Net 1 UEPS Technologies, Inc. (Nasdaq:UEPS) (JSE:NT1) today
released results for the second quarter fiscal 2018.
- Q2 2018 Revenue of $148 million, 2% lower in USD;
- Q2 2018 FEPS of $0.39, including a $0.02 adverse impact for
provisioning for South African loan book expansion;
- International revenue from Masterpayment and Transact24, grew
37% in USD compared to Q2 2017.
Summary Financial Metrics
|
|
|
Three months ended December 31, |
|
2017 |
|
2016 |
|
% change in USD |
|
% change in ZAR |
(All figures in USD
‘000s except per share data) |
|
|
|
|
|
|
|
Revenue |
148,416 |
|
151,433 |
|
(2%) |
|
(4%) |
GAAP net income |
9,622 |
|
18,641 |
|
(48%) |
|
(49%) |
Fundamental net income
(1) |
22,405 |
|
22,648 |
|
(1%) |
|
(4%) |
GAAP earnings per share
($) |
0.17 |
|
0.35 |
|
(52%) |
|
(53%) |
Fundamental earnings
per share ($) (1) |
0.39 |
|
0.43 |
|
(9%) |
|
(11%) |
Fully-diluted shares
outstanding (‘000’s) |
56,807 |
|
52,643 |
|
8% |
|
|
Average period USD/ ZAR
exchange rate |
13.67 |
|
13.94 |
|
(2%) |
|
|
|
|
|
|
|
|
|
|
|
Six months ended December 31, |
|
2017 |
|
2016 |
|
% change in USD |
|
% change in ZAR |
(All figures in USD
‘000s except per share data) |
|
|
|
|
|
|
|
Revenue |
300,974 |
|
307,066 |
|
(2%) |
|
(6%) |
GAAP net income |
29,105 |
|
43,273 |
|
(33%) |
|
(36%) |
Fundamental net income
(1) |
46,875 |
|
48,392 |
|
(3%) |
|
(8%) |
GAAP earnings per share
($) |
0.51 |
|
0.81 |
|
(37%) |
|
(40%) |
Fundamental earnings
per share ($) (1) |
0.83 |
|
0.91 |
|
(9%) |
|
(14%) |
Fully-diluted shares
outstanding (‘000’s) |
56,812 |
|
53,282 |
|
7% |
|
|
Average period USD/ ZAR
exchange rate |
13.41 |
|
14.03 |
|
(4%) |
|
|
(1) Fundamental net income and earnings per
share are non-GAAP measures and are described below under “Use of
Non-GAAP Measures—Fundamental net income and fundamental earnings
per share.” See Attachment B for a reconciliation of GAAP net
income to fundamental net income and earnings per share.
Factors impacting comparability of our
Q2 2018 and Q2 2017 results
- Earnings and FEPS dilution impact from issue of
additional shares of common stock: Our Q2 2018 fundamental
earnings per share was impacted by the issuance of five million
shares of our common stock in February 2017;
- Favorable impact from the weakening of the U.S. dollar
against South African Rand: The U.S. dollar depreciated by
2% against the ZAR and 6% against the KRW during Q2 2018, which
positively impacted our reported results;
- Growth in insurance and lending businesses:
Volume growth and operating efficiencies in our insurance and
lending businesses during Q2 2018 resulted in an improved
contribution to our financial inclusion revenue and operating
income. The significant growth in our South African lending book
during December 2017 resulted in a substantial increase in the
allowance for doubtful finance loans receivable, in accordance with
our policy of providing for doubtful finance loans receivable at
the time that a loan is originated;
- Ongoing contributions from EasyPay Everywhere:
EPE revenue and operating income growth was driven primarily by
ongoing EPE adoption as we further expanded our customer base
utilizing our ATM infrastructure;
- Higher revenue from Masterpayment and new
cryptocurrency processing customer: Masterpayment
contributed higher revenues as a result of an increase in
processing activities, particularly related to its cryptocurrency
processing for Bitstamp launched in December 2017, as well as from
its working capital financing and supply chain solutions;
- Winding down of Mastertrading business and $7.8 million
allowance for credit losses: We have determined to exit
Masterpayment’s Mastertrading business following a re-evaluation of
its operating performance and ongoing viability. During Q2 2018, we
recorded an allowance for credit losses related to doubtful working
capital finance receivables of $7.8 million. A valuation allowance
has been provided for any potential tax benefit from this event as
it is unlikely that this amount would be utilized for taxation
purposes;
- Regulatory changes in South Korea pertaining to fees on
card transactions: The regulations governing the fees that
may be charged on card transactions have adversely impacted our
revenues and operating income in South Korea;
- Lower net interest income resulting from investments in
Cell C, DNI and Bank Frick: Interest income was $1.8
million lower as a result of cash utilized to purchase minority
stakes in Cell C, DNI and Bank Frick, while interest expense
increased due to the South African lending facility we obtained in
August 2017 to partially fund our 15% investment in Cell C;
and
- Lower prepaid sales and ad hoc terminal sales:
The number of transacting users purchasing prepaid products through
our mobile channel decreased due to security features introduced in
fiscal 2017. In addition, we had fewer ad hoc terminal sales.
“There have been a number of exciting
developments at Net1 over the past few months. The establishment of
a blockchain department at Bank Frick accelerates our ability to
reposition our core UEPS solution at the forefront of offline and
biometric blockchain technology. Meanwhile our financial inclusion
initiatives in South Africa are starting to bear fruit with an
acceleration of our EPE offering, continuing realization of certain
synergies with Cell C and DNI, and the beta development of our new
mobile banking product,” said Herman Kotzé, CEO of Net1. “We
achieved all this despite considerable time and effort spent on
restructuring of the group, closure of certain business lines, and
addressing some of the challenges in South Africa,” he added.
