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Fair Value Of Financial Instruments
 12 Months Ended
Jun. 30, 2021
Fair Value Of Financial Instruments [Abstract]  
Fair Value Of Financial Instruments
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.
 
 
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.
 
 
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.
 
 
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
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.
 
 
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.