides Nedbank with
the right to set
off funds held
in certain identified
Company bank accounts with
Nedbank against any amounts owed to Nedbank under
the facility. As of June 30,
2021, the Company had total funds of $
0.2
million
in
bank
accounts
with
Nedbank
which
have
been
set off
against $
0.2
million
drawn
under
the Nedbank
facility,
for a
net
utilized
facility balance of
$
0
(nil) as of June
30, 2021. As of
June 30, 2020, the
Company had total funds
of $
12.4
million in bank accounts
with Nedbank
which have
been set
off
against $
12.4
million drawn
under
the Nedbank
facility,
for a
net amount
drawn under
the
facility of $
0.1
million. As of June 30, 2021, the interest rate on the overdraft facility was
5.85
%.
As of June 30, 2021, the Company had not utilized its ZAR
250.0
million overdraft facility to fund ATMs.
As of June 30, 2020,
the Company
had utilized
approximately ZAR
1.0
million ($
0.1
million) of
its ZAR
300.0
million overdraft
facility to fund
ATMs,
and
none
of
its
ZAR
50.0
million
general
banking
facility.
As
of
June
30,
2021
and
June
30,
2020,
the
Company
had
utilized
approximately
ZAR
156.6
million
($
10.9
million) and
ZAR
93.6
million ($
5.4
million), respectively,
of its
indirect and
derivative
facilities of ZAR
156.6
million (2020: ZAR
150
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 21).
United States, a short-term facility (this facility has been repaid
and cancelled)
On September 14, 2018, the Company renewed its $
10.0
million overdraft facility from Bank Frick and on February 4, 2019, the
Company increased the overdraft facility to $
20.0
million. As of June 30, 2019, the Company had utilized approximately $
9.5
million
of this facility. The Company’s
$
20
million facility from Bank Frick was settled in full and cancelled in March 2020. The facility was
secured
by
a
pledge
of
the
Company’s
investment
in
Bank
Frick
and
the
shares
under
the
pledge
were
released
upon
cancellation
.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-47
11
.
BORROWINGS
(continued)
Movement
in short-term credit facilities
Summarized below are the Company’s short
-term facilities as of June 30, 2021, and the movement in the Company’s short-term
facilities from as of June 30, 2020 to as of June 30, 2021:
South Africa
United
States
Amended
July 2017
Nedbank
Bank Frick
Total
Short-term facilities available as of June 30, 2021
$
83,910
$
28,428
$
112,338
Overdraft restricted as to use for ATM
funding only
83,910
17,481
101,391
Indirect and derivative facilities
-
10,947
10,947
Movement in utilized overdraft facilities:
Balance as of June 30, 2019
69,566
5,880
$
9,544
84,990
Utilized
603,134
69,245
17,384
689,763
Repaid
(647,990)
(73,017)
(26,928)
(747,935)
Foreign currency adjustment
(1)
(9,954)
(2,050)
-
(12,004)
Balance as of June 30, 2020
(2)
14,756
58
-
14,814
Restricted as to use for ATM
funding only
14,756
58
14,814
No restrictions as to use
-
-
-
Utilized
340,655
19,428
360,083
Repaid
(346,187)
(19,253)
(365,440)
Foreign currency adjustment
(1)
5,021
(233)
4,788
Balance as of June 30, 2021
(3)
14,245
-
14,245
Restricted as to use for ATM
funding only
14,245
-
14,245
Movement in utilized indirect and derivative facilities:
Balance as of June 30, 2019
-
6,643
-
6,643
Foreign currency adjustment
(1)
-
(1,245)
-
(1,245)
Balance as of June 30, 2020
-
5,398
-
5,398
Utilized
-
4,009
-
4,009
Foreign currency adjustment
(1)
-
1,540
-
1,540
Balance as of June 30, 2021
$
-
$
10,947
$
-
$
10,947
(1) Represents the effects of the fluctuations between the
ZAR and the U.S. dollar.
(2) As of June 30, 2020, there were
no
amounts offset against the Nedbank overdraft facilities.
(3) As of June 30, 2021, there was $
0.2
million offset against the Nedbank overdraft facilities.
Movement in long-term borrowings
The Company
had no long-term
borrowings as
of June 30,
2021. Summarized
below is the
movement in
the Company’s
long-
term borrowing from as of June 30, 2019, to as of June 30, 2020:
South Africa
Amended July
2017
Total
Balance as of July 1, 2019
$
-
$
-
Utilized
14,798
14,798
Repaid from sale of DNI shares (Note 8)
(14,503)
(14,503)
Foreign currency adjustment
(1)
(295)
(295)
Balance as of June 30, 2020
$
-
$
-
(1) Represents the effects of the fluctuations between the
ZAR and the U.S. dollar.
Interest expense
incurred under
the Company’s
South African
long-term borrowing
during the
years ended
June 30,
2020 and
2019, was $
0.6
million and $
2.9
million, respectively.
There was
no
prepaid facility fee
amortization during the
year ended June 30,
2020. Prepaid facility fees amortized during the years ended June 30, 2019,
was $
0.3
million.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-48
12
.
OTHER
PAYABLES
Summarized below is the breakdown of other payables as of June 30,
2021 and 2020:
June 30,
June 30,
2021
2020
Accruals
$
7,501
$
6,045
Provisions
5,343
4,926
Payroll-related payables
884
887
Participating merchants' settlement obligation
137
463
Value
-added tax payable
435
129
Other
13,288
11,329
$
27,588
$
23,779
Other includes transactions-switching funds payable, deferred income,
client deposits and other payables.
13
.
COMMON
STOCK
Common stock
Holders
of shares
of Net1’s
common
stock are
entitled to
receive dividends
and other
distributions
when
declared
by Net1’s
board of
directors out
of legally
available funds.
Payment of
dividends and
distributions is
subject to
certain restrictions
under the
Florida Business Corporation Act, including the requirement that after
making any distribution Net1 must be able to meet its debts as
they become due in the usual course of its business.
Upon voluntary or involuntary
liquidation, dissolution or winding
up of Net1, holders
of common stock share
ratably in the
assets
remaining after payments to creditors and provision for the preference of any preferred stock according to its terms. There are no pre-
emptive or other
subscription rights, conversion
rights or redemption
or scheduled installment
payment provisions relating
to shares
of common stock. All of the outstanding shares of common stock are fully
paid and non-assessable.
Each holder of
common stock is
entitled to one
vote per share
for the election
of directors and
for all other
matters to be
voted
on by shareholders. Holders
of common stock may
not
cumulate their votes
in the election
of directors, and are
entitled to share
equally
and ratably in the dividends that may be declared by the board of directors, but only after payment of dividends required to be paid on
outstanding shares of preferred stock according to its terms. The shares
of Net1 common stock are not subject to redemption.
The Company’s
number of
shares, net
of treasury,
presented in
the consolidated
balance sheets
and consolidated
statement of
changes in
equity includes
participating non-vested
equity shares (specifically
contingently returnable
shares) as described
below in
Note 16 “— Amended and Restated Stock Incentive Plan—Restricted Stock—General
Terms of Awards”.
The
following
table
presents
a
reconciliation
between
the
number
of
shares,
net
of
treasury,
presented
in
the
consolidated
statement
of changes
in equity
and
the number
of shares,
net of
treasury,
excluding non-vested
equity
shares that
have not
vested
during the years ended June 30, 2021, 2020 and 2019:
2021
2020
2019
Number of shares, net of treasury:
Statement of changes in equity – common stock
56,716,620
57,118,925
56,568,425
Less: Non-vested equity shares that have not vested as of end of year (Note 16)
384,560
1,115,500
583,908
Number of shares, net of treasury excluding non-vested equity shares that have not
vested
56,332,060
56,003,425
55,984,517
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-49
13.
COMMON
STOCK
(continued)
Redeemable common stock issued pursuant to transaction with the IFC Investors
Holders of redeemable common
stock have all the rights enjoyed by
holders of common stock, however,
holders of redeemable
common
stock
have
additional
contractual
rights.
On
April
11,
2016,
the
Company
entered
into
a
Subscription
Agreement
(the
“Subscription
Agreement”)
with
International
Finance
Corporation,
IFC
African,
Latin
American
and
Caribbean
Fund,
LP,
IFC
Financial
Institutions
Growth
Fund,
LP,
and
Africa
Capitalization
Fund,
Ltd.
(collectively,
the
“IFC
Investors”).
Under
the
Subscription Agreement,
the IFC Investors purchased,
and the Company
sold in the
aggregate, approximately
9.98
million shares of
the
Company’s
common
stock,
par
value
$
0.001
per
share,
at
a
price
of
$
10.79
per
share,
for
gross
proceeds
to
the
Company
of
approximately $
107.7
million. The Company has accounted
for these
9.98
million shares as redeemable
common stock as a result
of
the put option discussed below.
On May
19, 2020,
the Africa
Capitalization Fund,
Ltd sold
its entire
holding of
2,103,169
shares of
the Company’s
common
stock and
therefore the
additional contractual
rights, including
the put
option rights
related to
these
2,103,169
shares, expired.
The
Company reclassified $
22.7
million related to
these
2,103,169
shares sold from
redeemable common stock to
additional paid-in-capital
during the year ended June 30, 2020.
The Company has entered
into a Policy Agreement
with the IFC Investors
(the “Policy Agreement”).
The material terms of the
Policy Agreement are described below.
Board Rights
For so long as the IFC Investors in aggregate beneficially own shares representing at least
5
% of the Company’s common stock,
the IFC Investors will have the right to nominate one director to the Company’s board of directors. For so long as the IFC Investors in
aggregate beneficially
own shares representing
at least
2.5
% of the
Company’s
common stock, the
IFC Investors will
have the right
to appoint
an observer
to the
Company’s
board of
directors at
any time
when they
have not
designated, or
do not
have the
right to
designate, a director.
Put Option
Each IFC Investor will have
the right, upon the occurrence of specified
triggering events, to require the Company
to repurchase
all of the shares
of its common stock purchased by
the IFC Investors pursuant to
the Subscription Agreement (or upon exercise
of their
preemptive rights
discussed below).
Events triggering
this put
right relate
to (1)
the Company
being the
subject of
a governmental
complaint alleging, a court judgment finding or an indictment alleging that the Company (a) engaged
in specified corrupt, fraudulent,
coercive, collusive or obstructive practices; (b) entered into transactions with targets of economic sanctions; or (c) failed to operate its
business in compliance with anti-money laundering and anti-terrorism laws; or (2) the Company rejecting a bona fide offer to acquire
all of its outstanding Common Stock at a time when it has in place or implements a shareholder rights plan, or adopting a shareholder
rights plan triggered by a beneficial ownership
threshold of less than
twenty
percent. The put price per share will
be the higher of the
price per
share paid
by the
IFC Investors
pursuant to
the Subscription
Agreement (or
paid when
exercising their
preemptive rights)
and the
volume weighted
average price
per share
prevailing for
the
60
trading days
preceding the
triggering event,
except that
with
respect to a put right triggered by rejection of a bona fide offer, the put price per share will be the highest price offered
by the offeror.
The Company believes that the
put option has no
value and, accordingly, has not recognized the put
option in its consolidated
financial
statements.
Registration Rights
The Company has agreed
to grant certain registration
rights to the IFC Investors
for the resale of their
shares of the Company’s
common stock, including filing a resale shelf registration statement and
taking certain actions to facilitate resales thereunder.
Preemptive Rights
For so long as the IFC Investors hold in aggregate
5
% of the outstanding shares of common stock of
the Company, each Investor
will have the right to purchase its pro-rata share of new issuances of securities by
the Company, subject to certain
exceptions.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-50
13.
COMMON
STOCK
(continued)
Common stock repurchases
Executed under share repurchase authorizations
On
February 5, 2020,
the
Company’s
Board
of Directors
approved
the replenishment
of its
share
repurchase
authorization
to
repurchase
up
to
an
aggregate
of
$
100
million
of
common
stock.
The
authorization
has
no
expiration
date.
The
share
repurchase
authorization will be
used at
management’s discretion, subject to
limitations imposed by
SEC Rule
10b-18 and other
legal requirements
and subject to price and other internal limitations established by the
Board. Repurchases will be funded from the Company’s available
cash.
Share
repurchases
may be
made
through open
market purchases,
privately
negotiated
transactions,
or both.
There can
be no
assurance
that
the
Company
will
purchase
any
shares
or
any
particular
number
of
shares.
The
authorization
may
be
suspended,
terminated or
modified at
any time
for any
reason, including
market conditions,
the cost
of repurchasing
shares, liquidity
and other
factors that management deems appropriate. The Company did
no
t repurchase any of its shares during the years ended June 30, 2021,
2020 and 2019,
respectively, either under or outside
of the authorization.
14
.
ACCUMULATED
OTHER
COMPREHENSIVE
(LOSS)
INCOME
The table below
presents the change
in accumulated other
comprehensive (loss) income
per component during
the years ended
June 30, 2021, 2020 and 2019:
Accumulated
foreign currency
translation
reserve
Total
Balance as of July 1, 2018
$
(184,350)
$
(184,350)
Release of foreign currency translation reserve related to DNI disposal (Note
23)
5,841
5,841
Release of foreign currency translation reserve related to disposal of DNI
interest as
an equity method investment (Note 8)
(162)
(162)
Movement in foreign currency translation reserve related to equity
-accounted
investment
4,251
4,251
Movement in foreign currency translation reserve
(21,392)
(21,392)
Balance as of July 1, 2019
(195,812)
(195,812)
Release of foreign currency translation reserve related to deconsolidation
of CPS
(Note 23)
32,451
32,451
Release of foreign currency translation reserve related to disposal of Net1
Korea
(Note 23)
14,228
14,228
Release of foreign currency translation reserve related to disposal of DNI
interest as
an equity method investment (Note 8)
11,323
11,323
Release of foreign currency translation reserve related to disposal of FIHRST
(Note
23)
1,578
1,578
Movement in foreign currency translation reserve related to equity
-accounted
investment
2,227
2,227
Movement in foreign currency translation reserve
(35,070)
(35,070)
Balance as of July 1, 2020
(169,075)
(169,075)
Release of foreign currency translation reserve related to the disposal of Bank
Frick
(Note 8)
(2,462)
(2,462)
Release of foreign currency translation reserve related to liquidation of subsidiaries
605
605
Movement in foreign currency translation reserve related to equity
-accounted
investment
(1,967)
(1,967)
Movement in foreign currency translation reserve
27,178
27,178
Balance as of June 30, 2021
$
(145,721)
$
(145,721)
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-51
14
.