“To reiterate from last quarter, we expect the
funding of our Cell C and DNI investments to be dilutive to our
fiscal 2018 fundamental earnings, partially offset by DNI’s
equity-accounted earnings, but to be accretive on a combined basis
from fiscal 2019. We therefore anticipate our fundamental earnings
per share for fiscal 2018 to remain at least $1.61. Our guidance
assumes no significant disruption in any of our key business units,
a constant currency base of ZAR 13.62/$1, a share count of 56.6
million shares, and a tax rate of between 34%-36%. For clarity, our
guidance as always is on a constant currency basis and does not
reflect the recent strengthening of the South African rand,” he
concluded.
Mastertrading - Exit from Working
Capital Financing and Supply Chain Solutions Business
During the second quarter of fiscal 2018, we
re-evaluated the operating performance and ongoing viability of
Masterpayment’s working capital financing and supply chain
solutions offering and have determined to exit this portion of its
business. While we believe we could scale this offering in the
medium to long-term by focusing on customers and industries outside
our initial target market, this standalone offering does not fit
the International Payments Group strategy of providing payment
solutions and working capital to small and medium-sized merchants.
In order to focus on our stated international strategy, we have
decided to wind-down the traditional working capital finance book
issued to non-payment solutions customers. The working capital
finance book comprises European and U.S. component of $35.8 million
and $7.8 million; respectively. In January 2018, we entered into an
arrangement with Bank Frick under which it purchased the European
book from us at face value. We have created an allowance for
doubtful finance loans receivable of $7.8 million related to the
U.S. book as repayments have not been received as scheduled and we
have not yet been able to negotiate a reasonable settlement plan
with them.
Supplemental Presentation for Q2 2018
Results
A supplemental presentation for Q2 2018 will be posted to the
Investor Relations page of our website – ir.net1.com one hour prior
to our earnings call on Friday, February 9, 2018.
Results of Operations by Segment and
Liquidity
Our operating metrics will be updated and posted
on our website (www.net1.com).
South African transaction
processing
Segment revenue was $64.1 million in Q2 2018, up
7% compared with Q2 2017 in USD, and 5% higher on a constant
currency basis. The increase in segment revenue was primarily due
to higher EPE transaction revenue as a result of increased usage of
our ATMs, increased inter-segment transaction processing activities
and a modest increase in the number of social welfare grants
distributed. Operating income and margin decreased primarily due to
an increase in inter-segment charges, the impact of annual salary
increases granted to our South African employees in October 2017
and increases in goods and services purchased from third parties.
These decreases were partially offset by the aforementioned
increases in segment revenue. Our operating income margin for Q2
2018 and 2017 was 21% and 26%, respectively.
International transaction
processing
Segment revenue of $44.2 million was slightly
higher during Q2 2018 compared with Q2 2017, primarily due to
ongoing impact of regulatory changes in South Korea on KSNET’s
revenue, largely offset by increased contributions from
Masterpayment. Operating income and margin during Q2 2018 was lower
due to an allowance for doubtful working capital finance receivable
of $7.8 million, a decrease in revenue at KSNET and losses incurred
by all other major contributors to the segment. Operating income
and margin for Q2 2017 was positively impacted by a refund of
approximately $0.8 million that had been paid several years ago in
connection with industry-wide litigation that has now been
finalized. Operating (loss) income margin for Q2 2018 and 2017 was
(11%) and 9%, respectively. Excluding the Mastertrading allowance
for doubtful working capital finance receivables, segment operating
income and margin were $2.8 million and 6% respectively.
Financial inclusion and applied
technologies
Segment revenue was $54.1 million in Q2 2018,
down 9% compared with Q2 2017 in USD and down 10% on a constant
currency basis. Financial inclusion and applied technologies
revenue decreased primarily due to fewer prepaid airtime and other
value added services sales, as well as lower ad hoc terminal sales,
partially offset by increased volumes in our insurance businesses,
and an increase in inter-segment revenues. Operating income was
also impacted by these factors as well as an increase in the
allowance for doubtful finance loans receivable resulting from a
commensurate increase in our lending book in the last lending cycle
of calendar 2017.
Operating income margin for the Financial
inclusion and applied technologies segment was 24% during each of
Q2 2018 and 2017, respectively, and was impacted by fewer low
margin prepaid product sales, improved revenues from our insurance
businesses and an increase in inter-segment revenues, offset by
fewer ad hoc terminal and annual salary increases granted to our
South African employees and the increase in the allowance for
credit losses.
Corporate/eliminations
Our corporate expenses have decreased primarily
due to lower transaction-related expenditures, a $0.5 million gain
related to the sale of XeoHealth, and lower executive compensation,
which was partially offset by a modest increases in U.S. dollar
denominated goods and services purchased from third parties and
directors’ fees.
Cash flow and liquidity
At December 31, 2017, our cash and cash
equivalents were $64.9 million and comprised mainly KRW-denominated
balances of KRW 28.1 billion ($24.4 million), ZAR-denominated
balances of ZAR 272.0 million ($22.0 million), U.S.
dollar-denominated balances of $11.4 million, and other currency
deposits, primarily euros, of $7.1 million, all amounts translated
at exchange rates applicable as of December 31, 2017. The decrease
in our cash balances from June 30, 2017, was primarily due to
our investments in DNI, Bank Frick, Cell C and a $9 million listed
note, scheduled repayments of our South African long-term debt,
unscheduled repayment of Korean debt in full, growth in our South
African lending book, and capital expenditures, which was partially
offset by cash generated by most of our core businesses.
Excluding the impact of interest received,
interest paid under our Korean and South Africa debt and taxes, the
decrease in operating cash flow relates primarily to the expansion
of our South African lending book and weaker trading activity
during fiscal 2018 compared to 2017, offset partially by the
receipt of certain working capital loans outstanding. Capital
expenditures for Q2 2018 and 2017 were $2.1 million and $3.1
million, respectively, and have decreased primarily due to the
acquisition of fewer payment processing terminals in South Korea.
We paid approximately $40.9 million for a 30% interest in Bank
Frick and $9.0 million for a 7.625% interest in a listed note.
Finally, we made an unscheduled $16.6 million repayment to settle
our outstanding South Korean debt facility in full, made a
scheduled South African debt facility payment of $14.3 million (ZAR
187.5 million) and repaid $11.4 million of our overdraft
facilities.
