EX-99.2 4 ex992.htm EX-99.2
Exhibit 99.2
1
LESAKA TECHNOLOGIES, INC.
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Overview
The following
unaudited pro
forma combined
financial statements have
been prepared
to give effect
to the Acquisition.
The Company
has
prepared
these unaudited
pro forma
combined financial
statements based
on (a)
its historical
unaudited
condensed consolidated
financial
statements as
of and
for the
six months
ended December
31, 2021,
(b) its
historical audited
consolidated financial
statements for
the year
ended June 30, 2021, and (c) the
combined financial information for Connect as of
February 28, 2022, and for the
six months ended February
28, 2022,
and the
twelve months
ended August
31, 2021,
which has
been derived
as described
below.
The unaudited
pro forma
combined
financial
statements
are
based
on
the
historical
financial
information
statements
of
the
Company
and
historical
financial
information
of
Connect after giving effect
to the Acquisition and certain
assumptions, reclassifications and
adjustments which we believe
to be reasonable
and factually supportable as described in the notes to the unaudited pro forma
combined financial statements.
The Company has presented
an unaudited pro forma combined
balance sheet which combines
the historical balance sheets
of the Company
as of December 31, 2021, and Connect as of February 28, 2022 as if the Acquisition had occurred on December 31, 2021. The Company has
presented an unaudited
combined pro forma
statement of operations
for (a) the
six months ended
December 31, 2021,
of the Company
and
Connect
which
combines
the histori
cal
statements
of
operations
of
the
Company
for
the
six
months
ended
December
31,
2021,
and
the
combined financial information for Connect for the six months ended February 28, 2022, as if the Acquisition had occurred on July 1, 2020,
and (b) the twelve months ended June 30, 2021,
of the Company and Connect which combines the historical statements
of operations of the
Company for
the year
ended June
30, 2021,
and the
combined financial
information for
Connect for
the twelve
months ended
August 31,
2021, as if the Acquisition had occurred on July 1, 2020.
The Company’s
fiscal year ends
on June 30
and Connect’s
fiscal year ends
on the last
day of February
.
SEC rules require
the Company
to
prepare the pro forma statement
of operations by using its
most recently completed fiscal
quarter prior to concluding the transaction
(which
was December 31, 2021,
upon closing the Acquisition on
April 14, 2022) and bring
Connect’s statement of
operations up to within 93
days
of the
Company’s
most recent
fiscal quarter
end. Thus,
the Company
used Connect’s
balance sheet
on February
28, 2022
for purposes
of
combining with the Company for the pro forma
balance sheet as of December 31, 2021 and has prepared
the pro forma combined statement
of operations to coincide with its fiscal reporting periods as follows:
●
The Company
used Connect
’s
statement of
operations
for the
twelve months
ended February
28, 2022,
and deducted
the six
months
ended August 31, 2021, to produce the statement of operations for the
six months ended February 28, 2022; and
●
The Company
used Connect
’s
statement of
operations
for
the twelve
months
ended
February
28, 2021,
added the
six months
ended
August 31,
2021, and
deducted the
six months
ended August
31, 2020,
to produce
the statement
of operations
for the
twelve months
ended August 31, 2021.
A tax rate of
28%, the South
African statutory rate,
has been applied
when calculating taxation
impacts unless otherwise
specified. Certain
Connect balances have been reclassified to conform to the balance sheet and
statement of operations presentation of the Company.
The historical consolidated financial statements of the Company are prepared in accordance with
accounting principles generally accepted in
the United States of America (“U.S. GAAP”) and
are shown in U.S. dollars. The
combined financial information of Connect, which has been
derived as described above,
was prepared in
accordance with International Financial
Reporting Standard for
Small and Medium-sized Entities
(“IFRS for
SMEs”) issued
by the
International Accounting
Standards Board
(“IASB”), which
differs in
certain respects
from U.S.
GAAP.
Necessary adjustments have been made
to reconcile the combined financial information
of Connect to U.S. GAAP.
The combined financial
information
of
Connect
is
denominated
in
South
African
Rand
(“ZAR”).
Therefore
for
purposes
of
presenting
the
unaudited
pro
forma
combined financial
statements an exchange
rate of $1
/ ZAR 15.930554
has been used
to translate Connect’s
historical balance
sheet as of
February 28, 2022,
from ZAR to
U.S. dollars, based
on the closing
exchange rate as
of December 31,
2021, as reported
by an independent
external
source
(www.oanda.com)
(“Oanda”).
An
exchange
rate
of
$1/
ZAR
14.974825
has
been
used
to
translate
Connect’s
results
of
operations for the six
months ended February 28,
2022, from ZAR
to U.S. dollars, based
on the average daily
exchange rate for
the six months
ended December
31, 2021, as
reported by
Oanda. An
exchange rate
of $1/
ZAR 15.716182
has been used
to translate Connect’s
results of
operations for the twelve months ended August 31, 2021, from ZAR to U.S. dollars, based on the average daily exchange rate for the twelve
months ended June 30, 2021, as
reported by Oanda. The Company has used
the exchange rates for its
reporting periods to translate Connect’s
ZAR-reported balances because, upon consolidation (or combination), Connect is consolidated first into
Net1 SA’s
reported numbers (which
are also prepared in ZAR) and then the consolidated Net1 SA group is converted to
USD and consolidated into Lesaka.
2
The
Acquisition
has
been
recorded
using
the
purchase
method
of
accounting.
Under
the
purchase
method
of
accounting,
the
aggregate
consideration
paid
is allocated
to the
tangible
and identifiable
intangible
assets acquired
and
liabilities assumed
on the
basis of
their fair
values
on
the
transaction
date.
Any
purchase
price
in
excess
of
net
assets
acquired
is
recorded
as
goodwill.
These
unaudited
pro
forma
combined
financial
statements
have
been
prepared
based
on
preliminary
estimates
of
fair
values
based
on
information
that
is
currently
available.
The actual amounts
and the allocation
between net tangible
and intangible
assets ultimately recorded
may differ
materially from
the information presented in these unaudited pro forma combined financial statements, including property,
plant and equipment, identifiable
intangible assets and
residual goodwill.
The preliminary estimates
of the fair
values of the
assets acquired and
liabilities assumed
reflected
herein are subject to change based upon completion of the valuation of
the assets acquired and liabilities assumed as of the closing date.