ACCUMULATED
OTHER
C
OMPREHENSIVE
(LOSS)
INCOME
(continued)
During the year
ended June 30, 2021,
the Company reclassified
the following amounts
from accumulated other
comprehensive
loss (accumulated foreign currency translation reserve) to net loss: $
2.5
million related to the disposal of Bank Frick (refer to 23) and
(ii) $
0.6
million related to the liquidation of subsidiaries.
During the year
ended June 30, 2020,
the Company reclassified
the following amounts
from accumulated other
comprehensive
loss (accumulated
foreign currency
translation reserve)
to net (loss)
income: (i)
$
32.5
million related
to the deconsolidation
of CPS
(refer to Note 23),
(ii) $
14.2
million related to
the disposal of Net1
Korea (refer to Note 23);
(iii) $
1.6
million related to the
disposal
of FIHRST (refer to Note 23), and (iv) $
11.3
million related to the disposal of its DNI interest (refer to Note 8).
During the year
ended June 30, 2019,
the Company reclassified
the following amounts
from accumulated other
comprehensive
loss (accumulated foreign currency translation reserve) to net (loss) income: (i) $
5.8
million related to the DNI disposal (refer to Note
23) and (ii) $
0.2
million related to the disposal of the DNI interest as an equity method investment
(refer to Note 8).
15.
REVENUE
The
Company
is a
provider
of transaction
processing
services, financial
inclusion
products and
services
and
secure payment
technology. The Company operates market-leading payment
processors in South Africa. The Company
offers debit, credit and prepaid
processing and issuing services for all major payment networks. In South Africa, the Company provides innovative low-cost financial
inclusion products, including banking, lending and insurance.
Disaggregation of revenue
The
following
table
represents
our
revenue
disaggregated
by
major
revenue
streams,
including
reconciliation
to
operating
segments for the year ended June 30, 2021:
Processing
Financial
services
Technology
Total
Processing fees
$
60,982
$
2,338
$
-
$
63,320
South Africa
57,664
2,338
-
60,002
Rest of world
3,318
-
-
3,318
Technology
products
2,054
330
16,630
19,014
Telecom products
and services
13,422
-
-
13,422
Lending revenue
-
20,672
-
20,672
Insurance revenue
-
6,605
-
6,605
Account holder fees
-
5,342
-
5,342
Other
1,204
318
889
2,411
Total revenue, derived
from the following geographic
locations
77,662
35,605
17,519
130,786
South Africa
74,344
35,605
17,519
127,468
Rest of world
$
3,318
$
-
$
-
$
3,318
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-52
15.
REVENUE
(continued)
The
following
table
represents
our
revenue
disaggregated
by
major
revenue
streams,
including
reconciliation
to
operating
segments for the year ended June 30, 2020:
Processing
Financial
services
Technology
Total
(as restated)
(as restated)
(1)
Processing fees
$
55,992
$
4,903
$
-
$
60,895
South Africa
(1)
50,951
4,903
-
55,854
Rest of world
5,041
-
-
5,041
Technology
products
981
-
17,280
18,261
Telecom products
and services
22,631
-
-
22,631
Lending revenue
-
19,955
-
19,955
Insurance revenue
-
5,212
-
5,212
Account holder fees
-
12,628
-
12,628
Other
4,024
626
67
4,717
Total revenue, derived
from the following geographic
locations
83,628
43,324
17,347
144,299
South Africa
78,587
43,324
17,347
139,258
Rest of world
$
5,041
$
-
$
-
$
5,041
(1) Processing fees South Africa and Total
columns have been restated for the error described in Note 1.
The
following
table
represents
our
revenue
disaggregated
by
major
revenue
streams,
including
reconciliation
to
operating
segments for the year ended June 30, 2019:
Processing
Financial
services
Technology
Corporate/
Total
(as restated)
Eliminations
(as
restated)
(1)
Processing fees
$
82,995
$
95
$
-
$
-
$
83,090
South Africa
(1)
73,153
95
-
-
73,248
Rest of world
9,842
-
-
-
9,842
Technology
products
1,928
-
18,666
-
20,594
Telecom products
and services
15,025
-
-
-
15,025
Welfare benefit
distribution
3,086
-
-
-
3,086
Lending revenue
-
27,512
-
-
27,512
Insurance revenue
-
5,858
-
-
5,858
Account holder fees
-
17,428
-
-
17,428
Other
4,388
280
3,083
-
7,751
Revenue refund related to CPS
-
-
-
(19,709)
(19,709)
Total revenue, derived
from the following
geographic locations
107,422
51,173
21,749
(19,709)
160,635
South Africa
97,580
51,173
21,749
(19,709)
150,793
Rest of world
$
9,842
$
-
$
-
$
-
$
9,842
(1) Processing fees South Africa and Total
columns have been restated for the error described in Note 1.
As the Company previously disclosed,
in June 2014, the Company received
approximately ZAR
317.0
million, including VAT,
from
SASSA,
related
to
the
recovery
of
additional
implementation
costs
its
subsidiary,
CPS,
incurred
during
the
beneficiary
re-
registration process in fiscal 2012 and 2013.
After the
award of
the tender,
SASSA requested
that CPS
biometrically
register all
social grant
beneficiaries (including
child
grant beneficiaries) and collect additional information
for each child grant recipient. CPS agreed to SASSA’s
request and, as a result,
it
performed
approximately
11
million
additional
registrations
beyond
those
that
CPS
tendered
for
in
the
quoted
service
fee.
Accordingly, CPS sought
reimbursement from SASSA of the cost of this exercise, supported
by a factual findings certificate from an
independent
auditing
firm.
SASSA
paid
CPS
ZAR
317.0
million,
including
VAT,
as
full
settlement
of
the
additional
costs
CPS
incurred.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-53
15.
REVENUE
(continued)
In March
2015, Corruption
Watch,
a South
African non-profit
civil society
organization, commenced
legal proceedings
in the
Gauteng Division,
Pretoria of
the High
Court of South
Africa (“High
Court”) seeking
an order by
the High
Court to
review and
set
aside the decision of SASSA’s Chief Executive Officer to approve a payment
to CPS of ZAR
317.0
million and directing CPS
to repay
the aforesaid
amount, plus
interest. Corruption
Watch
claimed that
there was no
lawful basis to
make the
payment to
CPS, and that
the decision
was unreasonable
and irrational
and did not
comply with South
African legislation.
CPS was named
as a respondent
in
this legal proceeding.
On February
22, 2018,
the matter
was heard
by the
High Court.
On March
23, 2018,
the High Court
ordered that
the June
15,
2012 variation
agreement
between SASSA
and
CPS be
reviewed
and
set aside.
CPS was
ordered
to refund
ZAR
317.0
million
to
SASSA, plus interest from June 2014 to date of payment.
On September 30, 2019, the Supreme Court declined CPS’
appeal and awarded costs against CPS. CPS
is liable to repay SASSA
ZAR
317.0
million, plus interest from June 2014 to date of payment. As a result, CPS recorded the liability at June 30, 2019, of $
34.0
million (ZAR
479.4
million, translated at exchange rates applicable as of June 30,
2019, comprising a revenue refund of $
19.7
million
(ZAR
277.6
million),
accrued interest
of
$
11.4
million
(ZAR
161.0
million),
unclaimed
indirect
taxes
of
$
2.8
million
(ZAR
39.4
million)
and
estimated costs
of $
0.1
million
(ZAR
1.4
million)).
The
Company
reduced
revenue
by
$
19.7
million
during
the year
ended June
30, 2019,
because it
interpreted the
Supreme Court
ruling as
a price
variation and
not a
nonreciprocal transaction.
The
Company deconsolidated the accrual for the refund of implementation costs
in May 2020, following the deconsolidation of CPS
(refer
to Note 23).
16.
STOCK
-
BASED
COMPENSATION
Amended and Restated Stock Incentive Plan
The
Company’s
Amended
and
Restated
2015
Stock
Incentive
Plan
(the
“Plan”)
was
most
recently
amended
and
restated
on
November 11, 2015, after approval
by shareholders. No evergreen provisions are included in
the Plan. This means that the maximum
number of shares issuable under the
Plan is fixed and cannot be increased
without shareholder approval, the plan
expires by its terms
upon a specified date, and no new stock options are awarded automatically upon exercise of an outstanding stock option. Shareholder
approval is required for the repricing of awards or the implementation
of any award exchange program.
The Plan
permits Net1
to grant
to its
employees, directors
and consultants
incentive stock
options, nonqualified
stock options,
stock appreciation rights, restricted stock, performance-based awards
and other awards based on its
common stock. The Remuneration
Committee of the Company’s Board
of Directors (“Remuneration Committee”) administers the Plan.
The total number
of shares of common
stock issuable under the
Plan is
11,052,580
. The maximum
number of shares for
which
awards, other than performance-based awards,
may be granted
in any combination during
a calendar year to
any participant is
569,120
.
The maximum
limits on
performance-based
awards that
any participant
may be
granted during
a calendar
year are
569,120
shares
subject to stock option awards
and $
20
million with respect to awards
other than stock options. Shares
that are subject to awards
which
terminate or lapse without the payment of
consideration may be granted again under the
Plan. Shares delivered to the Company as
part
or full payment for
the exercise of an option or to satisfy withholding obligations upon the exercise of an option may be granted again
under the
Plan in
the Remuneration
Committee’s
discretion. No
awards may
be granted
under the
Plan after
August 19,
2025, but
awards granted on or before such date may extend to later dates.
Options
General Terms of
Awards
Option awards are generally granted with an exercise price equal to the market price of the Company's stock at the date of grant,
with vesting conditioned upon the recipient’s continuous service through the applicable vesting date and expire
10
years after the date
of grant. The options generally become exercisable in accordance with a
vesting schedule ratably over a period of
three years
from the
date of grant. The Company issues new shares to satisfy stock option award
exercises but may also use treasury shares.
Valuation
Assumptions
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
table
below.
The
estimated
expected
volatility
is
generally
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.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-54
16.
STOCK
-
BASED
COMPENSATION
(continued)
Amended and Restated Stock Incentive Plan (continued)
Options (continued)
Valuation
Assumptions (continued)
The table below presents the range of assumptions used to value options
granted during the years ended 2021, 2020 and 2019:
2021
2020
2019
Expected volatility
62
%
57
%
44
%
Expected dividends
0
%
0
%
0
%
Expected life (in years)
3
3
3
Risk-free rate
0.19
%
1.57
%
2.75
%
Restricted Stock
General Terms of
Awards
Shares of restricted stock are
considered to be participating non-vested equity shares
(specifically contingently returnable shares)
for the
purposes of
calculating earnings per
share (refer
to Note
18)
because, as discussed
in more
detail below, the recipient
is obligated
to transfer any unvested
restricted stock back
to the Company for
no consideration
and these shares of
restricted stock are eligible
to
receive non-forfeitable
dividend equivalents
at the same
rate as common
stock. Restricted
stock generally
vests ratably
over a
three
year
period, with
vesting conditioned
upon the
recipient’s
continuous service
through the
applicable vesting
date and
under certain
circumstances, the achievement of certain performance targets,
as described below.
Recipients
are
entitled
to
all
rights
of
a
shareholder
of
the
Company
except
as
otherwise
provided
in
the
restricted
stock
agreements.
These
rights
include
the
right
to
vote
and
receive
dividends
and/or
other
distributions.
However,
the
restricted
stock
agreements generally
prohibit transfer
of any
nonvested and
forfeitable restricted
stock. If
a recipient
ceases to
be a
member of
the
Board of
Directors or
an employee
for any
reason, all
shares of
restricted stock
that are
not then
vested and
nonforfeitable will
be
immediately forfeited and transferred to the Company for no consideration. Forfeited shares of restricted stock
are available for future
issuances by the Remuneration Committee.
The Company issues new shares to satisfy restricted stock awards.
Valuation
Assumptions
The fair value
of restricted stock
is generally based
on the closing
price of the
Company’s stock
quoted on The
Nasdaq Global
Select Market on the date of grant.
Forfeiture of 150,000 shares
of restricted stock with Performance Conditions awarded
in August 2016
In August 2016, the
Remuneration Committee approved an
award of
350,000
shares of restricted stock to executive
officers. In
May 2017, the
Company determined
to accelerate the
vesting of all
(
200,000
) of the
shares of restricted
stock awarded to
its former
CEO. The shares of restricted stock awarded to executive
officers in August 2016 were subject to time-based
and performance-based
vesting conditions.
In order
for any
of the
shares to
vest, the
recipient was
required to
remain employed
by the
Company on
a full-
time basis on the date that it
files its Annual Report on Form
10-K for the fiscal year ended
June 30, 2019. If that condition is
satisfied,
then the shares will vest based on the level of Fundamental EPS the Company achieves for the fiscal
year ended June 30, 2019 (“2019
Fundamental EPS”), as follows:
●
One-third of the shares will vest if the Company achieves 2019 Fundamental
EPS of $
2.60
;
●
Two-thirds of the
shares will vest if the Company achieves 2019 Fundamental EPS of $
2.80
; and
●
All of the shares will vest if the Company achieves 2019 Fundamental EPS of $
3.00
.
