NET 1 UEPS TECHNOLOGIES, INC
Unaudited Condensed Consolidated Statements of Cash Flows
|
|
|
|
Three months ended
|
|
|
|
Six months ended
|
|
|
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
|
|
|
2019
|
|
|
|
2018
|
|
|
|
2019
|
|
|
|
2018
|
|
|
|
|
|
(In thousands)
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
$
|
(205
|
)
|
|
$
|
(60,969
|
)
|
|
$
|
(4,597
|
)
|
|
$
|
(66,073
|
)
|
|
Depreciation and amortization
|
|
4,381
|
|
|
|
9,853
|
|
|
|
9,146
|
|
|
|
20,647
|
|
|
Impairment loss (Note 8)
|
|
-
|
|
|
|
8,191
|
|
|
|
-
|
|
|
|
8,191
|
|
|
Movement in allowance for doubtful accounts receivable
|
|
(429
|
)
|
|
|
21,368
|
|
|
|
83
|
|
|
|
23,958
|
|
|
(Earnings) loss from equity-accounted investments (Note 7)
|
|
(506
|
)
|
|
|
1,247
|
|
|
|
(1,569
|
)
|
|
|
(126
|
)
|
|
Movement in allowance for doubtful loans
|
|
620
|
|
|
|
-
|
|
|
|
620
|
|
|
|
-
|
|
|
Interest on Cedar Cellular note (Note 7)
|
|
-
|
|
|
|
(1,216
|
)
|
|
|
-
|
|
|
|
(1,372
|
)
|
|
Impairment of Cedar Cellular note (Note 7)
|
|
-
|
|
|
|
2,732
|
|
|
|
-
|
|
|
|
2,732
|
|
|
Change in fair value of equity securities (Note 6 and 7)
|
|
-
|
|
|
|
15,836
|
|
|
|
-
|
|
|
|
15,836
|
|
|
Fair value adjustment related to financial liabilities
|
|
147
|
|
|
|
83
|
|
|
|
234
|
|
|
|
1
|
|
|
Interest payable
|
|
526
|
|
|
|
131
|
|
|
|
1,158
|
|
|
|
241
|
|
|
Facility fee amortized
|
|
-
|
|
|
|
68
|
|
|
|
-
|
|
|
|
155
|
|
|
Gain on disposal of FIHRST (Note 2)
|
|
(9,743
|
)
|
|
|
-
|
|
|
|
(9,743
|
)
|
|
|
-
|
|
|
Profit on disposal of property, plant and equipment
|
|
(49
|
)
|
|
|
(139
|
)
|
|
|
(203
|
)
|
|
|
(266
|
)
|
|
Stock-based compensation charge (Note 14)
|
|
436
|
|
|
|
598
|
|
|
|
823
|
|
|
|
1,185
|
|
|
Dividends received from equity accounted investments
|
|
380
|
|
|
|
454
|
|
|
|
1,448
|
|
|
|
454
|
|
|
Decrease in accounts receivable, pre-funded social welfare grants receivable and finance loans receivable
|
|
8,767
|
|
|
|
18,753
|
|
|
|
3,101
|
|
|
|
28,755
|
|
|
(Increase) Decrease in inventory
|
|
(682
|
)
|
|
|
(24
|
)
|
|
|
(12,995
|
)
|
|
|
2,161
|
|
|
Increase (Decrease) in accounts payable and other payables
|
|
3,132
|
|
|
|
(11,759
|
)
|
|
|
(264
|
)
|
|
|
(19,535
|
)
|
|
(Decrease) increase in taxes payable
|
|
(2,244
|
)
|
|
|
(7,007
|
)
|
|
|
(956
|
)
|
|
|
1,347
|
|
|
Decrease in deferred taxes
|
|
(117
|
)
|
|
|
(3,436
|
)
|
|
|
(205
|
)
|
|
|
(7,070
|
)
|
|
|
Net cash provided by (used in) operating activities
|
|
4,414
|
|
|
|
(5,236
|
)
|
|
|
(13,919
|
)
|
|
|
11,221
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
(827
|
)
|
|
|
(2,547
|
)
|
|
|
(3,451
|
)
|
|
|
(5,665
|
)
|
Proceeds from disposal of property, plant and equipment
|
|
90
|
|
|
|
212
|
|
|
|
303
|
|
|
|
486
|
|
Proceeds from disposal of FIHRST (Note 2)
|
|
10,895
|
|
|
|
-
|
|
|
|
10,895
|
|
|
|
-
|
|
Investment in equity-accounted investments (Note 7)
|
|
-
|
|
|
|
(2,500
|
)
|
|
|
(1,250
|
)
|
|
|
(2,500
|
)
|
Loan to equity-accounted investment (Note 7)
|
|
(612
|
)
|
|
|
-
|
|
|
|
(612
|
)
|
|
|
-
|
|
Repayment of loans by equity-accounted investments
|
|
-
|
|
|
|
-
|
|
|
|
4,268
|
|
|
|
-
|
|
Acquisition of intangible assets
|
|
-
|
|
|
|
(1,384
|
)
|
|
|
-
|
|
|
|
(1,384
|
)
|
Investment in MobiKwik
|
|
-
|
|
|
|
(1,056
|
)
|
|
|
-
|
|
|
|
(1,056
|
)
|
Return on investment
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
284
|
|
Net change in settlement assets
|
|
3,371
|
|
|
|
2,031
|
|
|
|
(10,138
|
)
|
|
|
77,962
|
|
|
Net cash provided by (used in) investing activities
|
|
12,917
|
|
|
|
(5,244
|
)
|
|
|
15
|
|
|
|
68,127
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from bank overdraft (Note 10)
|
|
207,876
|
|
|
|
221,582
|
|
|
|
391,550
|
|
|
|
306,237
|
|
Repayment of bank overdraft (Note 10)
|
|
(193,725
|
)
|
|
|
(245,726
|
)
|
|
|
(378,554
|
)
|
|
|
(245,726
|
)
|
Long-term borrowings utilized (Note 10)
|
|
-
|
|
|
|
3,203
|
|
|
|
14,798
|
|
|
|
11,004
|
|
Repayment of long-term borrowings (Note 10)
|
|
(11,313
|
)
|
|
|
(13,551
|
)
|
|
|
(11,313
|
)
|
|
|
(23,811
|
)
|
Guarantee fee
|
|
-
|
|
|
|
(258
|
)
|
|
|
(148
|
)
|
|
|
(394
|
)
|
Finance lease capital repayments
|
|
(26
|
)
|
|
|
-
|
|
|
|
(52
|
)
|
|
|
-
|
|
Dividends paid to non-controlling interest
|
|
-
|
|
|
|
(1,208
|
)
|
|
|
-
|
|
|
|
(2,937
|
)
|
Net change in settlement obligations
|
|
(3,371
|
)
|
|
|
(2,031
|
)
|
|
|
10,138
|
|
|
|
(77,962
|
)
|
|
Net cash (used in) provided by financing activities
|
|
(559
|
)
|
|
|
(37,989
|
)
|
|
|
26,419
|
|
|
|
(33,589
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash
|
|
7,508
|
|
|
|
(1,823
|
)
|
|
|
1,053
|
|
|
|
(2,772
|
)
|
Net increase (decrease) in cash and cash equivalents
|
|
24,280
|
|
|
|
(50,292
|
)
|
|
|
13,568
|
|
|
|
42,987
|
|
Cash and cash equivalents - beginning of period
|
|
110,799
|
|
|
|
183,333
|
|
|
|
121,511
|
|
|
|
90,054
|
|
Cash and cash equivalents - end of period(1)
|
$
|
135,079
|
|
|
$
|
133,041
|
|
|
$
|
135,079
|
|
|
$
|
133,041
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to Unaudited Condensed Consolidated Financial Statements
|
|
|
(1) Cash, cash equivalents and restricted cash as of December 31, 2019, includes restricted cash of approximately $84.4 million related to cash withdrawn from the Company's various debt facilities to fund ATMs. This cash may only be used to fund ATMs and is considered restricted as to use and therefore is classified as restricted cash. Refer to Note 10 for additional information regarding the Company's facilities.
|
|
|
|
NET 1 UEPS TECHNOLOGIES, INC
Notes to the Unaudited Condensed Consolidated Financial Statements
For the three and six months ended December 31, 2019 and 2018
(All amounts in tables stated in thousands or thousands of U.S. dollars, unless otherwise stated)
1. Basis of Presentation and Summary of Significant Accounting Policies
In November 2019, the Company through its wholly owned subsidiary, Net1 Applied Technologies South Africa Proprietary Limited ("Net1 SA"), entered into an agreement with Transaction Capital Payment Solutions Proprietary Limited, or its nominee, a limited liability private company duly incorporated in the Republic of South Africa, pursuant to which Net1 SA agreed to sell its entire shareholding in Net1 FIHRST Holdings Proprietary Limited ("FIHRST") for $11.7 million (ZAR 172.2 million). The transaction closed in December 2019. FIHRST was deconsolidated following the closing of the transaction. Net1 SA was obliged to utilize the full purchase price received from the sale of FIHRST to partially settle its obligations under its lending arrangements and applied the proceeds received against its outstanding borrowings - refer to Note 10.
Unaudited Interim Financial Information
The accompanying unaudited condensed consolidated financial statements include all majority-owned subsidiaries over which the Company exercises control and have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") and the rules and regulations of the United States Securities and Exchange Commission for Quarterly Reports on Form 10-Q and include all of the information and disclosures required for interim financial reporting. The results of operations for the three and six months ended December 31, 2019 and 2018, are not necessarily indicative of the results for the full year. The Company believes that the disclosures are adequate to make the information presented not misleading.
These financial statements should be read in conjunction with the financial statements, accounting policies and financial notes thereto included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2019. In the opinion of management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments), which are necessary for a fair representation of financial results for the interim periods presented.
References to the "Company" refer to Net1 and its consolidated subsidiaries, collectively, unless the context otherwise requires. References to "Net1" are references solely to Net 1 UEPS Technologies, Inc.
Consideration of going concern
Accounting guidance requires the Company's management to assess whether there are conditions or events, considered in the aggregate, that raise substantial doubt about the Company's ability to continue as a going concern within one year after its unaudited condensed consolidated financial statements are issued. The Company's management has identified certain conditions or events, which, considered in the aggregate, could raise substantial doubt about the Company's ability to continue as a going concern including the risk that the Company will be unable to:
-
deliver all or a substantial part of the financial results forecast in its fiscal 2020 budget;
-
retain its existing borrowings and facilities, as described in Note 10, or obtain additional borrowings and facilities on commercially reasonable terms;
-
arrive at a commercial settlement with SASSA, given the September 30, 2019, Supreme Court of Appeal ruling regarding the repayment of the additional implementation costs received to SASSA (refer Note 11) and the ongoing dispute the Company has with SASSA over fees due for the six-month contract extension period in accordance with National Treasury's recommendation;
-
dispose of all or a portion of its remaining 30% interest in DNI-4PL Contracts Proprietary Limited ("DNI"). DNI's operations are also significantly dependent on Cell C because it is the largest distributor of Cell C starter packs in South Africa. Therefore, the inability of Cell C to continue to operate through the next 12 months could also have an adverse impact on DNI's operations; or
-
dispose of additional investments in order to realize sufficient cash flows.
The Company's management has implemented a number of plans to alleviate the substantial doubt about the Company's ability to continue as a going concern. These plans include disposing of its Korean business unit, KSNET, as announced in its press release of January 27, 2020, certain non-core assets (refer to Note 3 to the Company's audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2019, for additional information regarding a call option granted to DNI), and extending its existing borrowings used to fund its ATMs through September 2020. Provided the KSNET disposal closes, as expected, in March 2020, this is expected to remove the substantial doubt about the Company's ability to continue as a going concern.
In addition, the Company's management believes it has a number of mitigating actions it can pursue, including (i) limiting the expansion of its microlending finance loans receivable book in South Africa; (ii) implementing further cost cutting measures; (iii) commencing additional asset realizations; (iv) managing its capital expenditures; and (v) accessing alternative sources of capital (including through the issuance of additional shares of its common stock), in order to generate additional liquidity.
1. Basis of Presentation and Summary of Significant Accounting Policies (continued)
Consideration of going concern (continued)
The Company's management believes that these plans and mitigating actions alleviate the substantial doubt referred to above and therefore have concluded that the Company remains a going concern.
Recent accounting pronouncements adopted
In February 2016, the Financial Accounting Standards Board ("FASB") issued guidance regarding Leases. The guidance increases transparency and comparability among organizations by requiring the recognition of lease assets and lease liabilities on the balance sheet. The amendments to current lease guidance include the recognition of assets and liabilities by lessees for those leases currently classified as operating leases. The guidance also requires disclosures to meet the objective of enabling users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases. This guidance was effective for the Company beginning July 1, 2019. Refer to Note 18 for the impact of the adoption of this guidance on our condensed consolidated financial statements.
Recent accounting pronouncements not yet adopted as of December 31, 2019
In June 2016, the FASB issued guidance regarding Measurement of Credit Losses on Financial Instruments. The guidance replaces the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. For trade and other receivables, loans, and other financial instruments, an entity is required to use a forward-looking expected loss model rather than the incurred loss model for recognizing credit losses, which reflects losses that are probable. Credit losses relating to available-for-sale debt securities will also be recorded through an allowance for credit losses rather than as a reduction in the amortized cost basis of the securities. This guidance is effective for the Company beginning July 1, 2020. Early adoption is permitted beginning July 1, 2019. The Company is currently assessing the impact of this guidance on its financial statements and related disclosures.
In August 2018, the FASB issued guidance regarding Disclosure Framework: Changes to the Disclosure Requirements for Fair Value Measurement. The guidance modifies the disclosure requirements related to fair value measurement. This guidance is effective for the Company beginning July 1, 2020. Early adoption is permitted. The Company is currently assessing the impact of this guidance on its financial statements disclosure.
2. Disposal of controlling interest in FIHRST and KSNET
December 2019 disposal of FIHRST
In November 2019, the Company through its wholly owned subsidiary, Net1 Applied Technologies South Africa Proprietary Limited ("Net1 SA"), entered into an agreement with Transaction Capital Payment Solutions Proprietary Limited, or its nominee, a limited liability private company duly incorporated in the Republic of South Africa, pursuant to which Net1 SA agreed to sell its entire shareholding in Net1 FIHRST Holdings Proprietary Limited ("FIHRST") for $11.7 million (ZAR 172.2 million). The transaction closed in December 2019. FIHRST was deconsolidated following the closing of the transaction. Net1 SA was obliged to utilize the full purchase price received from the sale of FIHRST to partially settle its obligations under its lending arrangements and applied the proceeds received against its outstanding borrowings - refer to Note 10.