The
South
African
competition
authorities
approved
the
transaction
subject
to
certain
public
interest
conditions
relating
to
employment,
increasing the
spread of
ownership by
historically disadvantaged
people (“HDPs”),
and investing
in supplier
and enterprise
development.
Further
to increasing
the spread
of ownership
by HDPs,
Lesaka
is required
to establish
an
employee
share ownership
scheme
(“ESOP”)
within 24 months of the implementation of the Acquisition,
that complies with certain design principles for the benefit of the workers
of the
merged entity to receive
a shareholding in Lesaka equal
in value to at least 3% of
the issued shares in Lesaka
at the date of the Acquisition.
If within 24
months of the
implementation date of
the transaction, Lesaka
generates a positive
net profit for
three consecutive quarters,
the
ESOP shall increase to 5% of the issued
shares in Lesaka at the date of the
Connect acquisition. The final structure of the ESOP
is contingent
on Lesaka shareholder approval and relevant
regulatory and governance approvals. The ESOP had
not been established as of the date
of the
preparation
of this
pro
forma information
and
therefore
no account
of these
equity
transactions is
included
in
these unaudited
pro
forma
combined financial statements.
No account has been
taken within these unaudited
pro forma combined financial
statements of any future
changes in accounting policies
or
any synergies (including
cost savings), all of
which may or may
not occur as a
result of the Acquisition.
In addition, the impact
of ongoing
integration activities and other changes in Connect’s
assets and liabilities could cause material differences in the information
presented.
These unaudited pro forma
combined financial statements are
for illustrative purposes only
and are not
necessarily indicative of the
combined
results of operations or financial position of the combined company that would have been reported had the Acquisition been completed as of
the dates presented, and are not necessarily representative of future consolidated results of operations or financial condition of
the combined
company.
You
should
read
these
unaudited
pro
forma
combined
financial
statements
in
conjunction
with
the
historical
audited
combined
financial
statements and accompanying notes (including the reconciliation from IFRS for SMEs to US GAAP) of Connect included in Item 9.01(a)
of
this Form 8-K/A and the Company’s audited consolidated financial statements included in the Company’s Annual Report on Form 10-K and
unaudited condensed
consolidated financial
statements include
in the
Company’s
Quarterly Report
on Form
10-Q for
the quarterly
period
ended March 31, 2022.
3
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
As of December 31, 2021
(in USD thousands, unless otherwise indicated)
Lesaka
Connect
Note 2
Transaction
accounting
adjustments
Notes
Proforma
ASSETS
Current assets
85,092
4(h)
(51,974)
4(h)
(14,196)
4(f)
70,240
4(e)
(1,191)
4(e)
Cash and cash equivalents
182,356
14,106
(236,697)
4(a)
47,736
Restricted cash
57,788
-
57,788
Accounts receivable, net and other receivables
20,701
8,997
29,698
Finance loans receivable, net
21,571
12,694
34,265
Inventory
20,005
11,014
31,019
Total current assets before settlement assets
302,421
46,811
(148,726)
200,506
Settlement assets
369
22,321
22,690
Total current assets
302,790
69,132
(148,726)
223,196
Property, plant and equipment, net
5,389
18,489
23,878
Operating lease right-of-use
3,611
728
4,339
Equity-accounted investments
7,217
73
7,290
(25,888)
4(c)
Goodwill
26,239
25,888
155,253
4(b)
181,492
(24,227)
4(c)
Intangible assets, net
288
24,227
163,583
4(c)
163,871
Deferred income taxes
868
850
1,758
4(f)
3,476
Other long-term assets, including reinsurance assets
77,821
49
77,870
TOTAL ASSETS
424,223
139,436
121,753
685,412
LIABILITIES
Current liabilities
Short-term credit facilities for ATM funding
47,960
-
47,960
15,316
4(h)
Short-term credit facilities
-
15,237
(7,598)
4(h)
22,955
Accounts payable
3,539
12,138
15,677
Other payables
30,248
3,777
3,578
4(d)
37,603
Operating lease liability - current
2,516
433
2,949
(18,421)
4(h)
Current portion of long-term borrowings
-
18,421
3,531
4(h)
3,531
Income taxes payable
271
595
(1,533)
4(f)
(667)
Total current liabilities before settlement obligations
84,534
50,601
(5,127)
130,008
Settlement obligations
369
22,321
22,690
Total current liabilities
84,903
72,922
(5,127)
152,698
(6,784)
4(c)
Deferred income taxes
10,402
5,655
45,803
4(c)
55,076
Operating lease liability - long term
1,281
346
1,627
66,592
4(h)
(347)
4(h)
(25,955)
4(h)
4
70,240
4(e)
Long-term borrowings
-
25,955
(1,191)
4(e)
135,294
Other long-term liabilities, including insurance policy liabilities
2,391
-
2,391
TOTAL LIABILITIES
98,977
104,878
143,231
347,086
Redeemable common stock
84,979
-
84,979
EQUITY
LESAKA EQUITY:
Common stock
80
-
-
80
Preferred stock
-
-
-
(10,730)
4(f)
(43,331)
4(c)
Other invested equity
34,415
19,646
4(i)
-
Additional paid-in-capital
303,804
-
16,658
4(a)
320,462
Treasury shares, at cost
(286,951)
-
(286,951)
Accumulated other comprehensive loss
(157,879)
(32)
32
4(i)
(157,879)
Retained earnings
381,213
-
(3,578)
4(d)
377,635
Total Lesaka equity
240,267
34,383
(21,303)
253,347
Non-controlling interest
-
175
(175)
4(f)
-
TOTAL EQUITY
240,267
34,558
(21,478)
253,347
TOTAL LIABILITIES, REDEEMABLE COMMON STOCK
AND SHAREHOLDERS’ EQUITY
424,223
139,436
121,753
685,412
See accompanying notes to unaudited pro forma combined financial statements.