At levels of 2019 Fundamental EPS greater
than $
2.60
and less than $
3.00
, the number of shares
that will vest will be
determined
by linear interpolation relative to 2019 Fundamental EPS of
$
2.80
. All shares of restricted stock have been
valued utilizing the closing
price
of
shares
of
the
Company’s
common
stock
quoted
on
The
Nasdaq
Global
Select
Market
on
the
date
of
grant
.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-55
16.
STOCK
-
BASED
COMPENSATION
(continued)
Amended and Restated Stock Incentive Plan (continued)
Restricted Stock (continued)
Forfeiture of 150,000 shares
of restricted stock with Performance Conditions awarded
in August 2016 (continued)
Any shares that did
not vest in accordance
with the above-described conditions
would be forfeited. During
the year ended June
30, 2019, the Company reversed
the stock-based compensation charge recognized related to
150,000
shares of restricted stock because
the Company did not achieve the 2019 Fundamental EPS target.
The
150,000
shares of restricted stock were forfeited.
Forfeiture of 150,000 shares
of restricted stock with Market Conditions awarded
in August 2017
In August 2017, the Remuneration Committee approved an award
of
210,000
shares of restricted stock to executive officers. The
shares of restricted
stock awarded to
executive officers
in August 2017
were subject to
a time-based vesting
condition and a
market
condition and would vest
in full only on
the date, if any,
that the following conditions
were satisfied: (1) the
price of the Company’s
common stock must equal or exceed certain agreed VWAP
levels (as described below) during a measurement period commencing on
the date that
it filed its Annual
Report on Form
10-K for the
fiscal year ended
June 30, 2020
and ending on
December 31, 2020
and
(2) the recipient
is employed by the
Company on a
full-time basis when
the condition in
(1) is met.
If either of
these conditions was
not satisfied, then none of the shares of restricted stock
would vest and they would be forfeited. The $
23.00
price target represents an
approximate
35
% increase,
compounded annually,
in the
price of
the Company’s
common stock
on Nasdaq
over the
$
9.38
closing
price on August 23, 2017.
The VWAP
levels and vesting percentages related to such levels were as follows:
●
Below $
15.00
(threshold)—
0
%
●
At or above $
15.00
and below $
19.00
—
33
%
●
At or above $
19.00
and below $
23.00
—
66
%
●
At or above $
23.00
—
100
%
The
210,000
shares of restricted stock were effectively forward starting knock-in barrier options with multi-strike prices of
zero
.
The fair
value of
these shares
of restricted
stock was calculated
utilizing a
Monte Carlo
simulation model
which was
developed for
the purpose
of the
valuation of
these shares.
For each
simulated share
price path,
the market
share price
condition was
evaluated to
determine whether
or not
the shares would
vest under
that simulation.
A standard
Geometric Brownian
motion process
was used
in
the forecasting
of the share
price instead of
a “jump diffusion”
model, as the
share price volatility
was more stable
compared to
the
highly volatile regime
of previous
years. Therefore, the
simulated share
price paths
capture the idiosyncrasies
of the
observed Company
share price movements.
In scenarios where
the shares do not
vest, the final vested
value at maturity is
zero. In scenarios where
vesting occurs, the final
vested value on maturity is
the share price on vesting date. The
value of the grant is the
average of the discounted vested values.
The
Company used an expected volatility of
44.0
%, an expected life of
approximately
three years
, a risk-free rate ranging between
1.275
%
to
1.657
% and
no
future dividends
in its
calculation of
the fair
value of
the restricted
stock. The
estimated expected
volatility was
calculated based on the Company’s
30 day
VWAP
share price using the exponentially weighted moving average of returns.
On August 5, 2020,
the Company and its
then chief executive officer and
member of its board
of directors, Mr. Herman G. Kotzé,
entered into
a Separation
and Release of
Claims Agreement
(the “Separation
Agreement”). The
parties agreed
that Mr.
Kotzé’s
last
day
of
employment
with
the Company
would
be
September
30,
2020,
unless
terminated
earlier
by
the
Company
for
cause.
Upon
separation
from
the
Company,
Mr.
Kotzé
forfeited
150,000
shares
of
restricted
stock
that
were
subject
to
the
market
conditions
described above
because he was
no longer
an employee of
the Company as
of the vesting
date. The
VWAP
market conditions were
not
achieved
and
all
outstanding
shares
of
restricted
stock
wer
e
forfeited
on
December
31,
2020
.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-56
16.
STOCK
-
BASED
COMPENSATION
(continued)
Amended and Restated Stock Incentive Plan (continued)
Restricted Stock (continued)
Market Conditions - Restricted Stock Granted in September 2018
In September 2018, the Remuneration Committee approved an award of
148,000
shares of restricted stock to executive officers.
The
148,000
shares of restricted stock awarded to
executive officers in September
2018 are subject to a time-based vesting
condition
and a market
condition and vest
in full only
on the
date, if
any, that the following
conditions are
satisfied: (1) the
price of
the Company’s
common stock must equal or exceed certain agreed VWAP
levels (as described below) during a measurement period commencing on
the date that
it files its
Annual Report on
Form 10-K for
the fiscal year
ended June 30,
2021 and ending
on December 31,
2021 and
(2) the recipient is employed by the Company on a full-time basis when
the condition in (1) is met. If either of these conditions is not
satisfied,
then
none
of
the
shares
of
restricted
stock
will
vest
and
they
will
be
forfeited.
The
$
23.00
price
target
represents
an
approximate
55
% increase,
compounded annually,
in the
price of
the Company’s
common stock
on Nasdaq
over the
$
6.20
closing
price on September 7, 2018.
The VWAP
levels and vesting percentages related to such levels are as follows:
●
Below $
15.00
(threshold)—
0
%
●
At or above $
15.00
and below $
19.00
—
33
%
●
At or above $
19.00
and below $
23.00
—
66
%
●
At or above $
23.00
—
100
%
The fair value of these shares of restricted stock was calculated using a Monte Carlo simulation of
a stochastic volatility process.
The choice of a stochastic volatility process as an extension to the standard Black Scholes process was driven by both observations of
larger than expected moves in the daily time series for the Company’s
VWAP
price, but also the observation of the strike structure of
volatility
(i.e.
skew
and
smile)
for
out-of-the
money
calls
and
out-of-the
money
puts
versus
at-the-money
options
for
both
the
Company’s stock and NASDAQ futures.
In scenarios where
the shares do not
vest, the final vested
value at maturity is
zero. In scenarios where
vesting occurs, the final
vested value on maturity is the share price on vesting
date. In its calculation of the fair value of
the restricted stock, the Company used
an average volatility of
37.4
% for the VWAP
price, a discounting based on USD overnight indexed swap rates for
the grant date, and
no future dividends. The average volatility was extracted from the time series for VWAP prices as the standard deviation of log prices
for the
three years
preceding the grant date. The mean reversion
of volatility and the volatility of
volatility parameters of the stochastic
volatility process
were extracted
by regressing
log differences
against log
levels of
volatility from
the time
series for
at-the-money
options
30 day
volatility quotes, which were available from January 2, 2018 onwards.
Executive officers forfeited
88,000
shares of restricted
stock that were
subject to the
market conditions described above
following
their separation from the Company during the year ended June 30, 2021.
Performance Conditions - Restricted Stock Granted in February 2020
The
454,400
shares of restricted
stock awarded to
executive officers in February
2020 are subject
to time-based and
performance-
based vesting conditions and vest in full only on the date, if any,
that the following conditions are satisfied: (1) the achievement of an
agreed return on average net equity per year during a
measurement period commencing from July 1, 2021, through June 30, 2023,
and
(2) the recipient
is employed by
the Company
on a full-time
basis when the
condition in
(1) is met.
Net equity
is calculated as
total
equity attributable
to the
Company’s
shareholders plus
redeemable common
stock, in
conformity with
GAAP.
The net
equity as
of
June 30, 2021, was
set as the base
year for the measurement period. The
average net equity is
calculated as the simple average
between
the opening
net equity
and closing
net equity
during each
fiscal year
within the
measurement
period.
The targeted
return per
year
within the measurement period is derived from GAAP net income
attributable to the Company per fiscal year.
The performance-based awards vest
based on the achievement of
the following targeted return
on average net equity during
the
measurement period, of:
●
8
% per year:
50
% vest;
●
14
% per year:
100
% vest.
No
shares of restricted
stock will vest
at a return
on average net
equity of less
than
8
%. Calculation of
the award based
on the
returns between
8
% and
14
% will be interpolated
on a linear basis.
The Company’s
Remuneration Committee may
use its discretion
to
adjust
any
component
of
the
calculation
of
the
award
on
a
fact
-
by
-
fact
basis,
for
instance,
as
the
result
of
an
acquisition.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-57
16.
STOCK
-
BASED
COMPENSATION
(continued)
Amended and Restated Stock Incentive Plan (continued)
Restricted Stock (continued)
Performance Conditions - Restricted Stock Granted in February 2020
(continued)
Executive
officers
forfeited
374,400
shares
of
restricted
stock
that
were
subject
to
the
performance
conditions
described
following their separation from the Company during the year ended June
30, 2021.
Market Conditions - Restricted Stock Granted in May 2021
In May 2021,
the Remuneration
Committee approved an
award of
158,734
shares of restricted
stock to executive
officers. The
158,734
shares of restricted
stock awarded to
executive officers in
May 2021 are
subject to a
time-based vesting condition and
a market
condition and vest
in full only
on the date,
if any, that the
following conditions are
satisfied: (1) a
compounded annual
20
% appreciation
in the Company’s stock price over the measurement period commencing on
June 30, 2021 through June 30,
2024,
and (2) the recipient
is employed
by the Company
on a full-time
basis when the
condition in
(1) is met.
If either of
these conditions
is not satisfied,
then
none of the
shares of restricted
stock will vest and
they will be
forfeited. The Company’s
closing stock price
on Nasdaq on
June 30,
2021, was $
4.71
.
The appreciation levels (times and price) and vesting percentages as of each
period ended related to such levels are as follows:
●
Prior to the first anniversary of the grant date:
0
%
●
Fiscal 2022, stock price as of June 30, 2022 is
1.2
times higher (i.e. $
5.65
or higher) than $
4.71
:
33
%;
●
Fiscal 2023, stock price as of June 30, 2023 is
1.44
times higher (i.e. $
6.78
or higher) than $
4.71
:
67
%;
●
Fiscal 2024, stock price as of June 30, 2024 is
1.728
times higher (i.e. $
8.14
) than $
4.71
:
100
%.
The fair value of these shares of restricted stock was calculated using a Monte Carlo simulation of
a stochastic volatility process.
The choice of a stochastic volatility process as an extension to the standard Black Scholes process was driven by both observations of
larger than expected moves in the daily time series for
the Company’s closing price, but also the observation
of the strike structure of
volatility
(i.e.
skew
and
smile)
for
out-of-the
money
calls
and
out-of-the
money
puts
versus
at-the-money
options
for
both
the
Company’s stock and NASDAQ futures.
In scenarios where the
shares do not vest, the
final vested value at maturity
is zero. In scenarios
where vesting occurs, the
final
vested value on maturity is the share price on vesting
date. In its calculation of the fair value of
the restricted stock, the Company used
an average volatility of
61.6
% for the closing price, a discounting based on USD overnight
indexed swap rates for the grant date, and
no future dividends. The average volatility was extracted from the time series for closing prices as the standard deviation of log prices
for the three years preceding the grant
date. The mean reversion of volatility
and the volatility of volatility parameters of
the stochastic
volatility process
were extracted
by regressing
log differences
against log
levels of
volatility from
the time
series for
at-the-money
options
30 day
volatility quotes, which were available for the three years preceding
May 5, 2021.
Stock Appreciation Rights
The Remuneration Committee may also grant stock appreciation rights, either singly
or in tandem with underlying stock options.
Stock appreciation rights entitle the holder upon exercise to receive an amount in any combination of cash or shares of common stock
(as determined by the Remuneration Committee) equal
in value to the excess
of the fair market value
of the shares covered by
the right
over
the
grant
price.
No
stock
appreciation
rights
have
been
granted.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-58
16.
STOCK
-
BASED
COMPENSATION
(continued)
Stock option and restricted stock activity
Options
The following table summarizes stock option activity for the years ended
June 30, 2021, 2020 and 2019:
Number of
shares
Weighted
average
exercise
price
($)
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
($'000)
Weighted
average
grant date
fair value
($)
Outstanding - July 1, 2018
809,274
13.99
2.67
370
4.20
Granted – September 2018
600,000
6.20
10.00
1,212
2.02
Expired unexercised
(370,000)
19.27
-
5.00
Forfeited
(174,695)
6.65
-
2.00
Outstanding - June 30, 2019
864,579
7.81
7.05
-
2.62
Granted – October 2019
561,000
3.07
10.00
676
1.20
Forfeited
(93,928)
7.50
-
2.81
Outstanding - June 30, 2020
1,331,651
5.83
7.56
-
2.01
Granted – August 2020
150,000
3.50
3.00
166
1.11
Granted – November 2020
560,000
3.01
10.00
691
1.23
Exercised
(17,335)
3.07
35
Forfeited
(729,484)
6.65
-
2.24
Outstanding - June 30, 2021
1,294,832
3.93
7.68
1,624
1.45
These options have an exercise price range of $3.01 to $11.23.
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.
During the years ended June 30,
2021 and 2020,
331,833
and
170,335
stock options became exercisable, respectively.
No
stock
options
became
exercisable
during
the
year
ended
June
30,
2019.