Use of Non-GAAP Measures
US securities laws require that when we publish
any non-GAAP measures, we disclose the reason for using the
non-GAAP measure and provide reconciliation to the directly
comparable GAAP measure. The presentation of fundamental net income
and fundamental earnings per share and headline earnings per share
are non-GAAP measures.
Fundamental net income and fundamental earnings per
share
Fundamental net income and earnings per share is
GAAP net income and earnings per share adjusted for (1) the
amortization of acquisition-related intangible assets (net of
deferred taxes), (2) stock-based compensation charges (reversals)
and (3) unusual non-recurring items, including the amortization of
South African and Korean debt facility fees and costs related to
acquisitions and transactions consummated or ultimately not
pursued. Fundamental net income and earnings per share for Q2 2018
also excluded non-recurring allowance for doubtful working capital
finance receivables, the amortization of intangibles assets (net of
deferred taxes) related to equity accounted investments, a gain
realized on the sale of XeoHealth and the impact of changes in tax
laws in the U.S. Management believes that the fundamental net
income and earnings per share metric enhances its own evaluation,
as well as an investor’s understanding, of our financial
performance. Attachment B presents the reconciliation between GAAP
and fundamental net income and earnings per share.
We provide earnings guidance only on a non-GAAP
basis and do not provide a reconciliation of forward-looking
fundamental earnings per share guidance to the most directly
comparable GAAP financial measures because of the inherent
difficulty in forecasting and quantifying certain amounts that are
necessary for such reconciliation, the amounts of which, based on
past experience, could be material.
Headline earnings per share (“HEPS”)
The inclusion of HEPS in this press release is a
requirement of our listing on the JSE. HEPS basic and diluted is
calculated using net income which has been determined based on
GAAP. Accordingly, this may differ to the headline earnings per
share calculation of other companies listed on the JSE as these
companies may report their financial results under a different
financial reporting framework, including but not limited to,
International Financial Reporting Standards.
HEPS basic and diluted is calculated as GAAP net
income adjusted for the (profit) loss on sale of property, plant
and equipment. Attachment C presents the reconciliation between our
net income used to calculate earnings per share basic and diluted
and HEPS basic and diluted and the calculation of the denominator
for headline diluted earnings per share.
Conference Call
We will host a conference call to review Q2 2018
results on February 9, 2018, at 8:00 Eastern Time. To participate
in the call, dial 1-508-924-4326 (US and Canada), 0-333-300-1418
(U.K. only) or 0-800-200-648 (South Africa only) ten minutes prior
to the start of the call. Callers should request “Net1 call” upon
dial-in. The call will also be webcast on the Net1 homepage,
www.net1.com. Please click on the webcast link at least ten minutes
prior to the call. A webcast of the call will be available for
replay on the Net1 website through March 3, 2018.
About Net1
(www.net1.com)
Net1 is a leading provider of alternative
payment systems that leverage its Universal Electronic Payment
System (“UEPS”) or utilize its proprietary mobile technologies.
The Company operates market-leading payment processors
in South Africa and the Republic of Korea. Through
Transact24, Net1 offers debit, credit and prepaid processing and
issuing services for Visa, MasterCard, ChinaUnionPay, Alipay and
WeChat in China and other territories across Asia-Pacific, Europe
and Africa, and the United States. Through Masterpayment, Net1
provides payment processing and enables working capital financing
in Europe.
UEPS permits the Company to facilitate
biometrically secure, real-time electronic transaction processing
to unbanked and under-banked populations of developing economies
around the world in an online or offline environment. Net1’s
UEPS/EMV solution is interoperable with global EMV standards that
seamlessly enable access to all the UEPS functionality in a
traditional EMV environment. In addition to payments, UEPS can be
used for banking, healthcare management, payroll, remittances,
voting and identification.
Net1’s mobile technologies include its
proprietary mobile payments solution - MVC, which offers secure
mobile-based payments, as well as mobile banking and prepaid
value-added services in developed and emerging countries.
Net1 has a primary listing on the NASDAQ and a secondary listing
on the Johannesburg Stock Exchange.
Forward-Looking Statements
This announcement contains forward-looking
statements that involve known and unknown risks and uncertainties.
A discussion of various factors that cause our actual results,
levels of activity, performance or achievements to differ
materially from those expressed in such forward-looking statements
are included in our filings with the Securities and Exchange
Commission. We undertake no obligation to revise any of these
statements to reflect future events.