2. Disposal of controlling interest in FIHRST and KSNET (continued)
December 2019 disposal of FIHRST (continued)
The table below presents the impact of the deconsolidation of FIHRST and the calculation of the net gain recognized on deconsolidation:
|
|
Total
|
|
Fair value of consideration received
|
$
|
11,749
|
|
Less: carrying value of FIHRST, comprising
|
|
1,870
|
|
Cash and cash equivalents
|
|
854
|
|
Accounts receivable, net
|
|
367
|
|
Property, plant and equipment, net
|
|
64
|
|
Goodwill (Note 8)
|
|
599
|
|
Intangible assets, net
|
|
30
|
|
Deferred income taxes assets
|
|
42
|
|
Accounts payable
|
|
(7
|
)
|
Other payables
|
|
(1,437
|
)
|
Income taxes payable
|
|
(220
|
)
|
Released from accumulated other comprehensive income - foreign currency translation reserve (Note 13)
|
|
1,578
|
|
Settlement assets
|
|
17,406
|
|
Settlement liabilities
|
|
(17,406
|
)
|
Gain recognized on disposal, before tax
|
|
9,879
|
|
Taxes related to gain recognized on disposal, comprising:
|
|
-
|
|
Capital gains tax
|
|
2,418
|
|
Release of valuation allowance related to capital gains tax previously unutilized(1)
|
|
(2,418
|
)
|
Transaction costs
|
|
136
|
|
Gain recognized on disposal, after tax
|
$
|
9,743
|
|
(1) Net1 SA recorded a valuation allowance related to capital losses previously generated but not utilized. A portion of these unutilized capital losses was utilized as a result of the disposal of FIHRST and, therefore, the equivalent portion of the valuation allowance created was released.
Pro forma results of operations related to the FIHRST disposal have not been presented because the effect of the disposal was not material to the Company.
Disposal of KSNET
On January 23, 2020, the Company, through its wholly owned subsidiary Net1 Applied Technologies Netherlands B.V. ("Net1 BV"), a limited liability private company duly incorporated in The Netherlands, entered into an agreement with PayletterHoldings LLC, a limited liability private company duly incorporated in the Republic of Korea, in terms of which Net1 BV agreed to sell its entire shareholding in Net1 Applied Technologies Korea Limited, a limited liability private company incorporated in the Republic of Korea and the sole shareholder of KSNET, Inc. for $237.2 million. The transaction is subject to customary closing conditions and is expected to close in March 2020. The transaction is not subject to a financing condition.
3. Accounts receivable, net and other receivables and finance loans receivable, net
Accounts receivable, net and other receivables
The Company's accounts receivable, net, and other receivables as of December 31, 2019, and June 30, 2019, is presented in the table below:
|
|
December 31,
|
|
|
|
|
June 30,
|
|
|
|
|
|
2019
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, trade, net
|
$
|
|
26,568
|
|
|
|
$
|
|
25,136
|
|
|
Accounts receivable, trade, gross
|
|
|
27,312
|
|
|
|
|
|
26,377
|
|
|
Allowance for doubtful accounts receivable, end of period
|
|
|
744
|
|
|
|
|
|
1,241
|
|
|
Beginning of period
|
|
|
1,241
|
|
|
|
|
|
1,101
|
|
|
Reversed to statement of operations
|
|
|
(535
|
)
|
|
|
|
|
(24
|
)
|
|
Charged to statement of operations
|
|
|
108
|
|
|
|
|
|
3,296
|
|
|
Utilized
|
|
|
(58
|
)
|
|
|
|
|
(3,059
|
)
|
|
Deconsolidated
|
|
|
-
|
|
|
|
|
|
(38
|
)
|
|
Foreign currency adjustment
|
|
|
(12
|
)
|
|
|
|
|
(35
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current portion of cash payments to agents in South Korea that are amortized over the contract period
|
|
|
11,927
|
|
|
|
|
|
15,543
|
|
|
Cash payments to agents in South Korea that are amortized over the contract period
|
|
|
18,457
|
|
|
|
|
|
25,107
|
|
|
Less: cash payments to agents in South Korea that are amortized over the contract period included in other long-term assets (Note 7)
|
|
|
6,530
|
|
|
|
|
|
9,564
|
|
|
Loans provided to Carbon
|
|
|
3,000
|
|
|
|
|
|
3,000
|
|
|
Loan provided to DNI
|
|
|
-
|
|
|
|
|
|
4,260
|
|
|
Other receivables
|
|
|
27,070
|
|
|
|
|
|
24,555
|
|
|
Total accounts receivable, net
|
$
|
|
68,565
|
|
|
|
$
|
|
72,494
|
|
|
The loan provided to DNI was repaid in full in July 2019. Other receivables include prepayments, deposits and other receivables.
Finance loans receivable, net
The Company's finance loans receivable, net, as of December 31, 2019, and June 30, 2019, is presented in the table below:
|
|
December 31,
|
|
|
|
|
June 30,
|
|
|
|
|
|
2019
|
|
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Microlending finance loans receivable, net
|
$
|
|
14,504
|
|
|
|
$
|
|
20,981
|
|
|
Microlending finance loans receivable, gross
|
|
|
17,091
|
|
|
|
|
|
24,180
|
|
|
Allowance for doubtful finance loans receivable, end of period
|
|
|
2,587
|
|
|
|
|
|
3,199
|
|
|
Beginning of period
|
|
|
3,199
|
|
|
|
|
|
4,239
|
|
|
Reversed to statement of operations
|
|
|
(601
|
)
|
|
|
|
|
-
|
|
|
Charged to statement of operations
|
|
|
1,081
|
|
|
|
|
|
28,802
|
|
|
Utilized
|
|
|
(1,085
|
)
|
|
|
|
|
(29,721
|
)
|
|
Foreign currency adjustment
|
|
|
(7
|
)
|
|
|
|
|
(121
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital finance loans receivable, gross
|
|
|
14,613
|
|
|
|
|
|
9,650
|
|
|
Working capital finance loans receivable, gross
|
|
|
20,736
|
|
|
|
|
|
15,742
|
|
|
Allowance for doubtful finance loans receivable, end of period
|
|
|
6,123
|
|
|
|
|
|
6,092
|
|
|
Beginning of period
|
|
|
6,092
|
|
|
|
|
|
12,164
|
|
|
Charged to statement of operations
|
|
|
30
|
|
|
|
|
|
712
|
|
|
Utilized
|
|
|
-
|
|
|
|
|
|
(6,777
|
)
|
|
Foreign currency adjustment
|
|
|
1
|
|
|
|
|
|
(7
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total accounts receivable, net
|
$
|
|
29,117
|
|
|
|
$
|
|
30,631
|
|
|
4. Inventory
The Company's inventory comprised the following categories as of December 31, 2019, and June 30, 2019.
|
December 31,
|
|
|
|
June 30,
|
|
|
|
2019
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
Finished goods
|
$
|
7,538
|
|
|
$
|
7,535
|
|
Finished goods subject to sale restrictions
|
|
13,658
|
|
|
|
-
|
|
|
$
|
21,196
|
|
|
$
|
7,535
|
|
Finished goods subject to sale restrictions represent airtime inventory purchased and held for sale to customers that may only be sold by the Company after March 31, 2020, and only with the express permission of certain South African banks. As discussed in Note 10, the Company obtained additional borrowings from its existing bankers to purchase Cell C airtime from an independent distributor of Cell C airtime. The Company did not pay the vendor for the airtime inventory directly because the parties (the vendor, Cell C, the Company and certain South African banks) agreed that the Company would pay the amount to Cell C to settle amounts payable to Cell C by the vendor in order to inject additional liquidity into Cell C. The Company may not return any unsold airtime inventory to either the vendor or Cell C. The Company agreed to mandatory prepayment terms, which require the Company to use the proceeds from the sale of the airtime inventory to settle certain borrowings. For more information about the amended finance documents, refer to Note 10.
5. Settlement assets and settlement obligations
Settlement assets comprise (1) cash received from the South African government that the Company holds pending disbursement to recipient cardholders of social welfare grants (2) cash received from credit card companies (as well as other types of payment services) which have business relationships with merchants selling goods and services via the internet that are the Company's customers and on whose behalf it processes the transactions between various parties, and (3) cash received from customers on whose behalf the Company processes payroll payments that the Company will disburse to customer employees, payroll-related payees and other payees designated by the customer.
Settlement obligations comprise (1) amounts that the Company is obligated to disburse to recipient cardholders of social welfare grants, (2) amounts that the Company is obligated to disburse to merchants selling goods and services via the internet that are the Company's customers and on whose behalf it processes the transactions between various parties and settles the funds from the credit card companies to the Company's merchant customers, and (3) amounts that the Company is obligated to pay to customer employees, payroll-related payees and other payees designated by the customer.
The balances at each reporting date may vary widely depending on the timing of the receipts and payments of these assets and obligations.
6. 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.
6. Fair value of financial instruments (continued)
Risk management (continued)
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 Korean won ("KRW"). The U.S. dollar to both the ZAR and KRW exchange rates has fluctuated significantly over the past three years. 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 and lending 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 limited 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 with regard to 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, South Korean 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.
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 and the risk that it may not be able to liquidate these securities. 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.
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 these 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
The following section describes the valuation methodologies the Company uses to measure its significant financial assets and liabilities at fair value.
In general, and where applicable, the Company uses quoted prices in active markets for identical assets or liabilities to determine fair value. This pricing methodology would apply to Level 1 investments. If quoted prices in active markets for identical assets or liabilities are not available to determine fair value, then the Company uses quoted prices for similar assets and liabilities or inputs other than the quoted prices that are observable either directly or indirectly. These investments would be included in Level 2 investments. In circumstances in which inputs are generally unobservable, values 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. Investments valued using such techniques are included in Level 3 investments.
6. 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, 2019, and valued Cell C at $0.0 (zero) at December 31, 2019, and June 30, 2019. As of June 30, 2019, the Company changed its valuation methodology from a Company-developed adjusted EV/ EBITDA model to a discounted cash flow approach due to anticipated changes in Cell C's business model and the current challenges faced by Cell C, which would not have been captured by the previous valuation approach. 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 utilized the latest business plan provided by Cell C management for the period ending December 31, 2024, and the following key valuation inputs were used as of December 31, 2019 and June 30, 2019:
Weighted Average Cost of Capital:
|
Between 15% and 20% over the period of the forecast
|
Long term growth rate:
|
3 % (4,5% as of June 30, 2019)
|
Marketability discount:
|
10%
|
Minority discount:
|
15%
|
Net adjusted external debt - December 31, 2019:(1)
|
ZAR 16,4 billion ($1,2 billion), includes R6 billion of lease liabilities
|
Net adjusted external debt - June 30, 2019:(2)
|
ZAR 13,9 billion ($1 billion), includes R6,4 billion of lease liabilities
|
Deferred tax (incl, assessed tax losses) - December 31, 2019:(1)
|
ZAR 2,9 billion ($206,4 million)
|
Deferred tax (incl, assessed tax losses) - June 30, 2019:(2)
|
ZAR 2,9 billion ($205,9 million)
|
(1) translated from ZAR to U.S. dollars at exchange rates applicable as of December 31, 2019.
|
(2) translated from ZAR to U.S. dollars at exchange rates applicable as of June 30, 2019.
|
The Company utilized the aforementioned adjusted EV/EBITDA multiple valuation model in order to determine the fair value of the Cell C shares as of December 31, 2018. The primary inputs to the valuation model as of December 31, 2018, were unchanged from June 30, 2018, except for the EBITDA multiple. The primary inputs to the valuation model were Cell C's annualized adjusted EBITDA for the 11 months ended June 30, 2018, of ZAR 3.9 billion ($270.9 million, translated at exchange rates applicable as of December 31, 2018), an EBITDA multiple of 6.32; Cell C's net external debt of ZAR 8.8 billion ($611.4 million, translated at exchange rates applicable as of December 31, 2018); and a marketability discount of 10% as Cell C is not listed. The EBITDA multiple was determined based on an analysis of Cell C's peer group, which comprises eight African and emerging market mobile telecommunications operators. The fair value of Cell C utilizing the adjusted EV/EBITDA valuation model developed by the Company is sensitive to the following inputs: (i) the Company's determination of adjusted EBITDA; (ii) the EBITDA multiple used; and (iii) the marketability discount used. Utilization of different inputs, or changes to these inputs, may result in 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 2.0% increase and 2.0% decrease in the WACC rate and the EBITDA margins used in the Cell C valuation on December 31, 2019, all amounts translated at exchange rates applicable as of December 31, 2019:
Sensitivity for fair value of Cell C investment
|
|
2.0% increase(A)
|
|
|
2.0% decrease(A)
|
|
WACC rate
|
$
|
-
|
|
$
|
8,238
|
|
EBITDA margin
|
$
|
1,687
|
|
$
|
-
|
|
(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 2.0% increase and a 2.0% decrease is presented.
The fair value of the Cell C shares as of December 31, 2019, 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.
Liability measured at fair value using significant unobservable inputs - DNI contingent consideration
The salient terms of the Company's investment in DNI are described in Note 3 to the Company's audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2019. 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 ($27.8 million, translated at exchange rates applicable as of December 31, 2018), in cash, subject to the achievement of certain performance targets by DNI.
6. Fair value of financial instruments (continued)
Financial instruments (continued)
Liability measured at fair value using significant unobservable inputs - DNI contingent consideration
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 385.7 million ($26.8 million) and ZAR 373.6 million ($27.2 million), in other payables in its unaudited condensed consolidated balance sheet as of December 31, 2018, and in long-term liabilities as of June 30, 2018, respectively, which amount represents the present value of the ZAR 400.0 million to be paid (amounts translated at exchange rates applicable as of December 31, 2018, and June 30, 2018, respectively). The amount was settled on March 31, 2019, as described in Note 3 to the Company's audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2019.
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 had no outstanding foreign exchange contracts as of December 31, 2019, or June 30, 2019.