During
the
year
ended
June
30,
2021,
the
Company
received
approximately $
0.5
million from the
exercise of
17,335
stock options.
No
stock options were
exercised during
the years ended
June
30, 2020 and 2019, respectively.
During
the
years
ended
June
30,
2021,
2020
and
2019,
employees
forfeited
729,484
,
93,928
and
174,695
stock
options,
respectively.
The number
of forfeitures
during the
year ended
June 30,
2021, increased
significantly compared
to prior
periods as
a
result of the closure of our IPG operations during the latter half of calendar 2020 and the unrelated
(to the IPG closure) resignation of
various employees in
the first half of calendar
2021. These stock options
forfeited had strike prices
ranging from $
3.01
to $
11.23
. In
addition, 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. During the year ended June 30, 2019,
200,000
stock options awarded in August
2008
and
170,000
stock
options
awarded
in
May
2009
expired
unexercised.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-59
1
6.
STOCK
-
BASED
COMPENSATION
(continued)
Options (continued)
The following table presents stock options vested and expected to vest as of
June 30, 2021:
Number of
shares
Weighted
average
exercise
price
($)
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
($’000)
Vested
and expecting to vest - June 30, 2021
1,294,832
3.93
7.68
1,624
These options have an exercise price range of $
3.01
to $
11.23
.
The following table presents stock options that are exercisable as of June 30,
2021:
Number of
shares
Weighted
average
exercise
price
($)
Weighted
average
remaining
contractual
term
(in years)
Aggregate
intrinsic
value
($’000)
Exercisable - June 30, 2021
326,677
5.57
7.43
206
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-60
16.
STOCK
-
BASED
COMPENSATION
(continued)
Restricted stock
The following table summarizes restricted stock activity for the years
ended June 30, 2021, 2020 and 2019:
Number of
shares of
restricted
stock
Weighted
average
grant date
fair value
($’000)
Non-vested – July 1, 2018
765,411
6,162
Granted – September 2018
148,000
114
Total vested
(64,003)
503
Vested
– August 2018
(52,594)
459
Vested
– March 2019
(11,409)
44
Total forfeitures
(265,500)
1,060
Forfeitures – employee terminations
(115,500)
460
Forfeitures – August 2016 awards with performance conditions
(150,000)
600
Non-vested – June 30, 2019
583,908
3,410
Granted – February 2020
568,000
2,300
Total vested
(18,908)
70
Vested
– March 2020
(11,408)
42
Vested
– March 2020 - accelerated vesting
(7,500)
28
Forfeitures
(17,500)
65
Non-vested – June 30, 2020
1,115,500
5,354
Granted – May 2021
254,560
1,035
Total vested
(311,300)
1,037
Vested
– August 2020
(244,500)
812
Vested
– September 2020 - accelerated vesting
(66,800)
225
Total forfeitures
(674,200)
2,690
Forfeitures - employee terminations
(644,200)
2,542
Forfeitures – August 2017 awards with market conditions
(30,000)
148
Non-vested – June 30, 2021
384,560
1,123
The
May
2021
grants
comprise
158,734
shares
of
restricted
stock
awarded
to
executive
officers
that
are
subject
to
a
market
condition (related
to share
price performance)
and time-based
vesting, and
95,826
shares of
restricted stock
awarded to
employees,
including
77,040
shares of restricted stock awarded
to Mr. Mali, our Chief Executive
Officer: Southern Africa, that are
subject to time-
based vesting. During
the year ended June
30, 2021,
244,500
shares of restricted stock
with time-based vesting
conditions vested. In
connection with the
Company’s former
chief executive officer’s
separation, the Company
agreed to accelerate
the vesting of
66,800
shares
of
restricted
stock
which
were
granted
in
February
2020,
and
which
were
subject
to
time-based
vesting.
These
shares
of
restricted stock vested
on September 30,
2020. The
644,200
shares of restricted
stock that were forfeited
during the year ended
June
30, 2021,
includes
475,200
shares of restricted
stock forfeited
by the Company’s
former chief
executive officer
upon his separation
from
the
Company.
The
30,000
shares
were
forfeited
by
an
executive
officer
as
the
market
condition
(related
to
share
price
performance) was not achieved.
The
February 2020
grants comprise
113,600
shares of
restricted stock
awarded to
executive officers
that are
subject to
time-
based vesting
and
454,400
shares of
restricted
stock awarded
to executive
officers
that are
subject to
performance
and time-based
vesting. On
March 1,
2018,
22,817
shares of
restricted stock
with time-based
vesting conditions
were granted
to our chief
financial
officer and these awards vest in two tranches, of which
11,408
vested on March 1, 2020, and
11,409
vested on March 1, 2019. During
the year
ended June
30, 2020,
employees forfeited
17,500
shares of
restricted stock
upon termination
and
7,500
shares (50%
of the
original award) of restricted stock with time-based vesting conditions were forfeited by an executive officer upon the disposal of Net1
Korea. The Company’s Board of
Directors accelerated the vesting of the other half of the award and
7,500
vested.
The September 2018 grants comprise
148,000
shares of restricted stock awarded
to executive officers that are
subject to market
and time-based vesting. On
March 1, 2019,
11,409
of the
22,817
shares of restricted
stock awarded to
our chief financial
officer vested.
The 52,594
shares of
restricted stock
represent awards
made to
non-employee directors
that vested.
During the
year ended
June 30,
2019, employees
forfeited
115,500
shares of restricted
stock upon termination
which had either
time-based or
market conditions.
In
addition,
an
executive
officer
forfeited
150,000
shares
of
restricted
stock
as
the
performance
conditions
were
not
achieved.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-61
16.
STOCK
-
BASED
COMPENSATION
(continued)
Restricted stock (continued)
The fair
value of
restricted stock
which vested
during the
years ended
June 30,
2021, 2020
and 2019,
was $
1.0
million, $
0.1
million and $
0.5
million, respectively.
July 1 award to new Group
Chief Executive Officer
On June 30,
2021, the Company
entered into employment
agreements
with Mr.
Chris G.B. Myer,
under which Mr.
Meyer was
appointed 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 were
subject to time-based
vesting 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
Committee also awarded Mr.
Meyer
117,304
shares of restricted stock which
include performance conditions
and which only vested
on June
30, 2024
if the
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.
The parties also agreed that, on or about January
1, 2022, the Company will issue such number of shares
of restricted stock equal
to the aggregate
amount of the
Company’s common stock purchased by Mr. Meyer
between when the
Company files its
Annual Report
on Form 10-K for the year ended June 30, 2021, and December 31, 2021. The number of shares of restricted to stock to be issued will
be calculated using a base amount of up to $ 1.0 million, in each case, divided by the Fair Market Value (as defined in the Company’s
Amended and Restated 2015 Stock Incentive Plan) of the
Company’s common stock
as determined by the Company’s
Remuneration
Committee.
These
shares of
restricted
stock
are also
expected to
include
time-based
vesting
conditions
and will
be subject
to
Mr.
Meyer’s continuous service
to the Company through the applicable vesting date.
Stock-based compensation charge and unrecognized compensation
cost
The Company has
recorded a net stock
compensation charge
of $
0.3
million, $
1.7
million and $
0.4
million for the
years ended
June 30, 2021, 2020 and 2019, respectively,
which comprised:
Total
charge
Allocated to IT
processing,
servicing and
support
Allocated to
selling, general
and
administration
Year
ended June 30, 2021
Stock-based compensation charge
$
1,430
$
-
$
1,430
Reversal of stock compensation charge related to stock
options and restricted stock forfeited
(1,086)
-
(1,086)
Total - years ended
June 30, 2021
$
344
$
-
$
344
Year
ended June 30, 2020
Stock-based compensation charge
$
1,873
$
-
$
1,873
Reversal of stock compensation charge related to stock
options and restricted stock forfeited
(145)
-
(145)
Total - years ended
June 30, 2020
$
1,728
$
-
$
1,728
Year
ended June 30, 2019
Stock-based compensation charge
$
2,319
$
-
$
2,319
Reversal of stock compensation charge related to stock
options and restricted stock forfeited
(1,926)
-
(1,926)
Total - years ended
June 30, 2019
$
393
$
-
$
393
The
stock-based
compensation
charges
and
reversal
have
been
allocated
to
selling,
general
and
administration
based
on
the
allocation
of
the
cash
compensation
paid
to
the
relevant
employees.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-62
16.
STOCK
-
BASED
COMPENSATION
(continued)
Stock-based compensation charge and unrecognized compens
ation cost (continued)
As of June
30, 2021, the
total unrecognized
compensation cost related
to stock options
was approximately
$
0.8
million, which
the
Company
expects
to
recognize
over
approximately
two years
.
As of
June
30,
2021,
the
total
unrecognized
compensation
cost
related to restricted stock awards was approximately $
1.2
million, which the Company expects to recognize over approximately
three
years
.
Tax
consequences
The Company
recorded a
deferred tax
asset of
approximately $
0.1
million and
$
0.4
million, respectively,
for the
years ended
June 30, 2021 and June 30, 2020. As of June 30, 2021 and 2020,
the Company recorded a valuation allowance of approximately $
0.1
million and $
0.4
million respectively,
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 date
of exercise
by the
option recipient
and the
exercise
price
from income
subject to
taxation in the United States.
17.
I
NCOME
TAX
Income tax provision
The table below presents
the components of (loss)
income before income taxes
for the years
ended June 30, 2021,
2020 and 2019:
2021
2020
2019
South Africa
$
(30,825)
$
(26,230)
$
(273,265)
United States
(6,686)
(8,984)
(23,479)
Liechtenstein
(810)
(17,519)
-
Other
32,702
(12,283)
(22,699)
Loss before income taxes
$
(5,619)
$
(65,016)
$
(319,443)
Presented below is the provision
for income taxes by location of
the taxing jurisdiction
for the years ended June 30, 2021,
2020
and 2019:
2021
2020
2019
Current income tax expense (benefit)
$
859
$
1,652
$
4,789
South Africa
866
1,552
3,689
United States
(75)
12
1,100
Other
68
88
-
Deferred taxation charge (benefit)
6,691
932
(8,917)
South Africa
(2,039)
653
(8,538)
United States
9,136
-
4
Other
(406)
279
(383)
Foreign tax credits generated – United States
10
72
(944)
Income tax provision (benefit)
$
7,560
$
2,656
$
(5,072)
There were
no
changes to the enacted tax rate in the years ended June 30, 2021, 2020 and 2019.
During the years
ended June 30, 2021, 2020 and 2019,
the Company incurred net operating losses through certain of it its South
African wholly-owned
subsidiaries and recorded a
deferred taxation benefit related to
these losses. However, the Company has
created
a valuation allowance for these net operating losses which reduced
the deferred taxation benefit recorded.
The Company incurred a net
capital gain, after the application
of capital loss carryforwards, related
to the internal restructuring
of a wholly-owned subsidiary during the year ended June 30, 2020. The Company also generated taxable capital gains during the year
ended June 30, 2020, related to the disposal of
FIHRST (refer to Note 23) and the sale
of DNI (refer to Note 8) but
utilized capital loss
carryforwards
to
reduce
the
capital
gains
on
these
transactions
to
zero
($
0
).
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-63
17.
INCOME
TAX
(continued)
Income tax provision (continued)
The Company calculated its Transition Tax liability as of June 30, 2018, and incurred a Transition Tax, before the application of
any foreign
tax credits,
of $
55.8
million, and
has no
liability after
the application
of generated
foreign tax
credits. During
the year
ended June 30,
2019, the Company
recorded the difference
of $
1.1
million between the Transition
Tax
liability of $
56.9
million and
the provisional
Transition
Tax
liability of
$
55.8
million in
current income
tax, United
States. During
the year
ended June 30,
2019,
the Company also included the
additional foreign tax credits utilized
of $
1.1
million against this Transition
Tax in foreign
tax credits
generated – United States.
A reconciliation
of income
taxes, calculated
at the
fully-distributed South
African income
tax rate
to the
Company’s
effective
tax rate, for the years ended June 30, 2021, 2020 and 2019, is as follows:
2021
2020
2019
Income taxes at fully-distributed South African tax rates
28.00
%
28.00
%
28.00
%
Movement in valuation allowance
(250.16)
%
1.64
%
(22.98)
%
Non-deductible items
(58.40)
%
(10.38)
%
(3.33)
%
Foreign tax rate differential
51.21
%
(4.17)
%
(0.07)
%
Capital gains differential
93.03
%
(1.59)
%
(1.46)
%
Prior year adjustments
1.77
%
(0.01)
%
(0.03)
%
Release from FCTR
-
-
(14.65)
%
-
-
Subpart F inclusions
-
-
(2.85)
%
-
-
Foreign tax credits
-
-
(0.08)
%
0.35
%
Taxation on deemed
dividends in the United States
-
-
-
-
1.45
%
Transition Tax
-
-
-
-
(0.34)
%
Income tax provision
(134.55)
%
(4.09)
%
1.59
%
Percentages included in the 2021, 2020 and 2019 columns
in the reconciliation of income taxes presented above are impacted by
the loss incurred
by the Company
during the
year ended
June 30, 2021,
2020 and
2019. For instance,
the income
tax provision
of $
7.6
million represents (
134.55
%) multiplied by the net loss before tax of $(
5,619
). Movement in the valuation allowance for the year
ended June
30, 2021,
includes allowances
created related
to net
operating losses
incurred during
the year.
Non-deductible items
for
the year ended June 30, 2021, includes the impact of the allowance for doubtful loans created.
The foreign tax rate differential relates
primarily to the difference between
the fully-distributed South African income
tax rate and
the rate used (
21
%) to measure the
deferred
tax
liability
created
related
to
the
fair
adjustment
to
the
Company’s
investment
in
MobiKwik
(refer
to
Note
8).