Investor Relations Contact: Dhruv ChopraHead of
Investor RelationsPhone: +1 917-767-6722Email: dchopra@net1.com
Media Relations Contact:Bridget
von HoldtBusiness Director – Burson-Marsteller South AfricaPhone:
+27-82-610-0650Email: bridget.vonholdt@bm-africa.com
|
NET 1 UEPS TECHNOLOGIES, INC. |
Unaudited Condensed Consolidated Statements of
Operations |
|
|
Three months ended |
|
Six months ended |
|
|
December 31, |
|
|
December 31, |
|
|
2017 |
|
2016 |
|
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
(In thousands, except per share data) |
|
(In thousands, except per share data) |
|
|
|
|
|
|
|
|
|
|
REVENUE |
$ |
148,416 |
$ |
151,433 |
|
$ |
300,974 |
$ |
307,066 |
|
|
|
|
|
|
|
|
|
|
EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of
goods sold, IT processing, servicing and support |
|
73,994 |
|
73,518 |
|
|
148,646 |
|
148,298 |
|
|
|
|
|
|
|
|
|
|
Selling,
general and administration |
|
49,392 |
|
41,703 |
|
|
93,326 |
|
80,171 |
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
8,723 |
|
10,623 |
|
|
17,689 |
|
20,827 |
|
|
|
|
|
|
|
|
|
|
OPERATING INCOME |
|
16,307 |
|
25,589 |
|
|
41,313 |
|
57,770 |
|
|
|
|
|
|
|
|
|
|
INTEREST INCOME |
|
4,705 |
|
5,061 |
|
|
9,749 |
|
9,365 |
|
|
|
|
|
|
|
|
|
|
INTEREST EXPENSE |
|
2,325 |
|
510 |
|
|
4,446 |
|
1,306 |
|
|
|
|
|
|
|
|
|
|
INCOME BEFORE INCOME
TAX EXPENSE |
|
18,687 |
|
30,140 |
|
|
46,616 |
|
65,829 |
|
|
|
|
|
|
|
|
|
|
INCOME TAX EXPENSE |
|
10,062 |
|
10,984 |
|
|
20,339 |
|
22,087 |
|
|
|
|
|
|
|
|
|
|
NET INCOME BEFORE
EARNINGS FROM EQUITY-ACCOUNTED INVESTMENTS |
|
8,625 |
|
19,156 |
|
|
26,277 |
|
43,742 |
|
|
|
|
|
|
|
|
|
|
EARNINGS FROM
EQUITY-ACCOUNTED INVESTMENTS |
|
1,354 |
|
74 |
|
|
3,429 |
|
733 |
|
|
|
|
|
|
|
|
|
|
NET INCOME |
|
9,979 |
|
19,230 |
|
|
29,706 |
|
44,475 |
|
|
|
|
|
|
|
|
|
|
LESS NET INCOME
ATTRIBUTABLE TO NON-CONTROLLING INTEREST |
|
357 |
|
589 |
|
|
601 |
|
1,202 |
|
|
|
|
|
|
|
|
|
|
NET INCOME ATTRIBUTABLE
TO NET1 |
$ |
9,622 |
$ |
18,641 |
|
$ |
29,105 |
$ |
43,273 |
|
|
|
|
|
|
|
|
|
|
Net income per
share, in U.S. dollars |
|
|
|
|
|
|
|
|
|
Basic
earnings attributable to Net1 shareholders |
|
0.17 |
|
0.35 |
|
|
0.51 |
|
0.81 |
Diluted
earnings attributable to Net1 shareholders |
|
0.17 |
|
0.35 |
|
|
0.51 |
|
0.81 |
|
|
|
|
|
|
|
|
|
|
NET 1 UEPS TECHNOLOGIES, INC. |
Unaudited Condensed Consolidated Balance
Sheets |
|
Unaudited |
|
(A) |
|
December 31, |
|
June 30, |
|
2017 |
|
2017 |
|
|
|
|
|
|
|
(In thousands, except share data) |
ASSETS |
CURRENT ASSETS |
|
|
|
|
|
Cash and
cash equivalents |
$ |
64,896 |
|
|
$ |
258,457 |
|
Pre-funded social welfare grants receivable |
|
3,300 |
|
|
|
2,322 |
|
Accounts
receivable, net of allowances of – December: $1,251; June:
$1,255 |
|
128,543 |
|
|
|
111,429 |
|
Finance
loans receivable, net of allowances of – December: $17,213; June:
$7,469 |
|
105,697 |
|
|
|
80,177 |
|
Inventory |
|
12,482 |
|
|
|
8,020 |
|
Deferred
income taxes |
|
- |
|
|
|
5,330 |
|
Total
current assets before settlement assets |
|
314,918 |
|
|
|
465,735 |
|
Settlement assets |
|
412,177 |
|
|
|
640,455 |
|
Total current assets |
|
727,095 |
|
|
|
1,106,190 |
|
PROPERTY, PLANT AND
EQUIPMENT, net of accumulated depreciation of – December: $136,996;
June: $120,212 |
|
32,852 |
|
|
|
39,411 |
|
EQUITY-ACCOUNTED
INVESTMENTS |
|
147,392 |
|
|
|
27,862 |
|
GOODWILL |
|
199,495 |
|
|
|
188,833 |
|
INTANGIBLE ASSETS, net
of accumulated amortization of – December: $121,766 ; June:
$108,907 |
|
34,604 |
|
|
|
38,764 |
|
DEFERRED INCOME
TAXES |
|
3,342 |
|
|
|
- |
|
OTHER LONG-TERM ASSETS,
including reinsurance assets |
|
225,463 |
|
|
|
49,696 |
|
TOTAL ASSETS |
|
1,370,243 |
|
|
|
1,450,756 |
|
|
|
|
|
|
|
LIABILITIES |
CURRENT
LIABILITIES |
|
|
|
|
|
Short-term credit facilities |
|
35,553 |
|
|
|
16,579 |
|
Accounts
payable |
|
16,971 |
|
|
|
15,136 |
|
Other
payables |
|
39,168 |
|
|
|
34,799 |
|
Current
portion of long-term borrowings |
|
50,530 |
|
|
|
8,738 |
|
Income
taxes payable |
|
5,311 |
|
|
|
5,607 |
|
Total
current liabilities before settlement obligations |
|
147,533 |
|
|
|
80,859 |
|