The following table presents the Company's assets and liabilities measured at fair value on a recurring basis as of December 31, 2019, 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)
|
|
587
|
|
|
|
-
|
|
|
|
-
|
|
|
|
587
|
|
Fixed maturity investments (included in cash and cash equivalents)
|
|
2,845
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,845
|
|
Other
|
|
-
|
|
|
|
414
|
|
|
|
-
|
|
|
|
414
|
|
Total assets at fair value
|
$
|
3,432
|
|
|
$
|
414
|
|
|
$
|
-
|
|
|
$
|
3,846
|
|
The following table presents the Company's assets and liabilities measured at fair value on a recurring basis as of June 30, 2019, 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)
|
|
619
|
|
|
|
-
|
|
|
|
-
|
|
|
|
619
|
|
Fixed maturity investments (included in cash and cash equivalents)
|
|
5,201
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,201
|
|
Other
|
|
-
|
|
|
|
413
|
|
|
|
-
|
|
|
|
413
|
|
Total assets at fair value
|
$
|
5,820
|
|
|
$
|
413
|
|
|
$
|
-
|
|
|
$
|
6,233
|
|
6. Fair value of financial instruments (continued)
There have been no transfers in or out of Level 3 during the three and six months ended December 31, 2019 and 2018, 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 three and six months ended December 31, 2019. 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 six months ended December 31, 2019:
|
|
|
|
Carrying value
|
|
Assets
|
|
|
|
Balance as of June 30, 2019
|
|
-
|
|
|
Foreign currency adjustment(1)
|
|
-
|
|
|
|
Balance as of December 31, 2019
|
$
|
-
|
|
|
|
|
|
|
|
(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 six months ended December 31, 2018:
|
|
|
|
Carrying value
|
|
Assets
|
|
|
|
Balance as at June 30, 2018
|
|
172,948
|
|
|
Realized losses
|
|
(15,836
|
)
|
|
Foreign currency adjustment(1)
|
|
(8,054
|
)
|
|
|
Balance as of December 31, 2018
|
|
149,058
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
Balance as at June 30, 2018
|
|
27,222
|
|
|
Accretion of interest
|
|
835
|
|
|
Foreign currency adjustment(1)
|
|
(1,267
|
)
|
|
|
Balance as of December 31, 2018
|
|
26,790
|
|
|
|
|
|
|
|
(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.
Assets measured at fair value on a nonrecurring basis
We measure equity investments without readily determinable fair values 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.
7. Equity-accounted investments and other long term assets
Refer to Note 9 to the Company's audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2019, for additional information regarding its equity-accounted investments and other long-term assets.
Equity-accounted investments
The Company's ownership percentage in its equity-accounted investments as of December 31, 2019 and June 30, 2019, was as follows:
|
December 31,
|
June 30,
|
|
|
|
2019
|
|
2019
|
|
Bank Frick & Co AG ("Bank Frick")
|
|
35%
|
|
35%
|
|
DNI
|
|
30%
|
|
30%
|
|
Finbond Group Limited ("Finbond")
|
|
29%
|
|
29%
|
|
Carbon Tech Limited ("Carbon"), formerly OneFi Limited
|
|
25%
|
|
25%
|
|
Revix ("Revix")
|
|
25%
|
|
-
|
|
SmartSwitch Namibia (Pty) Ltd ("SmartSwitch Namibia")
|
|
50%
|
|
50%
|
|
V2 Limited ("V2")
|
|
50%
|
|
50%
|
|
Walletdoc Proprietary Limited ("Walletdoc")
|
|
20%
|
|
20%
|
|
7. Equity-accounted investments and other long term assets (continued)
Equity-accounted investments (continued)
DNI
During the three and six months ended December 31, 2019, the Company recorded earnings from DNI that resulted in the carrying value of DNI exceeding the amount that the Company could receive pursuant to the call option granted to DNI in May 2019. During the three and six months ended December 31, 2019, the Company has recorded an impairment loss of $0.8 million and $1.1 million, respectively, which represents the difference between the amount that the Company could receive pursuant to the call option and DNI's carrying value.
Bank Frick
On October 2, 2019, the Company exercised its option to acquire an additional 35% interest in Bank Frick from the Frick Family Foundation. The Company will pay an amount, the "Option Price Consideration", for the additional 35% interest in Bank Frick, which represents the higher of CHF 46.4 million ($46.5 million at exchange rates on October 2, 2019) or 35% of 15 times the average annual normalized net income of the Bank over the two years ended December 31, 2018. The shares will only transfer on payment of the Option Price Consideration, which shall occur on the later of (i) 180 days after the date of exercise of the option; (ii) in the event of any regulatory approvals being required, 10 days after receipt of approval (either unconditionally or on terms acceptable to both parties); and (iii) 10 days after the date on which the Option Price Consideration is agreed or finally determined.
Finbond
As of December 31, 2019, the Company owned 268,820,933 shares in Finbond representing approximately 29.1% of its issued and outstanding ordinary shares. Finbond is listed on the Johannesburg Stock Exchange and its closing price on December 31, 2019, the last trading day of the month, was ZAR 3.50 per share. The market value of the Company's holding in Finbond on December 31, 2019, was ZAR 0.9 billion ($67.0 million translated at exchange rates applicable as of December 31, 2019). On August 2, 2019, the Company, pursuant to its election, received an additional 1,148,901 shares in Finbond as a capitalization share issue in lieu of a dividend.
V2 Limited
In August 2019, the Company made a further equity contribution of $1.3 million to V2 Limited ("V2") and in January 2020 it made its final committed equity contribution of $1.3 million bringing the total equity contribution to $5.0 million. The Company has also committed to provide V2 with a working capital facility of $5.0 million, which is subject to the achievement of certain pre-defined objectives.
7. Equity-accounted investments and other long term assets (continued)
Equity-accounted investments (continued)
|
|
|
|
|
|
|
|
DNI
|
|
Bank Frick
|
|
Finbond
|
|
Other(1)
|
|
Total
|
|
Investment in equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2019
|
|
$
|
61,030
|
|
$
|
47,240
|
|
$
|
35,300
|
|
$
|
7,398
|
|
$
|
150,968
|
|
|
|
Acquisition of shares
|
|
|
-
|
|
|
-
|
|
|
274
|
|
|
1,250
|
|
|
1,524
|
|
|
|
Stock-based compensation
|
|
|
-
|
|
|
-
|
|
|
71
|
|
|
-
|
|
|
71
|
|
|
|
Comprehensive income (loss):
|
|
|
1,108
|
|
|
469
|
|
|
2,718
|
|
|
(499
|
)
|
|
3,796
|
|
|
|
|
Other comprehensive loss
|
|
|
-
|
|
|
-
|
|
|
2,227
|
|
|
-
|
|
|
2,227
|
|
|
|
|
Equity accounted earnings (loss)
|
|
|
1,108
|
|
|
469
|
|
|
491
|
|
|
(499
|
)
|
|
1,569
|
|
|
|
|
|
Share of net income
|
|
|
3,113
|
|
|
755
|
|
|
491
|
|
|
(499
|
)
|
|
3,860
|
|
|
|
|
|
Amortization of acquired intangible assets
|
|
|
(1,292
|
)
|
|
(376
|
)
|
|
-
|
|
|
-
|
|
|
(1,668
|
)
|
|
|
|
|
Deferred taxes on acquired intangible assets
|
|
|
361
|
|
|
90
|
|
|
-
|
|
|
-
|
|
|
451
|
|
|
|
|
|
Impairment
|
|
|
(1,074
|
)
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(1,074
|
)
|
|
|
Dividends received
|
|
|
(1,110
|
)
|
|
-
|
|
|
(274
|
)
|
|
(338
|
)
|
|
(1,722
|
)
|
|
|
Foreign currency adjustment(2)
|
|
|
137
|
|
|
453
|
|
|
300
|
|
|
(48
|
)
|
|
842
|
|
|
Balance as of December 31, 2019
|
|
$
|
61,165
|
|
$
|
48,162
|
|
$
|
38,389
|
|
$
|
7,763
|
|
$
|
155,479
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in loans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2019
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
148
|
|
$
|
148
|
|
|
|
Loans granted
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
612
|
|
|
612
|
|
|
|
Allowance for doubtful loans
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
(620
|
)
|
|
(620
|
)
|
|
|
Foreign currency adjustment(2)
|
|
|
-
|
|
|
-
|
|
|
-
|
|
|
8
|
|
|
8
|
|
|
Balance as of December 31, 2019
|
|
$
|
-
|
|
$
|
-
|
|
$
|
-
|
|
$
|
148
|
|
$
|
148
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity
|
|
|
Loans
|
|
|
Total
|
|
Carrying amount as of :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2019
|
|
|
|
|
|
|
|
$
|
150,968
|
|
$
|
148
|
|
$
|
151,116
|
|
|
|
December 31, 2019
|
|
|
|
|
|
|
|
$
|
155,479
|
|
$
|
148
|
|
|
155,627
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Includes primarily Carbon, SmartSwitch Namibia, V2 and Walletdoc;
|
|
(2) The foreign currency adjustment represents the effects of the fluctuations of the South African rand, Swiss franc, Nigerian naira and Namibian dollar, and the U.S. dollar on the carrying value.
|
|
Other long-term assets
Summarized below is the breakdown of other long-term assets as of December 31, 2019, and June 30, 2019:
|
|
|
December 31,
|
|
|
|
June 30,
|
|
|
|
|
|
2019
|
|
|
|
2019
|
|
|
|
|
|
|
|
|
|
|
|
Total equity investments
|
$
|
26,993
|
|
|
$
|
26,993
|
|
|
|
Investment in 15% of Cell C, at fair value (Note 6)
|
|
-
|
|
|
|
-
|
|
|
|
Investment in 13% of MobiKwik
|
|
26,993
|
|
|
|
26,993
|
|
Total held to maturity investments
|
|
-
|
|
|
|
-
|
|
|
|
Investment in 7.625% of Cedar Cellular Investment 1 (RF) (Pty) Ltd 8.625% notes
|
|
-
|
|
|
|
-
|
|
Long-term portion of payments to agents in South Korea amortized over the contract period (Note 3)
|
|
6,530
|
|
|
|
9,564
|
|
Policy holder assets under investment contracts (Note 9)
|
|
587
|
|
|
|
619
|
|
Reinsurance assets under insurance contracts (Note 9)
|
|
1,159
|
|
|
|
1,163
|
|
Other long-term assets
|
|
5,875
|
|
|
|
5,850
|
|
|
|
Total other long-term assets
|
$
|
41,144
|
|
|
$
|
44,189
|
|
7. Equity-accounted investments and other long term assets (continued)
Other long-term assets (continued)
Summarized below are the components of the Company's equity securities without readily determinable fair value and held to maturity investments as of December 31, 2019:
|
|
|
|
|
Cost basis
|
|
|
|
Unrealized holding
|
|
|
|
Unrealized holding
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
gains
|
|
|
|
losses
|
|
|
|
value
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Mobikwik
|
$
|
26,993
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
26,993
|
|
Held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Cedar Cellular notes
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
Total
|
$
|
26,993
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
26,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Summarized below are the components of the Company's equity securities without readily determinable fair value and held to maturity investments as of June 30, 2019:
|
|
|
|
|
Cost basis
|
|
|
|
Unrealized holding
|
|
|
|
Unrealized holding
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
gains
|
|
|
|
losses
|
|
|
|
value
|
|
Equity securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in MobiKwik
|
$
|
26,993
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Held to maturity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in Cedar Cellular notes
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
Total
|
$
|
26,993
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
No interest income from the Cedar Cellular note was recorded during the three and six months ended December 31, 2019. The Company recognized interest income of $1.2 million and $1.4 million, related to the Cedar Cellular notes during the three and six months ended December 31, 2018, respectively. Interest on this investment will only be paid, at Cedar Cellular's election, on maturity in August 2022. The Company's effective interest rate on the Cedar Cellular note was 24.82% as of December 31, 2018.
As of December 31, 2018, the Company did not expect to recover the entire amortized cost basis of the Cedar Cellular notes due to a reduction in the amount of future cash flows expected to be collected from the debt security. The Company did not expect to generate any cash flows from the debt security prior to the maturity date in August 2022, and expected to recover approximately $22.0 million at maturity. As of December 31, 2018, the Company calculated the present value of the expected cash flows to be collected from the debt security by discounting the cash flows at the interest rate implicit in the security upon acquisition (at a rate of 24.82%). The present value of the expected cash flows of $9.0 million was less than the amortized cost basis recorded of $11.8 million (before the impairment) as of December 31, 2018. Accordingly, the Company recorded an other-than-temporary impairment related to a credit loss of $2.7 million during the three and six months ended December 31, 2018.
Contractual maturities of held to maturity investments
Summarized below is the contractual maturity of the Company's held to maturity investment as of December 31, 2019:
|
|
Cost basis
|
|
|
|
Estimated fair value(1)
|
|
Due in one year or less
|
$
|
-
|
|
|
$
|
-
|
|
Due in one year through five years (2)
|
|
-
|
|
|
|
-
|
|
Due in five years through ten years
|
|
-
|
|
|
|
-
|
|
Due after ten years
|
|
-
|
|
|
|
-
|
|
(1) The estimated fair value of the Cedar Cellular note has been calculated utilizing the Company's portion of the security provided to the Company by Cedar Cellular, namely, Cedar Cellular's investment in Cell C.
(2) The cost basis is zero ($0.0 million).
8. Goodwill and intangible assets, net
Goodwill
Impairment loss
The Company assesses the carrying value of goodwill for impairment annually, or more frequently, whenever events occur and circumstances change indicating potential impairment. The Company performs its annual impairment test as of June 30 of each year. During the three and six months ended December 31, 2018, the Company recognized an impairment loss of approximately $8.2 million, of which approximately $7.0 million related to goodwill allocated to its International Payment Group ("IPG") business within its international transaction processing operating segment and $1.2 million related to goodwill within its South African transaction processing operating segment.
Given the consolidation and restructuring of IPG during the period up to December 31, 2018, several business lines were terminated or meaningfully reduced, resulting in lower than expected revenues, profits and cash flows. IPG's new business initiatives are still in their infancy, and it is expected to generate lower cash flows than initially forecast. In order to determine the amount of goodwill impairment, the estimated fair value of the Company's IPG business assets and liabilities were compared to the carrying value of IPG's assets and liabilities. The Company used a discounted cash flow model in order to determine the fair value of IPG. The allocation of the fair value of IPG required the Company to make a number of assumptions and estimates about the fair value of assets and liabilities where the fair values were not readily available or observable. Based on this analysis, the Company determined that the carrying value of IPG's assets and liabilities exceeded their fair value at the reporting date.
In the event that there is a deterioration in the South African transaction processing and the international transaction processing operating segments, or in any other of the Company's businesses, this may lead to additional impairments in future periods.