5
UNAUDITED PRO FORMA COMBINED STATEMENT
OF OPERATIONS
For the six months ended December 31, 2021
(in $ ‘000, except per share data or unless otherwise indicated)
Lesaka
Connect
Note 2
Transaction
accounting
adjustments
Notes
Proforma
REVENUE
65,618
169,728
235,346
EXPENSE
Cost of goods sold, IT processing, servicing and support
44,787
145,593
190,380
Selling, general and administration
38,188
10,497
1,450
4(g)
50,135
(1,608)
4(c)
Depreciation and amortization
1,621
3,263
8,950
4(c)
12,226
Transaction costs related to Connect Group acquisition
1,674
486
2,160
OPERATING
(LOSS) INCOME
(20,652)
9,889
(8,792)
(19,555)
UNREALIZED LOSS RELATED
TO FAIR VALUE
ADJUSTMENT
TO CURRENCY OPTIONS
2,429
2,429
INTEREST INCOME
702
195
(115)
4(a)
782
2,995
4(e)
(2,204)
4(h)
INTEREST EXPENSE
1,581
2,849
3,089
4(h)
8,310
(LOSS) INCOME BEFORE INCOME TAX EXPENSE
(23,960)
7,235
(12,787)
(29,512)
(451)
4(c)
2,506
4(c)
(617)
4(h)
INCOME TAX EXPENSE
284
1,826
617
4(h)
4,165
NET (LOSS) INCOME BEFORE (LOSS) EARNINGS FROM
EQUITY-ACCOUNTED
INVESTMENTS
(24,244)
5,409
(14,842)
(33,677)
(LOSS) EARNINGS FROM EQUITY-ACCOUNTED
INVESTMENTS
(1,156)
105
(1,051)
NET INCOME FROM CONTINUING OPERATIONS
(25,400)
5,514
(14,842)
(34,728)
LESS (ADD): NET INCOME (LOSS) ATTRIBUTABLE
TO NON-
CONTROLLING INTEREST
-
48
(48)
(j)
-
NET (LOSS) INCOME ATTRIBUTABLE
TO LESAKA
(25,400)
5,466
(14,794)
(34,728)
Net loss per share, in United States dollars
:
Basic loss attributable to Lesaka shareholders
(0.44)
(0.56)
Diluted loss attributable to Lesaka shareholders
(0.44)
(0.56)
See accompanying notes to unaudited pro forma combined financial statements.
6
UNAUDITED PRO FORMA COMBINED STATEMENT
OF OPERATIONS
For the year ended June 30, 2021
(in $ ‘000, except per share data or unless otherwise indicated)
Lesaka
Connect
Note 2
Transaction
accounting
adjustments
Notes
Proforma
REVENUE
130,786
305,691
436,477
EXPENSE
Cost of goods sold, IT processing, servicing and support
96,248
270,722
366,970
9,544
4(f)
2,367
4(f)
Selling, general and administration
84,063
15,573
2,763
4(g)
114,310
(3,065)
4(c)
Depreciation and amortization
4,347
7,332
17,055
4(c)
25,669
Transaction costs related to Connect Group acquisition
-
76
3,578
4(d)
3,654
OPERATING
(LOSS) INCOME
(53,872)
11,988
(32,242)
(74,126)
CHANGE IN FAIR VALUE
OF EQUITY SECURITIES
49,304
49,304
LOSS ON DISPOSAL OF EQUITY-ACCOUNTED
INVESTMENT -
BANK FRICK
472
472
LOSS ON DISPOSAL OF EQUITY-ACCOUNTED
INVESTMENT
13
13
INTEREST INCOME
2,416
207
(307)
4(a)
2,316
5,404
4(e)
(4,199)
4(h)
INTEREST EXPENSE
2,982
4,076
6,316
4(h)
14,579
(LOSS) INCOME BEFORE INCOME TAX EXPENSE
(5,619)
8,119
(40,070)
(37,570)
(2,672)
4(f)
(663)
4(f)
(860)
4(c)
4,776
4(c)
(1,176)
4(h)
INCOME TAX EXPENSE
7,560
2,332
1,176
4(h)
10,473
NET (LOSS) INCOME BEFORE LOSS FROM EQUITY-
ACCOUNTED INVESTMENTS
(13,179)
5,787
(40,651)
(48,043)
LOSS FROM EQUITY-ACCOUNTED
INVESTMENTS
(24,878)
-
(24,878)
NET INCOME FROM CONTINUING OPERATIONS
(38,057)
5,787
(40,651)
(72,921)
LESS (ADD): NET INCOME (LOSS) ATTRIBUTABLE
TO NON-
CONTROLLING INTEREST
-
73
(73)
(j)
-
NET (LOSS) INCOME ATTRIBUTABLE
TO LESAKA
(38,057)
5,714
(40,578)
(72,921)
Net loss per share, in United States dollars
:
Basic loss attributable to Lesaka shareholders
(0.67)
(1.18)
Diluted loss attributable to Lesaka shareholders
(0.67)
(1.18)
See accompanying notes to unaudited pro forma combined financial statements.
7
LESAKA TECHNOLOGIES, INC.
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL
STATEMENTS
1. Basis of presentation
The accompanying
unaudited pro forma
combined financial statements
are prepared under
U.S. GAAP and
present the pro
forma financial
position and results
of operations of
the combined company based
on the historical financial
information of the
Company and Connect
and
after giving effect
to the
Acquisition and certain
adjustments which we
believe to be
reasonable and factually
supportable, which are
described
in these notes. The Acquisition
has been recorded using the
purchase method of accounting,
with the Company as the
acquirer. Please
refer
to “Overview” for further discussion of the basis of presentation of these unaudited
pro forma combined financial statements.
Certain Connect balances have been reclassified to conform to the balance sheet and statement of operations presentation of the Company as
described in Note 2.