Settlement obligations |
|
412,177 |
|
|
|
640,455 |
|
Total current liabilities |
|
559,710 |
|
|
|
721,314 |
|
DEFERRED INCOME
TAXES |
|
9,866 |
|
|
|
11,139 |
|
LONG-TERM
BORROWINGS |
|
19,867 |
|
|
|
7,501 |
|
OTHER LONG-TERM
LIABILITIES, including insurance policy liabilities |
|
2,449 |
|
|
|
2,795 |
|
TOTAL LIABILITIES |
|
591,892 |
|
|
|
742,749 |
|
COMMITMENTS AND
CONTINGENCIES |
|
|
|
|
|
REDEEMABLE COMMON
STOCK |
|
107,672 |
|
|
|
107,672 |
|
|
|
|
|
|
|
EQUITY |
COMMON
STOCK |
|
|
|
|
|
Authorized: 200,000,000 with $0.001 par value; |
|
|
|
|
|
Issued
and outstanding shares, net of treasury - December: 56,832,370;
June: 56,369,737 |
|
80 |
|
|
|
80 |
|
PREFERRED
STOCK |
|
|
|
|
|
Authorized shares: 50,000,000 with $0.001 par value; |
|
|
|
|
|
Issued
and outstanding shares, net of treasury: December: -; June: - |
|
- |
|
|
|
- |
|
ADDITIONAL PAID-IN-CAPITAL |
|
274,961 |
|
|
|
273,733 |
|
TREASURY
SHARES, AT COST: December: 24,891,292; June: 24,891,292 |
|
(286,951 |
) |
|
|
(286,951 |
) |
ACCUMULATED OTHER COMPREHENSIVE LOSS |
|
(123,359 |
) |
|
|
(162,569 |
) |
RETAINED
EARNINGS |
|
802,381 |
|
|
|
773,276 |
|
TOTAL
NET1 EQUITY |
|
667,112 |
|
|
|
597,569 |
|
NON-CONTROLLING INTEREST |
|
3,567 |
|
|
|
2,766 |
|
TOTAL EQUITY |
|
670,679 |
|
|
|
600,335 |
|
|
|
|
|
|
|
TOTAL LIABILITIES AND SHAREHOLDERS’
EQUITY |
$ |
1,370,243 |
|
|
$ |
1,450,756 |
|
|
|
|
|
|
|
|
(A) – Derived from
audited financial statements |
|
|
|
|
|
During Q2, 2018, we reclassified redeemable common
stock out of total equity because redeemable common stock is
required to be presented outside of permanent equity. We have
restated these amounts in our unaudited condensed consolidated
balance sheet as at June 30, 2017. Total equity has decreased by
approximately $107.7 million and we have presented the
approximately $107.7 million redeemable common stock outside of
permanent equity. This reclassification has no impact on the
Company’s previously reported consolidated income, comprehensive
income or cash flows. |
|
NET 1 UEPS TECHNOLOGIES, INC. |
Unaudited Condensed Consolidated Statements of
Cash Flows |
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
Six months ended |
|
|
December 31, |
|
|
December 31, |
|
|
2017 |
|
|
2016 |
|
|
|
2017 |
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands) |
|
(In thousands) |
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities |
|
|
|
|
|
|
|
|
|
Net
income |
$ |
9,979 |
|
$ |
19,230 |
|
|
$ |
29,706 |
|
$ |
44,475 |
|
Depreciation and amortization |
|
8,723 |
|
|
10,623 |
|
|
|
17,689 |
|
|
20,827 |
|
Earnings
from equity-accounted investments |
|
(1,354 |
) |
|
(74 |
) |
|
|
(3,429 |
) |
|
(733 |
) |
Fair value
adjustments |
|
(372 |
) |
|
72 |
|
|
|
(281 |
) |
|
(11 |
) |
Interest
payable |
|
(159 |
) |
|
(23 |
) |
|
|
(247 |
) |
|
9 |
|
Facility
fee amortized |
|
214 |
|
|
31 |
|
|
|
347 |
|
|
67 |
|
Loss
(Profit) on disposal of property, plant and equipment |
|
16 |
|
|
(539 |
) |
|
|
121 |
|
|
(473 |
) |
Profit on
disposal of business |
|
(463 |
) |
|
- |
|
|
|
(463 |
) |
|
- |
|
Stock-based
compensation charge (reversal), net |
|
608 |
|
|
635 |
|
|
|
1,435 |
|
|
(689 |
) |
Dividends
received from equity accounted investments |
|
1,253 |
|
|
- |
|
|
|
2,165 |
|
|
370 |
|
(Increase)
Decrease in accounts receivable, pre-funded social welfare grants
receivable and finance loans receivable |
|
6,005 |
|
|
6,585 |
|
|
|
(33,136 |
) |
|
14,351 |
|
Increase in
inventory |
|
(2,322 |
) |
|
(3,481 |
) |
|
|
(3,848 |
) |
|
(3,585 |
) |
(Decrease)
Increase in accounts payable and other payables |
|
(481 |
) |
|
(5,940 |
) |
|
|
2,948 |
|
|
(2,900 |
) |
Decrease in
taxes payable |
|
(9,754 |
) |
|
(11,815 |
) |
|
|
(916 |
) |
|
(859 |
) |
Increase
(Decrease) in deferred taxes |
|
1,419 |
|
|
386 |
|
|
|
428 |
|
|
(1,246 |
) |
Net cash provided by operating activities |
|
13,312 |
|
|
15,690 |
|
|
|
12,519 |
|
|
69,603 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
|
Capital
expenditures |
|
(2,103 |
) |
|
(3,126 |
) |
|
|
(3,576 |
) |
|
(6,549 |
) |
Proceeds
from disposal of property, plant and equipment |