The capital
gains
differential
for the
year ended
June 30,
2021, represents
the impact
of the
reversal of
the deferred
tax liability
related to
one of
the
Company’s equity-accounted
investments following its impairment (refer to Note 8).
Movement in the valuation allowance
for the year ended
June 30, 2020,
includes allowances created related to
net operating losses
incurred during the year and
valuation allowances
created for a deferred tax
asset recorded related to the deconsolidation
of CPS and
other corporate
transactions. Release
from FCTR
for the
year
ended June
30, 2020,
relates to
the releases
from accumulated
other
comprehensive loss (refer to Note 14) that are not deductible for
tax purposes. Non-deductible items for the year ended June 30, 2020,
includes the option termination fee paid and the goodwill impairment
loss recognized.
Movement in the valuation allowance
for the year ended
June 30, 2019, includes
allowances created related to
net operating losses
incurred during the year and a valuation
allowance created for a deferred tax
asset recorded related to the DNI disposal
capital losses
generated (refer to Note
8) and the Cell C capital
loss following the fair
value adjustment (refer to Note
5). Non-deductible items for
the
year
ended
June
30,
2019,
includes
the
impairment
losses
recognized
related
to
goodwill
impaired.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-64
17.
INCOME
TAX
(continued)
Deferred tax assets and liabilities
Deferred
income taxes
reflect the
temporary
differences
between
the financial
reporting and
tax bases
of assets
and
liabilities
using enacted tax rates
in effect for the
year in which
the differences are expected
to reverse. The
primary components of the
temporary
differences that gave rise to the Company’s
deferred tax assets and liabilities as of June 30, and their classification, were as follows:
June 30,
June 30,
2021
2020
Total
deferred tax assets
Capital losses related to investments
$
47,518
$
36,721
Net operating loss carryforwards
36,329
32,459
Foreign tax credits
32,737
32,799
Provisions and accruals
2,123
3,936
FTS patent
163
181
Other
654
815
Total
deferred tax assets before valuation allowance
119,524
106,911
Valuation
allowances
(118,777)
(106,433)
Total
deferred tax assets, net of valuation allowance
747
478
Total
deferred tax liabilities:
Intangible assets
100
171
Investments
10,354
1,755
Other
87
53
Total
deferred tax liabilities
10,541
1,979
Reported as
Long-term deferred tax assets
622
358
Long-term deferred tax liabilities
10,415
1,859
Net deferred income tax liabilities
$
9,793
$
1,501
Increase in total net deferred income tax liabilities
Capital losses related to investments
Capital losses as of June 30,
2021 and 2020,
comprises the capital loss arising from
the difference between the amount
paid for
Cell C in August 2017 and the its fair value as of the respective year end, of $
0.0
million, and difference between the amount paid for
CPS in 2004
and the its
fair value
as of the
respective year
end, of
$
0.0
million. The
change in capital
losses related
to investments
relates primarily to the impact of currency changes between the South Africa
Rand against the United States dollar.
Net operating loss carryforwards
Net operating loss carryforwards have increased due
to losses incurred by certain of the Company’s
subsidiaries and the impact
of currency changes between the South Africa Rand
against the United States dollar, which was partially offset by
net operating losses
carryforwards forfeited following the substantial liquidation of
certain of the Company’s subsidiaries.
Investments
Investment increased during the year
ended June 30, 2021,
primarily as a result
of the fair value
adjustments to the carrying
value
of MobiKwik (refer to Note 8).
Decrease in valuation allowance
At
June
30,
2021,
the
Company
had
deferred
tax
assets of
$
0.7
million
(2020:
$
0.5
million), net
of the
valuation
allowance.
Management believes,
based on
the weight
of available
positive and
negative evidence
it is
more likely
than not
that the
Company
will realize the benefits of these deductible differences, net of the valuation
allowance. However, the amount of the deferred
tax asset
considered realizable could be adjusted in the future if estimates of taxable
income are revised.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-65
17.
INCOME
TAX
(continued)
Deferred tax assets and liabilities (continued)
Decrease in valuation allowance (continued)
At June
30, 2021,
the Company
had a
valuation allowance
of $
118.8
million (2020:
$
106.4
million) to
reduce its
deferred tax
assets to estimated
realizable value. The movement in
the valuation allowance for
the years ended
June 30, 2021
and 2020, is
presented
below:
Total
Capital losses
related to
investments
Net operating
loss carry-
forwards
Foreign tax
credits
Other
July 1, 2019
$
125,887
$
43,569
$
35,861
$
32,799
$
13,658
Charged to statement of operations
27,700
5,399
20,602
-
1,699
Reversed to statement of operations
(14,314)
(5,486)
(77)
-
(8,751)
Deconsolidation
(16,130)
-
(15,830)
-
(300)
Utilized
(3,896)
-
(3,632)
-
(264)
Foreign currency adjustment
(12,814)
(6,761)
(4,651)
-
(1,402)
June 30, 2020
106,433
36,721
32,273
32,799
4,640
Charged to statement of operations
16,376
3,532
13,264
-
(420)
Reversed to statement of operations
(14,840)
-
(13,687)
(62)
(1,091)
Utilized
(1,422)
-
(135)
-
(1,287)
Foreign currency adjustment
12,230
7,265
4,555
-
410
June 30, 2021
$
118,777
$
47,518
$
36,270
$
32,737
$
2,252
Net operating loss carryforwards and foreign tax credits
United States
Net operating
loss generated are
carried forward
indefinitely,
but the loss
carryforward
that may be
used against future
taxable
income is limited to 80% of taxable income before the net operating loss deduction.
In March 2020,
the Coronavirus Aid,
Relief and Economic
Security Act (the
“Cares Act”) was enacted.
The Cares Act, among
other items,
provides for
a temporary
repeal of
the 80 percent
net operating
loss limitation and
provides temporary
modifications to
the limitation on deductibility of business interest.
As of June 30, 2021, Net1 had net operating loss carryforwards that will expire,
if unused, as follows:
Year
of expiration
U.S. net
operating loss
carry
forwards
2024
$
775
Net1 had no net unused foreign tax credits that
are more likely than not to be realized as
of June 30, 2021 and 2020, respectively.
Uncertain tax positions
As of June 30, 2021 and 2020, the Company had
no
unrecognized tax benefits which would impact the Company’s
effective tax
rate.
The
Company
files
income
tax
returns
mainly
in
South
Africa,
Germany,
Hong
Kong,
India,
Malta,
the
United
Kingdom,
Botswana and in the U.S. federal jurisdiction. As of June 30, 2021, 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.
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.
The Company does not
expect the change related
to unrecognized tax benefits will
have a significant impact
on its results of operations or financial position in the next 12 months.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-66
18.
(LOSS)
EARNINGS
PER
SHARE
The Company has
issued redeemable common
stock (refer to Note
13) 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 years ended
June 30, 2021,
2020 and 2019.
Accordingly,
the two-class method presented below does not include the impact of
any redemption.
Basic (loss) earnings per share include 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 years ended
June 30, 2021, 2020 and 2019,
reflects only
undistributed
earnings. The
computation below
of basic
(loss) earnings
per share
excludes the
net loss
attributable
to
shares of unvested restricted
stock (participating non-vested
restricted stock) from
the numerator and excludes
the dilutive impact of
these unvested shares of restricted stock from the denominator.
Diluted (loss)
earnings per
share have
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 calculation
of diluted
(loss) earnings
per share
includes the
dilutive effect of
a portion of the
restricted stock granted
to employees in Augu
st 2016, August 2017,
March 2018, September
2018,
February 2020 and May 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
are
discussed
in
Note
16
.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-67
18.
(LOSS)
EARNINGS
PER
SHARE
(continued)
The following table presents net (loss) income attributable
to Net1 and the share
data used in the basic and
diluted (loss) earnings
per share computations using the two-class method for the years ended
June 30, 2021, 2020 and 2019:
2021
2020
2019
(in thousands except percent and per share data)
Numerator:
Net loss attributable to Net1
$
(38,057)
$
(78,358)
$
(311,007)
Undistributed (loss) earnings
(38,057)
(78,358)
(311,007)
Continuing
(38,057)
(97,214)
(311,761)
Discontinued
$
-
$
18,856
$
754
Percent allocated to common shareholders
(Calculation 1)
99%
98%
99%
Numerator for (loss) earnings per share: basic and diluted
$
(37,825)
$
(76,827)
$
(306,640)
Continuing
(37,825)
(95,315)
(307,383)
Discontinued
$
-
$
18,488
$
743
Denominator
Denominator for basic (loss) earnings per share:
weighted-average common shares outstanding
56,332
56,003
55,963
Effect of dilutive securities:
Stock options
259
-
18
Denominator for diluted (loss) earnings per share: adjusted
weighted average common shares outstanding and assumed
conversion
56,591
56,003
55,981
(Loss) Earnings per share:
Basic
$
(0.67)
$
(1.37)
$
(5.48)
Continuing
$
(0.67)
$
(1.70)
$
(5.49)
Discontinued
$
-
$
0.33
$
0.01
Diluted
$
(0.67)
$
(1.37)
$
(5.48)
Continuing
$
(0.67)
$
(1.70)
$
(5.49)
Discontinued
$
-
$
0.33
$
0.01
(Calculation 1)
Basic weighted-average common shares outstanding (A)
56,332
56,003
55,963
Basic weighted-average common shares outstanding and unvested
restricted shares expected to vest (B)
56,678
57,119
56,760
Percent allocated to common shareholders
(A) / (B)
99%
98%
99%
Options to
purchase
282,832
,
1,331,651
and
864,579
shares of
the Company’s
common stock
at prices
ranging from
$
6.20
to
$
11.23
(2021), $
3.07
to $
11.23
(2020) and
$
6.20
to $
11.23
(2019) per
share were outstanding
during the year
ended June 30,
2021,
2020 and 2019,
respectively, but were not included
in the computation
of diluted (loss)
earnings per share
because the options’
exercise
prices were greater
than the average
market price of
the Company’s common shares.
The options, which
expire at various
dates through
October 14, 2029, were still outstanding as of June 30, 2021.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-68
19.
SUPPLEMENTAL
CASH
FLOW
INFORMATION
The following table presents supplemental cash flow disclosures for
the years ended June 30, 2021, 2020 and 2019:
2021
2020
2019
Cash received from interest
$
2,222
$
3,057
$
5,596
Cash paid for interest
$
3,056
$
6,050
$
10,636
Cash paid for income taxes
$
16,608
$
5,001
$
13,110
Investing activities
The transaction referred to in
Note 23
under which the Company reduced its shareholding in DNI from
55
% to
38
% and used the
proceeds, of $
27.6
million, from the sale to settle its obligation, of $
27.6
million, to subscribe for additional shares in DNI was closed
using a cashless settlement process.
Therefore, the proceeds from
sale and the settlement of the
obligation to subscribe for additional
shares in DNI
were not included
in net cash
provided by investing
activities in the
Company’s
consolidated statement of
cash flows
for the year ended June 30, 2019.
The transaction referred to in
Note 23
and Note 11 under which the Company reduced its shareholding in DNI from
38
% to
30
%
and
used the
proceeds
from
the sale
to
settle a
portion
of its
long-term
borrowings,
of $
15.0
million,
was closed
using
a
cashless
settlement process.
Therefore, the
proceeds from
sale was
not included
in net
cash provided
by (used
in) investing
activities in
the
Company’s consolidated
statement of cash flows for the year ended June 30, 2019.
Financing activities
The transaction referred to
in
Note 23
and Note 8 under which the
Company reduced its shareholding
in DNI from
38
% to
30
%
and
used
the
proceeds
from
the
sale
to
settle
a
portion
of its
long-term
borrowings,
of $
15.0
million
was
closed
using
a
cashless
settlement process.
Therefore,
the part
settlement of
the long-term
borrowings
was not
included
in net
cash (used
in) provided
by
financing activities in the Company’s
consolidated statement of cash flows for the year ended June 30, 2019.
Disaggregation of cash, cash equivalents and restricted cash
Cash, cash equivalents
and restricted cash
included on
the Company’s
consolidated statement
of cash flows
includes restricted
cash related to cash withdrawn from the Company’s
various debt facilities to fund ATMs.
This cash may only be used to fund ATMs
and
is considered
restricted
as to
use
and
therefore
is classified
as restricted
cash.
Cash,
cash
equivalents
and
restricted
cash
also
includes cash in certain bank accounts that have been ceded to
Nedbank. As this cash has been pledged and ceded it
may not be drawn
and is considered restricted
as to use and therefore is classified
as restricted cash as well. Refer
to Note 11 for
additional information
regarding the Company’s facilities. The following table presents the disaggregation
of cash, cash equivalents and restricted cash as of
June 30, 2021, 2020 and 2019:
2021
2020
2019
Continuing
$
198,572
$
217,671
$
20,014
Discontinued
-
-
26,051
Cash and cash equivalents
198,572
217,671
46,065
Restricted cash
25,193
14,814
75,446
Cash, cash equivalents and restricted cash
$
223,765
$
232,485
$
121,511
Leases
The following table presents supplemental cash flow disclosure related
to leases for the years ended June 30, 2021 and 2020:
2021
2020
Cash paid related to lease liabilities
Operating cash flows from operating leases
$
4,050
$
3,603
Right-of-use assets obtained in exchange for lease obligations
Operating leases
$
3,000
$
2,974
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-69
20.
OPERATING
SEGMENTS
Change to internal reporting structure and restatement
of previously reported information
During September 2020, the Company’s chief operating decision maker
changed the Company’s operating and internal reporting
structures
following
the
Company’s
decisions
to
focus
primarily
on
the
South
African
market
and
to
exit
its
operating
activities
performed through IPG.