Summarized below is the movement in the carrying value of goodwill for the six months ended December 31, 2019:
|
|
|
|
|
Gross value
|
|
|
|
Accumulated impairment
|
|
|
|
Carrying value
|
|
Balance as of June 30, 2019
|
$
|
184,544
|
|
|
$
|
(35,157
|
)
|
|
$
|
149,387
|
|
|
|
|
Disposal of FIHRST (Note 2)
|
|
(599
|
)
|
|
|
-
|
|
|
|
(599
|
)
|
|
|
|
Foreign currency adjustment (1)
|
|
122
|
|
|
|
28
|
|
|
|
150
|
|
|
|
Balance as of December 31, 2019
|
$
|
184,067
|
|
|
$
|
(35,129
|
)
|
|
$
|
148,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) - The foreign currency adjustment represents the effects of the fluctuations between the South African rand, the Euro and the Korean won, and the U.S. dollar on the carrying value.
|
|
Goodwill has been allocated to the Company's reportable segments as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
|
|
|
International transaction processing
|
|
|
|
Financial inclusion and applied technologies
|
|
|
|
Carrying value
|
|
Balance as of June 30, 2019
|
$
|
19,208
|
|
|
$
|
112,728
|
|
|
$
|
17,451
|
|
|
$
|
149,387
|
|
|
|
|
Disposal of FIHRST (Note 2)
|
|
(599
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(599
|
)
|
|
|
|
Foreign currency adjustment (1)
|
|
23
|
|
|
|
83
|
|
|
|
44
|
|
|
|
150
|
|
|
|
Balance as of December 31, 2019
|
$
|
18,632
|
|
|
$
|
112,811
|
|
|
$
|
17,495
|
|
|
$
|
148,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) - The foreign currency adjustment represents the effects of the fluctuations between the South African rand, the Euro and the Korean won, and the U.S. dollar on the carrying value.
|
|
8. Goodwill and intangible assets, net (continued)
Intangible assets
Carrying value and amortization of intangible assets
Summarized below is the carrying value and accumulated amortization of the intangible assets as of December 31, 2019 and June 30, 2019:
|
|
|
As of December 31, 2019
|
|
|
As of June 30, 2019
|
|
|
|
|
|
Gross carrying value
|
|
|
|
Accumulated amortization
|
|
|
|
Net carrying value
|
|
|
|
Gross carrying value
|
|
|
|
Accumulated amortization
|
|
|
|
Net carrying value
|
|
Finite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationships
|
$
|
95,792
|
|
|
$
|
(89,273
|
)
|
|
$
|
6,519
|
|
|
$
|
96,653
|
|
|
$
|
(86,285
|
)
|
|
$
|
10,368
|
|
|
Software and unpatented
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
technology
|
|
28,883
|
|
|
|
(28,598
|
)
|
|
|
285
|
|
|
|
32,071
|
|
|
|
(31,829
|
)
|
|
|
242
|
|
|
FTS patent
|
|
2,727
|
|
|
|
(2,727
|
)
|
|
|
-
|
|
|
|
2,721
|
|
|
|
(2,721
|
)
|
|
|
-
|
|
|
Trademarks
|
|
6,784
|
|
|
|
(6,307
|
)
|
|
|
477
|
|
|
|
6,772
|
|
|
|
(6,265
|
)
|
|
|
507
|
|
|
Total finite-lived intangible assets
|
|
134,186
|
|
|
|
(126,905
|
)
|
|
|
7,281
|
|
|
|
138,217
|
|
|
|
(127,100
|
)
|
|
|
11,117
|
|
Infinite-lived intangible assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial institution licenses
|
|
762
|
|
|
|
-
|
|
|
|
762
|
|
|
|
772
|
|
|
|
-
|
|
|
|
772
|
|
|
Total infinite-lived intangible assets
|
|
762
|
|
|
|
-
|
|
|
|
762
|
|
|
|
772
|
|
|
|
-
|
|
|
|
772
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total intangible assets
|
$
|
134,948
|
|
|
$
|
(126,905
|
)
|
|
$
|
8,043
|
|
|
$
|
138,989
|
|
|
$
|
(127,100
|
)
|
|
$
|
11,889
|
|
Aggregate amortization expense on the finite-lived intangible assets for the three months ended December 31, 2019 and 2018, was approximately $1.9 million and $6.1 million, respectively. Aggregate amortization expense on the finite-lived intangible assets for the six months ended December 31, 2019 and 2018, was approximately $3.8 million and $12.2 million, respectively.
Carrying value and amortization of intangible assets (continued)
Future estimated annual amortization expense for the next five fiscal years and thereafter, assuming exchange rates that prevailed on December 31, 2019, is presented in the table below. Actual amortization expense in future periods could differ from this estimate as a result of acquisitions, changes in useful lives, exchange rate fluctuations and other relevant factors.
Fiscal 2020
|
|
$
|
7,919
|
|
Fiscal 2021
|
|
|
2,807
|
|
Fiscal 2022
|
|
|
73
|
|
Fiscal 2023
|
|
|
73
|
|
Fiscal 2024
|
|
|
72
|
|
Thereafter
|
|
|
145
|
|
|
Total future estimated annual amortization expense
|
|
$
|
11,089
|
|
9. Assets and policyholder liabilities under insurance and investment contracts
Reinsurance assets and policyholder liabilities under insurance contracts
Summarized below is the movement in reinsurance assets and policyholder liabilities under insurance contracts during the six months ended December 31, 2019:
|
|
|
|
Reinsurance Assets (1)
|
|
|
|
Insurance contracts (2)
|
|
Balance as of June 30, 2019
|
$
|
1,163
|
|
|
$
|
(1,880
|
)
|
|
Increase in policy holder benefits under insurance contracts
|
|
220
|
|
|
|
(3,232
|
)
|
|
Claims and policyholders' benefits under insurance contracts
|
|
(227
|
)
|
|
|
3,201
|
|
|
Foreign currency adjustment (3)
|
|
3
|
|
|
|
(5
|
)
|
|
|
Balance as of December 31, 2019
|
$
|
1,159
|
|
|
$
|
(1,916
|
)
|
|
|
(1) Included in other long-term assets.
|
|
|
|
(2) Included in other long-term liabilities.
|
|
|
|
(3) Represents the effects of the fluctuations between the ZAR and the U.S. dollar.
|
|
The Company has agreements with reinsurance companies in order to limit its losses from large insurance contracts, however, if the reinsurer is unable to meet its obligations, the Company retains the liability. The value of insurance contract liabilities is based on the best estimate assumptions of future experience plus prescribed margins, as required in the markets in which these products are offered, namely South Africa. The process of deriving the best estimates assumptions plus prescribed margins includes assumptions related to claim reporting delays (based on average industry experience).
Assets and policyholder liabilities under investment contracts
Summarized below is the movement in assets and policyholder liabilities under investment contracts during the six months ended December 31, 2019:
|
|
|
Assets (1)
|
|
|
|
Investment contracts (2)
|
|
Balance as of June 30, 2019
|
$
|
619
|
|
|
$
|
(619
|
)
|
|
Increase in policy holder benefits under investment contracts
|
|
2
|
|
|
|
(2
|
)
|
|
Claims and policyholders' benefits under investment contracts
|
|
(36
|
)
|
|
|
36
|
|
|
Foreign currency adjustment (3)
|
|
2
|
|
|
|
(2
|
)
|
|
|
Balance as of December 31, 2019
|
$
|
587
|
|
|
$
|
(587
|
)
|
|
|
(1) Included in other long-term assets.
|
|
|
|
(2) Included in other long-term liabilities.
|
|
|
|
(3) Represents the effects of the fluctuations between the ZAR and the U.S. dollar.
|
|
The Company does not offer any investment products with guarantees related to capital or returns.
10. Borrowings
Refer to Note 12 to the Company's audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2019, for additional information regarding its borrowings.
South Africa
The amounts below have been translated at exchange rates applicable as of the dates specified.
July 2017 Facilities, as amended, comprising a short-term facility and long-term borrowings
Short-term facility - Facility E
On September 26, 2018, Net1 SA further revised its amended July 2017 Facilities agreement with RMB to include an overdraft facility ("Facility E") of up to ZAR 1.5 billion ($106.8 million, translated at exchange rates applicable as of December 31, 2019) to fund the Company's ATMs. The available Facility E overdraft facility was subsequently reduced to ZAR 1.2 billion ($85.4 million, translated at exchange rates applicable as of December 31, 2019) in September 2019. Interest on the overdraft facility is payable on the last day of each month and on the final maturity date based on the South African prime rate. The overdraft facility will be reviewed in September 2020. The overdraft facility amount utilized must be repaid in full within one month of utilization and at least 90% of the amount utilized must be repaid with 25 days.
10. Borrowings (continued)
South Africa (continued)
July 2017 Facilities, as amended, comprising a short-term facility and long-term borrowings (continued)
Short-term facility - Facility E (continued)
The overdraft facility is secured by a pledge by Net1 SA of, among other things, cash and certain bank accounts utilized in the Company's ATM funding process, the cession of an insurance policy with Senate Transit Underwriters Managers Proprietary Limited, and any rights and claims Net1 SA has against Grindrod Bank Limited. As at December 31, 2019, the Company had utilized approximately ZAR 1.0 billion ($72.7 million) of this overdraft facility.
This ZAR 1.2 billion overdraft facility may only be used to fund ATMs and therefore the overdraft utilized and converted to cash to fund the Company's ATMs is considered restricted cash. The prime rate on December 31, 2019, was 10.00% and reduced to 9.75% on January 17, 2020, following a reduction in the South African repo rate.
Long-term borrowings facility - Facility F
On September 4, 2019, Net1 SA further amended its amended July 2017 Facilities agreement with RMB and Nedbank to include an overdraft facility ("Facility F") of up to ZAR 300.0 million ($21.4 million, translated at exchange rates applicable as of December 31, 2019) for the sole purpose of funding the acquisition of airtime from Cell C. Net1 SA may not dispose of the airtime acquired from Cell C prior to April 1, 2020, without the prior consent of RMB, Absa Bank Limited and Investec Asset Management Proprietary Limited. Facility F comprises (i) a first Senior Facility F loan of ZAR 220.0 million (ii) a second Senior Facility F loan of ZAR 80.0 million, or such lesser amount as may be agreed by the facility agent. Facility F is required to be repaid in full within nine months following the first utilization of the facility. Net1 SA is required to prepay Facility F subject to customary prepayment terms. Interest on Facility F is based on JIBAR plus a margin of 5.50% per annum and is due in full on repayment of the loan. JIBAR was 6.80% on December 31, 2019. The margin on the Facility F increased by 1% on November 1, 2019, because we had not disposed of our remaining shareholding in DNI and FIHRST by that date. Net1 SA paid a non-refundable structuring fee of ZAR 2.2 million ($0.1 million) to the Lenders in September 2019, and the Company expensed this amount in full during the first quarter of fiscal 2020.
Nedbank facility, comprising short-term facilities
As of December 31, 2019, the aggregate amount of the Company's short-term South African credit facility with Nedbank Limited was ZAR 450.0 million ($32.0 million). The credit facility comprises an overdraft facility of (i) up to ZAR 300.0 million ($21.4 million), which is further split into (a) a ZAR 250.0 million ($17.8 million) overdraft facility which may only be used to fund mobile ATMs and (b) a ZAR 50.0 million ($3.6 million) general banking facility and (ii) indirect and derivative facilities of up to ZAR 150.0 million ($10.7 million), which include letters of guarantees, letters of credit and forward exchange contracts. The ZAR 250.0 million component of the primary amount may only be used to fund ATMs and therefore this component of the primary amount utilized and converted to cash to fund the Company's ATMs is considered restricted cash. The short-term facility provides Nedbank with the right to set off funds held in certain identified Company bank accounts with Nedbank against any amounts owed to Nedbank under the facility. As of December 31, 2019, the Company had total funds of $2.7 million in bank accounts with Nedbank which have been set off against $14.4 million drawn under the Nedbank facility, for a net amount drawn under the facility of $11.7 million. As of December 31, 2019, the interest rate on the overdraft facility was 8.85%, and reduced to 8.60% on January 17, 2020, following a reduction in the South African repo rate.
As of December 31, 2019, the Company had utilized approximately ZAR 164.3 million ($11.7 million) of its ZAR 300.0 million overdraft facility to fund ATMs, and none of its ZAR 50.0 million general banking facility. As of December 31, 2019 and June 30, 2019, the Company had utilized approximately ZAR 93.6 million ($6.7 million) and ZAR 93.6 million ($6.6 million), respectively, of its indirect and derivative facilities of ZAR 150 million to enable the bank to issue guarantees, letters of credit and forward exchange contracts, in order for the Company to honor its obligations to third parties requiring such guarantees (refer to Note 21).
United States, a short-term facility
On September 14, 2018, the Company renewed its $10.0 million overdraft facility from Bank Frick and on February 4, 2019, the Company increased the overdraft facility to $20.0 million. The interest rate on the facilities is 4.50% plus 3-month US dollar LIBOR and interest is payable on a quarterly basis. The 3-month US dollar LIBOR rate was 1.91% on December 31, 2019. The facility has no fixed term, however, it may be terminated by either party with six weeks written notice. The facility is secured by a pledge of the Company's investment in Bank Frick. As of December 31, 2019, the Company had utilized approximately $13.9 million of this facility.
10. Borrowings (continued)
South Korea, a short-term facility
The Company obtained a one year KRW 10.0 billion ($8.7 million) short-term overdraft facility from Hana Bank, a South Korean bank, in January 2019. The interest rate on the facility is 1.98% plus the 3-month CD rate. The CD rate as of December 31, 2019 was 1.53%. The facility expires in January 2021, however can be renewed. The facility is unsecured with no fixed repayment terms. As of December 31, 2019, the Company had not utilized this facility.
Movement in short-term credit facilities
Summarized below are the Company's short-term facilities as of December 31, 2019, and the movement in the Company's short-term facilities from as of June 30, 2019 to as of December 31, 2019:
|
|
|
|
|
|
South Africa
|
|
|
|
United States
|
|
|
|
South Korea
|
|
|
|
Total
|
|
|
|
|
|
|
|
Amended July 2017
|
|
|
|
Nedbank
|
|
|
|
Bank Frick
|
|
|
|
Hana
|
|
|
|
|
|
Short-term facilities available as of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2019
|
$
|
85,419
|
|
|
$
|
32,032
|
|
|
$
|
20,000
|
|
|
$
|
8,654
|
|
|
$
|
146,105
|
|
|
Overdraft
|
|
-
|
|
|
|
3,559
|
|
|
|
20,000
|
|
|
|
8,654
|
|
|
|
32,213
|
|
|
Overdraft restricted as to use for ATM funding only
|
|
85,419
|
|
|
|
17,796
|
|
|
|
-
|
|
|
|
-
|
|
|
|
103,215
|
|
|
Indirect and derivative facilities
|
|
-
|
|
|
|
10,677
|
|
|
|
-
|
|
|
|
-
|
|
|
|
10,677
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Movement in utilized overdraft facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2019
|
|
69,566
|
|
|
|
5,880
|
|
|
|
9,544
|
|
|
|
-
|
|
|
|
84,990
|
|
|
|
Utilized
|
|
349,466
|
|
|
|
33,722
|
|
|
|
8,362
|
|
|
|
-
|
|
|
|
391,550
|
|
|
|
Repaid
|
|
(346,525
|
)
|
|
|
(28,029
|
)
|
|
|
(4,000
|
)
|
|
|
-
|
|
|
|
(378,554
|
)
|
|
|
Foreign currency adjustment(1)
|
|
157
|
|
|
|
123
|
|
|
|
-
|
|
|
|
-
|
|
|
|
280
|
|
|
|
|
Balance as of December 31, 2019(2)
|
|
72,664
|
|
|
|
11,696
|
|
|
|
13,906
|
|
|
|
-
|
|
|
|
98,266
|
|
|
|
|
|
Restricted as to use for ATM funding only
|
|
72,664
|
|
|
|
11,696
|
|
|
|
-
|
|
|
|
-
|
|
|
|
84,360
|
|
|
|
|
|
No restrictions as to use
|
|
-
|
|
|
|
-
|
|
|
|
13,906
|
|
|
|
-
|
|
|
|
13,906
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Movement in utilized indirect and derivative
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
facilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2019
|
|
-
|
|
|
|
6,643
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,643
|
|
|
|
Foreign currency adjustment(1)
|
|
-
|
|
|
|
17
|
|
|
|
-
|
|
|
|
-
|
|
|
|
17
|
|
|
|
|
Balance as of December 31, 2019
|
$
|
-
|
|
|
$
|
6,660
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
6,660
|
|
(1) Represents the effects of the fluctuations between the ZAR and the U.S. dollar.