|
99 |
|
|
945 |
|
|
|
415 |
|
|
1,014 |
|
Investment
in Cell C |
|
- |
|
|
- |
|
|
|
(151,003 |
) |
|
- |
|
Investment
in equity of equity-accounted investments |
|
(40,892 |
) |
|
- |
|
|
|
(113,738 |
) |
|
- |
|
Acquisition
of held to maturity investment |
|
(9,000 |
) |
|
- |
|
|
|
(9,000 |
) |
|
- |
|
Investment
in MobiKwik |
|
- |
|
|
- |
|
|
|
- |
|
|
(15,347 |
) |
Loans to
equity accounted investments |
|
|
|
(10,044 |
) |
|
|
|
|
(10,044 |
) |
Acquisitions, net of cash acquired |
|
- |
|
|
(4,651 |
) |
|
|
- |
|
|
(4,651 |
) |
Other
investing activities |
|
(154 |
) |
|
- |
|
|
|
(154 |
) |
|
- |
|
Net change
in settlement assets |
|
24,519 |
|
|
258,166 |
|
|
|
237,168 |
|
|
220,772 |
|
Net cash (used in) provided by investing
activities |
|
(27,531 |
) |
|
241,290 |
|
|
|
(39,888 |
) |
|
185,195 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
|
Long-term
borrowings utilized |
|
- |
|
|
- |
|
|
|
95,431 |
|
|
247 |
|
Repayment
of long-term borrowings |
|
(30,881 |
) |
|
(1,824 |
) |
|
|
(45,141 |
) |
|
(28,493 |
) |
Proceeds
from bank overdraft |
|
690 |
|
|
- |
|
|
|
32,570 |
|
|
- |
|
Repayment
of bank overdraft |
|
(11,391 |
) |
|
- |
|
|
|
(14,343 |
) |
|
- |
|
Guarantee
fee paid |
|
- |
|
|
(1,145 |
) |
|
|
(552 |
) |
|
(1,145 |
) |
Acquisition
of treasury stock |
|
- |
|
|
- |
|
|
|
- |
|
|
(32,081 |
) |
Dividends
paid to non-controlling interest |
|
- |
|
|
(58 |
) |
|
|
- |
|
|
(613 |
) |
Net change
in settlement obligations |
|
(24,519 |
) |
|
(258,166 |
) |
|
|
(237,168 |
) |
|
(220,772 |
) |
Net cash used in financing activities |
|
(66,101 |
) |
|
(261,193 |
) |
|
|
(169,203 |
) |
|
(282,857 |
) |
|
|
|
|
|
|
|
|
|
|
Effect of
exchange rate changes on cash |
|
6,857 |
|
|
(2,225 |
) |
|
|
3,011 |
|
|
3,306 |
|
Net
decrease in cash, cash equivalents and restricted
cash |
|
(73,463 |
) |
|
(6,438 |
) |
|
|
(193,561 |
) |
|
(24,753 |
) |
Cash, cash equivalents and restricted cash – beginning of
period |
|
138,359 |
|
|
205,329 |
|
|
|
258,457 |
|
|
223,644 |
|
Cash, cash equivalents and restricted cash – end of period
(1) |
$ |
64,896 |
|
$ |
198,891 |
|
|
$ |
64,896 |
|
$ |
198,891 |
|
|
|
|
|
|
|
|
|
|
|
(1) Cash, cash equivalents and restricted cash
as of December 31, 2016, includes restricted cash of approximately
$43.7 million related to the guarantee issued by FirstRand Bank
Limited (acting through its Rand Merchant Bank division). This cash
was placed into an escrow account and was considered restricted as
to use and therefore was classified as restricted cash. The
restriction lapsed upon expiry of the guarantee.
Net 1 UEPS Technologies, Inc.
Attachment A
Operating segment revenue, operating
income and operating margin:
Three months ended December 31, 2017 and
2016 and September 30, 2017
|
|
|
|
|
|
Change - actual |
|
Change – constant exchange
rate(1) |
Key segmental data, in ’000, except margins |
Q2 ‘18 |
|
Q2 ‘17 |
|
Q1 ‘18 |
|
Q2 ‘18vsQ2‘17 |
|
Q2 ‘18vsQ1 ‘18 |
|
Q2 ‘18vsQ2‘17 |
|
Q2 ‘18vsQ1 ‘18 |
Revenue: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African
transaction processing |
$ |
64,148 |
|
|
$ |
59,862 |
|
|
$ |
66,437 |
|
|
7 |
% |
|
(3 |
%) |
|
5 |
% |
|
0 |
% |
International
transaction processing |
|
44,185 |
|
|
|
44,000 |
|
|
|
46,022 |
|
|
0 |
% |
|
(4 |
%) |
|
(2 |
%) |
|
(0 |
%) |
Financial inclusion and
applied technologies |
|
54,131 |
|
|
|
59,258 |
|
|
|
54,313 |
|
|
(9 |
%) |
|
(0 |
%) |
|
(10 |
%) |
|
3 |
% |
Subtotal:
Operating segments |
|
162,464 |
|
|
|
163,120 |
|
|
|
166,772 |
|
|
(0 |
%) |
|
(3 |
%) |
|
(2 |
%) |
|
1 |
% |
Intersegment eliminations |
|
(14,048 |
) |
|
|
(11,687 |
) |
|
|
(14,214 |
) |
|
20 |
% |
|
(1 |
%) |
|
18 |
% |
|
3 |
% |
Consolidated revenue |
$ |
148,416 |
|
|
$ |
151,433 |
|
|
$ |
152,558 |
|
|
(2 |
%) |
|
(3 |
%) |
|
(4 |
%) |
|
1 |
% |
|
|
|
|
|
|
|
|
|
|
Operating
income (loss): |
|
|
|
|
|
|
|
|
|
South African
transaction processing |
$ |
13,470 |
|
|
$ |
15,372 |
|
|
$ |
12,332 |
|
|
(12 |
%) |
|
9 |
% |
|
(14 |
%) |
|
13 |
% |
International
transaction processing |
|
(4,991 |
) |
|
|
3,904 |
|
|
|
5,316 |
|
|
(228 |
%) |
|