The chief operating decision
maker has decided to
analyze the Company’s
operating performance primarily
based on
reported information
for statutory
entities, statutory
groups, clustered
statutory entities
or clustered
statutory groups,
with
certain reallocations, based on the activity of the reporting unit. Previous
ly reported information has been restated.
Reallocation of certain activities among operating segments
During the first quarter of fiscal 2021, the Company reorganized
its operating segments by combining what were previously the
South African
transaction processing
segment and
the International
transaction processing
segment into
what is now
the Processing
segment and bifurcating what
was previously the Financial
inclusion and applied
technologies segment into what
are now the
Financial
services segment and the
Technology segment. Segment results for the
year ended June 30,
2021,
reflect these changes to
the operating
segments.
Operating segments
The Company discloses segment information as reflected in the management
information systems reports that its chief operating
decision maker uses in making decisions and to report certain entity-wide disclosures about products and services, and the countries in
which the entity holds material assets or reports material revenues.
The Company currently has
three reportable segments: Processing,
Financial services and Technology. All three segments operate
mainly
within South
Africa and
certain of
our activities
outside of
South Africa
have been
allocated to
Processing. The
Company’s
reportable
segments
offer
different
products
and
services
and
require
different
resources
and
marketing
strategies
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. During
the years ended June 30,
2020 and 2019, the operating
segment incurred goodwill impairment
losses of
$
5.6
million and $
8.2
million, respectively (refer to Note 9).
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. During the year ended June 30, 2019,
the operating segment incurred goodwill impairment losses of $6.2 million (refer
to Note 9).
Corporate/Eliminations
includes the
Company’s
head office
cost center
and the
amortization
of
acquisition-related
intangible
assets. The
$
17.5
million termination
fee paid
to terminate
the Bank
Frick option
(refer to
Note 8)
during the
year ended
June 30,
2020,
has
been
allocated
t
o
corporate/
elimination.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-70
20.
OPERATING
SEGMENTS
(continued)
Operating segments (continued)
The reconciliation
of the
reportable segment’s
revenue to
revenue from
external customers
for the
years ended
June 30,
2021,
2020 and 2019, respectively,
is as follows:
Revenue (as restated)
(1)
Reportable
Segment
Corporate/
Elimination
s
Inter-
segment
From
external
customers
Processing
$
82,435
$
-
$
4,773
$
77,662
Financial services
38,996
-
3,391
35,605
Technology
17,751
-
232
17,519
Total for the years
ended June 30, 2021
$
139,182
$
-
$
8,396
$
130,786
Processing
(1)
$
91,786
$
-
$
8,158
$
83,628
Financial services
46,870
-
3,546
43,324
Technology
18,071
-
724
17,347
Total for the years
ended June 30, 2020
$
156,727
$
-
$
12,428
$
144,299
Processing
(1)
$
118,088
$
-
$
10,666
$
107,422
Financial services
57,034
-
5,861
51,173
Technology
20,115
-
(1,634)
21,749
Reportable segments
195,237
-
14,893
180,344
Corporate/Eliminations – revenue refund (Note 15)
-
(19,709)
-
(19,709)
Total for the years
ended June 30, 2019
$
195,237
$
(19,709)
$
14,893
$
160,635
(1) Processing for the years ended June 30, 2020 and 2019, has been restated
for the error described in Note 1.
The Company does not allocate interest income, interest
expense or income tax expense to
its reportable segments. The Company
evaluates
segment
performance
based
on
segment
operating
income
before
acquisition-related
intangible
asset
amortization
which
represents operating income before acquisition-related intangible asset amortization and expenses allocated to Corporate/Eliminations,
all under GAAP.
The reconciliation of
the reportable segments
measures of profit or
loss to income before
income taxes for the
years ended June
30, 2021, 2020 and 2019, respectively,
is as follows:
2021
2020
(1)
2019
Reportable segments measure of profit or loss
$
(40,085)
$
(34,642)
$
(86,937)
Operating loss: Corporate/Eliminations
(13,787)
(9,606)
(47,995)
Change in fair value of equity securities (Note 23)
49,304
-
(167,459)
Loss on disposal of equity-accounted investment - Bank Frick (Note
8)
(472)
-
-
Loss on disposal of equity-accounted investment (Note 8)
(13)
-
-
Gain on disposal of FIHRST (Note 23)
-
9,743
-
(Loss) Gain on disposal of DNI interest as an equity method investment
(Note 23)
-
(1,010)
177
Loss on deconsolidation of CPS (Note 23)
-
(7,148)
-
Termination
fee to cancel Bank Frick option
-
(17,517)
-
Interest income
2,416
2,805
5,424
Interest
expense
(2,982)
(7,641)
(9,860)
Impairment of Cedar Cellular Note
-
-
(12,793)
Loss before income taxes
$
(5,619)
$
(65,016)
$
(319,443)
(1)
-
Operating
loss:
Corporate/Eliminations
includes
$
34.0
million
related
to
an
accrual
CPS
recorded
at
June
30,
2019,
comprising a revenue refund of $
19.7
million (ZAR
277.6
million), accrued interest of $
11.4
million (ZAR
161.0
million), unclaimed
indirect
taxes
of
$
2.8
million
(ZAR
39.4
million)
and
estimated
costs
of
$
0.1
million
(ZAR
1.4
million)
.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-71
20.
OPERATIN
G
SEGMENTS
(continued)
Operating segments (continued)
The following tables summarize segment information for the years
ended June 30, 2021, 2020 and 2019:
2021
2020
2019
(as restated)
(1)
(as restated)
(1)
Revenues
Processing
$
82,435
$
91,786
$
118,088
All others
80,742
88,476
109,931
IPG
1,693
3,310
8,157
Financial services
38,996
46,870
57,034
Technology
17,751
18,071
20,115
Total
139,182
156,727
195,237
Operating (loss) income
Processing
(2)
(34,283)
(33,836)
(51,575)
All others
(2)
(23,556)
(21,488)
(35,474)
IPG
(10,727)
(12,348)
(16,101)
Financial services
(2)
(8,429)
(3,621)
(30,068)
Technology
2,627
2,815
(5,294)
Subtotal: Operating segments
(2)
(40,085)
(34,642)
(86,937)
Corporate/Eliminations
(13,787)
(9,606)
(47,995)
Total
(2)
(53,872)
(44,248)
(134,932)
Depreciation and amortization
Processing
2,900
3,298
3,915
Financial services
473
790
1,002
Technology
615
168
90
Subtotal: Operating segments
3,988
4,256
5,007
Corporate/Eliminations
359
391
7,096
Total
4,347
4,647
12,103
Expenditures for long-lived assets
Processing
1,173
4,297
4,419
Financial services
174
138
1,142
Technology
2,938
-
181
Subtotal: Operating segments
4,285
4,435
5,742
Corporate/Eliminations
-
-
-
Total
$
4,285
$
4,435
$
5,742
(1) Revenues-Processing
-All others
for the
years ended
June 30,
2020 and
2019, have
been restated
for the
error described
in
Note 1.
(2)
Processing
and
Financial
services
include
retrenchment
costs
for
the
year
ended
June
30,
2019,
of:
$
4,665
and
$
1,604
,
respectively,
for total retrenchment costs for the
year ended June 30, 2019, of $
6,269
. The retrenchment costs are included
in selling,
general and administration expense on the consolidated statement of operations
for the year ended June 30, 2019.
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.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-72
20.
OPERATING
SEGMENTS
(continued)
Geographic Information
Long-lived assets based on the geographic location
for the years ended June 30, 2021, 2020 and 2019, are presented
in the table
below:
Long-lived assets
2021
2020
2019
South Africa
$
50,754
$
68,521
$
141,235
Liechtenstein - investment in Bank Frick (Note 8)
-
29,739
47,240
India - investment in MobiKwik (Note 8)
76,297
26,993
26,993
South Korea (Note 23)
-
-
149,390
Rest of world
6,962
9,119
9,739
Total
$
134,013
$
134,372
$
374,597
21.
COMMITMENTS
AND
CONTINGENCIES
Capital commitments
As
of
June
30,
2021
and
2020,
the
Company
had
outstanding
capital
commitments
of
approximately
$
0.3
million
and
$
0.1
million, respectively.
Purchase obligations
As of June
30, 2021 and 2020,
the Company had
purchase obligations totaling
$
2.5
million and $
1.7
million, respectively.
The
purchase obligations as of June
30, 2021, primarily include inventory
that will be delivered to the
Company and sold to customers in
the second half of calendar 2021.
Guarantees
The South African
Revenue Service and
certain of the
Company’s customers,
suppliers and other
business partners have
asked
the Company
to provide them
with guarantees,
including standby letters
of credit,
issued by a
South African bank.
The Company
is
required to procure these guarantees for these third parties to operate
its business.
Nedbank has issued guarantees to
these third parties amounting to
ZAR
156.6
million ($
10.9
million, translated at exchange rates
applicable
as
of
June
30,
2021)
thereby
utilizing
part
of
the
Company’s
short-term
facilities.
The
Company
pays
commission
of
between
0.4
% per annum to
1.94
% per annum of the face value of these guarantees and does not recover any of the commission from
third parties.
The Company has not recognized any obligation related to
these guarantees in its consolidated balance sheet as of
June 30, 2021.
The maximum potential
amount that the Company
could pay under
these guarantees is ZAR
156.6
million ($
10.9
million, translated
at exchange rates applicable as of June 30, 2021).
As discussed in Note 11, the Company has ceded and pledged certain
bank accounts
to
Nedbank
as security
for
certain
of
these
guarantees
with
an
aggregate
value
of
ZAR 156.6
million
($10.9
million
translated
at
exchange rates
applicable as
of June
30, 2021).
The guarantees
have reduced
the amount
available under
its indirect
and derivative
facilities
in
the
Company’s
short
-
term
credit
facility
described
in
Note
11.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-73
21.
COMMITMENTS
AND
CONTINGENCIES
(continued)
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.
22.
RELATED
PARTY
TRANSACTIONS
Disgorgement proceeds from VCP
In late September 2020, Value
Capital Partners (Pty) Ltd (“VCP”), a significant shareholder, notified the Company that it would
make payment to
the Company
related to the
disgorgement of short-swing
profits from the
purchase of
common stock by
VCP pursuant
to
Section
16(b)
of
the
Securities
Exchange
Act
of
1934,
as
amended
and
the
Company’s
insider
trading
policy.
The
Company
recognized these proceeds
as a capital contribution
from shareholders and recorded
an increase of $
0.1
million, net of taxes
of $
0.02
million, to additional paid-in capital
in its unaudited condensed consolidated
statement of changes in equity
for the three months
ended
September 30, 2020.
The gross proceeds of
$
0.12
million are recorded within
cash flows from financing
activities in the Company’s
consolidated statement of cash flow
for the year ended June 30,
2021. The Company expects to
pay the taxes due of $
0.02
million in
calendar 2021.
Transactions between an executive officer
and a company controlled by the executive officer’s
spouse
A
subsidiary,
Transact24,
had
an
existing
relationship
in
place
between
itself
and
a
company
controlled
by
the
spouse
of
Transact24’s
Managing
Director
at the
time of
the Transact24
acquisition
during
the year
ended
June
30, 2016.
This arrangement
therefore was also in
place before the Managing
Director became an executive
officer of the Company. This relationship was
disclosed
to the
Company during
the due
diligence process
and was
considered by
the Company’s
management
to be
critical to
the ongoing
operations
of
Transact24.
The
company
controlled
by
the
spouse
of
the
managing
director
performed
transaction
processing
and
Transact24 provided
technical and administration services to
the company. These services ceased during the
year ended June
30, 2019.
The Company
has recorded
revenue of
approximately $
0.4
million related
to this
relationship during
the years
ended June
30,
2019. Transact24’s Managing Director had
an indirect interest in these transactions as a
result of his relationship with his spouse, with
an approximate value of
$
0.1
million during the year
ended June 30, 2019.
Transact24’s
Managing Director resigned
on October 30,
2020.
23.
ACQUISITIONS
AND
DISPOSITIONS
Acquisitions
The Company did not make any acquisitions during the years ended
June 30, 2021, 2020 and 2019.
Dispositions
2020 Dispositions
March 2020 disposal of KSNET
On January 23,
2020, the Company,
through its wholly
owned subsidiary Net1
Applied Technologies
Netherlands B.V.
(“Net1
BV”), a limited liability private company
incorporated in The Netherlands, entered into
an agreement with PayletterHoldings LLC,
a
limited
liability
private
company
incorporated
in
the
Republic
of
Korea,
in
terms
of
which
Net1
BV
agreed
to
sell
its
entire
shareholding
in Net1
Applied Technologies
Korea Limited
(“Net1 Korea”),
a limited
liability private
company incorporated
in the
Republic
of Korea
and
the sole
shareholder
of KSNET,
Inc. for
$
237.2
million.
The transaction
was subject
to customary
closing
conditions
and
closed on
March 9,
2020.
The Company
no longer
controls Net1
Korea
and
its subsidiaries
and
deconsolidated
its
investment effective March 1, 2020,
and had no continued involvement going forward.
KSNET was acquired
in October 2010,
and was a profitable
and cash generative
business, but operated
autonomously and in
a
more
developed
economy,
with limited
overlap
with the
Company’s
other activities.
The Company
also believe
d
that the
intrinsic
value of KSNET was not
appropriately reflected in the
Company’s overall
valuation. The Company’s
board of directors commenced
a strategic review of its
various businesses and investments during
calendar 2019,
and ultimately evaluated and decided
to sell KSNET
in
January
2020
in
order
to
focus
more
on
the
Company’s
core
strategy,
boost
liquidity
and
to
maximize
shareholder
returns.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-74
23.