2. Combined Connect balance sheet and statements of operations
(a) Combined balance sheet
The table below presents Connect’s combined balance sheet, in ZAR, as of February 28, 2022, adjusted for reclassifications to conform with
Lesaka’s presentation, and
then converted to USD, translated using the exchange rate applicable as of December
31, 2021):
Connect
Reclassifications
Notes
Connect
Connect
ZAR '000
ZAR '000
ZAR '000
USD '000
Assets
Non-current assets
Property, plant and equipment
294,543
-
294,543
18,489
Goodwill
412,413
-
412,413
25,888
Intangible assets
385,943
-
385,943
24,227
Investments
in associates
1,169
-
1,169
73
Loans to shareholders
784
(784)
(i)
-
-
Deferred tax
13,537
-
13,537
850
Operating lease right-of-use
11,602
-
11,602
728
Other long-term assets, including reinsurance assets
-
784
(i)
784
49
Total long-term assets
1,119,991
-
1,119,991
70,304
Current assets
Inventories
175,453
-
175,453
11,014
Current tax receivable
6,241
(6,241)
(ii)
-
-
Trade and other receivables
339,315
(195,980)
(ii)(iii)
143,335
8,997
Finance loans receivable, net
-
202,221
(iii)
202,221
12,694
Cash and cash equivalents
580,302
(355,583)
(iv)
224,719
14,106
Settlement assets
-
355,583
(iv)
355,583
22,321
Total current
assets
1,101,311
-
1,101,311
69,132
Total assets
2,221,302
-
2,221,302
139,436
Equity and liabilities
Equity attributable to equity holders of parent
Foreign currency translation reserve
(516)
-
(516)
(32)
Other invested equity
548,257
-
548,257
34,415
Total invested equity attributable to Parent entities
547,741
-
547,741
34,383
Non-controlling interest
2,789
-
2,789
175
Total equity
550,530
-
550,530
34,558
Non-current liabilities
Loans from financial institutions
413,478
-
413,478
25,955
8
Operating lease liability - long-term
5,513
-
5,513
346
Deferred tax
90,089
-
90,089
5,655
Total long-term liabilities
509,080
-
509,080
31,956
Current liabilities
Loans from financial institutions
536,190
(242,733)
(v)
293,457
18,421
Current tax payable
9,472
-
9,472
595
Accounts payable
-
193,369
(vi)
193,369
12,138
Trade and other payables
609,136
(548,952)
(vi)(vii)
60,184
3,777
Operating lease liability - current
6,894
-
6,894
433
Bank overdraft
-
242,733
(v)
242,733
15,237
Settlement obligations
-
355,583
(vii)
355,583
22,321
Total current
liabilities
1,161,692
-
1,161,692
72,922
Total liabilities
1,670,772
-
1,670,772
104,878
Total
equity and liabilities
2,221,302
-
2,221,302
139,436
(i) Loans to shareholders reclassified to other long-term assets, including
reinsurance assets in Lesaka’s balance
sheet;
(ii) Current tax receivable reclassified to accounts receivable, net
and other receivables in Lesaka’s balance
sheet;
(iii) Loans to customers (net of allowance for doubtful debts) included within
Connect’s trade and other receivables
reclassified to Finance
loans receivable, net in Lesaka’s balance
sheet;
(iv) Cash held by Cash Connect Collateral Holdings Trust
included within cash and cash equivalents represents funds held on behalf
of
customers with an equivalent amount recorded as the settlement control
payable included in Connect’s trade
and other payables. The cash
held has been reclassified from cash and cash equivalents to settlement assets in Lesaka’s
balance sheet;
(v) Overdraft and revolving credit facilities included within Connect’s
current liabilities - loans from financial institutions are short-term
credit facilities and have been reallocated from loans from financial institutions
to short-term credit facilities in Lesaka’s
balance sheet;
(vi) Connect’s trade payables included
within trade and other payables have been reclassified to accounts payable in Lesaka’s
balance
sheet;
(vii) As noted in (iv) above, funds held on behalf of customers and due to customers is included
in the settlement control payable included
in Connect’s trade and other payables
and has been reclassified from trade and other payables to settlement liabilities in
Lesaka’s balance
sheet.
9
(b) Combined statements of operations
The table
below presents
Connect’s
combined statement
of operations,
in ZAR,
for the
six months
ended February
28, 2022,
adjusted for
reclassifications to conform with Lesaka’s presentation, and then
converted to USD, translated using the average exchange rate for Lesaka’s
six months ended December 31, 2021
Connect
Reclassifications
Notes
Connect
Connect
ZAR '000
ZAR '000
ZAR '000
USD '000
Revenue
2,497,767
43,882
(i)
2,541,649
169,728
Cost of sales
(2,204,641)
24,405
(ii)
(2,180,236)
(145,593)
Gross profit
293,126
68,287
361,413
24,135
Other income
52,221
(52,221)
(i)(iii)(iv)
-
-
Operating expenses
(195,696)
38,506
(iii)(v)(vi)
(157,190)
(10,497)
Depreciation and amortisation
(48,867)
(v)
(48,867)
(3,263)
Transaction costs related to Connect Group acquisition
(7,271)
(vi)
(7,271)
(486)
Operating profit
149,651
(1,566)
148,085
9,889
Finance income
2,914
2,914
195
Interest paid
(42,658)
(42,658)
(2,849)
Profit before taxation
109,907
(1,566)
108,341
7,235
Taxation
(27,342)
(27,342)
(1,826)
Profit after tax before earnings (loss) from equity-
accounted investment
82,565
(1,566)
80,999
5,409
Earnings (loss) from equity-accounted investment
-
1,566
(iv)
1,566
105
Profit for the year
82,565
-
82,565
5,514
Other comprehensive income
-
-
-
Total comprehensive
income/(loss) for the year
82,565
-
82,565
5,514
Non-controlling interest
717
717
48
Total comprehensive
income/(loss) attributable to
Connect
81,848
-
81,848
5,466
(i) Certain items presented within Connect’s
other income reclassified to revenue in Lesaka’s
statement of operations;
(ii) Amortization included within cost of sales allocated to depreciation and amortization
in Lesaka’s statement of operations;
(iii) Certain items presented within other income reclassified to selling, general
and administration in Lesaka’s statement
of operations;
(iv) Earnings from equity-accounted investments presented within other
income reclassified to loss from equity-accounted investments in
Lesaka’s statement of operations;
(v) Depreciation included within operating expenses allocated to
depreciation and amortization in Lesaka’s
statement of operations;
(vi) Transaction costs related to the Connect
Group acquisition included within operating expenses allocated to a separate caption
in
Lesaka’s statement of operations.