(194 |
%) |
|
(225 |
%) |
|
(197 |
%) |
Financial inclusion and
applied technologies |
|
12,737 |
|
|
|
14,107 |
|
|
|
13,920 |
|
|
(10 |
%) |
|
(8 |
%) |
|
(11 |
%) |
|
(5 |
%) |
Subtotal:
Operating segments |
|
21,216 |
|
|
|
33,383 |
|
|
|
31,568 |
|
|
(36 |
%) |
|
(33 |
%) |
|
(38 |
%) |
|
(30 |
%) |
Corporate/Eliminations |
|
(4,909 |
) |
|
|
(7,794 |
) |
|
|
(6,562 |
) |
|
(37 |
%) |
|
(25 |
%) |
|
(38 |
%) |
|
(22 |
%) |
Consolidated operating income |
$ |
16,307 |
|
|
$ |
25,589 |
|
|
$ |
25,006 |
|
|
(36 |
%) |
|
(35 |
%) |
|
(38 |
%) |
|
(32 |
%) |
|
|
|
|
|
|
|
|
|
|
Operating
income margin (%) |
|
|
|
|
|
|
|
|
|
South African
transaction processing |
|
21% |
|
|
|
26% |
|
|
|
19% |
|
|
|
|
|
International
transaction processing |
|
(11% |
) |
|
|
9% |
|
|
|
12% |
|
|
|
|
|
Financial inclusion and
applied technologies |
|
24% |
|
|
|
24% |
|
|
|
26% |
|
|
|
|
|
Consolidated operating margin |
|
11% |
|
|
|
17% |
|
|
|
16% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) – This information shows what the change in
these items would have been if the USD/ ZAR exchange rate that
prevailed during the Q2 2018 also prevailed during Q2 2017 and Q1
2018. |
|
Six months ended December 31, 2017 and
2016
|
|
|
|
|
Change - actual |
|
Change – constant exchange
rate(1) |
Key segmental data, in ’000, except margins |
F2018 |
|
F2017 |
|
F2018vsF2017 |
|
F2018vsF2017 |
Revenue: |
|
|
|
|
|
|
|
|
South African
transaction processing |
$ |
130,585 |
|
|
$ |
117,430 |
|
|
11 |
% |
|
6 |
% |
International
transaction processing |
|
90,207 |
|
|
|
90,190 |
|
|
0 |
% |
|
(4 |
%) |
Financial inclusion and
applied technologies |
|
108,444 |
|
|
|
122,800 |
|
|
(12 |
%) |
|
(16 |
%) |
Subtotal:
Operating segments |
|
329,236 |
|
|
|
330,420 |
|
|
(0 |
%) |
|
(5 |
%) |
Intersegment eliminations |
|
(28,262 |
) |
|
|
(23,354 |
) |
|
21 |
% |
|
16 |
% |
Consolidated revenue |
$ |
300,974 |
|
|
$ |
307,066 |
|
|
(2 |
%) |
|
(6 |
%) |
|
|
|
|
|
|
|
Operating
income: |
|
|
|
|
|
|
South African
transaction processing |
$ |
25,802 |
|
|
$ |
28,920 |
|
|
(11 |
%) |
|
(15 |
%) |
International
transaction processing |
|
325 |
|
|
|
9,721 |
|
|
(97 |
%) |
|
(97 |
%) |
Financial inclusion and
applied technologies |
|
26,657 |
|
|
|
29,290 |
|
|
(9 |
%) |
|
(13 |
%) |
Subtotal:
Operating segments |
|
52,784 |
|
|
|
67,931 |
|
|
(22 |
%) |
|
(26 |
%) |
Corporate/Eliminations |
|
(11,471 |
) |
|
|
(10,161 |
) |
|
13 |
% |
|
8 |
% |
Consolidated operating income |
$ |
41,313 |
|
|
$ |
57,770 |
|
|
(28 |
%) |
|
(32 |
%) |
|
|
|
|
|
|
|
Operating
income margin (%) |
|
|
|
|
|
|
South African
transaction processing |
|
20% |
|
|
|
25% |
|
|
|
|
International
transaction processing |
|
0% |
|
|
|
11% |
|
|
|
|
Financial inclusion and
applied technologies |
|
25% |
|
|
|
24% |
|
|
|
|
Overall
operating margin |
|
14% |
|
|
|
19% |
|
|
|
|
|
|
|
|
|
|
|
(1) – This information shows what the change in
these items would have been if the USD/ ZAR exchange rate that
prevailed during the first half of fiscal 2018 also prevailed
during the first half of fiscal 2017. |
|
Earnings from equity accounted
investments:
The table below presents the relative earnings
(loss) from our equity accounted investments:
|
Q2 2018 |
|
Q1 2017 |
|
|
% change |
|
F2018 |
|
|
F2017 |
|
% change |
|
DNI |
$1,046 |
|
|
$- |
|
|
nm |
|
1,911 |
|
|
- |
|
|
nm |
|
Share of
net income |
1,832 |
|
|
- |
|
|
nm |
|
3,240 |
|
|
- |
|
|
nm |
|
Amortization of intangible assets, net of deferred tax |
(786 |
) |
|
- |
|
|
nm |
|
(1,329 |
) |
|
- |
|
|
nm |
|
Bank Frick |
322 |
|
|
- |
|
|
nm |
|
322 |
|
|
- |
|
|
nm |
|
Share of
net income |
487 |
|
|
- |
|
|
nm |
|
487 |
|
|
- |
|
|
nm |
|
Amortization of intangible assets, net of deferred tax |
(165 |
) |
|
- |
|
|
nm |
|
(165 |
) |
|
- |
|
|
nm |
|
|
|
|
|
|
|
|
|
1,101 |
|
|
930 |
|
|
18% |
|
Other |
(14 |
) |
|
74 |
|
|
(119%) |
|
95 |
|
|
(197 |
) |
|
(148% |
) |
Earnings
from equity accounted investments |
$1,354 |
|
|
$74 |
|
|
1,730% |
|
3,429 |
|
|
733 |
|
|
368% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net 1 UEPS Technologies,
Inc.