(2) Nedbank balance as of December 31, 2019, of $11.7 million comprises the net of total overdraft facilities withdrawn of $14.4 million offset against funds in bank accounts with Nedbank of $2.7 million.
Movement in long-term borrowings
Summarized below is the movement in the Company's long term borrowing from as of June 30, 2019 and December 31, 2019:
|
|
|
South Africa
|
|
|
|
|
|
|
|
|
Amended July 2017
|
|
|
|
Total
|
|
Balance as of June 30, 2019
|
$
|
-
|
|
|
$
|
-
|
|
Current portion of long-term borrowings
|
|
-
|
|
|
|
-
|
|
Long-term borrowings
|
|
-
|
|
|
|
-
|
|
|
Utilized
|
|
14,798
|
|
|
|
14,798
|
|
|
Repaid
|
|
(11,313
|
)
|
|
|
(11,313
|
)
|
|
Foreign currency adjustment(1)
|
|
578
|
|
|
|
578
|
|
Balance as of December 31, 2019
|
|
4,063
|
|
|
|
4,063
|
|
|
Current portion of long-term borrowings
|
|
4,063
|
|
|
|
4,063
|
|
|
Long-term borrowings
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
(1) Represents the effects of the fluctuations between the ZAR and the U.S. dollar.
10. Borrowings (continued)
Interest expense incurred under the Company's South African long-term borrowing during the three months ended December 31, 2019 and 2018, was $0.4 million and $0.9 million, respectively. Interest expense incurred during the six months ended December 31, 2019 and 2018, was $0.6 million and $2.1 million, respectively. There were no prepaid facility fee amortization during the three and six months ended December 31, 2019. Prepaid facility fees amortized during the three and six months ended December 31, 2018, was $0.1 million and $0.2 million, respectively.
11. Other payables
Summarized below is the breakdown of other payables as of December 31, 2019 and June 30, 2019:
|
December 31,
|
|
|
June 30,
|
|
|
|
2019
|
|
|
|
2019
|
|
Accrual of implementation costs to be refunded to SASSA
|
$
|
35,270
|
|
|
$
|
34,039
|
|
Accruals
|
|
15,376
|
|
|
|
10,620
|
|
Provisions
|
|
4,390
|
|
|
|
6,074
|
|
Other
|
|
8,801
|
|
|
|
10,814
|
|
Value-added tax payable
|
|
3,624
|
|
|
|
3,234
|
|
Payroll-related payables
|
|
1,131
|
|
|
|
1,113
|
|
Participating merchants settlement obligation
|
|
542
|
|
|
|
555
|
|
|
$
|
69,134
|
|
|
$
|
66,449
|
|
Refer to Note 13 to the Company's audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2019, for additional information regarding Accrual of implementation costs to be refunded to SASSA. As of December 31, 2019, this accrual of $35.3 million (ZAR 495.5 million, translated at exchange rates applicable as of December 31, 2019, comprised a revenue refund of $19.8 million (ZAR 277.6 million), accrued interest of $12.6 million (ZAR 177.6 million), unclaimed indirect taxes of $2.8 million (ZAR 38.9 million) and estimated costs of $0.1 million (ZAR 1.4 million)). As of June 30, 2019, this accrual of $34.0 million (ZAR 479.4 million, translated at exchange rates applicable as of June 30, 2019, comprised a revenue refund of $19.7 million (ZAR 277.6 million), accrued interest of $11.4 million (ZAR 161.0 million), unclaimed indirect taxes of $2.8 million (ZAR 39.4 million) and estimated costs of $0.1 million (ZAR 1.4 million)).
Other includes transactions-switching funds payable, deferred income, client deposits and other payables.
12. Capital structure
The following table presents a reconciliation between the number of shares, net of treasury, presented in the unaudited condensed consolidated statement of changes in equity during the six months ended December 31, 2019 and 2018, respectively, and the number of shares, net of treasury, excluding non-vested equity shares that have not vested during the six months ended December 31, 2019 and 2018, respectively:
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
Number of shares, net of treasury:
|
|
|
|
|
|
|
|
Statement of changes in equity
|
|
56,568,425
|
|
|
56,833,925
|
|
|
Non-vested equity shares that have not vested as of end of period
|
|
583,908
|
|
|
860,817
|
|
Number of shares, net of treasury, excluding non-vested equity shares that have not vested
|
|
55,984,517
|
|
|
55,973,108
|
|
13. Accumulated other comprehensive loss
The table below presents the change in accumulated other comprehensive (loss) income per component during the three months ended December 31, 2019:
|
|
|
Three months ended
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
Accumulated foreign currency translation reserve
|
|
|
|
Total
|
|
Balance as of October 1, 2019
|
$
|
(214,640
|
)
|
|
$
|
(214,640
|
)
|
|
Release of foreign currency translation reserve related to disposal of FIHRST (Note 2)
|
|
1,578
|
|
|
|
1,578
|
|
|
Movement in foreign currency translation reserve related to equity-accounted investment
|
|
(491
|
)
|
|
|
(491
|
)
|
|
Movement in foreign currency translation reserve
|
|
19,114
|
|
|
|
19,114
|
|
|
|
Balance as of December 31, 2019
|
$
|
(194,439
|
)
|
|
$
|
(194,439
|
)
|
The table below presents the change in accumulated other comprehensive (loss) income per component during the three months ended December 31, 2018:
|
|
|
Three months ended
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
Accumulated foreign currency translation reserve
|
|
|
|
Total
|
|
Balance as of October 1, 2018
|
$
|
(189,630
|
)
|
|
$
|
(189,630
|
)
|
|
Movement in foreign currency translation reserve
|
|
(8,744
|
)
|
|
|
(8,744
|
)
|
|
|
Balance as of December 31, 2018
|
$
|
(198,374
|
)
|
|
$
|
(198,374
|
)
|
The table below presents the change in accumulated other comprehensive (loss) income per component during the six months ended December 31, 2019:
|
|
|
Six months ended
|
|
|
|
|
December 31, 2019
|
|
|
|
|
|
Accumulated foreign currency translation reserve
|
|
|
|
Total
|
|
Balance as of July 1, 2019
|
$
|
(199,273
|
)
|
|
$
|
(199,273
|
)
|
|
Release of foreign currency translation reserve related to disposal of FIHRST (Note 2)
|
|
1,578
|
|
|
|
1,578
|
|
|
Movement in foreign currency translation reserve related to equity-accounted investment
|
|
2,227
|
|
|
|
2,227
|
|
|
Movement in foreign currency translation reserve
|
|
1,029
|
|
|
|
1,029
|
|
|
|
Balance as of December 31, 2019
|
$
|
(194,439
|
)
|
|
$
|
(194,439
|
)
|
13. Accumulated other comprehensive loss (continued)
The table below presents the change in accumulated other comprehensive (loss) income per component during the six months ended December 31, 2018:
|
|
|
|
Six months ended
|
|
|
|
|
|
December 31, 2018
|
|
|
|
|
|
Accumulated foreign currency translation reserve
|
|
|
|
Total
|
|
Balance as of July 1, 2018
|
$
|
(184,538
|
)
|
|
$
|
(184,538
|
)
|
|
Movement in foreign currency translation reserve related to equity-accounted investment
|
|
5,430
|
|
|
|
5,430
|
|
|
Movement in foreign currency translation reserve
|
|
(19,266
|
)
|
|
|
(19,266
|
)
|
|
|
Balance as of December 31, 2018
|
$
|
(198,374
|
)
|
|
$
|
(198,374
|
)
|
During the three and six months ended December 31, 2019, the Company reclassified $1.6 million from accumulated other comprehensive loss (accumulated foreign currency translation reserve) to net loss related to the FIHRST disposal (refer to Note 2). There were no reclassifications from accumulated other comprehensive loss to net income during the three and six months ended December 31, 2018.
14. Stock-based compensation
Stock option and restricted stock activity
Options
The following table summarizes stock option activity for the six months ended December 31, 2019 and 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of shares
|
|
|
Weighted average exercise price
($)
|
|
|
Weighted average remaining contractual term
(in years)
|
|
|
Aggregate intrinsic value
($'000)
|
|
|
Weighted average grant date fair value
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding - June 30, 2019
|
|
864,579
|
|
|
7.81
|
|
|
7.05
|
|
|
-
|
|
|
2.62
|
|
|
Granted - September 2019
|
|
561,000
|
|
|
3.07
|
|
|
10.00
|
|
|
676
|
|
|
1.20
|
|
|
|
Outstanding - December 31, 2019
|
|
1,425,579
|
|
|
5.94
|
|
|
7.81
|
|
|
365
|
|
|
2.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding - June 30, 2018
|
|
809,274
|
|
|
13.99
|
|
|
2.67
|
|
|
370
|
|
|
4.20
|
|
|
Granted - September 2018
|
|
600,000
|
|
|
6.20
|
|
|
10.00
|
|
|
1,212
|
|
|
2.02
|
|
|
Forfeited
|
|
(200,000
|
)
|
|
24.46
|
|
|
-
|
|
|
-
|
|
|
7.17
|
|
|
|
Outstanding - December 31, 2018
|
|
1,209,274
|
|
|
8.41
|
|
|
6.15
|
|
|
72
|
|
|
2.62
|
|
During the three and six months ended December 31, 2019, 561,000 stock options were awarded to employees. No stock options were awarded during the three months ended December 31, 2018. During the six months ended December 31, 2018, 600,000 stock options were awarded to executive officers and employees. No stock options were forfeited during the six months ended December 31, 2019 or during the three months ended December 31, 2018. During the six months ended December 31, 2018, executive officers forfeited 200,000 stock options granted in August 2008, with a strike price of $24.46 per share, as these stock options expired unexercised.
The fair value of each option is estimated on the date of grant using the Cox Ross Rubinstein binomial model that uses the assumptions noted in the following table. The estimated expected volatility is calculated based on the Company's 750-day volatility. The estimated expected life of the option was determined based on historical behavior of employees who were granted options with similar terms.
14. Stock-based compensation (continued)
Stock option and restricted stock activity (continued)
Options (continued)
The table below presents the range of assumptions used to value options granted during the six months ended December 31, 2019 and 2018:
|
|
Six months ended
|
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
Expected volatility
|
|
57%
|
|
|
44%
|
|
Expected dividends
|
|
0%
|
|
|
0%
|
|
Expected life (in years)
|
|
3
|
|
|
3
|
|
Risk-free rate
|
|
1.57%
|
|
|
2.75%
|
|
The following table presents stock options vested and expected to vest as of December 31, 2019 :
|
Number of
shares
|
|
|
Weighted average exercise price
($)
|
|
|
Weighted average remaining contractual term
(in years)
|
|
|
Aggregate intrinsic value
($'000)
|
|
Vested and expecting to vest - December 31, 2019
|
1,425,579
|
|
|
5.94
|
|
|
7.81
|
|
|
365
|
|
These options have an exercise price range of $3.07 to $11.23.
The following table presents stock options that are exercisable as of December 31, 2019:
|
Number of
shares
|
|
|
Weighted average exercise price
($)
|
|
|
Weighted average remaining contractual term
(in years)
|
|
|
|
|
|
|
|
|
|
|
Exercisable - December 31, 2019
|
523,914
|
|
|
8.86
|
|
|
5.52
|
|
No stock options became exercisable during the three months ended December 31, 2019 or during the three and six months ended December 31, 2018, respectively. However, during the six months ended December 31, 2019, 170,335 stock options became exercisable. The Company issues new shares to satisfy stock option exercises.
Restricted stock
The following table summarizes restricted stock activity for the six months ended December 31, 2019 and 2018:
|
|
|
|
|
Number of shares of restricted stock
|
|
|
Weighted average grant date fair value
($'000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested - June 30, 2019
|
|
583,908
|
|
|
3,410
|
|
|
|
Non-vested - December 31, 2019
|
|
583,908
|
|
|
3,410
|
|
|
|
|
|
|
|
|
|
|
|
Non-vested - June 30, 2018
|
|
765,411
|
|
|
6,162
|
|
Granted - September 2018
|
|
148,000
|
|
|
114
|
|
Vested - August 2018
|
|
(52,594
|
)
|
|
459
|
|
|
|
|
Non-vested - December 31, 2018
|
|
860,817
|
|
|
5,785
|
|
The September 2018 grants comprise 148,000 shares of restricted stock awarded to executive officers that are subject to market and time-based vesting. During the three months ended September 30, 2018, 52,594 shares of restricted stock granted to non-employee directors vested.
14. Stock-based compensation (continued)
Stock option and restricted stock activity (continued)
Restricted stock (continued)
Market Conditions - Restricted Stock Granted in September 2018
The 148,000 shares of restricted stock awarded to executive officers in September 2018 are subject to time-based and performance-based (a market condition) vesting conditions and vest in full only on the date, if any, that the following conditions are satisfied: (1) the price of the Company's common stock must equal or exceed certain agreed VWAP levels (as described below) during a measurement period commencing on the date that it files its Annual Report on Form 10-K for the fiscal year ended 2021 and ending on December 31, 2021 and (2) the recipient is employed by the Company on a full-time basis when the condition in (1) is met. If either of these conditions is not satisfied, then none of the shares of restricted stock will vest and they will be forfeited. The $23.00 price target represents an approximate 55% increase, compounded annually, in the price of the Company's common stock on Nasdaq over the $6.20 closing price on September 7, 2018. The VWAP levels and vesting percentages related to such levels are as follows:
-
Below $15.00 (threshold)-0%
-
At or above $15.00 and below $19.00-33%
-
At or above $19.00 and below $23.00-66%
-
At or above $23.00-100%
., The fair value of these shares of restricted stock was calculated using a Monte Carlo simulation of a stochastic volatility process. The choice of a stochastic volatility process as an extension to the standard Black Scholes process was driven by both observations of larger than expected moves in the daily time series for the Company's VWAP price, but also the observation of the strike structure of volatility (i.e. skew and smile) for out-of-the money calls and out-of-the money puts versus at-the-money options for both the Company's stock and NASDAQ futures.