10
The table below presents
Connect’s combined
statement of operations, in
ZAR, for the twelve
months ended August
31, 2021, adjusted for
reclassifications to conform with Lesaka’s presentation,
and then converted to USD, translated using the average exchange rate for Lesaka’s
year ended June 30, 2021:
Connect
Reclassifications
Notes
Connect
Connect
ZAR '000
ZAR '000
ZAR '000
USD '000
Revenue
4,788,302
16,000
(i)
4,804,302
305,691
Cost of sales
(4,308,638)
53,925
(ii)
(4,254,713)
(270,722)
Gross profit
479,664
69,925
549,589
34,969
Other income
47,329
(47,329)
(i)(iii)
-
-
Operating expenses
(338,582)
93,838
(iii)(iv)(v)
(244,744)
(15,573)
Depreciation and amortisation
(115,234)
(iv)
(115,234)
(7,332)
Transaction costs related to Connect Group acquisition
-
(1,200)
(v)
(1,200)
(76)
Operating profit
188,411
-
188,411
11,988
Finance income
3,246
3,246
207
Interest paid
(64,053)
(64,053)
(4,076)
Profit before taxation
127,604
-
127,604
8,119
Taxation
(36,651)
(36,651)
(2,332)
Profit after tax before earnings (loss) from equity-
accounted investment
90,953
-
90,953
5,787
Earnings (loss) from equity-accounted investment
-
-
-
-
Profit for the year
90,953
-
90,953
5,787
Other comprehensive income
-
-
-
Total comprehensive
income/(loss) for the year
90,953
-
90,953
5,787
Non-controlling interest
1,140
1,140
73
Total comprehensive
income/(loss) attributable to
Connect
89,813
89,813
5,714
(i) Certain items presented within Connect’s
other income reclassified to revenue in Lesaka’s statement
of operations;
(ii) Amortization included within cost of sales allocated to depreciation and amortization
in Lesaka’s statement of operations;
(iii) Certain items presented within other income reclassified to selling, general
and administration in Lesaka’s statement
of operations;
(iv) Depreciation included within operating expenses allocated
to depreciation and amortization in Lesaka’s
statement of operations;
(v) Transaction costs related to the Connect Group acquisition included within operating expenses allocated to a
separate caption in Lesaka’s
statement of operations.
11
3. Acquisition of Connect
The following
table sets
forth the
components of
the purchase
price for
the Acquisition
(using the
USD/ ZAR
closing exchange
rate as
of
April 13, 2022, for cash paid at closing):
USD '000
Cash paid at closing to former Connect shareholders, comprising:
236,697
Utilization of existing cash reserves
147,322
Bank borrowings
70,240
Increase in Connect bank borrowings
(1)
19,135
Lesaka shares to be issued pursuant to the Acquisition
(2)
16,658
Total purchase
consideration
253,355
(1) Connect refinanced
its borrowings prior to
closing the transaction and
the Company utilized certain
of the increased borrowin
gs (which
were included
in Connect’s
closing balance
sheet) at
the date
of the
Acquisition, as
part of
the post-closing
transaction steps,
to fund
the
Acquisition.
(2) Calculated as 3,185,079 shares of Lesaka common stock multiplied
by the April 13, 2022, closing price on the NasdaqGS of $5.23.
The following table sets forth the preliminary allocation of the purchase price
,
translated at the exchange rate as of December 31, 2021:
USD '000
Cash and cash equivalents
33,028
Accounts receivable
8,997
Finance loans receivable
12,694
Inventory
11,014
Settlement assets
22,321
Property, plant and equipment
18,489
Operating lease right-of-use asset
728
Equity-accounted investment
73
Goodwill
155,253
Intangible assets
163,583
Deferred income tax assets
2,608
Other long-term assets
49
Trade payables
(12,138)
Other payables
(3,777)
Short-term borrowings
(22,955)
Operating lease liability - current
(433)
Current portion of long-term borrowings
(3,531)
Income taxes (payable) receivable
938
Settlement obligations
(22,321)
Deferred income taxes - long-term liabilities
(44,674)
Operating lease liability - long-term
(346)
Long-term borrowings
(66,245)
Total purchase
price
253,355
The
preliminary
purchase
price
allocation
is
based
on
management
estimates
as
of
June
30,
2022,
and
may
be
adjusted
up
to
one
year
following the closing of the Acquisition. Management
has not yet completed its valuation analysis and calculations necessary
to finalize the
determination of
the fair
value of
the assets
acquired and
liabilities assumed,
along with
the related
allocations of
goodwill and
intangible
assets. We
expect to finalize
the purchase price allocation
on or before December
31, 2022. The actual
amounts and the allocation
between
net tangible
and intangible
assets ultimately
recorded
may differ
materially from
the information
presented
in these
unaudited pro
forma
combined financial statements, including property,
plant and equipment, identifiable intangible assets and residual goodwill.
12
4. Pro forma adjustments
The following are descriptions of each of the pro forma adjustments included
in the unaudited pro forma combined financial statements:
(a) Reduction in cash and cash equivalents and interest income
Represents the estimated reduction in interest income of $0.1 million and $0.3 million on the Company’s
cash reserves of $124.4 million
(which is the USD equivalent of the ZAR cash reserves utilized using the $:ZAR exchange rate of 17.197978 on July 1, 2020) for the six
months ended December 31, 2021, and the year ended June 30, 2021, which
was used to fund a portion of the Acquisition at an assumed
pre-tax
USD
interest
rate
of
approximately
0.19%
and
0.24%,
respectively.
The
Company
was
in
a
net
operating
loss carry
forward
position
(with an
allowance
for
unutilized
net operating
loss carryforwards
created
in full)
and
therefore
there was
no net
tax
benefit
during the periods presented.
The components of the
cash paid of $236.7 million
is presented in Note 3.
The amount is presented
as a pro forma adjustment
to reduce
cash and cash equivalents
in the pro forma combined balance sheet as of December 31, 2021.
(b) Goodwill
The amount of $155.3 million represents the excess of the
purchase price over the fair value of net assets
acquired as presented within the
preliminary purchase price allocation in Note 2 above.
(c) Acquired intangible assets and amortization expense and reversal
of Connect pre-acquisition intangible assets
Represents
the
portion
of
the
purchase
price
allocated
to
Connect’s
intangible
assets
acquired,
at
estimated
fair
values
based
on
management’s
estimates.
As
of
February
28,
2022,
these
assets
(comprising
goodwill
and
intangible
assets)
had
a
carrying
value
on
Connect’s
balance sheet
of approximately
$50.1 million.
As noted
above, this
identification and
estimation of
fair value
is provisional
and may
change when
the final purchase
price allocation
is made.