ACQUISITIONS
AND
DISPOSITIONS
(continued)
Dispositions (continued)
2020 Dispositions (continued)
March 2020 disposal of KSNET (continued)
The table below presents the impact of the deconsolidation of Net1 Korea and its subsidiaries
and the calculation of the net gain
recognized on deconsolidation:
Net1 Korea
March 2020
Proceeds from disposal of Net1 Korea, net of cash disposed
$
192,619
Add: Cash and cash equivalents disposed
23,473
Add: Cash withheld by purchaser to settle South Korean taxes
(1)
21,128
Fair value of consideration received
237,220
Less: carrying value of Net1 Korea, comprising
200,843
Cash and cash equivalents
23,473
Accounts receivable, net
30,467
Finance loans receivable, net
13,695
Inventory
2,377
Property, plant and equipment,
net
7,601
Operating lease right of use asset
181
Goodwill (Note 9)
107,964
Intangible assets, net
4,655
Deferred income taxes assets
1,719
Other long-term assets
10,984
Accounts payable
(5,484)
Other payables
(5,523)
Operating lease liability - current
(69)
Income taxes payable
(3,481)
Deferred income taxes liabilities
(1,497)
Operating lease liability – long-term
(112)
Other long-term liabilities
(335)
Released from accumulated other comprehensive income – foreign
currency translation reserve (Note 14)
14,228
Settlement assets
44,111
Settlement liabilities
(44,111)
Gain recognized on disposal, before transaction costs and tax
36,377
Transaction costs
(2)
8,644
Gain recognized on disposal, before tax
27,733
Taxes related to gain
recognized on disposal
(1)
15,279
Gain recognized on disposal, after tax
$
12,454
(1) Represents taxes
paid related to the
disposal of Net1 Korea
(refer to Note 17).
The Company also agreed
that the purchaser
withhold potential
capital gains
taxes of
$
19.9
million (approximately
KRW
23.8
billion) and
non-refundable securities
transaction
taxes of $
1.2
million (approximately KRW
1.4
billion), for a total withholding of $
21.1
million, from the purchase price and pay such
amounts, on behalf of Net1 BV,
to the South Korean tax authorities. Net1 BV commenced a process to claim a refund from the South
Korean tax authorities of the potential amount withheld and received this amount of approximately
$
20.1
million (KRW
23.8
billion)
in September
2020.
The Company
included
the expected
amount to
be refunded
in the
caption Accounts
receivable, net
and other
receivables in its consolidated balance sheet as of June 30, 2020, refer
also to Note 3.
(2) Transaction
costs include expenses
incurred by the
Company of $
7.5
million directly related
to the disposal
of Net1 Korea
and paid in cash and a
non-refundable securities transfer tax of approximately $
1.2
million which was also withheld from
the purchase
price and paid to the South Korean tax authorities directly by the purchaser.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-75
23.
ACQUISITIONS
AND
DISPOSITIONS
(continued)
Dispositions (continued)
2020 Dispositions (continued)
December 2019 disposal of FIHRST
In November
2019, the
Company
through its
wholly owned
subsidiary,
Net1 Applied
Technologies
South
Africa Proprietary
Limited (“Net1
SA”), entered into
an agreement
with Transaction
Capital Payment
Solutions Proprietary
Limited, or
its nominee,
a
limited liability
private company
incorporated in
the Republic
of South
Africa, pursuant
to which
Net1 SA
agreed to
sell its
entire
shareholding
in
Net1
FIHRST
Holdings
Proprietary
Limited
(“FIHRST”)
for
$
10.9
million
(ZAR
159.7
million).
The
transaction
closed in
December 2019.
FIHRST was
deconsolidated following
the closing
of the
transaction. Net1
SA was obliged
to utilize
the
full purchase price received from
the sale of FIHRST to partially settle its
obligations under its lending arrangements
and applied the
proceeds received against its outstanding borrowings – refer to
Note 11
.
The
table
below
presents
the
impact
of
the
deconsolidation
of
FIHRST
and
the
calculation
of
the
net
gain
recognized
on
deconsolidation:
FIHRST
December 31,
2019
Proceeds from disposal of FIHRST,
net of cash disposed
$
10,895
Add: Cash and cash equivalents disposed
854
Fair value of consideration received
11,749
Less: carrying value of FIHRST,
comprising
1,870
Cash and cash equivalents
854
Accounts receivable, net
367
Property, plant and equipment,
net
64
Goodwill (Note 9)
599
Intangible assets, net
30
Deferred income taxes assets
42
Accounts payable
(7)
Other payables
(1,437)
Income taxes payable
(220)
Released from accumulated other comprehensive income – foreign
currency translation reserve (Note 14)
1,578
Settlement assets
17,406
Settlement liabilities
(17,406)
Gain recognized on disposal, before tax
9,879
Taxes related to gain
recognized on disposal, comprising:
-
Capital gains tax
2,654
Release of valuation allowance related to capital losses previously unutilized
(1)
(2,654)
Transaction costs
136
Gain recognized on disposal, after tax
$
9,743
(1) Net1
SA recorded
a valuation
allowance related
to capital
losses previously
generated but
not utilized.
A portion
of these
unutilized
capital
losses was
utilized
as
a
result
of
the
disposal
of
FIHRST
and,
therefore,
the
equivalent
portion
of the
valuation
allowance created was released.
May 2020 deconsolidation of CPS
On February 5, 2020, the Constitutional Court of South Africa denied CPS’
leave to appeal lower court judgments ordering CPS
to repay additional implementation costs that SASSA
paid to CPS in 2014, thereby exhausting
all legal recourse for CPS in
the matter.
As a result,
CPS’ board of
directors adopted a
resolution to put
CPS into business
rescue under South African
law and filed
the required
resolution with the
Companies and Intellectual
Property Commission. On
May 18, 2020,
the resolution was
officially registered
and
business rescue practitioners were appointed. The business rescue
process could have led to either a compromise with creditors and
a
continuation
of
CPS’
business
or
the
liquidation
of
CPS. The
Company
had
no
means
of
exercising
any
control
over
CPS
or
the
business rescue process because the Company has ceded control of CPS to the business rescue practitioners on the commencement of
the business rescue
process.
The business rescue
practitioners are independent
third parties and
controlled CPS through
the business
rescue
process.
The
Company
no
longer
controls
CPS
and
therefore
it
determined
to
deconsolidate
CPS.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-76
23.
ACQUISITIONS
AND
DISPOSITIONS
(continued)
Dispositions (continued)
2020 Dispositions (continued)
May 2020 deconsolidation of CPS (continued)
As a practical matter, the Company deconsolidated CPS as of May 31, 2020.
The Company does not believe that the utilization
of this date, compared to May 18, 2020, has had a significant impact on
its consolidated financial statements.
On March 26, 2020, CPS’ holding company, Net1 SA, submitted a filing to Gauteng Division of the High Court of South Africa
(“High Court”)
under which
it
commenced a
process to
place CPS into
business rescue
due to
administrative delays
experienced in
the CPS business rescue
application process. Net1
SA proposed in its
March 2020 High Court
filing that it was
willing to contribute
ZAR
50.0
million ($
2.9
million translated
at exchange
rates applicable
as of June
30, 2020) into
CPS if CPS
and SASSA
reached a
settlement on
their claims
and counterclaims.
Given that
SASSA was contesting
the CPS
business rescue
process (refer
below),
the
Company did not believe that it, through Net1 SA, would be required to make the investment of ZAR
50.0
million and therefore it did
not recorded
a liability as
of June 30,
2020. On June
18, 2020, SASSA
launched an
urgent application
with the High
Court to place
CPS into liquidation
and declare the business
rescue process invalid.
On July 7, 2020,
the business rescue
practitioners, on behalf
of
CPS, responded to this application correcting a number of inaccuracies contained therein. The matter was heard on October 16, 2020,
and the High Court ordered that CPS be placed into liquidation.
The Company provided
accounting, tax and general administrative services to
CPS while it was in
business rescue and continues
to provide these
services during the
liquidation process. In
addition, the Company
had an arrangement with
CPS to rent
certain bespoke
payment
vehicles
from
CPS,
and
it was
expected
that
this arrangement
would
continue
while
CPS
was
in
business
rescue.
These
vehicles largely
comprise the
fleet of
customized mobile
ATMs
used to
deliver a
service to
rural communities.
The value
of these
arrangements
was not
significant
and
was determined
on an
arms-length
basis. On
October
15, 2020,
the Company
purchased
the
bespoke vehicles
from CPS
for an
arms-length price
of ZAR
50.0
million (approximately
$
3.0
million, translated
at the
applicable
exchange rate) to use in its mobile ATM
business.
The
table
below
presents
the
impact
of
the
deconsolidation
of
CPS
and
the
calculation
of
the
net
loss
recognized
on
deconsolidation:
CPS
May
2020
Fair value of consideration received
$
-
Less: carrying value of CPS, comprising
(68)
Cash and cash equivalents
328
Accounts receivable, net
303
Inventory
12
Property, plant and equipment,
net
236
Goodwill (Note 9)
-
Deferred income taxes assets (Note 17)
-
Accounts payable
(238)
Other payables
(33,160)
Released from accumulated other comprehensive income – foreign
currency translation reserve (Note 14)
32,451
Gain recognized on deconsolidation, before tax
68
Intercompany accounts written off/ provided for
(1)
7,216
Taxes related to loss recognized
on deconsolidation, comprising:
-
Capital loss generated upon deconsolidation
(2)
5,399
Valuation
allowance related to capital losses generated upon deconsolidation
(2)
(5,399)
Loss recognized on deconsolidation, after tax
$
7,148
(1) Certain of the Company’s
subsidiaries had funds due from CPS
as of May 31, 2020. The Company
wrote these amounts off
as it did not believe that they were recoverable.
(2) The Company recorded a deferred tax asset related to the capital loss generated on deconsolidation of CPS. The Company is
only able
to claim
the capital loss
for South
African capital
gains tax
purposes once
it deregisters or
disposes of
its interest in
CPS.
The Company has recorded a valuation allowance related to the full CPS capital loss deferred tax asset recognized because it does not
believe that this capital loss will be utilized in the foreseeable future.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-77
23.
ACQUISITIONS
AND
DISPOSITIONS
(continued)
Dispositions (continued)
2019 Dispositions
March 2019 disposal of DNI
On February 28, 2019, the Company through its wholly owned subsidiary, Net1 Applied Technologies
South Africa Proprietary
Limited
(“Net1
SA”),
entered
into
a
transaction
with
JAA
Holdings
Proprietary
Limited,
a
limited
liability
private
company
duly
incorporated
in
the
Republic
of
South
Africa,
and
PK
Gain
Investment
Holdings
Proprietary
Limited,
a
limited
liability
private
company duly incorporated in the Republic of South Africa, in terms of which Net1 SA reduced its shareholding in DNI from
55
% to
38
%. The transaction closed on March
31, 2019. The parties used a cashless
settlement process on closing, refer to
Note 19
. Net1 SA
used the proceeds from the sale of the DNI shares to settle its ZAR
400
million ($
27.6
million, translated at exchange rates applicable
as of March 31,
2019), obligation to DNI
to subscribe for an
additional share as part
of the contingent consideration settlement
process.
The Company no longer controlled DNI and deconsolidated its investment in
DNI effective March 31, 2019.
The
table
below
presents
the
impact
of
the
deconsolidation
of
DNI
and
the
calculation
of
the
net
loss
recognized
on
deconsolidation:
DNI
Equity method investment
as of June 30, 2019
Total
17% sold
8% retained
interest sold
in May 2019
30%
retained
interest
Attributed to
non-
controlling
interest
Fair value of consideration received
$
27,626
$
27,626
$
-
$
-
$
-
Fair value of retained interest in DNI
(1)
74,195
-
14,849
59,346
-
Carrying value of non-controlling interest
88,934
-
-
-
88,934
Subtotal
190,755
27,626
14,849
59,346
88,934
Less: carrying value of DNI, comprising
199,930
38,346
14,540
58,110
88,934
Cash and cash equivalents
2,114
354
158
633
969
Accounts receivable, net
24,577
4,116
1,841
7,358
11,262
Finance loans receivable, net
1,030
173
77
308
472
Inventory
893
149
66
268
410
Property, plant and equipment,
net
1,265
212
95
379
579
Equity-accounted investments
242
41
19
72
110
Goodwill
113,003
18,924
8,466
33,834
51,779
Intangible assets, net
80,769
13,526
6,051
24,183
37,009
Deferred income taxes
28
5
2
8
13
Other long-term assets
26,553
4,447
1,989
7,950
12,167
Accounts payable
(5,186)
(868)
(389)
(1,553)
(2,376)
Other payables
(2)
(16,484)
(2,760)
(1,235)
(4,936)
(7,553)
Income taxes payable
(2,482)
(416)
(186)
(743)
(1,137)
Deferred income taxes
(22,083)
(3,698)
(1,654)
(6,612)
(10,119)
Long-term debt
(10,150)
(1,700)
(760)
(3,039)
(4,651)
Released from accumulated other comprehensive
income – foreign currency translation reserve
(Note 14)
5,841
5,841
-
-
-
Loss recognized on disposal, before tax,
comprising
(9,175)
(10,720)
309
1,236
-
Related to sale of
17
% of DNI
(10,720)
(10,720)
-
-
Related to fair value adjustment of retained
interest in
38
% of DNI
1,545
-
309
1,236
Taxes related to gain
recognized on
disposal
(3)
-
505
(3,836)
3,331
Loss recognized on disposal of
discontinued operation, after tax
$
(9,175)
$
(11,225)
$
4,145
$
(2,095)
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-78
23.