In scenarios where the shares do not vest, the final vested value at maturity is zero. In scenarios where vesting occurs, the final vested value on maturity is the share price on vesting date. In its calculation of the fair value of the restricted stock, the Company used an average volatility of 37.4% for the VWAP price, a discounting based on USD overnight indexed swap rates for the grant date, and no future dividends. The average volatility was extracted from the time series for VWAP prices as the standard deviation of log prices for the three years preceding the grant date. The mean reversion of volatility and the volatility of volatility parameters of the stochastic volatility process were extracted by regressing log differences against log levels of volatility from the time series for at-the-money options 30 day volatility quotes, which were available from January 2, 2018 onwards.
Market Conditions - Restricted Stock Granted in August 2017
The 210,000 shares of restricted stock awarded to executive officers in August 2017 are subject to time-based and performance-based (a market condition) vesting conditions and vest in full only on the date, if any, that the following conditions are satisfied: (1) the price of the Company's common stock must equal or exceed certain agreed VWAP levels (as described below) during a measurement period commencing on the date that it files its Annual Report on Form 10-K for the fiscal year ended 2020 and ending on December 31, 2020 and (2) the recipient is employed by the Company on a full-time basis when the condition in (1) is met. If either of these conditions is not satisfied, then none of the shares of restricted stock will vest and they will be forfeited. The $23.00 price target represents an approximate 35% increase, compounded annually, in the price of the Company's common stock on Nasdaq over the $9.38 closing price on August 23, 2017. The VWAP levels and vesting percentages related to such levels are as follows:
-
Below $15.00 (threshold)-0%
-
At or above $15.00 and below $19.00-33%
-
At or above $19.00 and below $23.00-66%
-
At or above $23.00-100%
These 210,000 shares of restricted stock are effectively forward starting knock-in barrier options with multi-strike prices of zero. The fair value of these shares of restricted stock was calculated utilizing a Monte Carlo simulation model which was developed for the purpose of the valuation of these shares. For each simulated share price path, the market share price condition was evaluated to determine whether or not the shares would vest under that simulation. A standard Geometric Brownian motion process was used in the forecasting of the share price instead of a "jump diffusion" model, as the share price volatility was more stable compared to the highly volatile regime of previous years. Therefore, the simulated share price paths capture the idiosyncrasies of the observed Company share price movements.
14. Stock-based compensation (continued) (continued)
Stock option and restricted stock activity (continued)
Restricted stock (continued)
Market Conditions - Restricted Stock Granted in August 2017 (continued)
In scenarios where the shares do not vest, the final vested value at maturity is zero. In scenarios where vesting occurs, the final vested value on maturity is the share price on vesting date. The value of the grant is the average of the discounted vested values. The Company used an expected volatility of 44.0%, an expected life of approximately three years, a risk-free rate ranging between 1.275% to 1.657% and no future dividends in its calculation of the fair value of the restricted stock. The estimated expected volatility was calculated based on the Company's 30 day VWAP share price using the exponentially weighted moving average of returns.
Stock-based compensation charge and unrecognized compensation cost
The Company recorded a stock-based compensation charge, net during the three months ended December 31, 2019 and 2018 of $0.4 million and $0.6 million respectively, which comprised:
|
|
|
|
|
|
|
|
|
Allocated to
cost of goods
sold,
|
|
|
|
Allocated to
|
|
|
|
|
|
|
|
|
|
|
IT processing,
|
|
|
|
selling, general
|
|
|
|
|
|
|
Total
|
|
|
|
servicing and
|
|
|
|
and
|
|
|
|
|
|
|
charge
|
|
|
|
support
|
|
|
|
administration
|
|
Three months ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$
|
436
|
|
|
$
|
-
|
|
|
$
|
436
|
|
|
|
|
Total - three months ended December 31, 2019
|
$
|
436
|
|
|
$
|
-
|
|
|
$
|
436
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$
|
598
|
|
|
$
|
-
|
|
|
$
|
598
|
|
|
|
|
Total - three months ended December 31, 2018
|
$
|
598
|
|
|
$
|
-
|
|
|
$
|
598
|
|
The Company recorded a stock-based compensation charge, net during the six months ended December 31, 2019 and 2018 of $0.8 million and $1.2 million respectively, which comprised:
|
|
|
|
|
|
|
|
|
Allocated to
cost of goods
sold,
|
|
|
|
Allocated to
|
|
|
|
|
|
|
|
|
|
|
IT processing,
|
|
|
|
selling, general
|
|
|
|
|
|
|
Total
|
|
|
|
servicing and
|
|
|
|
and
|
|
|
|
|
|
|
charge
|
|
|
|
support
|
|
|
|
administration
|
|
Six months ended December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$
|
823
|
|
|
$
|
-
|
|
|
$
|
823
|
|
|
|
|
Total - Six months ended December 31, 2019
|
$
|
823
|
|
|
$
|
-
|
|
|
$
|
823
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six months ended December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
Stock-based compensation charge
|
$
|
1,185
|
|
|
$
|
-
|
|
|
$
|
1,185
|
|
|
|
|
Total - Six months ended December 31, 2018
|
$
|
1,185
|
|
|
$
|
-
|
|
|
$
|
1,185
|
|
The stock-based compensation charges have been allocated to selling, general and administration based on the allocation of the cash compensation paid to the relevant employees.
As of December 31, 2019, the total unrecognized compensation cost related to stock options was approximately $1.3 million, which the Company expects to recognize over approximately three years. As of December 31, 2019, the total unrecognized compensation cost related to restricted stock awards was approximately $1.1 million, which the Company expects to recognize over approximately two years.
As of December 31, 2019 and June 30, 2019, respectively, the Company recorded a deferred tax asset of approximately $0.3 million and $0.2 million, related to the stock-based compensation charge recognized related to employees of Net1. As of December 31, 2019, and June 30, 2019, respectively, the Company recorded a valuation allowance of approximately $0.3 million and $0.2 million, related to the deferred tax asset because it does not believe that the stock-based compensation deduction would be utilized as it does not anticipate generating sufficient taxable income in the United States. The Company deducts the difference between the market value on date of exercise by the option recipient and the exercise price from income subject to taxation in the United States.
15. (Loss) Earnings per share
The Company has issued redeemable common stock which is redeemable at an amount other than fair value. Redemption of a class of common stock at other than fair value increases or decreases the carrying amount of the redeemable common stock and is reflected in basic earnings per share using the two-class method. There were no redemptions of common stock, or adjustments to the carrying value of the redeemable common stock during the three and six months ended December 31, 2019 or 2018. Accordingly, the two-class method presented below does not include the impact of any redemption. The Company's redeemable common stock is described in Note 15 to the Company's audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2019.
Basic (loss) earnings per share includes shares of restricted stock that meet the definition of a participating security because these shares are eligible to receive non-forfeitable dividend equivalents at the same rate as common stock. Basic (loss) earnings per share has been calculated using the two-class method and basic (loss) earnings per share for the three and six months ended December 31, 2019 and 2018, reflects only undistributed earnings. The computation below of basic (loss) earnings per share excludes the net loss attributable to shares of unvested restricted stock (participating non-vested restricted stock) from the numerator and excludes the dilutive impact of these unvested shares of restricted stock from the denominator.
Diluted (loss) earnings per share has been calculated to give effect to the number of shares of additional common stock that would have been outstanding if the potential dilutive instruments had been issued in each period. Stock options are included in the calculation of diluted (loss) earnings per share utilizing the treasury stock method and are not considered to be participating securities, as the stock options do not contain non-forfeitable dividend rights.
The calculation of diluted (loss) earnings per share includes the dilutive effect of a portion of the restricted stock granted to employees in August 2016, August 2017, March 2018, May 2018 and September 2018 as these shares of restricted stock are considered contingently returnable shares for the purposes of the diluted (loss) earnings per share calculation and the vesting conditions in respect of a portion of the restricted stock had been satisfied. The vesting conditions for awards made in September 2018 and August 2017 are discussed in Note 14 above and the vesting conditions for all other awards are discussed in Note 17 to the Company's audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2019.
15. (Loss) Earnings per share (continued)
The following table presents net loss attributable to Net1 (loss from continuing operations) and the share data used in the basic and diluted (loss) earnings per share computations using the two-class method:
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
|
|
December 31,
|
|
|
December, 31
|
|
|
|
|
|
|
2019
|
|
|
|
2018
|
|
|
|
2019
|
|
|
|
2018
|
|
|
|
|
|
|
(in thousands except
|
|
|
|
(in thousands except
|
|
|
|
|
|
|
percent and
|
|
|
|
percent and
|
|
|
|
|
|
|
per share data)
|
|
|
|
per share data)
|
|
|
Numerator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable to Net1
|
$
|
(205
|
)
|
|
$
|
(63,941
|
)
|
|
$
|
(4,597
|
)
|
|
$
|
(69,140
|
)
|
|
Undistributed (loss) earnings
|
|
(205
|
)
|
|
|
(63,941
|
)
|
|
|
(4,597
|
)
|
|
|
(69,140
|
)
|
|
|
|
Continuing
|
|
(205
|
)
|
|
|
(65,469
|
)
|
|
|
(4,597
|
)
|
|
|
(72,614
|
)
|
|
|
|
Discontinued
|
$
|
-
|
|
|
$
|
1,528
|
|
|
$
|
-
|
|
|
$
|
3,474
|
|
|
Percent allocated to common shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Calculation 1)
|
|
99%
|
|
|
|
98%
|
|
|
|
99%
|
|
|
|
99%
|
|
|
Numerator for (loss) earnings per share: basic and diluted
|
|
(203
|
)
|
|
|
(62,972
|
)
|
|
|
(4,550
|
)
|
|
|
(68,146
|
)
|
|
|
|
Continuing
|
|
(203
|
)
|
|
|
(64,477
|
)
|
|
|
(4,550
|
)
|
|
|
(71,570
|
)
|
|
|
|
Discontinued
|
|
-
|
|
|
|
1,505
|
|
|
|
-
|
|
|
|
3,424
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator for basic (loss) earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
weighted-average common shares outstanding
|
|
55,985
|
|
|
|
55,973
|
|
|
|
55,985
|
|
|
|
55,962
|
|
|
|
|
Stock options
|
|
-
|
|
|
|
21
|
|
|
|
-
|
|
|
|
36
|
|
|
|
|
Denominator for diluted (loss) earnings per share: adjusted weighted average common shares outstanding and assuming conversion
|
|
55,985
|
|
|
|
55,994
|
|
|
|
55,985
|
|
|
|
55,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
$
|
(0.00
|
)
|
|
$
|
(1.13
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(1.22
|
)
|
|
|
|
Continuing
|
$
|
(0.00
|
)
|
|
$
|
(1.16
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(1.28
|
)
|
|
|
|
Discontinued
|
$
|
-
|
|
|
$
|
0.03
|
|
|
$
|
-
|
|
|
$
|
0.06
|
|
|
Diluted
|
$
|
(0.00
|
)
|
|
$
|
(1.12
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(1.22
|
)
|
|
|
|
Continuing
|
$
|
(0.00
|
)
|
|
$
|
(1.15
|
)
|
|
$
|
(0.08
|
)
|
|
$
|
(1.28
|
)
|
|
|
|
Discontinued
|
$
|
-
|
|
|
$
|
0.03
|
|
|
$
|
-
|
|
|
$
|
0.06
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Calculation 1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted-average common shares outstanding (A)
|
|
55,985
|
|
|
|
55,973
|
|
|
|
55,985
|
|
|
|
55,962
|
|
|
Basic weighted-average common shares outstanding and unvested restricted shares expected to vest (B)
|
|
56,568
|
|
|
|
56,834
|
|
|
|
56,568
|
|
|
|
56,778
|
|
|
Percent allocated to common shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(A) / (B)
|
|
99%
|
|
|
|
98%
|
|
|
|
99%
|
|
|
|
99%
|
|
|
Options to purchase 1,425,579 shares of the Company's common stock at prices ranging from $3.07 to $11.23 per share were outstanding during the three and six months ended December 31, 2019, respectively, but were not included in the computation of diluted (loss) earnings per share because the options' exercise price was greater than the average market price of the Company's common stock. Options to purchase 1,166,554 and 503,698 shares of the Company's common stock at prices ranging from $6.20 to $13.16 per share and $8.75 to $13.16 per share were outstanding during the three and six months ended December 31, 2018, respectively, but were not included in the computation of diluted (loss) earnings per share because the options' exercise price was greater than the average market price of the Company's common stock. The options, which expire at various dates through October 14, 2029, were still outstanding as of December 31, 2019.