Since the
tax basis of
these identifiable
intangible assets is
less than
their accounting basis, the purchase price allocated to these assets results in additional
deferred tax liabilities.
13
The table
below presents
the fair
value of
the acquired
intangible assets
(in ZAR
and USD)
the estimated
used life
(in years)
of these
acquired intangible assets and the amortization expense and related tax
effect (in ZAR and USD) for the identified periods presented:
Six months ended
December 31,
Year
ended
June 30, 2021
Fair value
Fair value
Estimated
useful life
Intangible
asset
amortizatio
n expense
Deferred
tax impact
Intangible
asset
amortizatio
n expense
Deferred
tax impact
ZAR '000
USD '000
(in years)
USD '000
(1)
USD '000
USD '000
(2)
USD '000
Finite lived intangibles assets
Customer relationships
297,870
18,698
8
1,243
348
2,369
663
Integrated network
2,075,970
130,314
10
6,932
1,941
13,209
3,699
Trade names
232,120
14,571
10
775
217
1,477
414
Total
2,605,960
163,583
8,950
2,506
17,055
4,776
Deferred tax liabilities
Customer relationships
83,404
5,235
Integrated network
581,272
36,488
Trade names
64,994
4,080
Total
729,670
45,803
(1) Using
the average
exchange rate
for the
six months
ended December
31, 2021,
the amortization
expense related
to these intangible
assets was $9.0
million. The deferred
tax effect
of $2.5
million related
to this adjustment
is included
on the income
tax expense line
in
the unaudited pro forma combined statement of operations.
(2) Using
the average
exchange rate
for the year
ended June
30, 2021,
the total
annual amortization
expense related
to these
intangible
assets was $17.1
million. The deferred tax
effect of $4.8 million
related to this adjustment
is included on the
income tax expense line
in
the unaudited pro forma combined statement of operations.
14
The table below
presents Connect’s
intangible assets (including
goodwill) and related
deferred tax liabilities
that have been
reversed on
acquisition (in ZAR and USD), and the reversal of Connect’s amortization expense
and related tax effect in its historical accounts for the
identified periods presented (in ZAR and USD):
Six months ended
Twelve months
ended
February 28, 2022
August 31, 2021
ZAR '000
USD '000
USD '000
(1)
USD '000
(2)
As of December 31, 2021
Goodwill reversed on acquisition
412,413
25,888
Intangible assets, net reversed on acquisition
385,943
24,227
Total intangible
assets, net reversed
798,356
50,115
Deferred tax liability reversed on acquisition
(108,073)
(6,784)
Impact on other invested equity
690,283
43,331
Pro forma six months ended December 31, 2021
Intangible asset amortization reversed
24,084
1,608
Deferred tax related to intangible asset amortization reversed
6,759
451
Pro forma year ended June 30, 2021
Intangible asset amortization reversed
48,167
3,065
Deferred tax related to intangible asset amortization reversed
13,518
860
(1) Using the average exchange rate for the six
months ended December 31, 2021. This adjustment is included in
the unaudited pro forma
combined statement of operations for the six months ended December 31, 2021.
(2) Using the average
exchange rate for the year
ended June 30, 2021. This adjustment
is included in the unaudited
pro forma combined
statement of operations for the year ended June 30, 2021.
(d) Transaction costs adjustments
Represents the Company’s estimate of the
expected Connect acquisition costs of $3.6 million owing to external professional advisors for
services provided which
are not reflected
in the Company’s December
31, 2021 consolidated
balance sheet. These
costs have been
accrued
as
a
current
liability.
The
Company
does
not
expect
to
deduct
these
expenses
for
tax
purposes.
Because
the
Company
is
required
to
expense
these
costs
as
they
are
incurred,
it has
charged
them
to
retained
earnings
as
of
December
31,
2021.
This
adjustment
is
also
included
in
the
unaudited
pro
forma
combined
statement
of
operations
for
the
year
ended
June
30,
2021.
There
were
no
significant
transaction
costs
actually
incurred
by
the
Company
during
the
year
ended
June 30,
2021.
These
costs
will
not
affect
the
Company’s
statement of operations beyond 12 months after the acquisition date.
The
Company’s
consolidated
statement
of
operations
for
the six
months
ended December
31,
2021,
include
transaction
costs of
$1.7
million.
Connect’s
combined
statement
of
operations
for
the
six
months
ended
February
28,
2022,
and
year
ended
August
31,
2021,
include
transaction costs
of $0.5 million
and $0.1 million
(translated at average
exchange rates
for the periods
identified),
respectively,
paid on
behalf of the sellers.
(e) Borrowings, non-refundable deal origination fees and interest expense
The Company used aggregate borrowings of ZAR 1.1 billion ($70.2
million, translated at the exchange rate as of December 31, 2021)
to
partially fund the
Acquisition and procured
these lending facilities
(Facility G and
Facility H) from
FirstRand Bank Limited
acting through
Rand Merchant Bank division (“RMB”) and concluded agreements (“Loans
Documents”) in January 2022 to arrange this funding.
The Company paid non-refundable
deal origination fees of ZAR 19.0
million ($1.2 million, translated at
exchange rates applicable as of
December 31,
2021) upon
drawing down
the available
funding under
the Loan
Documents. Accordingly,
an amount
of $1.2
million is
included
in
accounts
payable
and
long-term
borrowings
(as
prepaid
facility
fees)
as of
December
31,
2021.
The non
-refundable
deal
origination fees are amortized over the applicable lending period using
the effective interest rate method.
15
Interest on Facility G and Facility
H is payable quarterly in arrears.
Interest on Facility G is
based on the 3-month Johannesburg Interbank
Agreed Rate
(“JIBAR”) in
effect from
time to
time plus
a margin
of (i)
3.00% per
annum for
the first
nine months
occurring after
the
effective date (as defined
in the Loan Documents);
and then (ii) from
the date after the nine
month period in (i),
(x) 2.50% per annum
if
the Facility G balance outstanding is less
than or equal to ZAR 250.0 million,
or (y) 3.00% per annum if
the Facility G balance is between
ZAR 250.0 million to ZAR 450.0 million, or (z) 3.50% per annum if the
Facility G balance is greater than ZAR 450.0 million. Interest on
Facility H is
based on
JIBAR plus a
margin of
2.00% per annum
and increase by
a further 2.00%
per annum in
the event of
default (as
defined in the Loan Documents).