Attachment B
Reconciliation of GAAP net income and
earnings per share, basic, to fundamental net income and earnings
per share, basic:
Three months ended December 31, 2017 and
2016
|
Net income(USD’000) |
|
EPS,
basic(USD) |
|
Net income
(ZAR’000) |
|
EPS, basic
(ZAR) |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP |
9,622 |
|
18,641 |
|
0.17 |
|
0.35 |
|
131,510 |
|
259,920 |
|
2.31 |
|
4.95 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-recurring Mastertrading allowance for doubtful accounts. |
7,803 |
|
- |
|
|
|
|
|
106,647 |
|
- |
|
|
|
|
Intangible asset amortization, net |
2,199 |
|
2,709 |
|
|
|
|
|
30,055 |
|
37,764 |
|
|
|
|
Intangible asset amortization, net related to equity accounted
investments |
951 |
|
- |
|
|
|
|
|
10,701 |
|
- |
|
|
|
|
Change in
US tax rate |
860 |
|
|
|
|
|
|
11,754 |
|
|
|
|
|
Transaction costs |
611 |
|
1,246 |
|
|
|
|
|
8,351 |
|
17,373 |
|
|
|
|
Stock-based compensation charge |
608 |
|
635 |
|
|
|
|
|
8,310 |
|
8,854 |
|
|
|
|
Profit on
sale of Xeo |
(463 |
) |
|
|
|
|
|
(6,328 |
) |
|
|
|
|
Facility
fees for debt |
214 |
|
31 |
|
|
|
|
|
2,925 |
|
432 |
|
|
|
|
Refund
related to litigation finalized in Korea, net |
- |
|
(643 |
) |
|
|
|
|
- |
|
(8,966 |
) |
|
|
|
US
government investigations-related and US lawsuit expenses |
- |
|
29 |
|
|
|
|
|
- |
|
404 |
|
|
|
|
Fundamental |
22,405 |
|
22,648 |
|
0.39 |
|
0.43 |
|
303,925 |
|
315,781 |
|
5.34 |
|
6.01 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended December 31, 2017 and 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income(USD’000) |
|
EPS,
basic(USD) |
|
Net income
(ZAR’000) |
|
EPS, basic
(ZAR) |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
2017 |
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
GAAP |
29,105 |
|
43,273 |
|
0.51 |
|
0.81 |
|
390,375 |
|
607,084 |
|
6.88 |
|
11.42 |
|
|
|
|
|
|
|
|
|
|
|
|
Non-recurring Mastertrading allowance for doubtful accounts. |
7,803 |
|
- |
|
|
|
|
|
104,659 |
|
- |
|
|
|
|
Intangible asset amortization, net |
4,354 |
|
4,867 |
|
|
|
|
|
58,378 |
|
68,256 |
|
|
|
|
Transaction costs |
1,940 |
|
1,488 |
|
|
|
|
|
26,021 |
|
20,875 |
|
|
|
|
Intangible asset amortization, net related to equity accounted
investments |
1,494 |
|
- |
|
|
|
|
|
17,835 |
|
- |
|
|
|
|
Stock-based compensation charge |
1,435 |
|
(689 |
) |
|
|
|
|
19,247 |
|
(9,666 |
) |
|
|
|
Change in
US tax rate |
860 |
|
- |
|
|
|
|
|
11,535 |
|
- |
|
|
|
|
Profit on
sale of Xeo |
(463 |
) |
- |
|
|
|
|
|
(6,210 |
) |
- |
|
|
|
|
Facility
fees for debt. |
347 |
|
67 |
|
|
|
|
|
4,654 |
|
940 |
|
|
|
|
Refund
related to litigation finalized in Korea, net |
- |
|
(643 |
) |
|
|
|
|
- |
|
(9,021 |
) |
|
|
|
US
government investigations-related and US lawsuit expenses |
- |
|
29 |
|
|
|
|
|
- |
|
407 |
|
|
|
|
Fundamental |
46,875 |
|
48,392 |
|
0.83 |
|
0.91 |
|
626,494 |
|
678,875 |
|
11.04 |
|
12.77 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net 1 UEPS Technologies,
Inc.
Attachment C
Reconciliation of net income used to
calculate earnings per share basic and diluted and headline
earnings per share basic and diluted:
|
|
|
|
|
|
Three months ended December 31, 2017 and 2016 |
|
|
|
|
|
|
2017 |
|
2016 |
|
|
|
|
Net income
(USD’000) |
9,622 |
|
|
18,641 |
|
Adjustments: |
|
|
|
Profit on
sale of business |
(463 |
) |
|
- |
|
Profit on
sale of property, plant and equipment |
16 |
|
|
(539 |
) |
Tax
effects on above |
(4 |
) |
|
151 |
|
Net income used to
calculate headline earnings (USD’000) |
9,171 |
|
|
18,253 |
|
Weighted average number
of shares used to calculate net income per share basic earnings and
headline earnings per share basic earnings (‘000) |
56,755 |
|
|
52,521 |
|
Weighted average number
of shares used to calculate net income per share diluted earnings
and headline earnings per share diluted earnings (‘000) |
56,807 |
|
|
52,643 |
|
|
|
|
|
Headline earnings per
share: |
|
|
|
Basic, in
USD |
0.16 |
|
|
0.35 |
|
Diluted,
in USD |
0.16 |
|
|
0.35 |
|
|
|
|
|
|
|
Six months
ended December 31, 2017 and 2016 |
|
|
|
|
|
|
2017 |
|
2016 |
|
|
|
|
Net income
(USD’000) |
29,105 |
|
|
43,273 |
|
Adjustments: |
|
|
|
Profit on
sale of business |
(463 |
) |
|
- |
|
Profit on
sale of property, plant and equipment |
16 |
|
|
(473 |
) |
Tax
effects on above |
(4 |
) |
|
132 |
|
Net income used to
calculate headline earnings (USD’000) |
28,654 |
|
|
42,932 |
|
Weighted average number
of shares used to calculate net income per share basic earnings and
headline earnings per share basic earnings (‘000) |
56,762 |
|
|
53,176 |
|
Weighted average number
of shares used to calculate net income per share diluted earnings
and headline earnings per share diluted earnings (‘000)
|
56,812 |
|
|
53,282 |
|
|
|
|
|
Headline earnings per
share: |
|
|
|
Basic, in
USD |
0.50 |
|
|
0.81 |
|
Diluted,
in USD |
0.50 |
|
|
0.81 |
|
|
|
|
|
|
|
Calculation of the denominator for
headline diluted earnings per share
|
Q2 ‘18 |
|
Q2 ‘17 |
|
2018 |
|
2017 |
|
|
|
|
|
|
|
|
Basic
weighted-average common shares outstanding and unvested restricted
shares expected to vest under GAAP |
56,755 |
|
52,521 |
|
56,762 |
|
53,176 |
Effect of dilutive securities under GAAP |
52 |
|
122 |
|
50 |
|
106 |
Denominator for headline diluted earnings per
share |
56,807 |
|
52,643 |
|
56,812 |
|
53,282 |
Weighted average number of shares used to
calculate headline earnings per share diluted represent the
denominator for basic weighted-average common shares outstanding
and unvested restricted shares expected to vest plus the effect of
dilutive securities under GAAP. We use this number of fully-diluted
shares outstanding to calculate headline earnings per share diluted
because we do not use the two-class method to calculate headline
earnings per share diluted.
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