16. Supplemental cash flow information
The following table presents supplemental cash flow disclosures for the three and six months ended December 31, 2019, and 2018:
|
|
Three months ended
|
|
Six months ended
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash received from interest
|
$
|
1,042
|
|
$
|
1,285
|
|
$
|
1,779
|
|
$
|
3,362
|
|
Cash paid for interest
|
$
|
2,293
|
|
$
|
2,588
|
|
$
|
3,107
|
|
$
|
5,654
|
|
Cash paid for income taxes
|
$
|
2,004
|
|
$
|
8,779
|
|
$
|
3,887
|
|
$
|
10,122
|
|
Leases
The following table presents supplemental cash flow disclosure related to leases for the three and six months ended December 31, 2019:
|
|
December 31, 2019
|
|
|
|
Three
months
ended
|
|
|
Six
months
ended
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
|
|
|
|
Operating cash flows from operating leases
|
$
|
1,108
|
|
$
|
2,028
|
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange of lease obligations
|
|
|
|
|
|
|
Operating leases
|
$
|
2,260
|
|
$
|
2,490
|
|
17. Revenue recognition
Disaggregation of revenue
The following table presents our revenue disaggregated by major revenue streams, including a reconciliation to operating segments for the three months ended December 31, 2019:
|
|
|
|
South Africa
|
|
|
Korea
|
|
|
Rest of the world
|
|
|
Total
|
|
South African transaction processing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Processing fees
|
$
|
17,035
|
|
$
|
-
|
|
$
|
-
|
|
$
|
17,035
|
|
|
Other
|
|
1,136
|
|
|
-
|
|
|
-
|
|
|
1,136
|
|
|
|
Subtotal
|
|
18,171
|
|
|
-
|
|
|
-
|
|
|
18,171
|
|
International transaction processing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Processing fees
|
|
-
|
|
|
32,000
|
|
|
851
|
|
|
32,851
|
|
|
Other
|
|
-
|
|
|
1,512
|
|
|
-
|
|
|
1,512
|
|
|
|
Subtotal
|
|
-
|
|
|
33,512
|
|
|
851
|
|
|
34,363
|
|
Financial inclusion and applied technologies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telecom products and services
|
|
6,639
|
|
|
-
|
|
|
-
|
|
|
6,639
|
|
|
Account holder fees
|
|
3,103
|
|
|
-
|
|
|
-
|
|
|
3,103
|
|
|
Lending revenue
|
|
5,384
|
|
|
-
|
|
|
-
|
|
|
5,384
|
|
|
Technology products
|
|
5,042
|
|
|
-
|
|
|
-
|
|
|
5,042
|
|
|
Insurance revenue
|
|
1,372
|
|
|
-
|
|
|
-
|
|
|
1,372
|
|
|
Other
|
|
6
|
|
|
-
|
|
|
-
|
|
|
6
|
|
|
|
Subtotal
|
|
21,546
|
|
|
-
|
|
|
-
|
|
|
21,546
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
39,717
|
|
$
|
33,512
|
|
$
|
851
|
|
$
|
74,080
|
|
17. Revenue recognition (continued)
Disaggregation of revenue
The following table presents our revenue disaggregated by major revenue streams, including a reconciliation to operating segments for the three months ended December 31, 2018:
|
|
|
|
South Africa
|
|
|
Korea
|
|
|
Rest of the world
|
|
|
Total
|
|
South African transaction processing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Processing fees
|
$
|
19,031
|
|
$
|
-
|
|
$
|
-
|
|
$
|
19,031
|
|
|
Other
|
|
1,772
|
|
|
-
|
|
|
-
|
|
|
1,772
|
|
|
|
Subtotal
|
|
20,803
|
|
|
-
|
|
|
-
|
|
|
20,803
|
|
International transaction processing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Processing fees
|
|
-
|
|
|
34,382
|
|
|
2,543
|
|
|
36,925
|
|
|
Other
|
|
-
|
|
|
1,018
|
|
|
181
|
|
|
1,199
|
|
|
|
Subtotal
|
|
-
|
|
|
35,400
|
|
|
2,724
|
|
|
38,124
|
|
Financial inclusion and applied technologies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telecom products and services
|
|
3,027
|
|
|
-
|
|
|
-
|
|
|
3,027
|
|
|
Account holder fees
|
|
3,140
|
|
|
-
|
|
|
-
|
|
|
3,140
|
|
|
Lending revenue
|
|
5,969
|
|
|
-
|
|
|
-
|
|
|
5,969
|
|
|
Technology products
|
|
4,913
|
|
|
-
|
|
|
-
|
|
|
4,913
|
|
|
Insurance revenue
|
|
1,306
|
|
|
-
|
|
|
-
|
|
|
1,306
|
|
|
Other
|
|
4,160
|
|
|
-
|
|
|
-
|
|
|
4,160
|
|
|
|
Subtotal
|
|
18,515
|
|
|
-
|
|
|
-
|
|
|
18,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
39,318
|
|
$
|
35,400
|
|
$
|
2,724
|
|
$
|
77,442
|
|
The following table presents our revenue disaggregated by major revenue streams, including a reconciliation to operating segments for the six months ended December 31, 2019:
|
|
|
|
South Africa
|
|
|
Korea
|
|
|
Rest of the world
|
|
|
Total
|
|
South African transaction processing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Processing fees
|
$
|
33,001
|
|
$
|
-
|
|
$
|
-
|
|
$
|
33,001
|
|
|
Other
|
|
2,369
|
|
|
-
|
|
|
-
|
|
|
2,369
|
|
|
|
Subtotal
|
|
35,370
|
|
|
-
|
|
|
-
|
|
|
35,370
|
|
International transaction processing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Processing fees
|
|
-
|
|
|
63,197
|
|
|
2,050
|
|
|
65,247
|
|
|
Other
|
|
-
|
|
|
3,133
|
|
|
-
|
|
|
3,133
|
|
|
|
Subtotal
|
|
-
|
|
|
66,330
|
|
|
2,050
|
|
|
68,380
|
|
Financial services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telecom products and services
|
|
15,933
|
|
|
-
|
|
|
-
|
|
|
15,933
|
|
|
Account holder fees
|
|
8,363
|
|
|
-
|
|
|
-
|
|
|
8,363
|
|
|
Lending revenue
|
|
10,538
|
|
|
-
|
|
|
-
|
|
|
10,538
|
|
|
Technology products
|
|
12,176
|
|
|
-
|
|
|
-
|
|
|
12,176
|
|
|
Insurance revenue
|
|
2,758
|
|
|
-
|
|
|
-
|
|
|
2,758
|
|
|
Other
|
|
1,318
|
|
|
-
|
|
|
-
|
|
|
1,318
|
|
|
|
Subtotal
|
|
51,086
|
|
|
-
|
|
|
-
|
|
|
51,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
86,456
|
|
$
|
66,330
|
|
$
|
2,050
|
|
$
|
154,836
|
|
17. Revenue recognition (continued)
Disaggregation of revenue (continued)
The following table presents our revenue disaggregated by major revenue streams, including a reconciliation to operating segments for the six months ended December 31, 2018:
|
|
|
|
South Africa
|
|
|
Korea
|
|
|
Rest of the world
|
|
|
Total
|
|
South African transaction processing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Processing fees
|
$
|
49,260
|
|
$
|
-
|
|
$
|
-
|
|
$
|
49,260
|
|
|
Welfare benefit distributions
|
|
3,086
|
|
|
-
|
|
|
-
|
|
|
3,086
|
|
|
Other
|
|
2,920
|
|
|
-
|
|
|
-
|
|
|
2,920
|
|
|
|
Subtotal
|
|
55,266
|
|
|
-
|
|
|
-
|
|
|
55,266
|
|
International transaction processing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Processing fees
|
|
-
|
|
|
68,971
|
|
|
5,198
|
|
|
74,169
|
|
|
Other
|
|
-
|
|
|
2,980
|
|
|
362
|
|
|
3,342
|
|
|
|
Subtotal
|
|
-
|
|
|
71,951
|
|
|
5,560
|
|
|
77,511
|
|
Financial services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Telecom products and services
|
|
7,943
|
|
|
-
|
|
|
-
|
|
|
7,943
|
|
|
Account holder fees
|
|
13,745
|
|
|
-
|
|
|
-
|
|
|
13,745
|
|
|
Lending revenue
|
|
15,946
|
|
|
-
|
|
|
-
|
|
|
15,946
|
|
|
Technology products
|
|
9,941
|
|
|
-
|
|
|
-
|
|
|
9,941
|
|
|
Insurance revenue
|
|
3,821
|
|
|
-
|
|
|
-
|
|
|
3,821
|
|
|
Other
|
|
366
|
|
|
-
|
|
|
-
|
|
|
366
|
|
|
|
Subtotal
|
|
51,762
|
|
|
-
|
|
|
-
|
|
|
51,762
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
107,028
|
|
$
|
71,951
|
|
$
|
5,560
|
|
$
|
184,539
|
|
18. Leases
The Company elected to adopt the new lease guidance utilizing the modified retrospective approach therefore prior periods were not adjusted. The Company was not required to record a cumulative-effect adjustment to opening retained earnings as of July 1, 2019. The Company applied the package of three practical expedients available, which included the following (i) an entity need not reassess expired or existing contracts which are or contain leases (ii) an entity need not reassess the lease classification for any expired or existing leases, and (iii) an entity need not reassess initial direct costs for any existing leases. The Company also elected to not recognize right-of-use assets and lease liabilities for leases with a term of less than twelve months and to account for all components in a lease arrangement as a single combined lease component.
The Company has entered into leasing arrangements classified as operating leases under accounting guidance. These leasing arrangements relate primarily to the lease of our corporate head office, administration offices and branch locations through which the Company operates its financial services business in South Africa. The Company's operating leases have a remaining lease term of between one to five years. We also operate parts of our financial services business from locations which we lease for a period of less than one year. The Company's operating lease expense during the three and six months ended December 31, 2019, was $1.1 million and $2.0 million, respectively. The Company does not have any significant leases that have not commenced as of December 31, 2019.
18. Leases (continued)
The following table presents supplemental balance sheet disclosure related to our right-of-use assets and our operating lease liabilities as of December 31, 2019 and July 1, 2019, the date of adoption of the new lease guidance (refer to Note 1):
|
|
December 31,
|
|
|
|
July 1,
|
|
|
|
|
2019
|
|
|
|
2019
|
|
Operating lease right-of-use
|
|
$
|
7,838
|
|
|
$
|
6,739
|
|
Weighted average remaining lease term (years)
|
|
|
3.60
|
|
|
|
2.51
|
|
Weighted average discount rate
|
|
|
10%
|
|
|
|
10%
|
|
|
|
|
|
|
|
|
|
|
Maturities of operating lease liabilities
|
|
|
|
|
|
|
|
|
2020 (for December 31, 2019 excluding six months to December 31, 2019)
|
|
$
|
2,334
|
|
|
$
|
3,608
|
|
2021
|
|
|
3,281
|
|
|
|
2,395
|
|
2022
|
|
|
1,850
|
|
|
|
1,269
|
|
2023
|
|
|
1,011
|
|
|
|
454
|
|
2024
|
|
|
598
|
|
|
|
-
|
|
Thereafter
|
|
|
204
|
|
|
|
-
|
|
Total undiscounted operating lease liabilities
|
|
|
9,278
|
|
|
|
7,726
|
|
Less imputed interest
|
|
|
1,245
|
|
|
|
842
|
|
Total operating lease liabilities, included in
|
|
|
8,033
|
|
|
|
6,884
|
|
Operating lease right-of-use lease liability - current
|
|
|
3,534
|
|
|
|
5,098
|
|
Right-of-use operating lease liability - long-term
|
|
$
|
4,499
|
|
|
$
|
1,786
|
|
19. Operating segments
The Company discloses segment information as reflected in the management information systems reports that its chief operating decision maker uses in making decisions and to report certain entity-wide disclosures about products and services, major customers, and the countries in which the entity holds material assets or reports material revenues. A description of the Company's operating segments is contained in Note 21 to the Company's audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2019. As discussed in Note 22, the Company has presented DNI as a discontinued operation.
The reconciliation of the reportable segment's revenue to revenue from external customers for the three months ended December 31, 2019 and 2018, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
Reportable Segment
|
|
|
Inter-segment
|
|
|
From external customers
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
$
|
20,350
|
|
$
|
2,179
|
|
$
|
18,171
|
|
International transaction processing
|
|
34,363
|
|
|
-
|
|
|
34,363
|
|
Financial services
|
|
21,986
|
|
|
440
|
|
|
21,546
|
|
|
Total for the three months ended December 31, 2019
|
$
|
76,699
|
|
$
|
2,619
|
|
$
|
74,080
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
$
|
21,970
|
|
$
|
1,167
|
|
$
|
20,803
|
|
International transaction processing
|
|
38,124
|
|
|
-
|
|
|
38,124
|
|
Financial services
|
|
38,755
|
|
|
532
|
|
|
38,223
|
|
|
Continuing
|
|
19,047
|
|
|
532
|
|
|
18,515
|
|
|
Discontinued
|
|
19,708
|
|
|
-
|
|
|
19,708
|
|
|
Total for the three months ended December 31, 2018
|
|
98,849
|
|
|
1,699
|
|
|
97,150
|
|
|
Continuing
|
|
79,141
|
|
|
1,699
|
|
|
77,442
|
|
|
Discontinued
|
$
|
19,708
|
|
$
|
-
|
|
$
|
19,708
|
|
19. Operating segments
The reconciliation of the reportable segment's revenue to revenue from external customers for the six months ended December 31, 2019 and 2018, is as follows:
|
|
|
Revenue
|
|
|
|
|
Reportable Segment
|
|
|
Inter-segment
|
|
|
From external customers
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
$
|
39,749
|
|
$
|
4,379
|
|
$
|
35,370
|
|
International transaction processing
|
|
68,380
|
|
|
-
|
|
|
68,380
|
|
Financial services
|
|
52,131
|
|
|
1,045
|
|
|
51,086
|
|
|
Total for the six months ended December 31, 2019
|
$
|
160,260
|
|
$
|
5,424
|
|
$
|
154,836
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
$
|
59,719
|
|
$
|
4,453
|
|
$
|
55,266
|
|
International transaction processing
|
|
77,511
|
|
|
-
|
|
|
77,511
|
|
Financial services
|
|
91,961
|
|
|
1,704
|
|
|
90,257
|
|
|
Continuing
|
|
53,466
|
|
|
1,704
|
|
|
51,762
|
|
|
Discontinued
|
|
38,495
|
|
|
-
|
|
|
38,495
|
|
|
Total for the six months ended December 31, 2018
|
|
229,191
|
|
|
6,157
|
|
|
223,034
|
|
|
Continuing
|
|
190,696
|
|
|
6,157
|
|
|
184,539
|
|
|
Discontinued
|
$
|
38,495
|
|
$
|
-
|
|
$
|
38,495
|
|
The Company does not allocate interest income, interest expense or income tax expense to its reportable segments. The Company evaluates segment performance based on segment operating income before acquisition-related intangible asset amortization which represents operating income before acquisition-related intangible asset amortization and allocation of expenses allocated to Corporate/Eliminations, all under GAAP.