The average JIBAR during the six months ended December
31, 2021, was 3.68%
and, together with the applicable margin of 3.20%,
the
interest expense for this period included in the pro forma combined statement of operations has been calculated using a rate
of 6.89% and
the ZAR 1.1 billion borrowings outstanding.
The average JIBAR during the year ended June 30, 2021, was 3.64% and,
together with the
applicable margin
of 2.82%,
the interest
expense for
this period
included in
the pro
forma combined
statement of
operations has
been
calculated using a rate of 6.46% and the ZAR 1.1 billion borrowings outstanding
.
The table
below presents
the borrowings
utilized (translated
to USD
at the
exchange rates
applicable as
of December
31, 2021)
by the
Company,
the repayment
terms, the
interest
rate determination,
and
the non
-refundable
deal
origination
fees
paid
included
in the
pro
forma combined balance sheet as of December 31,2021, and the aggregated amortization of the deal origination fees and interest expense
during
the
six
months
ended
December,
2021,
and
the
year
ended
June
30,
2021,
included
in
the
pro
forma
combined
statements
of
operations (translated to USD at the applicable average exchange rate
applicable for the periods presented):
ZAR '000
USD '000
Repayment date
Interest rate
Borrowing utilized, comprising:
1,118,975
70,240
Facility G
750,000
47,079
October 14, 2023
JIBAR plus variable margin
Facility G, deal origination costs
18,975
1,191
October 14, 2023
JIBAR plus variable margin
Facility H
350,000
21,970
October 14, 2023
JIBAR plus 2%
Less: deal original fees accrued
18,975
1,191
Borrowing utilized less deal origination fees
1,100,000
69,049
Six months ended
Year
ended
December 31, 2021
June 30, 2021
ZAR '000
USD '000
(1)
USD '000
(2)
Deal origination fees amortized
6,325
422
Interest expense
38,527
2,573
Total interest
expense
44,852
2,995
Deal origination fees amortized
12,650
805
Interest expense
72,283
4,599
Total interest
expense
84,933
5,404
(1) Using the average exchange rate for the six
months ended December 31, 2021. This adjustment is included in
the unaudited pro forma
combined statement of operations for the six months ended December 31, 2021.
(2) Using the average
exchange rate for the year
ended June 30, 2021. This adjustment
is included in the unaudited
pro forma combined
statement of operations for the year ended June 30, 2021.
A change of one percentage point in JIBAR results in a change of ZAR 11.2
million ($0.7 million) in the annual interest expense.
16
(f) Pre-closing payments made by Connect
Connect was required
to make certain pre
-closing payments as a
condition to the
sales agreement. All amounts
in this note translated
to
USD at
the exchange
rates applicable
as of
December 31,
2021 for
balance sheet
items and
the average
rates for
the six months
ended
December 31, 2021, and the year ended June 30, 2021, for statement of operations
items.
Prior to closing, Connect was required to pay:
●
the Connect
CEO a restraint of trade
payment of ZAR 150.0 million ($9.4
million in the pro forma
combined balance sheet). The
Company expects to qualify for a tax deduction and will deduct the
amount rateably over a period of three years. The Company
recorded a
pro forma
adjustment of
ZAR 150.0
million ($9.5
million), tax
impact of
$2.7 million,
in its
unaudited pro
forma
combined statements of operations for the year ended June 30, 2021.
This expense is considered non-recurring;
●
cash
bonuses
of
ZAR 37.2
million
($2.3
million
in
the pro
forma
combined
balance
sheet) to
a
group
of identified
Connect
employees).
The Company
expects
to
qualify
for
a
tax deduction
and
will deduct
the
amount
in the
period
the
expense was
incurred. The Company
recorded a pro
forma adjustment of ZAR
37.2 million ($2.4
million), tax impact
of $0.7 million,
in its
unaudited
pro
forma
combined
statements
of
operations
for
the
year
ended
June
30,
2021.
This
expense
is
considered
non-
recurring;
●
ZAR
26.4
million
($1.7
million
in
the
pro
forma
combined
balance
sheet)
to
repurchase
Connect’s
issued
and
outstanding
preference shares. Connect settled this transaction in two parts, the first was a dividend distribution of ZAR 24.0 million and the
balance
as
the
acquisition
of
the
preference
shares
at
historical
cost.
This
payment
did
not
impact
the
unaudited
pro
forma
combined statements of operations for the year ended June 30, 2021,
and for the six months ended December 31, 2021; and
●
ZAR 12.5 million
($0.8 million in
the pro forma
combined balance sheet)
to acquire its remaining
non-controlling interest in a
subsidiary.
This transaction has been accounted for as a transaction between owners and a loss on acquisition of the outstanding
interest was recorded directly in equity.
The table
below presents
a summary
of pre-closing
payments made
and the
allocation of
these adjustments
in the
pro forma
combined
balance sheet:
ZAR '000
USD '000
Restraint payment - Gross (A)
150,000
9,416
Restraint payment - Tax Payable (B)
14,000
879
Restraint payment - Deferred tax assets (C)
28,000
1,758
Restraint payment, net (D)
108,000
6,779
Bonuses payment - Gross (A)
37,200
2,335
Bonuses payment - Tax Payable (B)
10,416
654
Bonuses payment, net (D)
26,784
1,681
Preferences share repurchase payment (A)
26,446
1,660
Preference shares (allocate to Other equity items (D)
2,446
154
Loss on repurchase (allocate to Other equity items (D))
24,000
1,506
Buy out non-controlling interest payment (A)
12,500
785
Non-controlling interest (E)
2,789
175
Loss on repurchase (allocate to Other equity items (D))
9,711
610
Allocated to:
Cash and cash equivalents (sum of (A))
226,146
14,196
Tax payable (sum of (B))
24,416
1,533
Deferred tax asset (sum of (C))
28,000
1,758
Other invested equity (sum of (D))
170,941
10,730
Non-controlling interest (sum of (E))
2,789
175
17
(g) Stock-based compensation
The
Company
agreed
to
award
a
group
of
identified
Connect
employees
1,250,486
shares
of
restricted
stock
upon
closing
of
the
Acquisition. The Company also awarded
this group 1,250,486 restricted stock units
which award contains an equalization
mechanism to
maintain a return of $7.50 per
share of restricted stock upon vesting. The conversion
of restricted stock units to shares
cannot exceed 50%
(or
625,243
shares)
under
the
terms
of
the
award.