ACQUISITIONS
AND
DISPOSITIONS
(continued)
Dispositions (continued)
2019 Dispositions
March 2019 disposal of DNI (continued)
(1) The fair value of the retained
interest in
38
% of DNI of $
74.2
million ($
14.9
million plus $
59.3
million) was calculated using
the implied fair
value of
DNI pursuant
to the
RMB Disposal
and was calculated
as ZAR
215.0
million divided by
7.605235
% multiplied
by
38
%, translated to dollars at the March 31, 2019, rate of exchange.
(2) Other
payables include
a short-term
loan of
ZAR
60.5
million ($
4.3
million, translated
at exchange
rates applicable
as of
June 30, 2019)
due to the
Company. The short-term loan
is included in
accounts receivable, net
and other receivables
on the
Company’s
consolidated balance sheet as of June 30, 2019, and
was repaid in full on July 31, 2019. Interest on the loan
was charged at the South
African prime rate.
(3) Amounts presented are net of a valuation allowance provided. The disposal of DNI resulted in a capital loss for tax purposes
of approximately $
1.5
million and the Company provided a valuation allowance of $
1.5
million against this capital loss because it did
not have any
capital gains to offset
against this amount at
the time. On an
individual basis, the transaction
to dispose of
17
% of DNI
resulted in
a capital
gain of
$
0.5
million and
the re-measurement
of the
retained
38
% interest
has resulted
in a
capital loss
of $
2.0
million ($
5.3
million (8%
transaction) less
$
3.3
million (30%
transaction)).
The valuation
allowance of
$
1.5
million was
provided
against the $
5.3
million, for a net amount presented in the table above of $
3.8
million ($
5.3
million less $
1.5
million).
24
.
DISCONTINUED
OPERATION
S
Discontinued operations – Net1 Korea and DNI
The Company determined
that, following the
disposal of its controlling
interest, Net1 Korea (in
fiscal 2020) and
DNI (in fiscal
2019) (refer to
Note 23), should
be classified as
discontinued operations because the
disposal of these
businesses represented a
strategic
shift that
would have
a major
effect on
the Company’s
operations and
financial results.
The facts
and circumstanc
es leading
to the
disposal of
Net1 Korea and
DNI are described
in Note 23.
The gain related
to the disposal
of Net1 Korea
and the loss
related to the
disposal of DNI are presented in Note 23.
Net1 Korea, as a stand-alone holding company,
and the amortization of intangible assets identified and recognized related to the
KSNET acquisition, were allocated to corporate/eliminations and
Net1 Korea’s subsidiaries, including
KSNET, were allocated to
the
Company’s international transaction processing operating
segment prior to the re-segmentation of the Company’s
operating segments
during the year
ended June 30,
2021. Net1 Korea
did not have
any equity method
investments or any
non-controlling interests. DNI
was allocated
to the
Company’s
financial inclusion
and applied
technologies operating
segment, prior
to the
re-segmentation of
the
Company’s
operating
segments
during
the
year
ended
June
30,
2021,
and
the
amortization
of
intangible
assets
identified
and
recognized
related
to
the
DNI
acquisition
were
allocated
to
corporate/eliminations.
Net1
Korea
and
DNI
are
not
included
in
the
operating segments
presented in
Note 20
because these
entities are
discontinued operations
and the
operating segments
in Note
20
only presents operating segment information for continuing operations
.
The Company retained
a continuing involvement in
DNI through its
38
% interest in DNI (refer
to Note 8) following
the March
31, 2019, transaction disclosed in Note 23. As disclosed in Note 8, the Company sold an
8
% interest in DNI in May 2019, and entered
into an agreement under which it
provided a call option to DNI to
repurchase the then remaining
30
% interest in DNI. The Company
recorded earnings
under the equity
method related
to its retained
investment in
DNI during the
nine months
ended March
31, 2020,
refer to
Note 8. The
Company recorded
earnings under
the equity
method related
to its
retained investment
in DNI
during the
three
months
ended
June
30,
2019
of
$
0.9
million,
which
comprised
the
Company’s
share
of
DNI’s
net
income
of
$
1.4
million,
less
amortization of acquired intangible assets, net, of $
0.5
million (gross $
0.7
million less deferred taxes of $
0.2
million). The table below
presents revenues
and expenses
between the
Company and
DNI, after
the DNI
disposal transaction,
during the
year ended
June 30,
2020 (i.e. for the nine months ended March 31, 2020), and 2019 (i.e. for the
three months ended June 30, 2019), respectively:
DNI
Years
ended June 30,
2020
2019
Revenue generated from transactions with DNI
$
-
$
-
Expenses incurred related to transactions with DNI
$
-
$
2,902
Refer to Note 8 for the dividends
received from DNI and accounted for under
the equity method during the year ended
June 30,
2020. The Company received dividends of $
0.9
million during the year ended June 30, 2019.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-79
24.
DISCONTINUED
OPERATION
S
(
continued)
Discontinued operations – Net1 Korea and DNI (continued)
The
table
below
presents
certain
major
captions
to
the
Company’s
consolidated
statement
of
operations
and
consolidated
statement
of
cash flows
for
the years
ended June
30,
2020 and
2019,
that
have
not been
separately
presented
on those
statements
related to the presentation of Net1 Korea and DNI as discontinued operations:
2020
2019
Total
(Net1
Korea)
Total
Net1 Korea
DNI
Consolidated statement of operations
Discontinued:
Revenue
$
85,375
$
194,763
$
138,426
$
56,337
Cost of goods sold, IT processing, servicing and support
37,377
85,652
57,984
27,668
Selling, general and administration
30,562
57,136
53,479
3,657
Depreciation and amortization
8,652
25,246
17,220
8,026
Impairment loss
-
5,305
-
5,305
Operating income
8,784
21,424
9,743
11,681
Interest income
678
1,805
1,098
707
Interest expense
106
864
52
812
Net income before tax
9,356
22,365
10,789
11,576
Income tax expense
2,954
8,750
4,989
3,761
Net income before earnings from equity-accounted investments
6,402
13,615
5,800
7,815
Earnings from equity-accounted investments
-
15
-
15
Net income from discontinued operations
$
6,402
$
13,630
$
5,800
$
7,830
Consolidated statement of cash flows
Discontinued:
Total net cash provided
by operating activities
(1)
$
3,758
$
11,976
$
5,341
$
6,635
Total net cash provided
by (used) in investing activities
$
1,524
$
(6,816)
$
(6,300)
$
(516)
(1) Total net cash (used in) provided by operating activities for
the year ended June 30,
2019, includes dividends received of $
0.9
million (refer to Note 8) from DNI while it was accounted for using the
equity method during the three months ended June 30, 2019.
25
.
UNAUDITED
QUARTERLY
RESULTS
Restatement of financial statements – impact on unaudited quarterly results
Related to overstatement of revenue and cost of goods
sold, IT processing, servicing and support
As discussed in
Note 1, 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
error
impacts
the
Company’s
reported
results
for
three
months
ended
September
30,
2020,
and
the
Company
restated
its
consolidated statement of operations and
certain note presentation, primarily Revenue
and Operating segments, to
correct for the error.
The tables below
present the impact of
the restatement on the
Company’s unaudit
ed condensed consolidated
statement of operations
for the three months ended September 30, 2020:
Unaudited condensed consolidated statement of operations
Three months ended September 30, 2020
(1)
As reported
Correction
As restated
(in thousands)
Revenue
$
37,113
$
(1,977)
$
35,136
Cost of goods sold, IT processing, servicing and support
$
28,437
$
(1,977)
$
26,460
(1)
The error for the three
months ended September 30, 2020,
also impacted the year ended
June 30, 2021, by the
same amount
and
therefore
the
amounts
reported
for
the
year
ended
June
30,
2021,
includes
the
correction
of
the
error.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-80
25.
UNAUDITED
QUARTERLY
RESULTS
(continued)
Restatement of financial statements – impact on unaudited quarterly results
(continued)
Related to overstatement of revenue and cost of goods
sold, IT processing, servicing and support (continued)
The
table
below
presents
the
unaudited
impact
of
the
restatement
on
the
affected
lines
in
the
Processing
and
Total
columns
included in the revenue note for the three months ended September 30, 2020:
Unaudited
Three months ended
September 30, 2020
Processing
Total
Processing fees - as restated
(1)
$
16,330
$
16,929
As reported
18,307
18,906
Correction
(1,977)
(1,977)
South Africa - as restated
14,774
15,373
As reported
16,751
17,350
Correction
(1,977)
(1,977)
Rest of world
$
1,556
$
1,556
Total revenue, derived
from the following geographic locations - as restated
$
21,518
$
35,136
As reported
23,495
37,113
Correction
(1,977)
(1,977)
South Africa - as restated
19,962
33,580
As reported
21,939
35,557
Correction
(1,977)
(1,977)
Rest of world
$
1,556
$
1,556
(1) The error for the
three months ended September
30, 2020, also impacted the
year ended June 30, 2021
,
by the same amount
and therefore the amounts reported for the year ended June 30, 2021, include
the correction of the error.
The table
below presents
the unaudited impact
of the restatement
on the Processing
operating segment
revenue included in
the
operating segment note for the three months ended September 30, 2020:
Unaudited
Revenue (as restated)
Reportable
Segment
Corporate/
Eliminations
Inter-
segment
From
external
customers
Processing - as restated
(1)
$
22,506
$
-
$
988
$
21,518
As reported
24,483
-
988
23,495
Correction
(1,977)
-
-
(1,977)
Total for the three
months ended September 30, 2020 - as restated
36,982
-
1,846
35,136
As reported
38,959
-
1,846
37,113
Correction
$
(1,977)
$
-
$
-
(1,977)
(1) The error for the
three months ended September 30,
2020, also impacted the year
ended June 30, 2021, by
the same amount
and
therefore
the
amounts
reported
for
the
year
ended
June
30,
2021,
include
the
correction
of
the
error.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-81
25.
UNAUDITED
QUARTERLY
RESULTS
(continued)
The following tables contain selected
unaudited consolidated statements of operations
information for each quarter
of fiscal 2021
and 2020:
Three months ended
Jun 30, 2021
Mar 31, 2021
Dec 31, 2020
Sep 30, 2020
June 30, 2021
(In thousands except per share data)
Revenue
$
34,517
$
28,828
$
32,305
$
35,136
$
130,786
Operating loss
(13,600)
(14,292)
(15,205)
(10,775)
(53,872)
Net income (loss) attributable to Net1
$
1,639
$
(6,204)
$
(4,534)
$
(28,958)
$
(38,057)
Net earnings (loss) per share, in United
States dollars
Basic earnings (loss) attributable to Net1
shareholders
$
0.03
$
(0.11)
$
(0.08)
$
(0.51)
$
(0.67)
Diluted earnings (loss) attributable to Net1
shareholders
$
0.03
$
(0.10)
$
(0.08)
$
(0.52)
$
(0.67)
Three months ended
Jun 30, 2020
Mar 31, 2020
Dec 31, 2019
Sep 30, 2019
June 30, 2020
(as restated)
(A)
(as restated)
(A)
(as restated)
(A)
(as restated)
(A)
(as restated)
(A)
(In thousands except per share data)
Revenue
$
24,551
$
34,614
$
38,918
$
46,216
$
144,299
Operating loss
(13,180)
(14,212)
(10,420)
(6,436)
(44,248)
Net (loss) income attributable to Net1
(38,880)
(34,881)
(205)
(4,392)
(78,358)
Continuing
(38,601)
(48,361)
(2,925)
(7,327)
(97,214)
Discontinued
$
(279)
$
13,480
$
2,720
$
2,935
$
18,856
Net (loss) income per share, in United
States dollars
Basic (loss) earnings attributable to Net1
shareholders
$
(0.68)
$
(0.61)
$
-
$
(0.08)
$
(1.37)
Continuing
$
(0.68)
$
(0.85)
$
(0.05)
$
(0.13)
$
(1.70)
Discontinued
$
-
$
0.24
$
0.05
$
0.05
$
0.33
Diluted (loss) earnings attributable to Net1
shareholders
$
(0.69)
$
(0.62)
$
-
$
(0.08)
$
(1.37)
Continuing
$
(0.69)
$
(0.86)
$
(0.05)
$
(0.13)
$
(1.70)
Discontinued
$
-
$
0.24
$
0.05
$
0.05
$
0.33
(A) Certain amounts have been restated to correct the
misstatements
discussed in Note 1. The impact of the restatements for
the
years
ended June 30, 2020 and 2019, were first recorded in the unaudited condensed consolidated financial statements included in the
Company’s
Quarterly Report on
Form 10-Q for
the three and
six months
ended December 31,
2020 which was
filed on February
4,
2021.
26
.
SUBSEQUENT
EVENTS
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, or BASA, estimates that total damage to banking infrastructure amounted
to ZAR 1.6 billion. The South
African Special Risks Insurance Association,
or 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
and
terrorism
and
public
disorders,
estimates
that
the
total
damage
to
property
across
South
Africa
will
be
in
the
order
of
between
ZAR
19.0
to
20.0
billion.
NET 1 UEPS TECHNOLOGIES, INC.
Notes to the consolidated financial statements
for the years ended June 30, 2021 and 2020 and 2019
(All amounts stated in thousands of United States Dollars, unless otherwise stated)
F-82
26
.
SUBSEQUENT
EVENTS
(continued)
July 2021 civil unrest in South Africa (continued)
The Company suffered
damage at
19
of its branches and
to
173
ATMs.
The disruption and related
closure of branches has also
impacted
the
Company’s
efforts
to
grow
EPE
customer
numbers.
The
Company
has
also
seen
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 completely 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 will be waived for August and September 2021. The Company estimates that it will forgo
transaction fee revenue of approximately ZAR
6.0
. million during the first quarter of fiscal 2022 as a result of this decision.
*****************************