The reconciliation of the reportable segments measures of profit or loss to income before income taxes for the three and six months ended December 31, 2019 and 2018, is as follows:
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reportable segments measure of profit or loss
|
$
|
(1,048
|
)
|
$
|
(34,411
|
)
|
$
|
858
|
|
$
|
(23,860
|
)
|
|
Less: Discontinued operations: reportable segments measure of profit or loss
|
|
-
|
|
|
(8,429
|
)
|
|
-
|
|
|
(16,261
|
)
|
|
Continuing operations: reportable segments measure of profit or loss
|
|
(1,048
|
)
|
|
(42,840
|
)
|
|
858
|
|
|
(40,121
|
)
|
|
Continuing operations: Operating income - Corporate/Eliminations
|
|
(5,806
|
)
|
|
(6,061
|
)
|
|
(10,446
|
)
|
|
(13,066
|
)
|
|
Change in fair value of equity securities
|
|
-
|
|
|
(15,836
|
)
|
|
-
|
|
|
(15,836
|
)
|
|
Gain on disposal of FIHRST
|
|
9,743
|
|
|
-
|
|
|
9,743
|
|
|
-
|
|
|
Interest income
|
|
1,343
|
|
|
2,177
|
|
|
1,994
|
|
|
4,277
|
|
|
Interest expense
|
|
(3,221
|
)
|
|
(2,563
|
)
|
|
(4,576
|
)
|
|
(5,537
|
)
|
|
Impairment of Cedar Cellular Note
|
|
-
|
|
|
(2,732
|
)
|
|
-
|
|
|
(2,732
|
)
|
|
|
Income (Loss) before income taxes
|
$
|
1,011
|
|
$
|
(67,855
|
)
|
$
|
(2,427
|
)
|
$
|
(73,098
|
)
|
19. Operating segments (continued)
The following tables summarize segment information that is prepared in accordance with GAAP for the three and six months ended December 31, 2019 and 2018, with the impact of the deconsolidation of DNI included in discontinued operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended
|
|
|
|
Six months ended
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
|
|
2018
|
|
|
|
2019
|
|
|
|
2018
|
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
$
|
20,350
|
|
|
$
|
21,970
|
|
|
$
|
39,749
|
|
|
$
|
59,719
|
|
|
International transaction processing
|
|
34,363
|
|
|
|
38,124
|
|
|
|
68,380
|
|
|
|
77,511
|
|
|
Financial services
|
|
21,986
|
|
|
|
38,755
|
|
|
|
52,131
|
|
|
|
91,961
|
|
|
|
|
Continuing
|
|
21,986
|
|
|
|
19,047
|
|
|
|
52,131
|
|
|
|
53,466
|
|
|
|
|
Discontinued
|
|
-
|
|
|
|
19,708
|
|
|
|
-
|
|
|
|
38,495
|
|
|
|
|
|
|
Total
|
|
76,699
|
|
|
|
98,849
|
|
|
|
160,260
|
|
|
|
229,191
|
|
|
|
|
|
|
|
|
Continuing
|
|
76,699
|
|
|
|
79,141
|
|
|
|
160,260
|
|
|
|
190,696
|
|
|
|
|
|
|
|
|
Discontinued
|
|
-
|
|
|
|
19,708
|
|
|
|
-
|
|
|
|
38,495
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating (loss) income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
|
(2,981
|
)
|
|
|
(11,830
|
)
|
|
|
(6,366
|
)
|
|
|
(15,343
|
)
|
|
International transaction processing
|
|
2,811
|
|
|
|
(4,043
|
)
|
|
|
6,601
|
|
|
|
(1,281
|
)
|
|
Financial services
|
|
(878
|
)
|
|
|
(18,538
|
)
|
|
|
623
|
|
|
|
(7,236
|
)
|
|
|
|
Continuing
|
|
(878
|
)
|
|
|
(26,967
|
)
|
|
|
623
|
|
|
|
(23,497
|
)
|
|
|
|
Discontinued
|
|
-
|
|
|
|
8,429
|
|
|
|
-
|
|
|
|
16,261
|
|
|
|
|
|
Subtotal: Operating segments
|
|
(1,048
|
)
|
|
|
(34,411
|
)
|
|
|
858
|
|
|
|
(23,860
|
)
|
|
|
|
|
Corporate/Eliminations
|
|
(5,806
|
)
|
|
|
(8,664
|
)
|
|
|
(10,446
|
)
|
|
|
(18,319
|
)
|
|
|
|
|
|
Continuing
|
|
(5,806
|
)
|
|
|
(6,061
|
)
|
|
|
(10,446
|
)
|
|
|
(13,066
|
)
|
|
|
|
|
|
Discontinued
|
|
-
|
|
|
|
(2,603
|
)
|
|
|
-
|
|
|
|
(5,253
|
)
|
|
|
|
|
|
|
Total
|
|
(6,854
|
)
|
|
|
(43,075
|
)
|
|
|
(9,588
|
)
|
|
|
(42,179
|
)
|
|
|
|
|
|
|
|
Continuing
|
|
(6,854
|
)
|
|
|
(48,901
|
)
|
|
|
(9,588
|
)
|
|
|
(53,187
|
)
|
|
|
|
|
|
|
|
Discontinued
|
|
-
|
|
|
|
5,826
|
|
|
|
-
|
|
|
|
11,008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
|
664
|
|
|
|
921
|
|
|
|
1,325
|
|
|
|
1,862
|
|
|
International transaction processing
|
|
1,481
|
|
|
|
2,511
|
|
|
|
3,377
|
|
|
|
5,570
|
|
|
Financial services
|
|
383
|
|
|
|
405
|
|
|
|
767
|
|
|
|
1,041
|
|
|
|
|
Continuing
|
|
383
|
|
|
|
346
|
|
|
|
767
|
|
|
|
695
|
|
|
|
|
Discontinued
|
|
-
|
|
|
|
59
|
|
|
|
-
|
|
|
|
346
|
|
|
|
|
|
Subtotal: Operating segments
|
|
2,528
|
|
|
|
3,837
|
|
|
|
5,469
|
|
|
|
8,473
|
|
|
|
|
|
Corporate/Eliminations
|
|
1,853
|
|
|
|
6,016
|
|
|
|
3,677
|
|
|
|
12,174
|
|
|
|
|
|
|
Continuing
|
|
1,853
|
|
|
|
3,413
|
|
|
|
3,677
|
|
|
|
6,921
|
|
|
|
|
|
|
Discontinued
|
|
-
|
|
|
|
2,603
|
|
|
|
-
|
|
|
|
5,253
|
|
|
|
|
|
|
|
Total
|
|
4,381
|
|
|
|
9,853
|
|
|
|
9,146
|
|
|
|
20,647
|
|
|
|
|
|
|
|
|
Continuing
|
|
4,381
|
|
|
|
7,191
|
|
|
|
9,146
|
|
|
|
15,048
|
|
|
|
|
|
|
|
|
Discontinued
|
|
-
|
|
|
|
2,662
|
|
|
|
-
|
|
|
|
5,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditures for long-lived assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South African transaction processing
|
|
157
|
|
|
|
1,047
|
|
|
|
2,021
|
|
|
|
2,333
|
|
|
International transaction processing
|
|
616
|
|
|
|
841
|
|
|
|
1,293
|
|
|
|
1,641
|
|
|
Financial services
|
|
54
|
|
|
|
659
|
|
|
|
137
|
|
|
|
1,691
|
|
|
|
|
Continuing
|
|
54
|
|
|
|
475
|
|
|
|
137
|
|
|
|
1,368
|
|
|
|
|
Discontinued
|
|
-
|
|
|
|
184
|
|
|
|
-
|
|
|
|
323
|
|
|
|
|
|
Subtotal: Operating segments
|
|
827
|
|
|
|
2,547
|
|
|
|
3,451
|
|
|
|
5,665
|
|
|
|
|
|
Corporate/Eliminations
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
Total
|
|
827
|
|
|
|
2,547
|
|
|
|
3,451
|
|
|
|
5,665
|
|
|
|
|
|
|
|
|
Continuing
|
|
827
|
|
|
|
2,363
|
|
|
|
3,451
|
|
|
|
5,342
|
|
|
|
|
|
|
|
|
Discontinued
|
$
|
-
|
|
|
$
|
184
|
|
|
$
|
-
|
|
|
$
|
323
|
|
19. Operating segments (continued)
The segment information as reviewed by the chief operating decision maker does not include a measure of segment assets per segment as all of the significant assets are used in the operations of all, rather than any one, of the segments. The Company does not have dedicated assets assigned to a particular operating segment. Accordingly, it is not meaningful to attempt an arbitrary allocation and segment asset allocation is therefore not presented.
20. Income tax
Income tax in interim periods
For the purposes of interim financial reporting, the Company determines the appropriate income tax provision by first applying the effective tax rate expected to be applicable for the full fiscal year to ordinary income. This amount is then adjusted for the tax effect of significant unusual items, for instance, changes in tax law, valuation allowances and non-deductible transaction-related expenses that are reported separately, and have an impact on the tax charge. The cumulative effect of any change in the enacted tax rate, if and when applicable, on the opening balance of deferred tax assets and liabilities is also included in the tax charge as a discrete event in the interim period in which the enactment date occurs.
For the three and six months ended December 31, 2019, the Company's effective tax rate was impacted by the on-going losses incurred by certain of its South African businesses and the associated valuation allowances created related to the deferred tax assets recognized regarding net operating losses incurred by the Company's South African businesses and non-deductible expenses, including transaction-related expenditure, which was partially offset by tax expense recorded by the Company's profitable businesses in South Africa and South Korea.
For the three and six months ended December 31, 2018, the Company's effective tax rate was adversely impacted by the valuation allowances created related to the deferred tax assets recognized regarding net operating losses incurred by the Company's South African businesses, the non-deductible goodwill impairment losses, and non-deductible expenses, including transaction-related expenditure and non-deductible interest on its South African long-term debt facility, which was partially offset by tax expense recorded by the Company's profitable businesses in South Africa and South Korea. The deferred tax impact of the change in the fair value of the Company's equity security also impacted the Company's effective rate for fiscal 2019, as this amount is recorded at a lower rate (at a capital gains rate) than the South African statutory rate.
Uncertain tax positions
There were no significant changes in the Company's uncertain tax positions during the three and six months ended December 31, 2019. As of December 31, 2019, the Company had accrued interest related to uncertain tax positions of approximately $0.1 million on its balance sheet.
The Company does not expect changes related to its unrecognized tax benefits will have a significant impact on its results of operations or financial position in the next 12 months.
As of December 31, 2019 and June 30, 2019, the Company had unrecognized tax benefits of $1.6 million and $1.2 million, respectively, all of which would impact the Company's effective tax rate. The Company files income tax returns mainly in South Africa, South Korea, Germany, Hong Kong, India, the United Kingdom, Botswana and in the U.S. federal jurisdiction. As of December 31, 2019, the Company's South African subsidiaries are no longer subject to income tax examination by the South African Revenue Service for periods before June 30, 2016. The Company is subject to income tax in other jurisdictions outside South Africa, none of which are individually material to its financial position, statement of cash flows, or results of operations
21. Commitments and contingencies
Guarantees
The South African Revenue Service and certain of the Company's customers, suppliers and other business partners have asked the Company to provide them with guarantees, including standby letters of credit, issued by a South African bank. The Company is required to procure these guarantees for these third parties to operate its business.
Nedbank has issued guarantees to these third parties amounting to ZAR 93.6 million ($6.7 million, translated at exchange rates applicable as of December 31, 2019) and thereby utilizing part of the Company's short-term facility. The Company in turn has provided nonrecourse, unsecured counter-guarantees to Nedbank for ZAR 93.6 million ($6.7 million, translated at exchange rates applicable as of December 31, 2019). The Company pays commission of between 0.4% per annum to 1.94% per annum of the face value of these guarantees and does not recover any of the commission from third parties.
21. Commitments and contingencies (continued)
The Company has not recognized any obligation related to these counter-guarantees in its consolidated balance sheet as of December 31, 2019. The maximum potential amount that the Company could pay under these guarantees is ZAR 93.6 million ($6.7 million, translated at exchange rates applicable as of December 31, 2019). The guarantees have reduced the amount available for borrowings under the Company's short-term credit facility described in Note 10.
Contingencies
The Company is subject to a variety of other insignificant claims and suits that arise from time to time in the ordinary course of business. Management currently believes that the resolution of these other matters, individually or in the aggregate, will not have a material adverse impact on the Company's financial position, results of operations or cash flows.
22. Discontinued operation - DNI
The Company determined that the disposal of its controlling interest in DNI is a discontinued operation because it represented a strategic shift that will have a major effect on the Company’s operations and financial results as a result of the sale of a significant portion of its investment in DNI. Refer to Note 3 to the Company’s audited consolidated financial statements included in its Annual Report on Form 10-K for the year ended June 30, 2019, for additional information regarding the deconsolidation of DNI. The table below presents certain major captions to the Company’s unaudited condensed consolidated statement of operations and unaudited condensed consolidated statement of cash flows for three and six months ended December 31, 2018, that have not been separately presented on those statements:
DNI
|
|
|
|
December 31, 2018
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
Unaudited condensed consolidated statement of operations
|
|
|
|
|
|
|
Discontinued:
|
|
|
|
|
|
|
Revenue
|
$
|
19,708
|
|
$
|
38,495
|
|
Cost of goods sold, IT processing, servicing and support
|
|
9,954
|
|
|
20,166
|
|
Selling, general and administration
|
|
1,266
|
|
|
1,722
|
|
Depreciation and amortization
|
|
2,662
|
|
|
5,599
|
|
Operating income
|
|
5,826
|
|
|
11,008
|
|
Interest income
|
|
224
|
|
|
499
|
|
Interest expense
|
|
215
|
|
|
416
|
|
Net income before tax
|
|
5,835
|
|
|
11,091
|
|
Income tax expense
|
|
2,100
|
|
|
3,615
|
|
Net income before earnings from equity-accounted investments
|
|
3,735
|
|
|
7,476
|
|
Earnings from equity-accounted investments (1)
|
|
44
|
|
|
(58
|
)
|
Net income from discontinued operations
|
$
|
3,779
|
|
$
|
7,418
|
|
|
|
|
|
|
|
|
Unaudited condensed consolidated statement of cash flows
|
|
|
|
|
|
|
Discontinued:
|
|
|
|
|
|
|
Total net cash (used in) provided by operating activities
|
$
|
10,546
|
|
$
|
7,028
|
|
Total net cash (used in) provided by investing activities
|
|
(172
|
)
|
|
(197
|
)
|
(1) Earnings from equity-accounted investments for the three and six months ended December 31, 2018, represents earnings attributed to equity-accounted investments owned by DNI and included in the Company's results as a result of the consolidation of DNI.
|
|
22. Discontinued operation - DNI (continued)
The Company retained a continuing involvement in DNI through its 30% interest in DNI (refer to Note 7). The Company expects to retain an interest in DNI for less than 12 months. The Company recorded earnings under the equity method related to its retained investment in DNI during the three and six months ended December 31, 2019, refer to Note 7. The table below presents revenues and expenses between the Company and DNI, after the DNI disposal transaction, during the three and six months ended December 31, 2019:
DNI
|
|
|
|
December 31, 2019
|
|
|
|
Three months ended
|
|
|
Six months ended
|
|
Revenue generated from transactions with DNI
|
$
|
-
|
|
$
|
-
|
|
Expenses incurred related to transactions with DNI
|
$
|
333
|
|
$
|
2,607
|
|
Refer to Note 7 for the dividends received from DNI and accounted for under the equity method during the six months ended December 31, 2019.