These
awards
vest
equally
over
a
period
of
three
years
commencing
on
the
first
anniversary of the closing of the Acquisition.
The estimated grant date fair value of the shares
of restricted stock has been determined using the 1,250,486 shares of restricted
stock and
the closing price of the Company’s stock on Nasdaq on the closing date ($5.23). The estimated
grant date fair value of the restricted stock
units has been determined using the 1,250,486 restricted stock units and an estimate price per unit ($2.62) assuming that only 25%
of the
restricted
stock
units
will
vest
based
on
the
impact
of
the
equalization
mechanism.
The
Company
is
currently
seeking
tax
advice
to
determine whether it may claim a tax deduction of these stock-based
compensation charges for tax purposes and therefore
no tax-related
adjustment has been made to the pro forma adjustment.
The table
below presents
the grant
date fair
value of
the awards
and estimated
stock-based compensation
changes included
in the
pro
forma combined statement of operations for the periods presented
(translated at applicable exchange rates for the periods identified):
Six months ended
Year
ended
December 31, 2021
June 30, 2021
ZAR '000
USD '000
USD '000
(1)
USD '000
(2)
Estimated grant date fair value:
1,250,486 shares of restricted stock granted to employees
104,186
6,540
1,250,486 shares of restricted units granted to employees
26,094
1,638
Total
130,280
8,178
Stock-based compensation charges
21,713
1,450
Stock-based compensation charges
43,427
2,763
(1) Using the average exchange rate for the six
months ended December 31, 2021. This adjustment is included in
the unaudited pro forma
combined statement of operations for the six months ended December 31, 2021.
(2) Using the average
exchange rate for the year
ended June 30, 2021. This adjustment
is included in the unaudited
pro forma combined
statement of operations for the year ended June 30, 2021.
(h) Refinancing of Connect lending facilities
Connect refinanced its long-term borrowings pursuant to the Acquisition.
The
Connect
facilities
include
(i)
an
overdraft
facility
(general
banking
facility)
of
ZAR 244.0
million;
(ii)
Facility
A of
ZAR 700.0
million
(a
long-term
facility
with
a
bullet
repayment);
(iii)
Facility
B
of
ZAR
350.0
million
(a
long-term
facility
with
amortizing
repayments commencing September 2022); and (iv)
an asset-backed facility of ZAR
67.1 million. The amount available
under the general
banking facility will reduce to ZAR 205.0 million in
mid-November 2022. CCMS paid a non-refundable structuring fee of
approximately
ZAR 5.5
million. Interest
on Facility A
and Facility
B is payable
quarterly based
on JIBAR plus
a margin,
of approximately
3.75%, in
effect from time to time.
An adjustment has been made
in the pro forma combined
balance sheet to record the new
borrowings utilized by Connect and to
eliminate
the existing Connect borrowings as they were repaid on closing.
18
The table below presents
the (i) Connect borrowings
repaid, (ii) borrowings utilized
(translated to USD at
the exchange rates applicable
as of December
31, 2021) by Connect
to settle its existing
borrowings and the
non-refundable deal origination
fees paid included
in the
pro forma
combined balance
sheet as
of December
31, 2021,
(iii) the
aggregated amortization
of the
deal origination
fees and
interest
expense during the six months ended December,
2021, and the year ended June 30, 2021, and
(iv) the reversal of the amounts of interest
under the
existing Connect
borrowings that
were extinguished
at closing,
included in
the pro
forma combined
statements of
operations
(translated to USD at the applicable average exchange rate applicable
for the periods presented):
Six months ended
Twelve months
ended
February 28, 2022
August 31, 2021
ZAR '000
USD '000
USD '000
(1)
USD '000
(2)
Borrowing repaid
827,974
51,974
Short-term credit facilities
121,040
7,598
Current portion of long-term borrowings
293,456
18,421
Long-term borrowings
413,478
25,955
Borrowing utilized
1,361,093
85,439
Short-term credit facilities
244,000
15,316
Current portion of long-term borrowings
56,250
3,531
Long-term borrowings
1,060,843
66,592
Less: deal original fees accrued
5,520
347
Borrowing utilized less deal origination fees
1,355,573
85,092
Deal origination fees amortized
552
37
Interest expense
45,705
3,052
Total interest
expense
46,257
3,089
Tax impact on interest expense
(3)
9,240
617
Deal origination fees amortized
1,104
70
Interest expense
98,167
6,246
To
tal interest expense
99,271
6,316
Tax impact on interest expense
(3)
18,480
1,176
Interest expense under repaid lending facilities reversed
33,000
2,204
Tax expense adjustment related to reversal of interest
adjustment
(3)
9,240
617
Interest expense under repaid lending facilities reversed
66,000
4,199
Tax expense adjustment related to reversal of interest
adjustment
(3)
18,480
1,176
(1) Using the average exchange rate for the six
months ended December 31, 2021. This adjustment is included in
the unaudited pro forma
combined statement of operations for the six months ended December 31, 2021.
(2) Using the average
exchange rate for the year
ended June 30, 2021. This adjustment
is included in the unaudited
pro forma combined
statement of operations for the year ended June 30, 2021.
(3) The amount of interest
deductible for tax purposes in
South Africa is subject to
a limitation. The Company
does not expect to obtain
an incremental
deduction from
the higher
interest expense
and therefore
has capped
the pro forma
tax deduction
of interest expense
on
the new borrowing at the same amount as for the refinanced Connect borrowings
.
A change of one percentage point in JIBAR results in a change of ZAR 13.1 million
($0.8 million) in the annual interest expense.
(i) Elimination of Connect’s shareholders’
equity
Represents
the
elimination
of
Connect’s
other
invested
equity
of
$34.4
million,
net
of
closing
adjustments
in
notes
(c)
and
(f),
and
accumulated other comprehensive income of $0.03 million acquired by
the Company.
19
(j) Reversal of net income attributable to non-controlling interest in statement of
operations
Represents the elimination of income attributable to non-controlling
interests as Connect is a wholly owned by the Company.